nm1122: now i've also circulated the arrangements for the seminars for this 
term as we agreed they're different from last term we're having them right at 
the end of the term er so you've got the topic there that er you er volunteered 
to do and th-, also those are room numbers where we're meeting er right at the 
end of term so we've got five seminars er we'll use the two hour slots for two 
seminars okay for each each hour plus one of the hours so you've a total of 
five hours there altogether 
sm1123: yeah 
nm1122: two-plus-two-plus-one everybody clear on what we're doing and the idea 
of that is that we get all the teaching out of the way and then there's no 
problem that the seminars are running ahead of the lectures okay er those of 
you the the visiting students er who er i think at least at least a couple of 
you got some rather low marks and i think the reason for that might be as i 
have discussed certainly with one of you that you were unclear of what was 
required of you er if 
you want to pick a topic from last term and have another go at it er i'm i'm 
willing to accept that okay because you hopefully now have a better idea of 
what's required of you so if you want to choose a topic from last term er then 
by all means do so and i'll put that mark in rather than the one that you've 
been given because as i say i think there's a learning process going on of 
what's required okay right that only applies to visiting students the rest of 
you know exactly what's required [laughter] right oh it's another one of those 
du-, well today we're talking about globalization and liberalization you should 
all have a handout now er 
sm1124: 
nm1122: have you covered globalization in in your International Relations 
course so are you doing that course okay well i'll er probably start off by 
asking you then what do you understand by globalization what's your how would 
you define it anyone don't be shy globalization you n-, if you were if somebody 
asked you just in general terms what you understand by it and by that 
sf1125: glo-, globali-, globalization is the phenomenon that took er er er 
technology er all around the world the trade er er the trade er er are 
liberalizied er 
nm1122: mm 
sf1125: and around to er duty er in the market er er something 
nm1122: okay right so we've got this huge expansion 
sf1125: yes 
nm1122: in the flow of information 
sf1125: yeah 
nm1122: er integrating countries 
sf1125: yes 
nm1122: and and markets together okay is it a new phenomena i mean is it 
something new or is it just an extension of what's been going on for a long 
time 
sm1126: it's an extension really 
nm1122: right in what sense 
sm1126: er well countries avoid one since trading began globalization was 
really beginning beginning beginning through trading as countries become more 
interlinked in trading and then they then their economies become more 
interlinked because of that trading and how well their trade runs 
nm1122: right 
sm1126: 
nm1122: so international trade isn't as we've said before isn't just goods it 
also brings people in contact with each other and this exchange of information 
and the and the and the learning process that we've talked about so it's not 
new in that respect at all i don't know whether some of you saw there was a 
programme earlier on in the week er talking about er stone age temples in Malta 
anybody see it at all well one of the fascinating things there was that and 
this was five-thousand years ago and er we're talking 
about Malta and the axes they were using used greenstone which can only have 
come from somewhere in the Alps towards the Austrian frontier er which is i 
guess in a straight line's about a thousand miles away and we're talking about 
five-thousand years ago there was obviously trade going on even then er so 
there's nothing new about trade in that sense globalization has a very long 
history er so the idea that it's something new and something spectacular that 
you know we've really er got to deal with now as a new exciting phenomena in 
that sense is is overplayed there's another view about globalization isn't 
there that er to quote a a theologian recently who was writing about 
globalization er talked about it ravaging the planet all right which is the 
other view about globalization particularly in the context of developing 
countries er the idea somehow that globalization and one of the key instruments 
of it which are multinational companies er is somehow a 
vehicle for the exploitation of poor countries er and that they're worse off as 
a result of globalization and of course like any economic change they can be 
and there are gainers and and losers from from this process but our job is to 
take a more objective view er as i say stating that it's not something entirely 
new er the new part of it is the speed at which factor and product markets are 
being linked together that's the new part going back to what you were saying 
earlier about the speed of communication the speed and the flow of information 
er so the phenomena itself isn't isn't new it's just a continuation of traders 
for many thousands of years er engaged in the movement of people and the 
movement of goods er and today particularly services er but it's the speed at 
which i think the change is taking place er so the first question then is why 
the speed of change er in which factor and product markets have been much more 
closely integrated what are the forces 
giving rise to that and secondly what are the role of multinational companies 
or transnational corporations as they're more generally known perhaps outside 
of Britain er what is their role in this process they're seen as being central 
to it er what is their role in the process and what i-, what are the costs and 
benefits of multinational companies er that are operating er in post-developing 
countries that's what we'll be looking at today okay i've given you there er my 
definition of globalization it's the rapid increase in the integration of world 
markets particularly for goods and services and financial markets er do you 
have another handout there please is there a spare one yeah er and i take this 
i mean i'd be interested in your views but i've listed some of the factors that 
seem to me to be important in driving the speed with which this is taking place 
disintegration of of er er of these markets but please tell me if you can 
think of other important factors that i've missed out the first one seems to me 
to be falling transport and communication costs mm er i mean that fall in 
transport costs particularly fuelled the huge expansion of trade from eighteen-
seventy onwards er combined of course with the Industrial Revolution spreading 
er in er Europe and North America but we've seen a further revolution in 
transport costs i've put there that sea freights have fallen by seventy per 
cent in real terms er between nineteen-eighty and nineteen-ninety-six so it's 
still going on this is the containerization revolution this is the huge 
increase in the size of ships er and with it all the mechanization that goes 
with that er in port handling facilities and the rest er so we've seen huge 
investment er in all this new technology in in in shipping and port handling 
which has greatly reduced cost maybe perhaps given some of the sea disasters 
that we've seen er perhaps the pressure on costs is a bit 
too much er but that's another story and of course the huge fall in 
communications cost i don't know if anyone's got any numbers they could give me 
i couldn't find any easily about some number that might capture the huge fall 
in communication cost you know the tr-, the local cost of transmitting data 
back and forward say to America or the changes in the cost of telephone calls 
and so forth anyone any ideas on that read any articles no i couldn't come 
across anything off hand but it's quite obvious that there's been an enormous 
fall and that's continuing er with er all the mergers that we've seen in the 
and the and the new technology that keeps pouring in every year into the 
telecommunications industry er using satellites cables combined with computers 
and everything else so clearly that's must be a huge figure as well probably 
much much greater than the seventy per cent that i've given er over those er 
sixteen seventeen years so the fall in 
transport and and communication costs seems to me to be one critical factor 
speeding up this integration of markets secondly changes in technology er in 
the sixties and seventies and on into the eighties er it was still an era of 
sort of a Henry Ford type er assembly operations where you had huge integrated 
plants er benefitting from economies of scale er in production mm er and the 
big change in technology er as much as i understand it which is not a lot er is 
that that has completely changed almost right across the board er where new 
technologies computer controlled technologies in in particular have enabled the 
