How Big Are They Really? Critiquing Claims of TNC Economic Dominance

YORK ST JOHN COLLEGE
MA IN INTERNATIONAL STUDIES:
CONTEMPORARY SOCIETIES AND CULTURE
MA DISSERTATION
Globalization as Corporate Dominance
Critiques and Their Implications
By:
Tomohiko Hayashi
Supervisor:
Simon Sweeney
February 2007

PREFACE
The present study examines a typical critique of globalization, which views
globalization as the process in which transnational corporations (TNCs) gain
uncontested power. This paper investigates such a criticism from economic, political,
cultural standpoints and reveals that it is mostly based on exaggerated assumptions. Big
global companies can be sometimes powerful in economic, political, cultural terms, but
they are weak too often.
The present work cites several authors who are either critical or supportive of
globalization. The critical authors include: John Gray, Will Hutton, Naomi Klein,
Noreena Hertz, George Ritzer. The supportive authors include: Philippe Legrain,
Thomas Friedman, Jagdish Bhagwati, Tim Harford. The author of this study also
consults several news articles and books on Sony and News Corporation.
Before starting investigation, I would like to make clear about how I use the term
‘transnational corporations’ or ‘TNCs’ in this study.
Authors are divided over what they use as term to describe corporations operating
globally. Some prefer ‘multinational corporations’, or ‘MNCs’ or ‘multinationals’ while
others prefer TNCs or ‘transnationals’. They sometimes use ‘MNCs’,to imply that
national origins of such companies are obvious to the general public e.g. Sony is a
Japanese multinational and Bertelsmann is a German one. On the other hand, they use
‘TNCs’ when origins of companies are not obvious to the general public.
However, it seems evident that as globalization advances, the distinction has
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become less relevant. Even a local grocery store can be said to be affected by the
international market price of wheat in the era of globalization.
Then I do not distinguish ‘transnational corporation’ or ‘TNC’ or ‘transnational’
and ‘multinational corporation’ or ‘MNC’ or ‘multinational’ in this study. That means I
use them interchangeably regardless of context.
TABLE OF CONTENTS
PREFACE
1: The Economic Dominance of Transnational Corporations————————1
1-1 Typical Arguments
1-2 How big are they?
1-3 Conglomeration always succeeds
1-4 Brands fail too often
1-5 Case Study: Sony
1-6 Conclusion
2: The Political Influence of Transnational Corporations—————————16
2-2 Theoretical considerations
2-3 Examining critics’ claims by empirical evidence
2-4 Case Study: News Corporation
2-5 Conclusion
3: The Cultural Dominance of Transnational Corporations————————33
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3-2 Theoretical Considerations
3-3 Case Study: McDonald’s
3-4 Conclusion
CONCLUSION———————————————————————————46
REFERENCES
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1: The Economic Dominance of Transnational
Corporations
In this part of the study, I examine typical arguments of critics who claim that
transnational corporations (TNCs) have gained formidable economic power over
society in globalization. I also investigate their claims with the help of their critics’
remarks.
What opponents of TNCs’ power insist in economic terms can be summarized
into three points: 1) TNCs gain colossal power through mergers and acquisitions from
the late 1990s onwards; 2) The power of TNCs comes from traditional economies of
scale and scope as well as the ‘synergy’ effects. 3) TNCs thrive by exploiting us with
the ‘brand’ power.
The present work reveals that most of the critics’ arguments are exaggerated or
simply baseless. TNCs are big in size, but it does not necessarily mean their power is
great.
One of most noted critics of corporate globalization would be Noreena Hertz.
Her controversial book, The Silent Takeover is a good showcase of arguments of such
critics. The first example relates to ‘bigness’ of TNCs:
The sales of General Motors and Ford are greater than the GDP of the
whole of sub-Saharan Africa (...) Wal-Mart, the supermarket retailer, has
higher revenues than most Central and Eastern Europe states; and Exxon is
comparable in economic size to Chile and Pakistan. (Hertz: 8)
She obviously conceives that one can compare a company with a state by
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calculating the company’s revenue and the state’s GDP. She also insists here that
some TNCs exceed nation states in terms of economic power.
Size rules everything. That is the central premise of Hertz. She also notes that
this trend has been further advanced by recent M&As:
The size of corporations is increasing. In the first year of the new
millennium, Vodafone merged with Mannesmann (a purchase worth $183
billion), Chrysler with Daimler (the merged company now employs over
400,000 people), Smith Klein Beecham (...) and AOL with Time Warner in
a merger worth, at the time, $350 billion – five thousand mergers in total
in 2000 and double the level of a decade earlier. (...) Each new merger
gives corporations even more power. All the goods we buy or use (...) are
in the grip of corporations which may at their whim, nurture, support, or
strangle us. This is the world of the Silent Takeover (op.cit.)
One should note that she implies that corporations achieve great power by
global conglomeration. This view is shared with another notable critic, Naomi Klein.
She writes in her international bestseller, No logo:
Bell Atlantic and Nynex; Digital Equipment and Compaq; WorldCom Inc.
and MCI; Time Waner and Turner; Disney and ABC; Cineplex and Loews;
Citicorp and Travelers; Bertelsmann and Random House; Seagram and
Polygram; America Online and Netscape; Viacom and CBS...the list grows
each day. Usually, the companies cite the Wal-Mart principle: everyone
else in the industry is merging and only the biggest and strongest will
survive. (Klein: 220)
She also notes: ‘These questions may seem obvious (...) That corporations have
grown so big they have superseded government. (...) There have been several
exhaustive books chronicling the ascendancy of what has come to be “corporate
rule”’(Ibid.: 23)
Thus she and Hertz seem to agree on two points: 1) The power of global
companies stems from their size; 2) Conglomeration inevitably leads to more power.
Nonetheless, one would note that in on point Klein is different from Hertz. Klein’s
emphasis lies on a slightly different place from that of Hertz.
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Klein insists, as the title of her book implies, ‘brands’ with which global
corporations are recognized worldwide, are the source of power – and at the same
time the source of antagonism against such corporations: ‘There was a common
element shared by all these scattered issues and campaigns: in each case, the focus of
the attack was a brand-name corporation – Nike, Shell, Wal-Mart, McDonald’s (and
others: Microsoft, Disney, Starbucks, Monsanto and so on)’. (Ibid.: 21)
She maintains that such big corporations rule the world by exploiting the
penetrating power of ‘brands’. Our culture, education, economy, liberty, she notes, are
deeply affected by corporate powers with the apparent presence of well-known
‘brands’.
The power of ‘brands’ comes forth by cross-promotion or cross-marketing of
brand products. Cross-promotion means publicity across various branches of a big
conglomerate, while cross-marketing means developing, advertising, selling product
utilizing various resources a conglomerate has. The two terms hold various meanings
and are sometimes used interchangeably. They have been often cited as potential
benefits of conglomerate merger. Klein argues that in the era of ‘brands’, corporations
can also benefit from ‘synergy’ effects:
Virgin’s Richard Branson, for instance, laughs in the face of the accusation
that his far-flung branding forays are stretching the Virgin name in too
many directions. “It may be right that Mars sticks to the chocolate bar (...)
But if their executives cross the Atlantic on a Virgin plane, listen to Virgin
records and keep their money with a Vargin bank, then at least Britain will
have one new global brand for the next century.” (...) Synergy, as Branson
suggests, is about much more than old-style cross-promotion; it is about
using ever-expanding networks of brand extensions to spin a self-
sustaining lifestyle web. Branson and others are stretching the fabric of
their brands in so many directions (...) from shopping to entertainment to
holidays. (Ibid.: 222)
Thus, according to her argument, today’s big corporations have been much more
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powerful than conglomerates in the early modern era, especially when they have
media companies under their umbrella:
synergy’s efficiency is not measured by the success of any one “product,”
whether a film or a book, but rather on how well any one of those products
travels through the conglomerate’s multimedia channels (...) And so the
market is flooded with the mutant progeny of these brainstorming sessions:
Planet Hollywood restaurants, Disney-published books written by ABC
sitcom stars, Starbucks coffee-flavored beer, Lost in Space breath mints, a
chain of airport bars modeled after the deceased set of the sitcom Cheers,
Taco Bell-flavored Doritos...(Ibid.: 240)
As shown above, she emphasizes that global conglomerates exert decisive
power by utilizing synergy effects including cross-promotion and cross-marketing.
She prefers to use ‘brands’ to describe the synergistic power. According to her
argument, we are ruled by ‘brands’'
However, is the power of ‘brands’ so great as she implies? Does everyone like
‘Starbucks coffee-flavored beer’? There are something more to be discussed about
‘brands’. We examine it later.
In summary, by looking over critics’ arguments, one can observe ‘size’,
‘conglomeration’, ‘brands’, and ‘synergy’ as their key concepts. I examine them in the
following sections.
1-2 How Big Are They?
In this section, I will examine the criterion that critics use in describing
‘bigness’ of TNCs. As shown previously, critics pay special attention to revenues of
TNCs and compare them with GNP or GDP of states. Indeed, this methodology is
often harshly criticized by some professional economists.
One of prominent examples is Jagdish Bhagwati. He explains:
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The dramatic statistic is misleading, however, as the two sets of data are
not comparable. To see this, consider a shirt that cost $100. Its sales value
(which economists would call gross value) includes the value of cloth at
$70 and wages and profits (i.e., incomes earned by the productive factors
in the garments industry) of $30. Economist call this $30 the value added
in the garment industry. Now, GDP is simply the entire factor income or
value added in all activities, including garments. So when we compare
sales volumes, which are gross values, with GDP, which is value added,
we are comparing oranges with apples. (Bhagwati: 166)
The result is, he continues, that ‘The comparison, while conceptually flawed,
also exaggerates the role of corporations because sales figures across the entire
economy will add up to numbers that will vastly exceed the GDPs of the countries
where these sales occur’ (op.cit.)
The same point is taken up by Phillipe Legrain. He states:
It is truly shocking – or perhaps conveniently dishonest? -- that Naomi
Klein, who has lectured at Harvard and Yale universities, and Noreena
Hertz, an academic at Cambridge University no less, can make such a
schoolgirl error. A less misleading comparison – between companies’
value-added and countries’ value-added, their GDP – reveals that only two
companies make it into the top fifty creators of value-added, and thirty-
seven into the top hundred. The biggest company by this measure in 2000,
Wal-Mart, created value-added of $68 billion, around the same as Chile’s
GDP. (Legrain: 140)
Some would counter that although nobody regards Chile a great power in the
world economy, Wal-mart can be said to be still big even on the value-added basis, so
critic's claim can be justified at least partly.
That argument may have a point. However, it may also raise another question:
‘Why should we evaluate the power of corporations solely by their revenues? Big
companies often report huge profit loss regardless of their size and many small
companies also participate in global trade. Should not we use profit-based, or share-
based criteria? That means one might be able to measure TNCs power by seeing their
profit or calculating the share of the company’s sales or profit in the world economy.
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If it is done, would not one observe the rise of big companies? That task is done by
Martin Wolf in How Globalization Works:
Is it even true that, as Naomi Klein argues, corporations have enjoyed an
‘astronomical’ increase in wealth? No, is the answer. Between 1990 and
2000, the share of the top hundred corporations in global GDP did rise a
little, from 3.5 per cent to 4.3 per cent. But the shares of the top ten, top
twenty and top fifty – the world’s very biggest companies – have all fallen
a little, from 1 per cent to 0.9 per cent, from 1.8 to 1.5 per cent and from
2.9 to 2.8 per cent respectively. (...) But is Klein at least right about
corporate profitability? No, again. Overall corporate profits in US GDP
rose from a low level in the 1990s, but its average for that decade was no
higher than that for the past half-century. It has never since reached the
peaks of the 1960s when foreign competition was still a cloud no bigger
than a man’s hand. (Wolf: 223)
Thus Wolf clearly shows big companies’ power has never increased in terms of
their share or profit.
Why big companies fail to be profitable so often? It leads us to question whether
what critics point out to as potential benefits of big companies, of which ‘brands’ and
‘synergy’ seem most notable, are really beneficial to the companies. In the next
section, I consider this question.
1-3 Brands fail too often
As Klein implies, the most notable example of synergy effects is assumed
‘brands’, so I look closer at ‘brands’ to examine conglomerates’ power in the real
world.
Most critics presume that with the vast resource of advertising, promoting,
marketing, producing, big conglomerates have uncontested power of selling ‘brands’.
However, there are a mountain of examples that contradict such a claim. In other
words, we should ask ourselves again, ‘Do we really want Starbacks’ coffee-flavored
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beer?’
In Brand Failures, Matt Haig lists 100 major brand blunders from classic
examples like New Coke, Sony Betamax, to rather modern ones like RJ Reynold’s
Smokeless Cigarettes, Cosmopolitan yogurt, Colgate Kitchen Entrees, and so on.
Looking through this list, one could not help think there is a trend of brand failure, not
brand dominance in today’s business scene.
Take CBS for example. CBS bought in 1965, Fender, the guitar manufacturer
which was applauded by renowned artists including John Lennon, George Harrison,
Jimi Hendrix. This was the beginning of its worst days. The market share of Fender
continued to decline. The current PR director for Fender Musical Instruments
Corporation explains what happened then:
The problem was, CBS didn’t know all that much about real
manufacturing (...) After about ten years, they lost sight of all quality
control, let their patents lapse, and forgot to keep putting money into
research and development. Pretty soon, Asian manufacturers were able to
make cheaper and better copies of Fender designs. (cited by Haig: 176)
Worst of all, CBS paid no attention to the company’s most prestigious brand –
the Stratocaster guitar. The Fender lover’s Web site, Fender-strat.com blames CBS
especially on that point:
The conglomerate eventually did what no-one else could: make the Strat
less powerful. As time went by, new players bought from Fender while
experienced players turned to vintage Strats for the eternal brilliance of its
design, combined with the understated remarkable versatility (...) By 1985,
the Strat had been copied stripped, doctored and otherwise abused.
(Ibid.:176)
At last in 1985, CBS sold it off. However, CBS decided to keep most assets of
Fender and sold only the name patent of ‘Fender’ to the group of employees and
investors when CBS decided to sell all of its non-core businesses.
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It is called ‘Re-birth’ of Fender by fans. Although the deal includes no machines
nor buildings handed out to it, the new Fender company revived soon. During 1990s,
Fender’s sales jumped and the company extended its product offering.
What was the difference? Haig notes: ‘The secret to Fender’s continued success
rests in its understanding of the values that made the brand so popular in the first
place – namely, craftsmanship and a deep understanding of the contemporary
guitarist.’ (Ibid.: 176)
What does the lesson of Fender teach us? Haig summarizes it into two points:
Understand your product; and Focus on what built the brand. In addition, one would
realize the significance of special knowledge and skills when one needs to run a
conglomerate which deals with a broad variety of goods and services.
Haig points out seven common errors that often cause brand failures (Ibid.:5).
Showed below are summaries of his points (summarized from Haig: 5-7):
● Brand amnesia: Brands easily lose support when they forget the true
value of them, like Coca-Cola, whose sales dropped disastrously when it
changed its formula and introduced New Coke.
● Brand ego: Overestimation of brand powers. It occurs when a successful
brand goes into another irrelevant market, such like Harley-Davidson selling
perfume. Few perfume consumers welcomed it.
● Brand megalomania: Overestimation of successful brands. Even brands
with great history often fail when they expand into too many categories.
● Brand deception: One can not use brands to cover up truths. A Sony
executive made up a nonexistent critic and quoted his comment in the
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promotional materials of two movies A Knight's Tale and The Animal but none
of them succeeded. Today most people get information on the Web, which
offsets influences of corporate propaganda. Worse than that, the story was
revealed by Newsweek at last. Haig notes: ‘In an age where markets are
increasingly connected, via the Internet and other technologies, consumers can
no longer be deceived.’(Ibid.:6)
● Brand fatigue: Sometimes companies themselves are fed up with their
own brands with limited development. Numerous brand products are left in
warehouses to collect dust.
● Brand paranoia: It can be called brand addiction. Companies
sometimes lean on brands so heavily that they frequently sue someone, remake
the brands incessantly, copy other brands.
● Brand irrelevance: Brands tend to be obsolete, out of fashion unless
brand managers succeed in catching up with the trend.
He also spells out ‘Brand myths’ that too many managers wrongly believe in:
● If a product is good, it will succeed: Sony Betamax was
