Download Minimizing the political influence of economic “global players

Political Committee
Research Report: Global Players
BALMUN IX
Minimizing the political influence of economic “global players” – meaning to
reduce their power to manipulate the law-making procedure and to wield law
enforcement – through an international legal framework
By Franziska Möller
Introduction
Nestlé, Wal-Mart, IKEA, Toyota…; these companies are known all around the world and generate
huge revenues that are higher than the GDP of several countries each year. The influence and the
impact of these companies, so called “global players”, grew along with them and spread all around
the world. As these companies are of utmost importance for local economies, they got into a position
of power, enabling them to manipulate the law-making procedure via lobbying or wielding law
enforcement. For instance, IKEA has avoided paying more than €1bn in taxes over the past six years,
as Ministers of the European Parliament have found out. According to their report, IKEA has moved
money from countries with high taxation like the UK, France or Germany to subsidiaries and
undisclosed recipients in tax havens like Luxemburg, the Netherlands or Lichtenstein. Additionally,
the US arms lobby still has a huge impact on the American law-making procedure, avoiding stricter
gun laws which would result in a loss of profits for affected companies.
However, money should not enable companies to ignore existing or manipulate future laws, yet it has
already become a global issue due to globalization and therefore requires an international framework
which aims at minimizing the political influence of global players while regarding national
sovereignty, social aspects and the impact on local economies.
Definition of key terms
Multinational corporations
The term multinational corporation refers to a company which has subsidiaries worldwide besides its
home country. A company which does not identify itself with one home country in particular is
called a transnational corporation. Both kinds of companies are also being referred to as “global
players” and have a massive impact on economy in general.
Economy of scale
A company saves money when producing large amounts of a good if the fixed expenses remain on a
constant level, making mass production highly effective if the capacities are available. As a result,
goods can be sold for low prices and are therefore very attractive for customers.
Globalization
Globalization is a process of increasing worldwide interconnections due to massively increased trade
and cultural exchange which has taken place during the last 100 years but sped up enormously over
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Political Committee
Research Report: Global Players
BALMUN IX
the past 50 years. Improvements in transportation, removed trade barriers between countries and
improvements of communications served as a catalyzer for that development. As a result, the
production of goods and services has increased, companies have not been limited to their home
country anymore and have been able to spread worldwide, the dependence on the global economy
has increased; the movement of capital, goods and services has become freer. Nevertheless, there is a
risk of a loss of cultural diversity around the world.
Inward investments
The term describes money which is invested in a country by foreign countries or investors. The
money can be transferred by investing directly or by purchasing goods of a local economy.
Most inward investments are foreign direct investments (FDI), meaning that a company purchases
another business or establishes a new site in another country.
Largest companies in the world by revenues (2015)
Rank Company
Home Country
Revenues
Profits
1
Wal-Mart
USA
$485.7bn
$16.4bn
2
Sinopec
China
$446.8bn
$5.2bn
3
Royal Dutch Shell
Netherlands/UK
$431.3bn
$14.9bn
4
China National Petroleum
China
$428.6bn
$16.4bn
5
Exxon Mobil
USA
$382.6bn
$32.5bn
6
BP (British Petroleum)
UK
$358.7bn
$3.8bn
7
State Grid Corporation of
China
China
$339.4bn
$9.8bn
8
Volkswagen
Germany
$268.6bn
$14.6bn
9
Toyota
Japan
$247.7bn
$19.8bn
10
Glencore
Switzerland/UK
$221.1bn
$2.3bn
Global impact of economic “Global Players”
Globalization enables companies to work on a global scale, thus they build a complex system of
suppliers and subsidiaries all around the world. Usually, companies aim at reducing their costs when
investing into another country. For instance, they buy cheap resources from LEDCs and produce
their goods in countries with low labor expenses and reduced legal restrictions. Other reasons might
be accessing new markets in order to further establish the company or good transportation
opportunities.
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Political Committee
Research Report: Global Players
BALMUN IX
Inward Investments by global players are made in order to increase the company’s profits, but often
the country receiving the investment also benefits. A new production site usually creates new jobs
for local people that also provide new skills and knowledge due to the technology which is being
transferred to other countries as well. Additionally, a country also earns money if a company buys
resources or pays taxes. These profits can be spent on education, health and infrastructure, improving
the local quality of life. Another side effect is the raised awareness of global issues, such as but not
limited to deforestation and climate change, and events in countries around the world like tsunamis
which might not get as much attention otherwise.