whole scale of production now to be much smaller than it was before to put it 
more technically minimum efficient scale of production er all right the lowest 
point of the of the long run average cost curve er minimum efficient scale of 
production er is now at a much lower level of output than it was before now 
that must be good news for developing countries mm 
because large-scale production inevitably centres production in the 
industrialized countries mm because they have the large markets they have 
access to capital and skilled labour and all the rest that is needed for these 
huge integrated plants and a small developing country finds it very difficult 
to break in to industries where there are large economies of scale in 
production er so this change in technology which is decreasing minimum 
efficient scale of production must be good news surely for developing countries 
moving in particularly into the new technologies and new products and new 
industries er er leaving perhaps the larger assembly operations which may still 
be subject to economies of scale to er to the industrialized countries so we've 
changes in technology decreasing the minimum efficient scale of production and 
secondly changes in technology greatly increasing the speed and capacity to 
process information okay it's the combination of computers and 
er and information technology in in general satellites cables the rest er which 
enable us to transfer huge flows of information er highly technical information 
almost instantaneously from one side of the world to another er last year er i 
was er lucky enough to be in Mauritius er go there from time to time doing er 
some work for various organizations just happened to choose Mauritius er 
[laughter] and there the key sector indeed the only er manufacturing sector on 
the small island er is the clothing industry i mean in the to give you an idea 
of its expansion er in the late seventies there was hardly any clothing 
industry at all in Mauritius they were almost totally dependent on exports of 
sugar er sugar cane of course er er huge expansion in the population due to 
past growth of population so 
er they had ooh twenty thirty per cent measured unemployment and of course as 
we know in developing countries er real unemployment is always quite a bit 
greater than measured unemployment but you know twenty thirty per cent measured 
unemployment much higher percentages of unemployment among young people 'cause 
there weren't any jobs for them and so the government er intervened into this 
situation and through various processes that we'll be talking about in a moment 
er attracted in foreign direct investment particularly er Hong Kong investment 
to set up a clothing industry and by the nineteen-eighty-six eighty-seven they 
had become the the world's third largest exporter of er woollen clothing er you 
know proud boast is there isn't a single sheep on the island er but all the 
wool comes from Australia er it's made up then into woollen garments and then 
it's exported particularly to Europe but also to North America er having 
started off with woollen 
garments they also have er got into er cotton and into mixtures of cotton and 
artificial fibres and now it's a very thriving industry indeed it's the it's 
the main source of employment on the island and totally transformed the 
standard of living there in the matter of a decade so it's a a really a 
spectacular success story so far and going round some of these factories which 
of course were new factories er one of the points that was made to me was that 
er we only get the orders from Europe and some of these er factories were 
supplying fashion houses in in France in particular 'cause Mauritius has got a 
long history er of association with France it used to be a French colony before 
the er er Napoleonic Wars er and er the fashion houses in France only give the 
orders to the factories in in Mauritius at the very last minute you know er and 
then they'll say say it's sort of er er s-, spring clothing they'll get the 
orders round about September October and delivery's got to be 
now January you know er which of course a very short time period for them er to 
respond to this and one of the key factors in their ability to respond to it is 
the ability to transfer the details of the order the exact you know precise 
patterns that are needed the precise specification of the clothing the 
different sizes the different styles measurements that are a-, all needed er 
including all the instructions for setting up the numerically controlled er er 
machinery which they then have computer controlled machinery which is then used 
to cut the cloth and then it goes off for finishing which is more a sort of a a 
a labour intensive operation er you know the stitching and the and various bits 
and pieces er that gives the style to the garment er but a key factor was this 
ability to transfer very very detailed information to and fro the factory and 
er the fashion houses er in the space of a second er and to transfer that 
information straight onto the new machinery as 
well as the fact that minimum efficient scale of production was much smaller er 
than it had been maybe you know fifteen twenty years before er using the old 
machinery so that's an example then of a way in which we've had a decrease in 
minimum efficient scale of production combined with er this technological 
revolution in transmitting information er combining together to give a strong 
comparative advantage er to a developing country such as Mauritius the third 
element that seems to me important are er changes in the organization of 
production er at an international level i mean all of you lot have heard about 
international sourcing and i'm sure you've seen articles and maybe diagrams 
showing er lo-, th-, where components for a car today come from er the gear box 
may be made in in er er Brazil er the powertrain maybe comes from er Taiwan er 
the seats are maybe made in Italy er the electronics er come from Germany and 
so forth and then it's all brought together er in the 
assembly plants which are generally near the markets either in Europe or North 
America or i-, or in Japan but worldwide sourcing of components er is now er 
the key element in maintaining the competitiveness er of a wide range of 
products of which the most spectacular i guess are cars but it applies now 
right across the board to electronic goods and a whole range of other products 
er so this change in the organization of production which again goes back to 
some of the points we made earlier er the fact that transportation costs are 
much lower now the fact that communication costs are lower and much more er 
speedy and sophisticated than they were before enable this international 
sourcing of production er so there's been this change laid particularly by 
Japan er in the organization of production and the other element to the change 
in the organization of production er is just in time production as it's called 
again er particularly introduced in er Japan although they 
were actually using er American engineers who had first invented this but it 
was put into practice in a large way in Japan and just in time production is 
that all these components from all over the place come together just in time to 
be assembled into the final car er you don't keep stocks er or you keep very 
little in the way of stocks it's a sort of huge conveyor belt er stretching 
right across the world and coming just in time to be assembled together er for 
the final product whether it's a car or a video recorder er or a camera or C-D 
player or whatever it happens to be er and that again is increasingly the 
element in maintaining competitiveness and firms that are not able to organize 
production in that way er simply can't compete which is you can see we're 
beginning now to move in to the ways in which multinational companies then have 
a strong competitive edge er if not a dominant position in these world markets 
'cause it's it's that sort of size that sort of worldwide 
sourcing that sort of knowledge about where to buy goods how to combine them 
together er just in time er that multinationals have and which are very 
difficult for er er smaller national companies er to obtain er so we come then 
to the rise of transnational corporations er producing for a global market er 
they're the ones who can take advantage in particular of these various 
components that i've mentioned fall in transort communication costs changes in 
technology changes in the organization of production er and their competitive 
strength particularly lies in their ability to make use er of these fundamental 
changes er in techniques of production but of course all this would be 
impossible without er the liberalization of world trade in goods and services 
and in capital markets we've talked about that last term when we talked about 
in particular the Uruguay round of er multilateral trade negotiations er and 
the the the fact now that you know previously the W-T-O had 