technologically superior to VHS especially in its audio-visual quality.
● Brands are more likely to succeed than fail: ‘According to some
estimate, 80 per cent of all new products fail upon introduction, and a further
10 per cent die within five years. By launching a product you are taking a one
in ten chance of long-term success.’ (Ibid.:7)
● Big companies will always have brand success: ‘This myth can be
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dismantled in two words: New Coke. (...) No company is big enough to be
immune to brand disaster. (...) as brands get bigger and more successful, they
also become more vulnerable and exposed (op.cit.)
● Strong brands are built on advertising: ‘Advertising can support
brands, but it can’t build them from scratch (op.cit.) Big brands with big
advertising campaigns often fail.
● If it’s something new, it’s going to sell: ‘Niche’ market does not always
promise success.
● Strong brands protect products: ‘This may have once been the case,
but now the situation is reversed. Strong products now help to protect brands’
(op.cit.)
He emphasizes that it is consumers that decide brands’ value. That means
consumers can always turn their back to brands when they find problems in quality of
brand products.
It is certain that his study does not exclude all possibilities that brands thrive.
However, one can argue at least that the brand is a double sword: it lead to either
heaven or hell. The success of brands depends absolutely on management.
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1-5 Case Study: Sony
In this section, I take Sony for example to discuss synergy in the real corporate
world. This section would reveal how ‘negative synergy’ would cause devastating
results in a big global conglomerate. Taking Sony for example of corporate synergy is
appropriate because it is regarded as a member of big media Conglomerates by some
authors and it also is regared one of most prominent failures of global conglomerates.
Sony, onetime an icon of Japan's post WWII miracle, has been suffering from
decline of sales, low profit, and degradation of its brand image which would be
striking for its longtime fans. Sony has continued to report operating deficit since
2004.
What happened to Sony? In Sony Syndrome, the authors point to several factors
which caused Sony’s malfunction, of which the most notable example is the delay of
launching digital audio player.
As noted by many, Sony is undoubtedly the pioneer of personal audio device
like Walkman, but is perceived to be a latecomer in digital audio player, like iPod by
Apple. Why does it come so late?
In fact, it is not a latecomer. According to Daisuke Tsuda (2005: 201), as early
as in 1999, Sony launched its first model of Network Walkman NW-MS7. Network
Walkman enabled users to download music from bitmusic, its proprietary music
downloading service, provided by Sony Music Entertainment, which is subsidiary of
Sony and ranked one of ‘Big Four’ in the record industry. Network Walkman and
bitmusic fairly preceded iPod and iTunes Music Store (iTMS): iPod was launched in
2001 and iTMS was in 2003.
Did Sony enjoy a huge synergy effect, and hopefully front-runner benefits? No.
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It failed. Why? One reason, Tsuda argues, is that NW-MS7 and other Network
Walkmans were unattractive. Surely we are offered a vast number of unattractive
products every day, but Tsuda insists that Sony has at least two reasons to make
Network Walkam unattractive deliberately: Firstly, Sony had Mini Disc as one of its
core businesses at that time and had no Hard Drive factory under its wing. If Sony
would sell Hard Drive-based Walkman at a large scale, it must lead to decline of Mini
Disc players’ sales. Here comes ‘diseconomies of scope’, caused by conflict of
interests of various divisions a big company has.
The second reason, insisted by another author, Kazuhiko Nishi, who was
himself a notable IT entrepreneur – one of the founders of Microsoft Japan and
onetime owner of a publishing conglomerate – is also related to conglomeration. He
states:
*The reason Sony failed to realize such a business model based on media
convergence as iPod and iTunes have established, is that Sony has its own
content company, SME as its own 100 per cent subsidiary. Some say it
made too much effort to protect copyrights of SME’s music library to
invent a new business model. (...) it was a mistake for Sony to wholly own
SME. Sony should have sold part of SME and unbounded software and
hardware’. (Nishi: 180-181)
Apple has no interest in music business, so it seems to feel free to combine
software (music content, iTunes) and hardware (iPod) to forge a new business model.
That is because Apple succeeded. It can be argued that Apple accomplished de facto
synergy without buying any outside companies.
Apple’s success and Sony’s failure shed new light on synergy debates. Nishi
also mentions the third reason of Sony’s collapse ‘vertical integration’. He explains:
*Why can Apple sell iPod at such a low price? The reason is that it has
applied a business model based on horizontal division of labor – buying
inexpensive general modules and semiconductors available for everyone
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and building them up in China.(...) Self-manufacturing everything or
pushing ceaselessly to vertical integration is not always good. Vertical
integration works best in ‘unlayered’ businesses, like automobiles,
motorbikes, flat TVs, precision instruments, and airplanes, in which the
company can manufacture whole product in its own factory and the
industrial composition of components of it is not layered. On the contrast,
vertical integration works poor in layered businesses, in which the
company operates business ranging over software, hardware, and network.
For example, one should apply horizontal division of labor in
manufacturing PCs, cell phones, music content, games to gain efficiency
(Nishi: 181)
His concerns about consolidation is shared with Jyoshima:
*Japanese movies and music do not sell worldwide with few exceptions,
while American movies and music sell around the world. Sony plans and
manufactures products in Japan, but the products are sold all over the
world. Most software assets are owned by American record companies,
like CBS records and American movie companies, like Columbia. It seems
natural for Sony management to take them. If the balance between
Japanese Sony, based on hardware and American Sony, based on software
is kept, one can expect fruits, but the balance was lost to the latter. It was
then that Sony began to walk on a tight rope. Masaru Ibuka, one of the
founders of Sony wrote, ‘We should not seek unnecessary upgrade’, but
his ideal was betrayed by successors. (Jyoshima: 119)
He insists that buying CBS records (now Sony Music Entertainment and Sony
BMG), Columbia Pictures and MGM (now Sony Pictures) is the primal cause of
Sony’s difficulty by adding: ‘It is true that content owned by Columbia and MGM
could be golden eggs, but it should be noted that content business does not contribute
to sales of DVD players’ (op.cit.) What he points out here is that one can not assume
synergy from combination of unrelated businesses.
Moreover, brand corporations can be said to be more vulnerable to big brand
failures. If just a tiny subsidiary got into trouble, its damage would contaminate the
whole conglomerate. According to Tsuda (207-211), it did occurred when Sony BMG,
the joint venture between Sony and Berltersmann sold Copy-Controlled Compact
Discs (CCCDs) which contain a copy protection technology called ‘XCP’. In
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November 2005, a security firm reported that XCP had a function similar to a virus
‘rootkit’. According to the report, XCP as well as rootkit alterates Operating System
and forges ‘back door’ which enables crackers to get in. Tsuda reports that the
technology community got furious against Sony BMC and ‘In Texas and California,
damage suits were started. The Electronic Frontier Foundation took a class action. The
governments of State of Massachusetts, Oregon as well as the government of Italy are
preparing to file suits’. (Tsuda: 210-211) He stresses that the trouble is affecting the
companies’ broad range of businesses because ‘When consumers saw the logo “Sony”
on them, they would not distinguish SME from Sony BMG’ (Tuda: 211).
The last and foremost example of Sony’s integration debacle is ‘Godzilla’,
which is already noted by Haig in the former section.
In 1998, Sony determined to sell a remake of the Japanese classic film, and
began to wage massive promotions. ‘It spent US $60 million implementing the teaser
campaign’ (Haig: 41). The problem was new Godzilla was truly a ‘trash’. Could Sony
make people believe it something like a jewel by exploiting its vast ‘brand’ power?
Oddly enough, Klein admits Sony failed:
Sony thought it had its blockbuster status sewn up: it had a Madison
Square Garden premiere, a made-for-Toys’R’Us star, and a heavy-handed
legal team cracking down on all unwanted publicity on the Internet. Most
important, thanks to Sony’s newly consolidated movie theater holdings, the
movie were played on more screens than any film ever before: on launch
day, 20 % of all U.S. movie theater screens were playing Godzilla. Yet
none of this could compensate for the simple fact that newly everyone who
saw Godzilla warned their friends to stay away, and they did, in
droves.(Klein: 261)
What do those stories tell us about Sony? It is true that Sony’s failures can be
also explained by other factors. However, as many note, at least one thing is clear: to
be big is not necessarily good for a company. It sometimes causes trouble than benefit.
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1-6 Conclusion
In this part of the study, I examine economic power of TNCs. What I showed
are: TNCs are not so big as critics insist and they rise and decline as time passes by;
‘Synergy’ and ‘brand power’ are possible, but ‘negative-synergy’ and ‘brand
backlash’ are also possible.
Those observations do not consider political impact of TNCs. It is true that big
corporations with huge profit loss can exert great political influence over national or
international politics. In the next part, I investigate questions about political aspects of
TNCs’ activities.
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2: The Political Influence of Transnational
Corporations
In this part of the study, I investigate typical arguments of critics worried about
political influence of TNCs.
Their arguments can be summarized in two strands: 1) TNCs undermine state
authority by tax evasion, regulatory arbitrage, and direct connection with high-ranking
officials; 2) TNCs exploit poor countries by hiring low-wage workers in sweatshops,
building toxic factories, and eventually cause inequality among ‘haves’ and ‘have-
nots’.
This part of study reveals that some of their claims have points, but most of
them contradict empirical evidence. It also shows TNCs may have positive effects on
society regardless of what their owners’ motives are.
States are under threat. This is one of core messages of critics of presumed
corporate globalization. George Monbiot, author of Captive State declares:
Globalisation (...) has enabled companies to hold a gun to government’s
head: if it refuses to meet their demands, they threaten to disinvest, move
their plant to Thailand, and damage its credibility by making thousands of
workers redundant. (Monbiot cited in Legrain: 151)
Noreena Hertz also comes in the debate by saying:
Corporations effectively auction off promises of new jobs, infrastructure
investment, and economic growth to the highest international bidder,
declining to move to or threatening to pull out of countries whose
employments costs and taxes are too high, or where standards are too
stringent or subsidies and loans not forthcoming. (...) National
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governments appear increasingly impotent in the face of the giant
corporations, who transcended national borders many years ago. (Hertz:
60-61)
A similar view is also expressed in John Gray’s False Dawn:
The effect of competition from countries in which a regime of
deregulation, low taxes and a shrinking welfare state has been imposed is
to force downwards harmonization of policies on states which retain social
market economies. Policies enforcing a deregulated labour market and cuts
in welfare provision are adopted as defensive strategies in response to
policies implemented in other countries. Tax competition among advanced
states works to drain public finances and make a welfare state
unaffordable.(Gray: 87-88)
Will Hutton also cites this issue in a resembling perspective:
The British live within the shadow of the American conservative
conception (...) The watchwords for a successful capitalism are liberty,
flexibility, self-interest and enterprise. Its enemies are the ‘burdens’ of
regulation, taxation, welfare and any form of social obligation. (Hutton:
224-225)
On the other hand, Klein pays more attention to labor standards and inequality.
She states:
The cumulative response to the horror stories of Chinese prison labour, the
scenes of teenage girls being paid pennies in the developing world.
‘They’re getting our jobs’ is giving way to a more humane reaction: ‘our
corporations are stealing their lives’. (Klein: 475)
All in all, according to those critics, the nation state is losing its sovereignty
because of globalization and corporate power is irreversibly increasing, taking the part
of the state. Regulations on labor conditions, environment, health care, and so on are
lifted or reduced forcefully. The result is inequality and poverty. The state is now
powerless and forced to participate in ‘the race to the bottom’.
Is that true? Before examining their claims, I explore them in theoretical
perspectives in the next section.
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2-2 Theoretical considerations
In this section, I examine theoretical dangers of corporate globalization, cited by
most critics.
First thing I explore is tax evasion. There are two ways of tax evasion most
authors point out.
The first is ‘transfer prices’. That means ‘the prise set by a TNC for intra-firm
trade of goods or services’. (Baylis & Smith: 362) I explain it by using an example
offered by Griffiths & Wall (171-172). Suppose that a multinational operates both in
country A in which the corporate tax rate is 25% and country B in which the corporate
tax rate is 50%. The company manufactures the intermediate products in country A
and exports them into a subsidiary in B to be assembled and sold there.
If the company set the price of the intermediate products (the transfer price) at
the market prices, it must pay 50% tax in country B for the profit. However, if it set
the price above the market price and eventually the subsidiary in country B reported
less or no profit, the company need to pay less or no tax at all while the parent
company in country A pays tax for its overall profit at 25 %. The total pay is
significantly reduced. This is how multinationals evade tax.
The second noted measure for tax evasion is ‘jumping tariffs’. It occurs when a
multinational, wanting to export a product into country A with huge tariff barriers,
decides to build a fake factory in that country and to export ‘knock-down kits’ to be
assembled easily and sold there. Thus the multinational can sell the product in the
country absolutely ‘tariff-free’.
According to Griffiths & Wall (Ibid.: 168), Volkswagen was once blamed of
such an activity in Brazil.
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However, Griffiths & Wall stresses that states have recently combated tariff-
jumping by saying: ‘Most countries (including Brazil) now have extensive “rule of
origin” to prevent such “screw driving operations” being used by multinationals as a
device for evading tariffs.’ (Gfiffiths &Wall: 168)
The next thing I explore is regulatory arbitrage. The term is originally coined in
the banking sector. It means:
the process of moving funds or business activity from one country to
another, in order to increase profits by escaping the constraints imposed by
government regulations. By analogy the term can be applied to any transfer
of economic activity by any company in response to government policy.
(Willetts: 362)
In the era of globalization with low cost of transportation and advanced ITC
technologies, it undoubtedly become much easier for companies to move from one
country to another.
Of many kinds of regulations which modern developed states burden
corporations with heavily, environmental / labor regulations are what raises critics’
concern most. High tax is also a significant burden for companies. If a company
thinks such burdens are too high in a country, certainly the company has enough
incentive to move its factories and offices into another country, in which the standards
of such burdens is much lower. To stop this, governments of developed countries are
urged to change their regulations to match expectations of owners and managements
of ‘footloose’ companies. This is the process which is called ‘the race to to bottom’ by
many critical authors.
If the process had been a big trend, critic’s worry would be reasonable enough.
Especially modern welfare states, such as northern European nations would be a
victim of ‘regulatory arbitrage’ or ‘the race to the bottom’.
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A prominent example of Ericsson, a Swedish company, is often cited. The
company hated high taxes of Sweden and decided to move its headquarter to London.
(Legrain: 159)
2-3 Examining critics’ claims by empirical evidence
In this section, I investigate claims of critical authors in the light of empirical
evidence.
2-3-1 Tax Evasion as a myth
According to critics of anti-globalists, large-scale tax evasion is a myth. Legrain
points out :
governments are collecting more in tax than ever before. Despite all the
headlines about tax cuts, the average tax take in rich OECD economies has
risen from 32.1 per cent of GDP in 1980 to 37.3 per cent in 1999. It is
eleven and a half percentage points higher than in 1965. Far from
converging downwards, tax shares are diverging upwards. Back in 1965,
the American government took 25 per cent of the country’s national
income in tax. Since then, it has taken steadily more (...) Britain’s tax
burden has gone up even more (...) The trend in Germany is roughly the
same (...) France’s tax take has really shot up: from 34.5 per cent to 37.7
percent to a whopping 45.8 per cent (...) Funnily enough, the countries
with the biggest governments are among the most open: Denmark’s tax
burden was 50.4 per cent in 1999 and Sweden’s 52.5 per cent. (Legrain:
161)
Contrary to critics’ arguments that states are losing tax base for corporate
profits, , Legrain argues, compositions of tax remain unchanged: ‘taxes on company
profits accounted for 9 per cent of the total tax take in OECD countries in 1999, the
same share as in 1965’. (op.cit.)
He also mentions that contrary to critics’ claims that states are losing tax base
for rich persons, the percentage of personal income tax in GDP is the same between
20

