Introduction The current belief in the decline of the nation-state aided by the rising power and mobility of multinational

corporations is subject to debate. In fact the argument proposed here is in direct challenge to the claim that increased corporate power and mobility has weakened national state power. The nation state historically has held great power in controlling the ability of corporations to access international markets through its economic policy and thus corporations have long been subject to state power. This essay will provide the argument in a structure that considers the historic connection between corporations and states as well as looks at the role of the nation state and the extent of the impacts of globalization on current corporate-state relations. This will lead to an evaluation of what potential role domestic economic policy can play in the international market and will require an examination of the link between corporate power and mobility and consideration of the extant to which multinational corporation are in fact mobile. Can a corporation just pack up and move or is its mobility regulated by nation states? In answering this question the ability of states to limit corporate power and mobility will be evaluated as will the extent to which corporations can undermine state power. The desire for foreign direct investment will also be considered in this section and its impact on influencing a countries domestic economic policy. This will all be connected in the final section which will deliberate on the link between state and corporation asking whether or not corporations are in effect extensions of nation states and judge to what extent multinational corporation have a life of their own. The rise of the Multinational Corporation The monopolistic quasi-government like international corporations as the likes of the Dutch East India Company or the Royal Africa Company categorizes the old international division of labor. It was only at the end of the sixteenth century that for the first time, the corporate form was used in risky for profit ventures. (McLean, Janet, 2004: 3). Prior to this, corporations were government established public institutions with guilds, universities and even households falling under the legal definition of the corporate form (A. W. Brian Simpson, 2004: 1591). Most of the corporations similar to todays idea of MNCs were established to facilitate overseas trade and were granted monopoly powers by their respective governments. The English corporations were typically granted a monopoly over English trade that encompassed specified territory abroad. Additionally, the corporations received power to protect their monopoly and rights over English subjects within the territory. (McLean, Janet, 2004: 3). These corporations were in effect extensions of nation-state sovereignty but funded by private investment. Governments allowed these corporations certain rights and leniencies to encourage investment from gentry. This shareholder corporate model was the foundation for todays MNCs. Arguably corporations have deviated significantly from those origins as the line between private and public became more definitive. The dividing line between what is considered the realm of the state and the real of the capitalist is never the less still not enough to state that one doesnt directly influence the other.

However does the rise of one mean the weakening of the other and how is this balance of power affected by corporate power and mobility. The current belief is that due to the new trend of Globalization post World War II a decrease in state power has occurred. That just is not the case as exemplified earlier. It can be argued that Globalization is not dissimilar to colonization. Linda Weiss (1997:5) proposes the existence prior to 1913 of trade and capital flows is not dissimilar in size to flows in the recent post-war period and goes further to point out that ratios of export trade to GDP in 1913 may actually have exceeded the level reached in 1973. Taking into account, for example the ration of exports as a percentage of the estimated GDP it is evident that the integration of the world economy at the beginning of the last century is relatively similar as at the turn of this century. For example, in 1900 the percentage of exports relative to GDP in the UK was 14.9% and in 1913 equated to 20.9% while in 2000 it reached 28% and remained so in 2009, the USA is another example of this with exports to GDP in 1900 reaching 7.5%, in 1913, 6.1%, and in 2000 and 2009 remaining a constant 11%. Japan experienced the same relative figures with 8.3% in 1900, 12.3% in 1913 and 11% in 2000 and 13% in 2009. The point here is that while economic openness and corporate and capital mobility are not necessarily a new issue, what is new is the argument that the decline of State involvement in and ultimately power over the market is linked to this international economic integration. Corporate power versus national State sovereignty Today, as in the 1800 the most powerful corporations were and still are granted their power over the international market by the nation-states. Guido Bertucci and Adriana Alberti (2003: 9) express in their paper Globalization and the Role of the Sate the opinion that the state remains the key actor in the domestic as well as international arenas. The popular assumption that the increasing level of cross-border trade, finance and investment flows turn the nation-state into an anachronism is wrong it is still individual governments that set the policies and the rules of the globalized economy, as opposed to Corporations, through policy decisions that allow global market forces to operate(Bertucci, G. and A. Alberti 2003:2) It was the economic liberalist policies of the 1980s that facilitated global economic integration and it was the Keynesian economic policies pre 1970, which helped to weaken financial integration and strengthen autonomy in policy matters (Weiss, L. 1997:7). The ability of the nation-state to dictate the openness of global market, through taxes, tariffs and restrictions is an example of the continued sovereignty that nation-sates have exercised and will continue to exercise over the international arena to limit corporate power and mobility. The two major examples of how Corporations supposedly undermine state power are proposed to deal specifically with Foreign Direct Investment and capital mobility. The argument is that while it is nation-states that set policies that regulate the international market, these policies and decisions are directly influenced by the desire for FDI and the threat of capital mobility. There is an

