This post has been contributed by Prof. Grazia Ietto-Gillies, Emeritus Professor of Applied Economics, London South Bank University, and CIMR Visiting Fellow
Most economic systems are characterized by asymmetry of power among its various actors. Standard economics has often emphasized the asymmetry of market power in western economies where a few large firms dominate sales and markets. Sociologists of labour have emphasized the asymmetry of power between capital and labour particularly when the latter is non-unionized or belongs to very weak unions. There are other asymmetries and, in particular, those that manifest along the value chain in contracts between the principal and smaller contractors or sub-contractors.
Transnationality of operation, particularly in the case of large companies, creates scope for further and specific type of asymmetry: the one between companies that are able to operate across nation-states characterized by their own jurisdiction and regulatory regimes and those companies/institutions that do not or cannot for economic, institutional or industrial reasons. Among the latter group are: labour; suppliers many of which are SMEs involved in global value chains (GVCs); public institutions including local and central governments of nation-states.
In the case of transnational actors, the asymmetry of power derives from the fact that an actor used – and very able – to operate across different cultures, jurisdictions and regulations faces other less able to do so for historical, cultural, geographic or legal reasons. The large transnational company (TNC) operates as one centre of strategic decision-decision making (Cowling and Sugden, 1987). In bargaining with other operators, it faces actors that are divided and fragmented by geography, jurisdiction and culture and by the structure of the sector they operate in. This creates asymmetry of power which can be used by the management of a TNC to develop strategies to achieve the best result in the negotiations; one operator can be set against the other to achieve the most profitable conditions. The operators can be: workers and their trade unions; suppliers; or national, regional and local governments.
The power relations between a large TNC and labour are discussed in Balcet and Ietto-Gillies, (2019) while the threat of relocating FDI (Foreign Direct Investment) as bargaining device between labour and large TNCs are considered in Galgoczi et al. (2007). Digitalization is, nonetheless, making it easier for labour and its trade unions to begin collaborating across regulatory frontiers. However, nationalistic feelings and targeted political strategies are obstacles to further developments of solidarity feelings and collaboration across borders.
In Transnational Corporations and International Production. Concepts, Theories and Effects (2019) I develop these concepts further and argue that it is the existence of nation-states with their own jurisdictions and regulatory regimes that generate the need to have specific theories and studies of the transnational companies over and above any study of firms and large firms. The different regulatory regimes relate to: labour and social security; environmental laws; fiscal regimes and industrial policies. Regarding fiscal regimes, the TNCs are in a good position to minimize their tax liability by moving profits to the lowest tax-rate country among those in which they have production and/or trade activities.
Regarding fiscal regimes and in relation to digital TNCs there has been a campaign by the Organization of Economic Cooperation and Development (OECD) and with the active involvement of the EU as well as, more recently, the US Biden administration. There is a proposal for having one centre of taxation for profits – the home country of the TNC – and for the fiscal revenue from it to be allocated to home and host countries on the basis of the value of sales/revenue in each of them. Companies’ revenues in each host country are easier to ascertain – and more difficult to shift to other countries – than profits. The deal involves also agreement by countries on a minimum – 15 percent – rate of corporation tax.
Digitalization may enhance the asymmetry of power between TNCs and other agents. However, it may also create opportunities for other actors to enhance their position. The situation is in constant flux; let us wait and see.
Balcet, G. and Ietto-Gillies, G. (2019), ‘Internationalization, Outsourcing and Labour Fragmentation The case of FIAT’, Cambridge Journal of Economics, 44, 1: 105-128.
Cowling, K. and Sugden, R. (1987), Transnational Monopoly Capitalism, Brighton: Wheatsheaf.
Galgoczi, B., Keune, M. and Watt, A. (2007), ‘Relocation: Challenges for European trade unions’, Working Paper 03, European Trade Union Institute for Research, Education and Health and Safety (ETUI-REHS).
Ietto-Gillies, G. (2019), Transnational Corporations and International Production. Concepts, Theories, Effects, third edition, Cheltenham, UK and Northampton, USA: Edward Elgar