1965 and 1999 in those countries. Moreover, some advanced states levy more tax
from persons: ‘The Us, Britain, France and Germany all raised a bigger share of GDP
from personal income taxed in 1999 than in 1990’. (op.cit.)
He maintains that there are a lot of measures for governments to limit tax
evasion. What he refers include: 1) severe penalties such as what included in the
guideline US government already set out; 2) unitary tax, which taxes a firm on the
basis of its presence, like total revenue or the number of employees; 3) strengthen
taxing on shareholders; 4) ‘Tobin tax’, which levies international money transactions;
5) establishing a global institution that exchange and share information for taxing e.g.
World Tax Organization; 6) shifting tax standard from labor and capital to land or
environmental externalities, like carbon emission or road congestion. (Ibid.: 163-164)
Legrain emphasizes that if states, with such lots of measures for limiting tax
evasion, failed to tax big corporations, it must be a result of choice, not coercion.
2-3-2 Regulatory arbitrage or ‘the race to the bottom’
In this subsection, I explore the issue of regulatory arbitrage. If TNCs are eager
to move freely to avoid high environmental / labor standards, one would find a global
trend for lowering those standards. However, that is not the case.
As for labour standards, Legrain denies such a claim by referring to numerous
examples in which developed states actually raised labor standards.
America’s legal minimum wage has been raised from $3.35 to $5.15 since
1990. The European Union has adopted a Social Chapter that beefs up
worker rights. In Britain, Tony Blair’s government has introduced a
minimum wage and forced companies to recognise a union where a
majority of workers want it to represent them. In France, Lionel Jospin’s
administration imposed a thirty-five-hour working week and raised the
minimum wage’. (Ibid.: 168)
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How about poor countries? Legrain adds that according to an OECD study
covering seventy-five countries, labor standards had got significantly better in
seventeen countries including Brazil,South Korea and Turkey whilst in other countries
they had not remarkably worse since the early 1980s. (op.cit.)
He also points out the fact that most of global Foreign Direct Investment (FDI)
goes to developed countries. It can translate into that most foreign investment is not
driven by companies’ desire to avoid high labor and environmental standards. (op.cit.)
On the other hand, Tim Hartford insists that even if there is ‘the race to the
bottom’ in environmental terms, it causes less harm than we expect at least in trade
between the United States and developing countries because of two reasons (with
consideration of the fact Legrain mentions above) :
First, that foreign investment in rich countries is far more likely to go into
polluting industries than foreign investment in poor countries Second,
foreign investment in polluting industries is the fastest growing segment of
foreign investment coming into the United States. In contrast, foreign
investment in clean industries is the fastest growing segment of American
investment abroad. (...) foreigners are bringing dirty industries to the
United States, but American companies are bringing clean industries to the
world. (Hartford: 215-216)
Bhagwati cites many researches and summarizes:
In short, the evidence suggests that multinationals, generally speaking, do
not go streaking to where labor rights are ignored or flouted. If true, this
suggests a lack of empirical support for the notion that multinationals, by
moving to where workers’ rights are violated, encourage their violation by
the poor governments seeking to attract those companies. (Bhagwati: 130)
As for environmental standards, while critics of globalization depend solely on
anecdotal evidence to insist that globalization is bad for environment because it leads
to ‘the race to the bottom’ in environmental terms, there are numeral empirical studies
that implies globalization may be good for environment.
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One case is the relationship between trade and agriculture. Contrary to a
common belief that most environmentalists hold, international trade helps reduce
fertilizer, pesticide and energy per unit. Hartford exemplifies this by referring to EU’s
Common Agricultural Policy (CAP). According to him, although half of the Union’s
budget goes to CAP (and it goes to many rich persons, like Duke of Westminster, who
received £448,000 in 2003-4), the result of the subsidy is intensive farming with ‘poor
food quality and high use of pesticides and fertilizers, and all the while dumps food on
the developing world and depresses the prices received by farmers in poor countries’.
(Hartford: 218) According to FAO and OECD statistics, ‘the more agriculture is
subsidized the more fertilizers it consumes. (op.cit.)
Hartford also insists on more general relationship between the openness of
economy and improvement of the environment by referring to China, Brazil, Mexico,
to which 60% of global FDIs in poorer countries go. In China, since it opened its
economy in 1987, air pollution measured by the amount of SPM (suspended
particulate matter) has been drastically reduced about by one fifth. (Ibid.: 216) His
conclusion is clear: the higher the trade barrier is, the worse the environment
becomes.
Why do not TNCs move to poor counties to enjoy lower standards, which might
result in – at least in pure economic terms – more profit? Bhagwati presents five
possible explanations for that:
First, it is possible that in practice the differences in standards across
countries in many industries are not large enough to outweigh the many
other factors, such as cheaper access to certain raw materials, proximity to
markets, tax breaks, and so on (...) Second, (...) it is more cost-effective to
run all of their plants with the same basic technology, so we get a race to
the top. Third, faced with differing standards, firms will tend to predict that
all countries are on an escalator to higher standards and therefore decide
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thatit is best to be ahead of the curve. (...) Forth, the higher-standard
countries are the ones that innovate. (...) Environment-friendly technology
is often also vastly more productive (...) Fifth, as environmentally
unfriendly technology becomes obsolete with the invention of new,
environmentally friendly technology (Bhagwati: 149)
A similar argument is presented by Legrain (167-168) and Wolf (188-194).
On what are observed above, it seems quite natural to say ‘the race to the
bottom’ is a myth. Then how about more physical, direct involvement of TNCs with
politics, especially corrupt officials in developing countries?
2-3-3 Political ties between TNCs and high ranking officials
As for political ties, Bhagwati presents a few examples: 1) ITT and Pepsi were
involved in the coup d’etat against Chilean president Salvadore Allende; 2) Union
Meunière, a Belgian multinational was involved in the assassination of Congo’s first
elected president Partice Lumumba in 1961; 3) Iran’s prime minister Mohammad
Mosadegh was exiled by CIA; 4) CIA conducted secret missions to control or
overthrow governments in Latin America to protect American multinationals like the
United Fruits Company (Bhagwati: 167-168).
Although he admits these cases are not exceptional but typical in developing
countries, he insists it has become less likely for us to see such cases because of two
reasons:
First, democracy has broken out in many underdeveloped countries,
however imperfectly. Egregious political abuses come to light because
democracy permits dives non-governmental groups and individuals of
conscience to point the accusing finger at offending corporations and
governments. Second, the accusing finger now has more salience in the age
of television and the Internet. Gorbachev uses troops in the Balkans, CNN
carries the pictures, and his moral standing collapses until he quickly
learns from his political blunder and changes course. (Ibid.: 168-169)
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Comparing to his other claims in the book, this insistence seems less persuasive.
One can find not a few counter-examples. Take Darfur. People has been quite slow to
know that bloody genocide had occurred there because of poor access, indifference,
lack of knowledge in developed countries. The same is true of Sarajevo and
Srebrenica. As he himself admits, NGOs are not flourishing in every country, so it is
quite natural to presume that a lot of misdeeds of multinationals are overlooked every
minute, everywhere.
However, one could argue that more globalization, not less globalization makes
such misconducts be more likely to be revealed and reported. So the weakness of
Bhagwati’s argument does not matter when one discuss globalization only.
In the next section of this study, I revisit this issue by referring to one of notable
examples – News Corporation.
2-3-5 Poverty and inequality
Most critical authors blame globalization for letting multinationals to exploit
poor countries by paying less salary than in advanced countries. And they claim it
causes gross inequality in the world.
As shown earlier, Legrain implies that most FDIs go to developed countries so
mass exploitation, if it exists, causes less harm than critics are worry about. However,
is it not problematic multinationals pay less even at the lesser scale?
According to Legrain, Wolf, and Bhagwati, critics need not worry. Bhagwati
explains:
several empirical studies do find that multinationals pay what economists
now call a ‘wage premium’: they pay an average wage that exceeds the
going rate, mostly up to 10 percent and exceeding it in some cases, with
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affiliates of U.S. multinationals sometimes paying a premium that ranges
from 40 to 100 percent. (Bhagwati: 172)
By citing similar case studies, Legrain insists that we should not stop workers in
poor countries from working presumed ‘sweatshops’ by saying:
Workers at Nike are privileged by comparison. Indeed, people who work
for multinational companies are typically winners. (...) requiring all
Vietnamese factories to fit it [a western labor standard] would drive many
out of business. Many workers would end up unemployed or breaking their
backs in the fields in the boiling sun. (...) They [labour standards] tend to
improve over time, as countries get richer. (Legrain: 62-63)
How about inequality? Wolf points out that there are many ways of discussing
inequality. Legrain and Bhagwati also admit that it is extremely difficult to measure
inequality in uncontested ways, but Bhagwati states that it is highly possible that
inequality is reduced by trade and growth. He concludes:
with the usual caveat (...) one can conclude that freer trade is associated
with higher growth and that higher growth is associated with reduced
poverty. Hence, growth reduces poverty. The best way to see that is to
focus on the two countries, India and China (...) according to the Asian
Development Bank, poverty declined from an estimated 28 percent in 1978
to 9 percent in 1998 in China. Official Indian esimates report that poverty
fell from 51 percent in 1977-78 to 26 percent in 1999-2000. (Bhagwati.:
64-65)
Thus, as shown above, it seems safe for us to say that although there are
possibilities for the gap between the poor and the rich to be being widened as
globalization advances, a cure for the inequality is also more globalization, not less or
no globalization. According to this argument, if globalization means more FDIs by
TNCs, as critics argues, this conclusion translates into that more corporate
globalization is good for the poor as well as for the rich.
Can these arguments be applicable to the reality? In the next section, let me
examine it by referring to a renowned example – News Corporation.
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2-4 Case Study: News Corporation
Rupert Murdoch’s media empire is often cited by many authors as one of the
worst cases of corporate globalization. So it is good for us to take it as a suitable
example to investigate political implications of TNCs’ activities.
The inventory of the empire reveals the vast scope and scale of it. On account of
this, he is sometimes called ‘The Globalizer’. Here is a partial list by Peter Steven.
Britain: BSkyB – Europe’s most successful satellite television system; The
Times newspapers and The News of the World
US: Twentieth Century Fox film studios; Fox TV network – producer of
The X-files and The Simpsons; The New York Post; TV Guide
Asia: Hong Kong’s Star TV; China – Star and Phoenix TV and a 2003
partnership with the state-owned Guangdong TV network; Australia –
more than 50 per cent of all newspapers sold; India – Star brands plus
Vijay, broadcasting to South India’s Tamil population.
News Corporation owns HarperCollins, one of the largest publishers in the
world and publishes more than 174 newspapers, employing 115, 000
people and printing more than 40 million papers a week.(Steven: 32-33)
Murdoch is blamed mainly for four reasons: tax evasion; problematic
relationship with politics; political bias; low-brow, standardized products. The former
two are related to this part of this study, so I examine them in this section whilst the
latter four are referred to in the next part of this study.
Quite a few authors point out that his company pays no tax, including Legrain,
who states: ‘Rupert Murdoch’s News Corporation has made over £1.4 billion in
profits in Britain since 1987 but paid no corporation tax in the country’ (Legrain: 162)
One could guess that Murdoch evades tax by some measures, like ‘traffic
prices’, or ‘off shoring’ but lack of factual evidence keeps us from elaborating further
on this issue. It is also possible that he uses legal measures to escape tax. Jerome
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Toccille, author of Murdoch’s biography, points out that the difference of accounting
standard between Australia and other countries may contribute to his ceaseless M&As
(Toccille: 178). Murdoch might have various measures to cook the book legally by
exploiting such disharmony of standards among states. But that is a pure guessing.
The next concern is his problematic connection with politics. Three examples
are often cited in the literature: connection with Margaret Thatcher; with Tony Blair;
with Chinese government.
It is no doubt that his support for Thatcher and Blair contributed significantly to
their political clout. He also supported enthusiastically Regan Administration in the
United States. Undoubtedly, he got the reward. Steven states:
Murdoch’s presence today is felt most keenly in Britain for his ownership
of both ends of the newspaper market’s “taste spectrum”, his mailed-fist
lobbying to scrap the Government’s foreign media and cross-media
ownership rules (Ibid.: 33)
Concerning the relationship between Murdoch and Blair, Curran and Leys write:
Globalization is also destabilizing the institutional props of this old order.
A key change took place in the 1997 general election when for the first
time ever Labour secured more press support, interms of circulation, than
the Conservatives (Scammell and Harrop 1997). This was primarily a
consequence of the mutual preelection courtship of Labour leader, Tony
Blair, and the principal press magnate in Britain, Rupert Murdoch. Blair
signalled his sensitivity to Murdoch’s interests when Labour unexpectedly
attacked the Conservative government in 1996 for failing to go far enough
in dismantling anti-monopoly media controls. Murdoch responded with
fulsome praise for the promoting, young Labour leader. These and other
exchanges culminated in Britain’s largest circulation newspaper, the Sun,
shifting from its Conservative allegiance to back New Labour in the 1997
general election.(Curran and Leys :233-234)
The total picture of what Murdoch and Blair have got from their unusual
friendly relationship has yet to be clear. Yet surely the most notable example of those
mutual benefit is Iraq war. Blair enthusiastically supported the war on the ground that
28