inextricable connection between corporate power and corporate mobility one aiding the other. As a company becomes more profitable its ability to relocate production and dictate the terms of the game increases and vice versus, the more mobile a company is able to be, the more leverage it has in negotiation with the host-state, dependant on the host nation-states dependency on the employment and investment that corporation provides within this host state. Most notable is the argument that to attract FDI nation-states are pinned against each other in a race to lower labor and production costs, sacrificing the standard of living and its own sovereignty over its domestic market in the process. This race to the bottom is attributed to the weakened nation state due to increased corporate power. The issue with this argument is in the type of FDI that the nation state is attracted to. Developing countries are not seeking more private flows per se; rather, they seek to attract investment to advance their development efforts with a view to building local productive capacity in the real economy. (UN Secretary-General, 2000). It is easy to make the argument that the desire for FDI is influencing policy decisions when the assumptions are based on aggregate FDI figures. The issue with relying on such FDI measures distorts real investment figures and impacts of FDI. Thus with a more disaggregated approach to the investment figures, we can therefore see why FDI does not automatically extend economic linkages, especially in those areas of multinational economic activity that might have a direct bearing on state policies (Weiss, L. 1997:7). Firstly the rise of FDI in non-manufacturing ventures must be considered. The global shift of directing FDI into non-productive ventures is influencing the power FDI is said to hold over nation-state domestic policy designs. The underlying assumption is that nation-state dependency on the possibility of job creation through production directed FDI is the major policy influencer. Nationstates desire for FDI inflow which will increase production in manufacturing and employment possibilities just does not correspond with the current FDI trend towards services and speculative ventures, namely real estate, hotels, banking and insurance. This trend is most obvious when considering figures for the major investor in production in the Southeast. Around two-thirds of Japanese FDI is directed towards non-production based ventures. In 2008 the figure was at US$ 85,533 million, which was around 65% of total Japanese outward FDI. The other FDI trend to be considered is the concentration of manufacturing FDI on already established ventures as opposed to new operations. This FDI activity is based around merger and acquisition activity and increasing challenged by the growth of portfolio investments, which is categorized by no new investment in production activity, thus means a decline in overall FDI as a portion of long-term investment. Portfolio investors are defined by their lack of desire to establish long-term relationships with the host country as opposed to direct investors. By definition, FDI refers to a long-term relationship between the direct investor and the invested enterprise in the foreign country (UNCTAD, 2009: VI, pg 18). This simply is not the case of the majority of current FDI investments. Between 198182 and 1991-92 there had been a total FDI decline from 21% to 18% while a rise of 28% occurred in portfolio investments. By considering this trend towards

short-term investment practices it is evident that the type of international investments that nation-states seek and are prepared to manipulate domestic economic policy for is in fact a declining a declining factor. It is also necessary to note that direct investors also have access to many avenues of financing which include not only foreign but also domestic, credit arrangements with banks and other financial institutions within the host state, and trade credits and prepayments for exports. Japanese TNCs raised $3 billion from local banks alone in 1998 (UNCTAD, 2009: VII, pg 2). The other prevalent argument in favor of the view of declining nation state sovereignty over its domestic market is the threat of corporate mobility categorized by increasing mobile capital. The idea here is that disgruntle corporations which are dissatisfied by national restrictions on corporate activity are able to just pack up and relocate production thus creating a constant uncertainty in job security within the host state. This uncertainty forces nationstates into a poorer position when it comes to establish more lenient terms for corporations to secure continued investment. This argument is pinned on the desire of MNCs to gain access to the lowest possible means of production, which establishes the image of increasing mobile corporations directing manufacturing investments into low cost production sites, namely developing countries where wage rate are relatively low due to a larger reserve of semi-skilled or unskilled labor. In reality this is not the case. The largest portion of FDI is in fact directed to developed nations, which have relatively high wage and tax rates. The Report of the Secretary-General to the Preparatory Committee for the High-level International Intergovernmental Event on Financing for Development in December 2000 notes that the majority of FDI inflows bypasses developing countries with the least developed states only receiving 0.5% of FDI inflows in 1999. If low cost production sights receive such a small ration of FDI inflows then where is the majority of capital invested? The answer is in high-wageand relatively high-tax countries which saw around 81% of world stock of FDI in 1991 (Weiss, L. 1997:8). The question of capital mobility is answered by the high concentration of FDI in high-cost production sites. Three major factors contribute to the restriction on corporate mobility. Firstly is that the increase in technology places a priority on fixed costs (infrastructure) as opposed to variable costs (wages) which reduces the advantages of relocating to lower-labor cost markets. Secondly the trend towards regional supply networks coupled with an increase in outsourcing of specified elements of production to other firms emphasizes the importance of proximity between production and suppliers as well. The final point here is also the growing importance of re-establishing a home base as consumers preferences are still towards established corporations with a strong association with a domestic market. Multinational Corporations gain from a continued relationship with their home country in securing a market and a corporate image.

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