been regarded as the rich nations' club but now almost all developing countries 
are signing up or have signed up to the W-T-O to be members because the W-T-O 
is the central point for er the development of the liberalization of world 
trade if world trade isn't isn't liberalized then transport and communication 
costs can fall as much as they like we can have changes in techniques of 
production er going at a rapid pace but it's not going to lead to anything 
unless we also have the free movement of er factors of production and goods and 
services and so it all fits together one element reinforces the other one 
element drives the other er the need to be competitive er and utilize these er 
changes er in technology and changes in the organization of production bring 
pressure to bear on governments to er negotiate er trade agreeements freeing 
barriers to trade freeing barriers to movements of capital er and of course 
also freeing barriers to movement of 
people er so we've had this drive towards liberalization er of er world trade 
and er capital movements multilaterally through the W-T-O but also bilaterally 
through er free trade agreements and remember we mentioned again last term er 
the huge proliferation of free trade agreements er notably by Europe er but 
also increasingly by er the United States and in turn by a wide range of 
developing countries particularly in Latin America er to a lesser extent but 
it's gathering pace also in Europe er in er er in in Asia er started off with 
ASEAN the Association of er South-East Asian Nations which is still more a 
political organization than economic but the economics are increasing but the 
key one er is er is APEC er which covers er the Pacific and East Asia and er 
countries like Thailand Taiwan er China probably coming into it er er Malaysia 
and so on er and of course er unilaterally er we tend to think of trade 
negotiations being a bargaining process but remember the theory of 
international trade er tells us 
that far from giving something away when you lower your barriers to trade mm on 
the contrary er you gain by this and that's what the theory of comparative 
advantage tells you er that's not intuitively obvious to people that by 
lowering your barriers to trade you're not giving something away you're gaining 
you're raising the welfare of the country you're increasing your production 
possibilities you're increasing real income so lowering barriers to trade er 
unilaterally is a welfare increasing process for the country concerned they 
don't need to get something in exchange in order to benefit from trade and 
increasingly that message is also coming home er to countries who are 
unilaterally lowering their barriers to trade so at the bottom of that page 
there i've given you some er i mean you can have as many figures as you like 
here you can look at the growth of world trade you can look in particularly at 
the rising share of er trade in gross domestic product er for for rapidly 
growing countries and what i've given you here is just some figures taken from 
the world development indicators remember that key source from the World Bank 
er showing trade in goods and remember it's just goods that are in here as a 
percentage of purchasing power parity all right P-P-P stands for purchasing 
power parity er of gross domestic product just comparing nineteen-eighty-seven 
with nineteen-ninety-seven and not surprisingly you see particularly for East 
Asia and the Pacific er there was just under ten per cent trade was in goods 
was just under ten per cent of G-D-P in nineteen-eighty-seven it was just under 
fifteen per cent in nineteen-ninety-seven now remember in nineteen-eighty-seven 
East Asia had already made huge progress with they they were already in the 
newly industrialized countries in nineteen-eighty-seven and if i'd gone back 
ten years before that you'd have seen an even more spectacular change so that's 
already started in nineteen-eighty-seven 
already got the newly industrialized countries established in world trade and 
they're still increasing trade as a share of their gross domestic product er er 
at world level er you can see again a a a a ten per cent increase er Latin 
America now is the area where trade is the powerhouse for the growth of of 
these economies er trade both between countries the Mercasor countries in Latin 
America that we talked about er last term er rapidly increasing trade between 
themselves in which Brazil er of course given its size a central er country 
here er but also 
trade with the rest of the world as well er and of course we've got the er 
North American Free Trade er Agreement between Mexico and the United States and 
Canada and the plan to er expand that into the Free Trade Area of the Americas 
mm er well that'll be something for the future er but that's the pattern which 
er er Latin America will almost certainly follow bringing into the Caribbean 
now of course that's just trading goods mm er what we tend to forget about 
because we're still rooted a bit in the past in our thinking and the textbooks 
are still rooted a bit in the past here as well trade in services has expanded 
to a much greater extent than trade in goods trade in goods has expanded 
rapidly but trade in services has exploded mm and again changes in technology 
do enable developing countries to take part in that for example the er er 
software for er that was written to produce the er timetable for the London 
Underground was written in India mm er many an increasing number of er large er 
companies today er transfer all their routine data processing and data 
inputting er out to developing countries out to India out to the Caribbean out 
to countries in the Latin America er so the raw data is just exported en masse 
again using the revolution in communications and computer technology er and 
then it's inputted and processed and produced in whatever form the companies 
require and transferred back to the er head office or distributed out to the 
various er branches of these large corporations throughout the world er and 
labour's cheap of course in developing countries so you've got a pool of of 
cheap but skilled and educated labour er and so rather than do the task in the 
industrialized countries where labour is is is er is not plentiful it's scarce 
it's expensive you transfer it out to developing countries but there's all 
sorts of areas of growth of services er again using new 
technology er for which developing countries are increasingly involved another 
rapid area of course are financial services er which again can involve a 
limited number of of developing countries and then of course we've got tourism 
and international tourism is er a rapidly growing er source of income and 
employment particularly for small developing countries er quan-, quantitatively 
it's going to be not terribly important for a country like India or China 
although they've got a rapidly expanding er tourism market but for smaller 
countries er in er say like er Sri Lanka in er South Asia or other countries in 
South-East Asia or one of the Caribbean countries er or Pacific countries you 
know tiny island countries like Tonga and Fiji tourism is becoming the most 
important source of employment er and a major source of export earnings so 
don't forget the service sector in here we tend to think of goods all the time 
we tend to think of comparative advantage in terms of production of goods er 
for final consumption but apply the same theories apply the same thinking to 
the service sector and that's re-, er that's expanding even more rapidly than 
trade in goods well those are the sort of things that seem to me to be driving 
this globalization process and as a a-, as a result of that particularly giving 
er a competitive strength to big international multinational companies and i 
want to move onto those in a moment but i'll stop there for a moment any 
questions you have for me or points that i've missed out that you think are 
also driving this globalization process okay well if anything comes to mind 
while you're thinking about it let me know and chip in particularly when we're 
talking about multinationals er which we're now er concerned with i keep 
calling them multinationals but i er because that's what i've called them in 
the past but i gather that the standard term today is now transnationals the 
American term and indeed we have the U-N 
Centre on Transnational Corporation so i er that's why i stuck to that term 
don't like it transnational er sounds a bit clumsy to me prefer multinational 
but never mind er we'll stick to that now first of all let's and those of you 
who who've done er courses in international trade might well have covered this 
so apologies if i'm er covering something some of you already know and indeed 
chip in if there's something i've missed out or not quite made clear er but the 
theory of multinationals transnational corporations er [cough] is really based 