Iraq had had Weapons of Mass Destruction (WMD), which proved to be wrong.
Murdoch campaigned for the War by using his media outlets. In 2003, The
Guardian newspaper conducted a survey that conclude most of editors working for
companies under the ownership of Murdoch, had raised a similar voice about the war,
namely, ‘go for the war’. A media columnist Roy Greenslade comments:
You have got to admit that Rupert Murdoch is one canny press tycoon
because he has unerring ability to choose editors across the world who
think just like him Ho else can we explain the extra ordinary unity of
thought in his newspaper empire about the needs to make war on Iraq?
(cited in Steven: 33)
However, The New York Times cites Murdoch's’ own remark that denies his
specific instruction for the editors.
Mr. Murdoch, however, plays down his personal role in the unanimous
views of his papers, explaining that he no longer has the time to dispense
day-to-day instructions to his editors or producers. “I think that all our
papers are certainly supportive of the armed forces,” Mr Murdoch said in
an interview last week, “But that is not me calling the editors.”
(Kirkpatrick)
Meanwhile, an article from the Independent also cites two examples which
imply Murdoch’s abusive influence over Blair:
In 1998, Mr Blair rang Romano Prodi, the Italian Prime Minister, to test
political reaction to Mr Murdoch’s takeover bid for the Mediaset
broadcasting empire, owned by Silvio Berlusconi. Pressure from Mr
Murdoch is believed to have been a factor in Mr Blair promising a
referendum on the proposed European Union constitution. It was scrapped
after a “No” vote in the French and Dutch referendums killed off the
constitution. (Grice)
In early February 2007, Blair was interviewed for the second time by police for
unknown reason. The press speculated this interview, which is next to the first one
held last December, is related to the fact his close aide Ruth Turner and his fund raiser
Lord Levy were arrested early 2007 with allegation of being involved in a cash-for-
29