On the other hand, local communities might not benefit from inward investments since the economy
of scale of global players drives out local businesses which do not have the capacities and
opportunities that a global player has. While a global player can sell its goods rather cheap, a smaller
business has to cover its higher expenses first, making its prices uncompetitive. Moreover, jobs
created by inward investments are not sustainable as a company might close down sites and invest in
other countries as soon as they find a more profitable option.
Furthermore, companies invest in countries with barely any or at least less legal restrictions than in
their home country. Therefore companies can operate profit-oriented without regarding the
environmental impact of their actions or safety and working conditions, including lower wages or
more working hours per week.
These disadvantages of inward investments by global players lead to a drift between richer and
developing countries as especially LEDCs are often reduced to providing cheap labor and resources.
Even though developing countries might become wealthier due to inward investments, the gap
between rich and poor countries does not become smaller since the richer countries profit out of
investments as well.
UN-Involvement
United Nations Global Compact
On January 31, 1999, former Secretary-General Kofi Annan announced the UN Global Compact in
address to the World Economic Forum, funding the world’s largest corporate sustainability initiative.
The Global Compact Office works as an organization off of a mandate set out by the General
Assembly. Starting off with a framework consisting of nine principles, the Global Compact aimed at
establishing these principles in businesses around the world and supporting other UN goals such as
the Millennium Development Goals (MDGs) or the Sustainable Development Goals (SDGs).The
principles focus on human rights, labor standards and environmental issues. In 2004, a tenth
principle against corruption was added. Notable companies worldwide, such as but not limited to
Coca Cola, Starbucks and L’Oréal, have signed the UN Global Compact. Besides, there is also the
UN Global Compact Cities Programme.
The 10 Global Compact Principles requires businesses to…
1.
2.
support and protect human rights,
eliminate human rights violations,
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Political Committee
3.
4.
5.
6.
7.
8.
9.
10.
Research Report: Global Players
BALMUN IX
acknowledge the freedom of association and the effective recognition of the right to
collective bargaining,
abolish all kinds of forced and compulsory labor,
abolish child labor,
eliminate discrimination in employment and occupation,
approach environmental issues in a precautionary manner,
promote environmental responsibility,
develop and diffuse environmentally friendly technologies,
work against corruption in all forms, including bribery and extortion.
The Global Compact’s Ten Principles are derived from:
-
the Universal Declaration of Human Rights;
-
the Rio Declaration on Environment and Development;
the International Labor Organization’s Declaration on Fundamental Principles and Rights at
Work;
the United Nations Convention against Corruption.
Conclusion/ Aspects to consider
Now it is up to this year’s Political Committee to find a suitable solution for the issue given above.
To approach it, it should be considered in how far the country given to you is affected by global
players as it might be useful for your country to keep the provided workplaces and the income out of
subsidiaries. On the other hand, there are also countries which might benefit out of stricter
regulations worldwide that adapt legal restrictions since it might bring back workplaces and money
out of taxes to these countries. But you should also keep lobbyists and their impact on the lawmaking procedure in mind since they are involved but not democratically legitimated. Nevertheless,
companies affect the economy of a country a lot, so they represent a part of society that needs to be
included when making laws as well.
Additionally, you should think about the measurements that can be taken on a global scale while
respecting national sovereignty and who should control them. The solution should be beneficial for
both developing and rich countries as a one-sided solution might cause further problems. Besides,
you should bear in mind that global players keep their economic power so your actions will have a
huge impact on economy and society, thus you should aim at a compromise suitable for all.
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Political Committee
Research Report: Global Players
BALMUN IX
Bibliography
http://www.telegraph.co.uk/business/2016/02/11/the-biggest-companies-in-the-world-in-2015/
https://en.wikipedia.org/wiki/State_Grid_Corporation_of_China
https://en.wikipedia.org/wiki/Royal_Dutch_Shell
https://en.wikipedia.org/wiki/Multinational_corporation
https://www.unglobalcompact.org/what-is-gc/mission/principles
http://www.bpb.de/nachschlagen/zahlen-und-fakten/globalisierung/52823/un-global-compact
https://en.wikipedia.org/wiki/United_Nations_Global_Compact
http://www.bbc.co.uk/schools/gcsebitesize/geography/globalisation/globalisation_rev1.shtml
http://dictionary.cambridge.org/de/worterbuch/englisch/inward-investment
http://www.investopedia.com/terms/i/inward-investment.asp
http://wirtschaftslexikon.gabler.de/Definition/economies-of-scale.html
http://fortune.com/2016/02/12/ikea-tax-avoidance/
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