on on three factors so you r-, really the the the the the the the er 
emphasizing that the growth and indeed the dominance of transnational 
corporations is the outcome of three interacting circumstances er the ownership 
advantage of these firms their locational advantage and their internalization 
advantages and i'd like to go through each of those briefly in in turn er the 
ownership advantage of multinationals transnationals er is 
that they they own assets which can be profitably exploited on a comparatively 
large scale all right that's the first characteristic that they own assets 
which can be profitably exploited on a comparatively large scale and the sort 
of assets we're talking about are particularly things like intellectual 
property okay Microsoft er classic example perhaps of er er of intellectual 
property but it applies right across the board er it's i-, it's the knowledge 
of er you know what to produce how to produce it where to sell it how to market 
it that sort of knowledge okay that proprietary knowledge er which is a key 
component but also that that knowledge can be exploited on a large scale i mean 
if it's a highly specialized piece of knowledge you're not going to get a 
transnational corporation out of that mm so it's not only that they have this 
proprietary knowledge but also that the knowledge can be applied on a 
relatively large scale er other sort of er ownership advantages er would 
also be er organization and managerial skills which again in a sense develop 
from the size of the organization because the organization gets bigger er it 
has to rearrange the way in which it it it carries out its functions er some 
will be efficient at doing that and some won't er the usual Darwinian selection 
that we believe in in economics er those that can't organize themselves on a 
large scale go under so the ones that we actually see surviving are the ones 
that have adapted their organizational structures to be able to expand on a 
large scale er and that of course er brings a cumulative advantage to them over 
smaller firms or national firms which don't have those organizational and 
managerial skills equally of course it's presumably why you'll probably app-, 
at least some of you apply to these sort of firms er looking for a job er 
because they're the ones with the sophisticated training programmes graduate 
training programmes and you're then inculcated into 
er the organizational and managerial structures and norms and methods of er er 
and and practices of these huge er transnational corporations er so they build 
on these skills by investing heavily in people er that's why they're good 
organizations to join but it's essential for their survival that they do so er 
if they don't heavily invest in people and in organizational skills then the 
sheer size of the organization will be its downfall er and they also because 
they're producing on a comparatively large scale er they also develop 
sophisticated marketing networks er and again this is er a key ownership 
advantage locational advantage er is simply stating that it's more profitable 
er to produce whatever it is the goods or service er [cough] by utilizing 
assets er in different countries so that production takes place utilizing 
assets in different countries rather than just the home country of er the 
corporation mm so again this is another characteristic the there's this 
er locational advantage er which means that er they can use these assets 
particularly these intangible assets their their ownership advantage and 
produce the goods or service utilizing er the factors of production in a number 
of countries and not just the home country of the of the multinational er 
otherwise you simply produce the product in your home country and then you 
simply export the good or service you wouldn't be a transnational corporation 
you would simply be a large company exporting we could talk about international 
production here so another key characteristics of the goods and services are 
that they can be more competitively produced er utilizing factors of production 
at an international level and the third element there which is the one that's 
perhaps most difficult for people to grasp is the internalization advantage er 
by internalization we mean overcoming market failure er in in open markets or 
regular markets if you like by developing 
internal markets within the transnational corporation now the clearest example 
of market failure and the need for an internal market therefore is the market 
for knowledge mm firms guard their ownership advantages their their knowledge 
er er fiercely if you join one of these firms the fir-, one of the first things 
you'll do have to do is to sign the declaration which will list all sorts of 
things which you must not do er er and which you are will will be sued if you 
transfer knowledge outside of the firm er even without making it available to 
their competitors but you you er you must have a clear desk er you must lock 
away er your various pieces of information in certain places er it is 
absolutely forbidden to copy down onto floppy disks sources of information er 
and so on and they er they they police their computer systems to make sure that 
people are not misusing this knowledge 'cause knowledge is the most precious 
commodity that they have in 
their competitive advantage and the problem for them is on the one hand for the 
firm or for the enterprise to work efficiently knowledge has to be freely 
available er within the corporation itself otherwise you're not exploiting your 
er er your er competitive advantage whether it's in computer systems or in 
producing cars or whatever it happens to be er on the other hand you want to 
guard this knowledge so that it doesn't er it's not available to your 
competitors also knowledge is a is a difficult product once you try and sell it 
hence all the complicated er legislation that we have on intellectual property 
rights remember again last term we talked about the W-T-O agreement on trade 
related intellectual property rights and that was fuelled particularly by 
American companies who were very concerned about firms throughout the world er 
ripping off their knowledge er for software or for anything that happened to be 
er you know i talked about in Taiwan it's politely 
called er reverse engineering you get hold of a Phillips video recorder and you 
take it to pieces and say oh that's how they made it er fine you know we can we 
can do better than that and sell it for half the price er er 
it is is no longer competitive so knowledge is your o-, often your most comp-, 
er precious competitive advantage but you can't sell that knowledge easily 
'cause as soon as you put it into the i-, into the open market it becomes a 
public good mm becomes a a free good er anybody can rip it off er anybody can 
use this reverse engineering to see how you've built the product er what 
components you've used and how you've designed the circuitry and so forth er 
and you can't er adequately guard that knowledge through the law although you 
obviously as i say in the in in in the TRIPS aggreement er we've been trying to 
do that so knowledge is this very fragile commodity and 
what multinational companies transnational corporations do is to make this 
knowledge freely available within the company er but guard it against going 
outside so there g-, got market failure then and the market for knowledge you 
can't the firm cannot obtain er the er value of its knowledge by selling it in 
markets mm because it can't make it exclusive er so if it keeps it internal 
within the firm but then maximizes er the knowledge advantage that it has er by 
er ha-, by developing internal markets so that there is parts of the 
organization of access to the knowledge they require but don't have access to 
the knowledge that they don't need mm and you control the dissemination of 
knowledge in that way er to er guard against it er going to your competitors 
but at the same time exploiting it in an optimal manner er within the i-, in in 
the company now this knowledge of course it can't simp-, er isn't simply in 
terms of patent and er er various other proprietary knowledge like 
that it can also be knowledge about markets it can be knowledge about er 
production processes er knowledge obtained by the very operations by the 
international operations of the multinational company er and so again making 
that freely available er pooling together the knowledge of gain by the 
worldwide operations of the multinational itself builds up its competitive 
advantage so the competitive advantage then of transnationals obtained from 
their ownership locational and internalization advantages er and combining 
those together now this bit there the personal and potential benefits of 
multinationals transnationals to er developing countries the most obvious one 
is that you get capital and the foreign direct investment comes in er so er the 
developing country gets capital but these days of international capital 