honor case. As the end of his career is approaching, his power diminishing, Other
inconvenient facts are perhaps revealed. Yet at this moment, one can not decide
whether Blair and Murdoch conducted illegal acts or not.
However, one thing seems certain: they have been too extraordinarily friendly as
a politician and a newsman and just the fact poses potential threat for democracy,
Nonetheless, one would realize one should avoid a simplistic notion about
relationship between his political connections and his own political preference or
‘mission’, namely conservatism.
In 1993, Murdoch bought in 1977 Village Voice a magazine famous for covering
counter-culture and its liberal commentaries. What happened? Toccili states:
*‘Although Village Voice positions itself liberal, Murdoch hardly changed its content
because it made profit. For Murdoch, who is a shrewd businessman first of all, there
was no necessity for him to fumble a stuff which had already been a success’.
(Toccille: 72) Toccile cites another friend of Murdoch saying: *‘Murdoch said to new
editor-in-chief, “As far as it turns a profit. I never mind” (op.cit.)
In 2006, Murdoch donated to Clinton Foundation, which former US president
Bill Clinton established to fight against global problems including AIDS, greenhouse
gas, and poverty. Murdoch invited Bill Clinton twice to his company’s retreat in
Pebble Beach, California to have speeches. The last blow for liberal idealists in US
would have been a fundraiser hosted by Murdoch for Senator Hillary Rodham
Clinton, which was held on 18 July 2006.
Given above example, one can wonder what Murdoch's motives are when he
approaches politicians. One can see that his decision is based on pragmatism, not
ideology. Curran and Leys observe: ‘His [Murdoch’s] tacit pact with Blair was simply
30

