Glenn Lynch
May 25th, 2005
GLS430
Professor LeShan
Unit Three Integration Paper

“Multilateral Institutions”

Multilateral institutions have transformed the world economy through the establishment of transnational production, foreign direct investment, the continuation of geographical interdependencies established under colonial rule, the geographically disbursement of “specialized” production, and world competition through either their direct involvement or encouragement and support of international policies that bolster the flow of monetary and technological resources out of the third-world and into first-world economies. The globalized economy has proven to be a boon for corporations, financial institutions and governments of the first-world, often at the expense of third-world resources and inhabitants, conditions which have lead to community uprisings in the attempt to restore localized management to globalized commodities.

Transnational corporations have incorporated two broad global strategies in their attempts to either open up foreign markets for their products or reduce the production expenses of products for their existing markets, geographical expansion and geographical specialization (Porter and Sheppard 467). The first of these strategies, global expansion, is designed to allow companies to invest in the production of their products within foreign environments without becoming subject to the import taxation and import restrictions established by the host country’s government. The purpose of expansion is to cheaply produce existing products for new foreign markets. National governments are often anxious to embrace this type of foreign investment because of the number of jobs created by these ventures and because they lack the experience and technical know how to establish domestic competition (Porter and Shepard 467). In the long term, host governments and firms hope to gain technical knowledge from these investors for domestic industries. The governments, do not however, benefit from the import taxes they would have collected if these companies remained abroad. The second strategy, geographical specialization, occurs when multinational corporations seek to setup specialized facilities that focus on the production expertise, cheap labor, or direct access to resources within a foreign environment as a part of a global assembly line (Porter and Shepard 468). Under this strategy, transnational corporations are able to leverage production facilities to their advantage, providing the flexibility to interact with foreign resource pools with little or no government regulation because of the export orientated dependencies multilateral lending has created on governments anxious to engage in industrialization as a method for economic recovery. It also provides and easy out for corporations who meet a stiff resistance to their labor practices or who experience a diminished production capacity.

Prior to the establishing a presence within a foreign market certain conditions must exist. First, the foreign government must have a need or desire to enter a partnership with a transnational corporation and second, the multilateral agencies must have the right incentives to invest. Independence from colonial rule helped create an avenue for the first condition to exist as many third world nations were left economically and socially unprepared to handle their domestic issues. Citizens were in need of wage paying jobs and years of cash cropping left by colonial rulers left countries without the diverse resources needed for survival. Needing trade partnerships, these countries turned toward their former occupiers or world financial organizations, many of which are funded by their former occupiers, for financial aid. Many of these organizations, such as the World Bank and the International Monetary Fund believed that the fastest, most lucrative way for third world nations to become economical viable was through the same industrialization practices that helped establish the economies of the first world. In order to do so, however, third world nations needed both technical expertise for industrial innovation and a market for their products, neither of which they possessed, forcing them in export orientated production with either the technical license of first world corporations or by inviting direct foreign investment in form of the multinational corporation or privatized investments (Porter and Shepard 522). Structural adjustment by the World Bank helped secure the third world’s fate to become exporters to the first world. Third world nations borrowed money from the World Bank and the IMF to establish market-based production but lacked the markets for that production base leading them into export agreements. With a considerable amount of third world nations participating in these arraignments, competition between third world nations has become fierce, leading to a cheapening of products by either decreasing the cost of natural resources or the cost of labor. Reliant on export industrialization, third world governments are forced to deregulate against stringent environmental and labor standards which would drive up production costs, creating a more lucrative atmosphere for foreign investment but deteriorating the economic advantages to industrialization. In conjunction with direct foreign investment, third world nations also seek out investment dollars to improve their infrastructure for the tourism industry (Porter and Sheppard 549). The overwhelming need for investment to fund economic development has created a debt load for the third world that often exceeds the returns for the export economy and tourism trade (Porter and Shepard 528).

Private funds as well as loans from international organizations need to be repaid, third world governments cannot refuse to pay off their surmounting debt because of their continual need for external funds for development (Porter and Shepard 528). This has led to debt renegotiation that further entraps third world nations into a dependency on first world nations and multilateral organizations. As a result, third world nations continue their dependencies on the first world that were first established under the umbrella of colonization and the proliferation of the exceedingly low wages, over exploited natural environments, limited industrialization, and specialization in primary export commodities (Porter and Shepard 538). Multilateral lending is problematic and biased toward the politics and influence of the largest contributing nations, providing them with measures of subjugation that initiated under imperialism and continue today under selfish capitalistic pretenses, anything that can make their economies stronger regardless of the expense it has on others. The governments of many third world nations have tried to overcome these obstacles by focusing on the geographical benefits of the tropics and subtropics, where most of the third world resides, by focusing on tourism. Even so, many nations find tourism to be inadequate with much of the profits being redistributed back to first world firms or reinvested into improvements that let first world tourists experience the natural beauty of the third world without truly experiencing the real conditions of peripheral citizens (Porter and Shepard 551).

In response to the continual oppression of first world policies on third world inhabitants, many indigenous groups have resorted to taking matters into their own hands by forming community based initiatives designed to restore localized control of precious resources back to the people who have managed and relied on the livelihood those resources generation after generation. The successful groups have gained the attention of sympathizers and NGOs worldwide, gaining them meaningful assistance that returns them to self-sufficiency or enables them to crawl out from beneath the perils of poverty and into self-reliant economic activities. Localized solutions, activities that can be separated from the influences of foreign intervention or the political leverages held against third world governments, offer global citizens the best chance for economic recovery and the long term preservation and sustainability of our planet’s volatile resources for generations to come.

Works Cited

Porter, Phillip and Sheppard, Eric. A World of Difference: Society, Nature, Development The Guildford Press, New York, NY. 1998