movements that's not terribly important because if you've got a worthwhile 
investment project even in a developing country where there's 
higher risk er you still shouldn't have too much difficulty in financing that 
project mm there are sophisticated international banks who are s-, scouring the 
world looking for er good rates of return for their for their clients' money er 
if you're a small developing country there might be a problem if you're just 
too small for them to be bothered with you know anything less than a few 
billion dollars worth of investment they might not be interested in er but on 
the whole er we've got sufficiently sophisticated international capital markets 
these days for investment er and the flow of investment not to be terribly 
important er as a benefit from multinationals obviously it is still important 
but one of the key points unfortunately about the flow of foreign direct 
investment is that it's heavily concentrated in a relatively few countries few 
developing or transitional economy and i've given you some figures there er er 
though in in recent 
years investment been particularly in the huge economies of China also in in in 
in Brazil and then er Mexico principally because of NAFTA the North Atlantic er 
the er er er North American Free Trade Agreement and er the transitional 
economy and the new NIX er Malaysia and Thailand conversely the whole of sub-
Saharan Africa er only accounts for five per cent of foreign direct investment 
er but the second point i'll make is that as i say if you've got a worthwhile 
investment project you should be able to borrow in international capital 
markets and the involvement of T-N-Cs isn't just confined to foreign direct 
investment today there's a whole sophisticated forms of involvement which may 
or may not involve foreign direct investment licensing agreements joint 
ventures management contracts turnkey projects all sorts of ways in which er 
multinational transnational corporations can be involved in the production of a 
good or service in a developing country it 
doesn't just have to be a wholly owned er affiliate of the of the multinational 
and indeed increasingly today er transnational corporations are quite wary 
about having wholly owned affiliates operating in developing countries er they 
prefer joint ventures quite often governments in developing countries er 
require them to have joint ventures but in any case it it minimizes their 
exposure to risk by having a joint venture or by having a licensing agreement 
or the rest rather than putting large sums of capital in er as i say there's 
international capital markets to deal with that side of things so it's perhaps 
the second form of involvement then the the sort of non-equity forms of 
involvement which are increasingly important today in the activities of er 
transnationals the second benefit is increased employment er particularly for 
women in the manufacturing sector if you look at the opening chapter of your 
textbook there's er a little story in there about er a er a 
young girl leaves school er i think it's in Thailand is it er any anybody read 
it er going into an electronics factory or is Malaysia no i think it's Malaysia 
yes anyway going into an electronics factory and so forth because very often 
the first stage anyway of a transnational's involvement in a developing country 
will be in simple assembly operations and er that's particularly provides a 
source of employment for women rather than men er so that's why i've said it's 
increased employment especially for women in the manufacturing sector same's 
true of i talked about data processing and data entering and so forth er again 
that very often er produced employment for women in in developing countries and 
that's fortunate as well because given the labour markets in developing 
countries there is a a particularly in the urban sector not so much the rural 
sector but in the urban sector there is very limited employment for women er in 
the manufacturing sector in the in the local 
manufacturing sector in developing countries so providing employment for women 
may be particularly valuable er in these countries third that it obviously 
increases real income remember it's the multiplier effect here okay it's not 
simply the direct employment say of women in an electronics assembly er plant 
or whatever it happens to be it's not simply that direct employment there's 
also the multiplier effects of that you remember that the multiplier effects 
can be quite substantial er because it's a labour intensive operation er then 
the women employed in that factory will then go out they'll have a high 
propensity to consume all right given very low levels of income so a high 
proportion of their wages will be spent mostly on local er goods and services 
mm and that'll then lead to multiplier increases er in output employment and 
real incomes throughout the economy mm er fourthly er depending on the activity 
of multinationals and i'll come on to that er later on er there'd 
be a decrease in prices too er i mean if it's export platform er assembly 
operations well there won't be much effect that way but particularly if it's 
import substituting er activity by a multinational which you particularly find 
er in larger economies say like India or China but also in er Latin America if 
it's import substituting er er activity by the multinational then they can be 
providing a higher quality product at a lower price than er domestic 
manufacturers or maybe er in terms of the imported article er simply because 
the transnational corporation is more efficient er has lower cost of production 
er and also because its very presence may well bring in competition into the 
domestic market where previously the market was a monopolistic or or or 
oligopolistic structure er particularly for smaller developing countries er 
local manufacturers may well be you know fixing prices between themselves or 
there may be open or there may be tacit collusion er because it's a relatively 
small 
market and a foreign company coming in which is not part of that process can 
produce more competition er and can force lower prices the general effect of 
opening up an economy to trade further advantage which a gain which 
transnationals can bring is increasing government revenues this perhaps is 
particularly indeed perhaps the only gain that you get from transnationals' 
operation in say er mineral extraction you know mining operations and the rest 
i mean the employment effects are going to be small er very little linkage into 
the local economy so principally the only benefit which the government gets 
from it is er probably a licence agreement to operate er extracting the copper 
the bauxite the uranium whatever it happens to be plus er er payments are based 
on on production so source of government revenue in those cases important while 
manufacturing processes well government revenue might depend might be increased 
particularly if 
it's import substituting er manufacturing er selling products in the local 
market and again there's er the there's usually some sort of local purchase tax 
or value added tax er that'll generate government revenues in that way but also 
go back to what we said earlier that the on the on the multiplier effects of 
transnationals increasing output increasing employment er and that'll increase 
the base for er er government revenues also creating important external 
economies spillover effects er now these are potentially the most important 
effects of all well we say you can borrow capital on international markets or 
you can attract equity investment on international capital markets fairly 
easily these days er generates a bit of employment increased government 
revenues and and so on but the key advantage to a developing country of the 
operation of a transnational er in its economy is to be able to tap in to these 
competitive advantages of the multinational mm to tap into their 
knowledge about production processes about how to organize production about how 
to design the product how to market the product how to keep financial controls 
er and so on all the thousand-and-one factors which together are essential if 
you're going to compete especially in world markets and remember that most 
developing countries are small economies so they've got to go into world 
markets at a 
fairly early stage in their development remember we said it's sort of catch 
twenty-two really er you know they've got small economies and so they have to 
move into world markets at an early stage in their development er but if 
they're able to compete in world markets they wouldn't be underdeveloped 
countries all right so how do you crack the catch twenty-two problem er part of 
the answer to that is attract transnational corporations and then tap into 
their knowledge of course it depends crucially on the extent to which this 
knowledge that i've mentioned about production processes and organizing 