a pragmatic arrangement between a corporate mercenary and a local market-friendly
politician that sidelined the public’.(Curran & Leys: 234)
Next let me turn to China in which the situation seems be rather clearer. Klein
explains:
An early incident involved Rupert Murdoch’s notorious decision to drop
the BBC’s World Service news from the Asian version of Star TV.
Chinese authorities had objected to a BBC broadcast on Mao Tse-tung (...)
More recently, HarperCollins Publishers (...) decided to drop East and
West: China, Power, and the Future of Asia, written by Hong Kong’s last
British governor, Chris Patten. (Klein: 255)
Klein notes these are examples of ‘synergy censorship’, by which she means
Murdoch has abused synergistic power of his media conglomerate to fit to his goals.
All in all, these examples surely show that a TNC can be a political threat for
society in some ways. Given those, can we find no positive effects of TNCs?
Griffith & Wall point out that multinationals benefit host countries by bringing
about ‘technology transfer’ through two processes: direct linkage and demonstration
effects. (Griffiths & Wall: 167)
The former process occurs when a TNC helps domestic suppliers to raise the
quality of their products. The latter process occurs when local manufacturers imitate
products of TNCs.
In fact, a Chinese scholar observes such a phenomenon occurred in China:
In 1996, Rupert Murdoch, the new owner of STAR TV, was allowed to
work with Chinese investors to form the Phoenix Satellite Television
Company in Hong Kong, offering entertainment and sports programming
to China via STAR’s channels. Exposure to foreign programming has
created a demanding media audience and increased the pressure for media
commercialization and liberalization. (...) In the 1990s, Hong Kong and its
international affiliations were the major “demonstrators”, providing
Chinese media with a new discursive context in which market capitalism is
the name of the game. (...) The commercialization of the Chinese media
has carved new spaces of expression. Tight media controls have given way
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to policies seeking to stimulate competition, (...) weaken ideological
control and increase operational autonomy. (...) Armed with high
circulation and rating figures, they can stretch the limit of ideological
boundaries (...) The Consequence is that the market has actually shifted the
role of the media from that of a party organ of propaganda to a multiplicity
of roles of entertaining, educating, and informing the audience. (...) There
is plenty of evidence that, in the 1990s, market forces in China provide
more opportunity for freedom of expression than the authoritarian rule of
past decades (Kit-wai Ma: 25-26)
As shown above clearly, Murdoch has played a role of ‘catalyst’ in China. This
observation implies that although TNCs’ motive lies mainly on economic greed or
personal ambitions, it may also function as ‘Trojan Horse’ in an oppressive state such
as China. It seems obvious that no one can deny benefits of Murdoch’s presence in
China.
2-5 Conclusion
In this part of the study, we tackle two basic claims about political implications
of globalization driven by TNCs: 1) TNCs undermine state authority ; 2) TNCs
exploit poor countries.
It is revealed that empirical evidence contradict these claims. The state is
powerful and TNCs pay more than local companies.
Yet one question would remain unanswered if one scrutinizes critics’ claims
deeply. Even if TNCs are not so powerful in purely economic or political terms, may
they have significant influence over people in cultural terms? That is, can we measure
influence of a global corporation without examining its cultural prominence? If one
takes such ‘prominence’ into consideration, is not it without saying that TNCs rule the
world?
32

In the next part, we tackle this notion by referring to one of most prominent
global cultural icons – McDonald’s.
33

3: The Cultural Dominance of Transnational
Corporations
In this part of the study, I investigate typical arguments of critics worried about
cultural influence of TNCs.
Their arguments can be summarized in one sentence: ‘TNCs cause
homogenization worldwide by producing standardized, low-brow products’.
Of many authors insisting on cultural homogenization driven by corporate
globalization, perhaps most successful one is Naomi Klein. In No Logo, she argues
that TNCs exert unprecedented influence by exploiting the power of ‘brands’.The
result is explained as: ‘market-driven globalization doesn’t want diversity; quite the
opposite. Its enemies are national habits, local brands and distinctive regional tastes’.
(Klein: 197) (I have already examined ‘brand’ power in part 1, so I will not touch on it
in this part of the study)
The second notable example would be Thomas L. Friedman, a New York Times
columnist. Although he shares with Klein the idea that globalization results in cultural
homogenization, he differs from her in two points: Firstly, he thinks it a good thing
while Klein sees it a threat; Secondly, he insists that globalization is (and should be)
essentially Americanization. As the natural result of the process, he claims, the rest of
the world must face two choices: first, it adapts to the American model; second, it can
not thrive. He explains his claim by saying:
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What is going on today, in the very broadest sense, is that through the
process of globalization everyone is being forced toward America’s gas
station. If you are not an American and don’t know how to pump your own
gas, I suggest you learn. With the end of the Cold War, globalization is
globalizing Anglo-American-style capitalism and the Golden Straitjacket.
It is globalizing American culture and American cultural icons. (cited in
Legrain: 298)
By ‘the Golden Straitjacket’ he seems to mean American way of everything –
including thinking, living, working, manufacturing, consuming, doing business, etc.
Thus he insists American way of life, which one can translate into ‘American culture’,
dominates the world.
He also stresses his point by stating: ‘the more I observed the system of
globalization at work, the more obvious it was that it had unleashed forest-crushing
forces of development and Disney-round-the-clock homogenization’. (Ibid.: 23)
Meanwhile, Noreena Hertz blames globalization for destroying indigenous
culture of Bhutan. She describes:
The kingdom of Bhutan, mythical Land of the Thunder Dragon, last of the
independent Himalayan principalities, lies between Tibet and India.
Willfully isolationist, it has managed for centuries to follow its own path.
(...) But the tentacles of global capitalism are far-reaching,and they reach
even Bhutan (...) Basketball replaced archery as the national sport, thanks
to the videotapes of NBA games that the king has shipped to him from
New York. Boogie Woogie, a game show sponsored by Colgate, now
rivals the panoramic Himalayan vista for viewers’ attention. Friends,
Teletubbies, BBC, and CNN entertain, inform, and brief. Nightclubs
intercut N’Sync and Britney Spears with 1980s Wham and Culture Club.
(...) Children now make pilgrimages to monasteries offering prayers and
lighting butter lamps while clad in Spice Girls T-shirts. (...) So even
Bhutan, the last Shangri-la, is being infiltrated. Unable to resist the spoils
of the West, unable to continue its isolationist policies, it admits Western
influences. (Hertz: 17)
Just as Klein’s argument, she does not claim that such a trend comes solely from
the United States, but that a global force – corporate globalization -- is diminishing
cultural diversity. Presumably she thinks that the trend is a bad thing and indigenous
35

peoples should resist it and keep their own precious traditions.
Are these insistences right? Or put it more precisely, do these claims reflect
what is going on properly? To tackle this question effectively, Let me take a glance at
theories of culture.
3-2 Theoretical Considerations
By looking over the history of cultural analysis, one can not help but realize four
facts: First, there have been two schools of general attitudes toward contemporary
conditions of culture, namely pessimists and optimists; Second, within each school of
thought, one can find some messages have been repeated over and over; Third, there
have been two main methodologies applied to research of culture, what one can call, if
one is admitted to borrow from economics, ‘supply-side’ and ‘demand-side’
methodologies; Forth, in the same way, there have always been two general ways of
reckoning of the power of culture, i.e. the maximizer and the minimizer.
The difference between cultural pessimists and optimists is most obvious when
they comment on popular culture. To describe the status quo of popular culture,
pessimists often use such terms as ‘lessening’, ‘subversive’, ‘deceptive’, ‘anarchy’,
‘biased’, ‘stereotypical’, ‘standardized’, ‘homogenized’. (One should note here that
most of what critics referring to when they argue corporate globalization are ones that
can be qualified as ‘popular culture’, like McDonald’s, Nike, Britney Spears, and so
on. So it is obvious that the arguments here applies to those critics.)
On the other hand, optimists uses such terms as ‘subversive’, ‘empowerment’,
‘educational’, ‘informative’, ‘enjoyable’, ‘accessible’, ‘emancipation’.
One can argue that pessimists include notable cultural critics such as Mathew
36

Arnold, F. R. Leavis, academics of Frankfurt School (except for Walter Benjamin),
and a pile of conservative and Marxist authors, while optimists include Walter
Benjamin, Hans Magnus Enzensberger, Marshall McLuhan, Michel De Certeau, John
Fiske. Scholars from British Cultural Studies, such as Richard Hoggart, Raymond
Williams, Stuart Hall, Paul Du Gay, can be categorized as optimists with some
reservations. (For example, according to Storey [Storey: 56] Hoggart’s attitude toward
popular culture shifted from critical to acceptive. As shown here, British Cultural
Studies is characteristic of its difficulty of general categorization. However, one can
define broadly its tendency lies somewhere between neutrals and optimists)
To grasp pessimists’ basic ideas, one would benefit greatly from observing
Storey’s descriptions of arguments of Matthew Arnold, F. R. Levis, Adorno &
Horkheimer, and Leo Lowenthal. One can must find virtually not a few elements
stated by them are identical with what stated by critics of corporate globalization.
The study of popular culture in the modern age can be said to begin with
the work of Matthew Arnold. (...) it becomes clear when reading through
Arnold’s work that the term ‘anarchy’ operates in part as a synonym for
popular culture. (Storey: 18-19, my italics)
Leavis takes Arnold’s cultural politics, and applies them to the supposed
‘cultural crisis’ of the 1930s. According to Leavis and the Leavisites, the
twentieth century is marked by an increasing cultural decline. What had
been identified by Arnold as a feature of the nineteenth century (...) had
continued an been compounded in the twentieth: that is, a culture of
‘standardisation and levelling down’. Mass civilization and its mass
culture pose a subversive front, threatening ‘to land us in irreparable
chaos’. For Q. D. Leavis [F. R. Leavis’s wife], Hollywood films are
‘largely masturbatory’. Although the popular press is described as ‘the
most powerful and pervasive de-educator of the public mind’, and radio is
claimed to be putting an end to critical thought, it is for advertising, with
its ‘unremitting, pervasive, masturbatory manipulations’ that Leavism
37

saves its most condemnatory tone. (Ibid.: 23-24, my italics)
In 1944 Max Horkheimer and Theodor Adorno coined the term ‘culture
industry’ to designate the products and processes of mass culture. The
products of the culture industry, they claim, are marked by two features:
cultural homogeneity, ‘film, radio and magazines make up a system which
is uniform as a whole and in every part ... all mass culture is identical’; and
predictability (...) Leo Lowenthal contends that the culture industry, by
producing a culture marked by ‘standardisation, stereotype, conservatism,
mendacity, manipulated consumer goods’ has worked to depoliticize the
working class (Ibid.: 85-86, my italics)
Such short quotations even reveal that a number of words are frequently
repeated in those arguments i.e. ‘anarchy’, ‘crisis’, ‘standardization’, ‘homogeneity,
etc. One also notes those words are also used by critics I quoted in the beginning of
this part of the study.
Does the similarity between critics of culture and ones of globalization tell us
something? Logically it may permit three ways of interpretations including: first, what
those two kinds of critics point to are both correct; second, what those critics say
about culture are wrong. One can eliminate the third interpretation: one of two strands
of critics is wrong and the other right, if s/he thinks the similarity tells something
important about culture.
If the first interpretation is correct, it follows that one can argue cultural
degradation is not new. So critics who blame globalization for causing cultural
degradation must be wrong because according to most academics, globalization is a
new phenomenon which started in late twentieth century. Then, a revised
interpretation would be: ‘cultural degradation including standardization,
homogenization is an old phenomenon, not so related to globalization as critics insist’.
Indeed, one can argue that such claims date back to Plato’s Politeia. (Popper,
38

2002) One could also argue that intellectuals often dislike and despise popular culture
because expressing their ‘dislikeness’ is a part of their duties.
How about the second interpretation? If it is correct, culture has never been
degraded. Obviously, there may be a lot of evidence, either supportive of or
contradicting to the claim. Then another question may arise here in readers’ mind:
How can we decide whether a certain culture is degraded or not?
This question is related to my third point: methodology. Critics of the status quo
of culture tend to set store on the ‘sender’ side of cultural phenomena. This can be
exemplified by typical questions they raise: what products are made or consumed?
who makes it? who plays it? what is the purpose of the cultural product? Make money
or pure artisan spirits? To whom is it presented? The rich, cultivated people or poorer,
uncultivated ones? What message does the producer want to be heared in a work?
One can regard all these questions as ones deriving from the ‘supply-side’
perspective of analysis of culture because critics asking these questions only look at
supply-side of cultural phenomenon, namely, planing, manufacturing, distributing,
selling, advertising, etc.
However, a few questions may come out in one’s mind including: ‘Does it make
no sense how consumers use such cultural products?’, ‘Can one prejudge what
consumers experience when a certain product is bought or presented?’, ‘Can
manufacturers and producers of cultural artefacts ensure that consumers accept and
use them in the way they anticipated?’ ‘Is there no chance that consumers demand
manufacturers, producers, authors, composers, and players of a music to adjust to
consumer’s taste?’, ‘Rich people sometimes prefer pop musics while poor people
39

listen to classic musics. Is this a result of moral decline?’ ‘On what grounds can one
decide whether a certain cultural product is good or bad?’, ‘Can a composer of a
music be sure that his message hidden in his dramatic tune is heared and caught by
listeners unmistakably?’ ‘Can one assume a straightforward relationship between
“sender” and “receiver” of cultural artifacts as critics do even when one sees
complexity as shown above questions?’
Such questions reveal complexity of cultural phenomena and inevitably leads us
to pay attention to another aspect of cultural analysis, i.e. the process of meaning
creation by consumers. In modern society, unlike pre-modern one, consumers have
freedom of choice when they enjoy cultural artifacts. They decide what and how they
buy and use them. They do so on various reasons: for pure joy; to express their own
good or bad taste; to show that they belong to something (nation, party, group,
company etc.); price and/or quality of the product; to show they are just different from
others, and so on.
Even they buy something distasteful to ridicule it. One can not fully understand
cultural practices unless considering these meanings consumers or ‘receivers’ of
culture give on each cultural product, and analyzing how these meanings function in
the process of cultural phenomena. This is what I call ‘demand-side’ analysis of
culture.
Indeed, presenting such a complex process of meaning-making in cultural
practices as a ‘network’ and bringing up consumers or ‘audience’ as a key concept for
understanding culture is one of great contributions of British Cultural Studies.
Of notable accomplishments of their study, Doing Cultural Studies may be
most helpful here. In the book, the authors insist cultural analysis needs to study five
40

major cultural process – Representation, Identity, Production, Consumption and
Regulation as shown below:
These five processes (...) Taken together, they complete a sort of a circuit –
what we term the circuit of culture (...) As we argue in this book, to study
Walkman culturally one should at least explore how it is represented, what
social identities are associated with it, how its is produced and consumed,
and what mechanisms regulate its distribution and use. (Du Gay et.al: 4)
They also stress consumers’ initiative as to how to choose, use, represent, re-
interpret cultural product by saying:
While producers attempt to encode products with particular meanings and
associations, this is not the end of the story or ‘biography’ of a product,
because this tells us noting about what those products may come to mean
for those using them. In other words, meanings are not just ‘sent’ by
producers and ‘received’, passively, by consumers; rather meanings are
actively made in consumption, through the use to which people put these
products in their everyday lives. (Ibid.: 5)
One would find what these authors insist here is possibly applicable to critics of
cultural degradation. Those critics often concentrate on the ‘sender’ side (in my term,
‘supply-side’) of cultural phenomenon while omitting the ‘receiver’ side (in my term,
‘demand-side’) of it. They enthusiastically insist culture gets worse, but none of them
speaks from the demand-side.
British cultural studies’ emphasis on ‘demand-side’ of cultural practices was
further advanced by John Fisk. He stresses that people have potentials to tailor
cultural artifacts to fit their own needs. He borrow the term ‘appropriation’ from
another cultural theorist Michel De Certeau to describe this potential. He states:
Popular culture is made by subordinate peoples in their own interests out
of resources that also, contradictorily, serve the economic interest of the
dominant. Popular culture is made from within and below, not imposed
from without or above as mass cultural theorists would have it. There is
always an element of popular culture that lies outside social control, that
escapes or opposed hegemonic forces. Popular culture is always a culture
of conflict, it always involves the struggle to make social meanings that are
41