production and management and marketing it crucially depends on the extent to 
which that knowledge disseminates into the local economy er if it's a mining 
operation there's not going to be much dissemination of useful knowledge mm 
manufacturing process potentially er it can er be very useful go back to the 
case of Mauritius that i was talking about on on the clothing 
industry there it's an interesting very interesting er case study because it 
started off with er Hong Kong investment on pretty simple you know C-M-T cut 
make and trim operations they're called so the cloth comes in it's simply cut 
up sewn up into cheap garments and sold er throughout the world er but then it 
developed into more sophisticated operations mm er particularly brought in by 
er European investment into the clothing industry and of course the the wise 
guys there worked for the er foreign companies they saw how things were done mm 
they saw they learned quickly er er about overseas markets er about the n-, how 
to organize production in particular how to deal with these very short lead 
times between the buyer saying this is what we want for the spring sales and 
being able to produce it you know three or four months later or even shorter 
lead time than that er how to keep financial controls er and so on okay er and 
they would indeed some of the families that i talked to 
there er had specifically the father would send the sons out you know you're 
going to work for that French company there and you'll work for that Hong Kong 
f-, company er er you'll go into the accounts department you'll become a 
production engineer you'll go into marketing i mean it was it was it's as far-
sighted as that you learn then from their operations er and then we set up our 
own factory er not only then do we find in Mauritius that more than half the 
factories are now owned by Mauritian nationals but they've also bought out er 
the original er investors the original Hong Kong investors er and American 
investors in in particular er so they started off working for the company they 
ended up owning the company mm but even without that a key factor in this 
dissemination of knowledge is simply you work for the company you learn how 
things are done and then off you go and do it yourself er and er because you 
have these credentials you don't have m-, much problems er in borrowing 
money er to set up the factory either you've worked for a a a big name er 
you've probably established your contacts as well throughout the industry so 
you'll know you're a known quantity in the industry particularly on the 
marketing side er and they've been extremely successful in doing that er so as 
i say so now more than half the industry is owned by Mauritian nationals well 
at the beginning you know my first sort of fifteen years ago er it was er 
almost exclusively er foreign owned so this dissemination of knowledge then er 
not only by people working for the companies but also by the transnational 
sourcing er its inputs from local firms mm if you're going to source your 
inputs from local firms you've got to tell the local firms what you want mm 
what your design requirements are you'll probably also er put in engineers into 
the firm er in order to tell them how to do it mm one of the key factors which 
has greatly increased the productivity of the British motor industry 
for example has been the fact of Japanese companies coming in er w-, w-, w-, 
whether it's Honda er working on in Swindon or Nissan working up in Newcastle 
on er both on greenfield sites er they were then sourcing they had to source er 
er within the European Union in order to meet rules of origins which is another 
area that a a key element in their ability to export in Europe there had to be 
a European content in production otherwise they wouldn't have been allowed to 
establish themselves so they had to source from Europe they particularly 
sourced from the U-K but then they looked at some of the U-K suppliers and held 
their hands up in horror at their working practices and the technology that 
we're using and the skills of their labour force and so they brought in a whole 
lot of engineers from from from Japan er and put them into these er suppliers 
to bring them up to best practice mm and that's what you find in developing 
countries as well er that er they will 
increasingly source their supplies er from the local economy 'cause it's 
profitable to do so all right it's efficient to do so particularly using as i 
say modern technologies and just in time production er you increasingly source 
from the local economy but you've got to train the suppliers especially in a 
developing country how to meet your requirements in terms of quality and design 
and everything else er so you disseminate knowledge in that way inevitably by 
by by doing that so that's probably the most important potential benefit 
potential benefit from a multinational er but of course there's the potential 
cost of multinationals er and i'm sure most of you are probably familiar with 
those people tend to dwell on the cost i don't know of of multinationals and 
perhaps sometimes forgetting the potential benefits they can achieve a dominant 
position because they're Coca-cola all right er they go in to India whatever it 
was and they wipe out all the er local er producers of soft drinks by 
their sheer marketing er name their image er their efficiency in production 
their efficiency in marketing their financial strains er so they can quickly 
get a monopoly position particularly perhaps in a developing country er and 
then of course there's the the appalling examples of er companies like Nestlé 
er that you know er pushing powdered milk in developing countries you know 
saying it's better than mothers' milk er which is untrue er and also er 
ignoring the fact that the er parents may not be able to get access to clean 
drinking water to combine with the powdered milk and so you have er create 
serious illnesses and you know so there's there's various notorious examples er 
of er the aggressive activities of multinationals er but even without those 
notorious sort of Nestlé type examples there's also this simply they point 
that in a small market transnational particularly import substituting one can 
achieve a monopoly position rather than just 
stimulate er local competition er in the way that we described before at least 
for the second point they can crowd out er actual potential local producers 
again by their sheer size simply based on their reputation and their marketing 
power and their overall efficiency and they may even you know squeeze out local 
producers in the way that er Branson or Virgin Airlines claimed that British 
Airways did er by simply you now keep selling at a loss all right er because 
they can afford to do so they had the financial muscle to do so so you can 
squeeze out the opposition by selling the goods at knock-down prices er then 
once the opposition's gone then you bang up the price er the third point er 
profits er may well be er repatriated and not reinvested in the economy i mean 
obviously the propensity of a of a transnational corporation to invest in the 
local economy will be lower than the propensity to invest er of a a wholly 
owned er local company er 
because they have all these investment opportunities throughout the world and 
they're maximizing the global profits of er the corporation so propensity to 
reinvest er may well be lower fourthly inappropriate products and technologies 
er inappropriate products or like the dried milk case of Nestlé is the most as 
i say a notorious example but it may not be quite as as notorious as that er it 
may simply be that er given their marketing power they're able to you know 
distort patterns of taste and preferences towards sophisticated goods er 
whereas the more approriate product may be a cheaper less sophisticated good 
but not with all the all the design features that they have er i guess the 
selling of maybe trainers and things like that in developing countries er at 
well they're for local people very high prices but for high prices for us as 
well in this country it's er but er particularly in in in developing countries 
you know the kids have got to have those trainers er 
there are er much cheaper local substitutes for f-, of of of footwear but the 
er marketing power of Nike or whatever it happens to be is such that they can 
distort tastes and preferences in that way inappropriate technologies that's a 
tricky one er the first example of that first source of that might be that the 
transnational comes in er with European or American trained engineers and best 
practice for them is the highly sophisticated capital intensive skill intensive 
operation mm er and given their training given their education back in Europe 
or North America that's the only technique they know that's the best technique 
as far as they're concerned they think in er as engineers mm whereas as 