in the interests of the subordinate and that are not those preferred by the
dominant ideology. The victories, however fleeting or limited, in this
struggle produce popular pleasure, for popular pleasure is always social
and political. (Fiske: 2)
His view is sometimes called ‘cultural populism’ which exaggerates consumers’
power. (Storey: 174) Then, how should we think of the gap beween critics of
globalization, like Naomi Klein, and so-called cultural populists like John Fiske? Is
one of them correct and the other incorrect? Or, should we think the reality lies in in-
between?
In the next section, I examine this issue by looking closely at a global cultural
icon, McDonald’s. This illustrates how people appropriate it to their benefit. It also
reveals even if standardized, low-brow product of a TNC is sold, people can enjoy
individual freedom, though perhaps not indefinitely, by various measures including
forcing a TNC to adjust to their local needs; establishing their original ‘brands’; or
just refusing to buy it.
3-3 Case Study: McDonald’s
In this section, I examine critics’ claims by referring to McDonald’s.
It seems extremely appropriate for one to choose McDonald’s as a best example
for this study when one sees that many critical authors blame it for advancing
corporate globalization.
The most remarkable example is José Bové, a French farmer and activist, who
attacked an outpost of McDonald’s in Millau, a town in southwestern France on 12
August 1999. He explains why he did so by saying:
*Such food as offered by McDonald’s is industrial product which needs
industrial agriculture. (a set comprised of cheap beef, just one breed of
42

potato, and a salad with thirty-four vegetables is sold in McDonald’s all
over the world) Everything is standardized. In McDonald’s, hegemony of
transnationals is depicted. Thus I thought the target is suitable for
expressing our will against globalization. Then I decided to destroy
McDonald’s under construction in Millau. (Ariès & Terras: 74)
Such a view finds an unexpected friend. Thomas L. Friedman, self-proclaimed
pro-globalizer, agrees with him on the claim of McDonald’s role in globalization. He
states:
Every once in a while when I am traveling abroad, I need to indulge in a
burger and a bag of McDonald’s fresh fries. For all I know, I have eaten
McDonald’s burgers and fries in more countries than anyone, and I can
testify that they all ready to taste the same. (Friedman: 248)
As shown above, Friedman regards McDonald’s as symbol of global
homogenization. Besides he appreciates it.
The trend is explained at the huge length of a book. In McDonaldization of
Society, sociologist George Ritzer calls it ‘McDonaldization’, and argues it is the
inevitable course of modernity. He states:
de-humanizing effect of fast food restaurants is that it is homogenizing the
States and all the world. (...) expansion of fast food from the States and
other countries to most parts of the world reduces differences among
circumstances. It limits, if destroies, human’s desire for divergent
experiences. (Ritzer: 219-220)
Then one question may arise in readers’ mind. ‘Does McDonald’s really cause
homogenization of society in the world?’ Or some may ask, ‘Does McDonald’s offer
only homogenized, standardized products?’
One could answer these questions by consulting a book titled Golden Arches
East in which indigenous scholars from East Asia observe what occurred there when
McDonald’s came in. For example, Yunxiang Yan from China reports that
McDonald’s is regarded as a ‘slow-food’ restaurant in China. He states:
43

In the United States it is commonplace to equate McDonald’s food with
low cost and fast service. (...) In Beijing, by contrast, the Big Mac was
rapidly transformed into a form of haute cuisine, and McDonald’s became
a place where people could gain status simply by eating there. A scrutiny
of social interaction in Beijing’s McDonald’s reveals that what appears to
be the same institution represents radically different things in the two same
institution represents radically different things in the two societies.
(Yunxiang: 53-54)
The most interesting example he writes is probably a mother who took her
daughter to McDonald’s at least twice a week. Her motive was to make her daughter
to adapt to American food. He argues that for middle aged parents in China, most of
whom lost their opportunity in Cultural Revolution (1966-76), letting their children
learn all the skills (like computer, piano) and be accustomed to western cultures
necessary for living as modern persons, is priority. Accompanying children to
McDonald’s and eating ‘a Big Mac and fries, like learning typing and computer skills,
is part of the mother’s plan to expose her daughter to American culture’. (Ibid.: 65)
He also states that several Chinese students attending US college said their mothers
always told them to eat cheese while insisting that Americans are strong because they
ate a lot of cheese. He concludes: ‘Here food is directly related not only to its
nutritional value but also to its symbolic power’ (Ibid.: 66)
As shown above, even if standardized products are given, it does not mean that
consumers’ experiences are also standardized. Far from it.
Examples of McDonald’s efforts for localization never stop there. Another
contributor of the book, Emiko Ohnuki-Tierney points out:
The Japanese menu includes the standard fare one would find in any
American McDonald’s, but, in an effort to increase sales, Japanese
McDonald’s restaurants have experimented with different food items such
as Chinese fried rice (MacChao), curried rice with chicken or beef, fried
egg burger (called tsukimi-baga, or “moon-viewing burger”), rib burgers,
hotdog burgers, shrimp burgers, and chicken-tatsuta (a soy-sauce-flavored
44

chicken sandwich). (...) Other items served in Japan that are not found in
most American outlets include iced coffee, iced oolong tea, hot oolong tea,
corn soup, café au lait, and bacon-potato pie. (Ohnuki-Tierney: 162-163)
Bhagwati also notes that McDonald’s in France offers baguettes and remodels
their restaurants to fit local tastes by featuring at least eight themes – such as
‘”Mountain”, complete with a wood-beam ceiling reminiscent of a ski chalet.’ (Leung
cited in Bhagwati: 110) Moreover, the company ‘even begun to replace its traditional
red-and-yellow signs with signs in muted tones of maroon and mustard. And while the
basic burger offerings remain the same, there is espresso and brioche. (Ibid.: 110-111)
On such accounts included in Golden Arches East, the editor James L .Watson
concludes that while McDonald’s has affected local cultures, it changes itself to adapt
to local cultures. He states:
On close inspection, (...) it is clear that consumers are not the automatons
many analysts would have us believe. (...) The process of localisation is a
two-way street: It implies changes in the local culture as well as
modifications in the company’s standard operating procedures. Key
elements of McDonald’s industrialized system – queuing, self-
provisioning, self-seating – have been accepted by consumers throughout
East Asia. Other aspects of the industrial model have been rejected,
notably those relating to time and space. In many parts of East Asia,
consumers have turned their local McDonald’s into leisure centers and
after-school clubs. The meaning of “fast” has been subverted in these
settings: It refers to the delivery of food, not to its consumption. Resident
managers have had little choice but to embrace these consumer trends and
make virtues of them. (Watson: 36-37)
3-4 Conclusion
In this part of the paper, I examined insistences of critics of corporate
globalization from the cultural viewpoint. They insist that globalization brings out
cultural homogenization over the world. Their claims, however, turned out to be
problematic when scrutinized with theoretical and/or empirical considerations.
45

What is implied is that transnational corporations are not omnipotent as those
critics presume, but they have taken significant effort to adjust to local tastes, not the
other way around.
46

Conclusion
The aim of this study is to scrutinize critics’ claim that globalization has led to
corporate dominance of the world. I try to accomplish the task by breaking down
critics’ insistence into three categories – economic, political, cultural ones – and
examine their core arguments theoretically and empirically.
The results of our analysis are not definitive by any means. However, they all
imply that critics’ claims are overemphasized and too pessimistic about human
potentials for tackling presumed evils of globalization.
Then our last question should be: ‘How should we think of globalization and what
should we do?’
Certainly there are numerous ways for answering it. However, one thing seems
certain: in the normative perspective, especially for those living in advanced countries,
being optimistic and progressive is a duty. This is because living in rich countries is a
privilege, so thinking unprogressively and pessimistically with nothing done while
enjoying high standard of living can be said a sin by any ethical standard.
Sir Karl Popper, one of great scholars who support open society (which one can
translate into ‘globalized society’) criticizes hopeless views of human nature
expressed by Max Horkheimer and Theodor W. Adorno by saying:
*In fact, Horkheimer insists that, without any reasoning, and neglecting
historical facts, there is no possibility of reform of so-called ‘social
regimes’. This is equal to saying that people of this generation must die in
sufferings – because all we can do is just to reveal ugliness of this world
and to insult oppressing ‘the bourgeoisie’. That is all so-called ‘Critical
47

Theory’ of the Frankfurt School tells us. (...) To exaggerate ugliness and
vulgarly of the world is a sin. This world is ugly, but can also be really
beautiful. It is inhumane, but can also be humane. (...) We have a lot of
things we can do now to ease people’s suffering, and more importantly, to
alleviate individual’s humane freedom. (...) We should not wait for
Goddess of history or Goddess of revolution coming. (...) I regard the
literature of the Frankfurt School as ‘opium for intellectuals’. (Popper:
147-148)
What Popper insists here seems applicable to critics of globalization.
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Note2: All the news articles are electronically retrieved. Consequently, they have no
page numbers.
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