economists we would think in terms of the least cost method of production and 
the least cost method of production may well be a more labour intensive 
technology in a developing country mm not only because labour costs are much 
lower than labour costs in the 
industrialized countries but also the sophisticated piece of machinery will 
need pretty sophisticated maintenance mm which you can sustain in a in an 
industrialized country because you have all the skilled engineers to keep it 
going and you have the specialist er firms who can come in and fix whatever's 
wrong with it and supply the components and off you go er within an hour or so 
in a developing country when a sophisticated piece of important machinery 
breaks down well it may be months before the blasted thing can be can be got 
going again 'cause the part's got to be imported from the other side of the 
world and once you've got the part you've then got to get an engineer who knows 
how to fit it to this highly sophisticated piece of er of equipment and so on 
so the most appropriate technology for a developing country may be er an older 
fashion if you like er more labour intensive er more robust piece of machinery 
rather than a highly sophisticated piece of computer 
driven electronic er state of the art er machinery that's one view okay that 
the that the that that the western trained engineer brings in an inappropriate 
technology yeah 
sm1127: 
nm1122: if you want to produce a particular product given its price and non-
price characteristics all right there may be no choice of technique okay so the 
smooth isoquant that we draw in economics er of er variations in capital and 
labour inputs for any given level of output er may not exist mm the point 
you've just made to produce that design of garment for the fashion house in 
Paris selling at international market in particular you may have to produce you 
they you may have to use the best practice technology of the western engineer 
even if that's not true it it may also be the case that transnational 
corporations er have engineers who have experience in production conditions 
throughout the world mm so that for a few years they might have been working er 
say in Russia or Kazakhstan or 
wherever it happens to be or Poland er then few more years they're down in 
Brazil er then they're off to India mm in the course of that experience of 
working under different economic conditions in different production 
environments they will have amassed er a tremendous amount of knowledge which 
is not codified in books er or into er manuals all right er it's it's embodied 
in them as highly sophisticated very experienced highly trained engineers and 
so when they go into Africa or into a new environment er they bring with them 
all that experience and expertise and so they can solve problems which maybe a 
local engineer couldn't do because they don't have this breadth of experience 
er they can increase the efficiency of existing production because they know 
how you can er deal with these problems they know how you can back up systems 
so that er you can quickly er er deal with problems particularly breakdowns you 
know breakdowns of production in developing countries are 
are a are a continual problem mm if you've got people there that know how to 
fix it when the electricity supply fails when the machines fail er when 
something goes wrong with a production process those people are invaluable er 
and maybe the training which they get and the experience which engineers get 
working for transnational corporations is another invaluable asset far from 
being the er er er bringing it er er the inappropriate technologies they may 
well be able on the contrary to adapt technologies and use local technologies 
er more efficently than local er less experienced engineers so you know the 
idea that it's inappropriate technology shouldn't be er automatically assumed 
there may be no choice of techniques of production or indeed they may be more 
flexible in their choice of techniques of production it's a it's an empirical 
question another cost is extracting concessions from governments again we're 
dealing with highly sophisticated companies 
here they're usually dealing with governments throughout the world they have 
teams of accountants and lawyers and negotiators who are very experienced very 
sophisticated er er negotiators coming up against er civil servants and er er 
politicians in er developing countries who simply don't have that breadth of 
experience and expertise also transnationals are very good at playing off one 
country against another mm er and that's a game that they've been playing ever 
since they started doing this er you know twenty thirty years ago i mean a 
recent example i guess would be in Britain where B-M-W er said well you know if 
you if the government doesn't give us so many whatever it was hundred millions 
pounds er then we'll close the Rover works and we'll move production to Hungary 
mm er you know nobody's it was quite open in saying that er the European 
Commission are now saying er you know that's absolute rubbish er B-M-W had no 
intention of moving production to to Hungary they had no plans to do so it 
wasn't viable and it's causing problems in terms of er the subsidy which the 
British government have had given B-M-W but it's an example how how er a 
transnational corporation even dealing with a sophisticated government er and 
sophisticated officials that you would find in in in Britain can still use that 
argument if you don't give us concessions we'll go somewhere else er if you do 
give us the concessions we'll put in our money our expertise and you won't have 
er in the case of the Rover works you won't have the closure of the works with 
all the unemployment that's going to give rise to and loss of votes and er 
other things that politicians terribly concerned about er er in the case of a 
developing country you know if you don't give us the concession if you don't 
exempt us from tax all right paying taxes if you don't build us advance 
factories if you don't build roads for us er if you don't lay in er the all 
the all the public services at zero cost if you don't give us special prices 
for the electricity that we need or the various other services that we need 
then we'll go to some other country 'cause they'll do it China will do it 
Brazil will do it mm so you've got to do it do you've got to do something 
better than that mm and you play off one country against another the U-N Centre 
on Transnational Corporations tries to act as a clearing house er to alter the 
bargaining er or or the strength of bargaining between er developing countries 
and transnational corporations by trying to in a sense call the bluff of the 
transnational er trying to get developing countries particularly in a region 
not to engage in this er zero sum gain mm to st-, all of them to stick together 
and say these are our tax rates you've got to pay the local rate for the 
electricity supplies if you want these special facilities you've got to pay for 
them and we're all going to stick by that and the U-N Centre on Transnationals 
tries to get countries to cooperate in that way rather than this zero sum gain 
er of playing one off against another but i have to say it's not terribly 
effective they're too desperate to get them in er other possibilities er a 
possible conflict of objectives er between the global objectives of the 
multinational and the objectives of the of the host country i mean there's 
bound to be that conflict to a much greater extent than if you're dealing with 
a a local producer 'cause they're concerned with going back to what we were 
saying right at the beginning they're global sourcing of supplies they're 
selling in global markets they're maximizing the global profits of the group mm 
er and er whereas a local producer will have a more limited framework in which 
they're maximizing their their their profits and that leads to the next point 
in particular people allege that transnational corporations are footloose now 
by footloose they mean they're here today and they're gone tomorrow 
all right er you know you set up your assembly plant er for er er say in 
Malaysia er for assembling electronic goods er whatever it happens to be but 
then Malaysia begins to develop and real wages rise and so you pack up shop and 
you go off to China because China's now got a much more open door policy and 
wage rates are a third those in Malaysia mm er and in when wage rates rise in 
in China well you go off to Africa okay so er footloose then because they're 
transnational corporations they have complete knowledge of where exactly is the 
most efficient and the cheapest er location for their production mm and they 
can utilize this information to switch production from one country to another 
footloose er you have to have be a little careful with that argument because it 
assumes that the costs of being here today and gone tomorrow are virtually zero 
and that's never the case when a transnational is deciding when it will locate 
production they will invest a lot of resources in 
looking at alternative locations what are the costs and benefits of locating in 
Sri Lanka as opposed to in Southern India as opposed to Mauritius et cetera 
okay and they'll be looking obviously at the local resources that are available 
the tax system but also the political situation how politically stable are the 
countries er what are their regulations governing repatriation of profits is 
there a possibility of nationalization all sorts of factors come in before they 
actually locate in a country so there's a a quite a considerable investment in 
setting up even a a a simple assembly operation in a developing country it's 
not costless having invested that time and energy and resources er they're not 
going to suddenly just pack up and go away tomorrow mm 'cause they'll have to 
repeat the exercise all over again for some other country so what tends to 
happen is that having located in a developing country they will remain there mm 
unless things get very bad or er er 
wage rates really go through the roof in which case they'll want to move 
somewhere else but the big decision really is do we expand production say in 
Malaysia okay in the electronics theme or do we set up a new plant in China 
it's the marginal decision like that which transnationals make rather than the 
absolute decision of closing one factory here and er relocating it to another 
country so it's more a case of where do we expand production do we use our 
existing er facilities in particular developing countries or do we go into a 
new situation what's the costs of uncertainty of of of moving into a new 
country and into a new situation so provided the experience then the initial 
experience er of setting up in the developing country er proves to be er 
profitable and worthwhile er venture they'll tend to stay there mm at least for 
some considerable period of time indeed there is some evidence to show that as 
real if the if the initial experience is a is a profitable 
one as real wages rise so instead of closing down the factory and moving 
somewhere else they'll change the nature of the production they'll they'll 
they'll move upmarket into higher value added operations so you might start 
with simple assembly operations but as the developing country the host 
developing country becomes more developed er a greater pool of skilled labour 
er higher levels of education and the rest so they'll move into higher value 
added operations rather than close the factory down er that's certainly what's 
happened in the newly industrialized countries er of South Korea Taiwan er but 
also in the next wave of NIX Malaysia er Thailand er and in Latin American 
countries so the reaction to rising real wages is not to close the factory 
generally speaking but rather to move into as i say higher value added 
operations but obviously again it's an empirical question loss of sovereignty 
er well that's really follows from what i've just been saying just now 
er in terms of the ability of a post- government to allocate resources er 
within its economy that's in in the economic sense of the term er er loss of 
sovereignty but it also could be more general in the sense that the 
multinational can be a terribly ins-, important source of employment government 
earnings er in the small developing country okay and so it can exert political 
influence as well as economic influence the multinational may well be able to 
influence government policy in general er for example they may influence be a 
strong influence for liberalizing trade policy mm so that they can import goods 
er free of tariffs and duties and other restrictions they may put pressure on 
post-governments to liberalize the capital account of the balance of payments 
so that they can move capital and earnings and profits in and out of the 
country er more freely than they er can at the moment they can exert influence 
on tax policies on labour and social and environmental legislation 
in terms of their own objectives in that sense then there can be a loss of 
sovereignty er as well as er the narrower aspect of you know threatening to 
pull out if you er if you don't do such and such and the final one i've list 
there er little phrase by a Latin American economist er Osvaldo Sunkel er 
there's the er dependence dependencia school er in er in er Latin America which 
paints as you would imagine a pretty critical view about multinationals and 
they're thinking of course about the activities of American multinationals in 
Latin America er and Sunkel has this interesting phrase which i've put there er 
which is international integration and national disintegration what he had in 
mind is that the er the multinational companies of the nineteenth century and 
early twentieth century in Latin America which were very often British 
companies er would be involved in building railways for example in developing 
port facilities er in developing 
the markets in these countries and not simply British investment but there was 
a lot of British investment particularly er from the sort of eighteen-eighties 
er into the early part of the er of the nineteen-hundreds and Sunkel says this 
form of activity by these foreign companies er led to national integration 
right bulding railways obviously helps to integrate the whole economy in a way 
that hadn't been possible before and that was beneficial to the country and he 
contrast those activities with modern er transnational corporations they're not 
at all concerned with except in very large markets like Brazil or China er with 
the national market all right it's it's what what they're concerned with is 
international production okay er so that's the the international integration mm 
but it also leads to national disintegration in Sunkel's er terms because you 
create these enclaves these foreign enclaves mm these privileged elites the 
priviresed e-, elites 
work for the transnational corporation okay er at all levels er er the foreign 
companies will pay substantially more than the average wage rate that you find 
in the local economy whether it's for unskilled labour or skilled labour or 
professional workers the the transnational corporation always pays a premium 
and it offers very nice working conditions and there may be other benefits 
health benefits education benefits pensions schemes even totally unknown in 
developing countries er so there's all these benefits that you get for working 
for er a transnational corporation er so you become a privileged elite mm and 
those that are associated with the transnational corporation at a political 
level or the firms supplying them become part of their elite but it's a foreign 
enclave it's the values of the transnational er which er you sell yourself for 
if you like according to Sunkel's view and these elites then distance 
themselves from the mass of people er almost look down 
their noses at them all right er at the poorer people er who er are not part of 
this privileged foreign enclave so that's what Sunkel has in mind then as as as 
a cost he sees the modern transnational as er as he puts it here er leading to 
international integration but national disintegration well i just throw that 
out as a as as another broader perspective than perhaps the more narrower one 
that we look on as economists well i'll stop at that point er obviously what i 
want you to think of is going through these costs and benefits and the 
activities of and and the er and the competitive advantage of multinationals is 
ultimately an empirical question okay that's really what i want you to go away 
with rather than that multinationals are the salvation of developing countries 
which perhaps is what the World Bank er would tend to suggest or maybe Sunkel's 
view that they lead to national disintegration and you shouldn't have anything 
to do with them mm er they're 
the sort of two extremes of the spectrum okay what i want you to do as 
economists is the usual er objective cost-benefit approach of course there'll 
be cost but there there there are also potential benefits er and looking at 
what the determinants of those costs and benefits are likely to be in any 
particular situation and therefore what you would also look for in the 
empirical evidence what what would be the sort of testable hypotheses that you 
would put up if you were looking at whether er the activities of er 
transnationals or particular transnationals in a developing country what were 
those effects likely to be what would be the hypothesis that you would set up 
in order to test whether net er they were a benefit or a cost to the host 
developing country and what i've given you there are key aspects look at the 
activities of of transnationals look at linkages with the local economy and 
apply them to the examples that i've given you over the page there if you'd 
like to think about that and then er we'll have a look at that next week any