Multinational Corporations & the Third World Multinational Corporations and the Third World

This paper will discuss the effects of multinational, or transnational, corporations on the developing countries of the Third World. The first part of the paper will deal with the opposing views which have arisen since the early 1970s concerning these effects, specifically addressing the conflict between the supporters and opposers of the dependency theories. The second part of the paper will examine the effects which have occurred since the 1970s and the various views concerning those effects.

In the early 1970s, a few theories were presented to explain the reasons for the expansion of multinational corporations, headquartered in the United States and Western Europe, into developing countries in Africa and Asia. The traditional Marxist theory said that such expansion was an institutional necessity for the capitalist system; the continued survival of capitalism requires the absorption of the underdeveloped world into the global industrial system as providers of the basic necessities and raw materials. Capitalism could only grow by exploiting weaker people. Not popular with the more conservative economists of the West, the Marxist theory was widely challenged and received little support outside of communist countries.

Another theory was presented by liberal economists which challenged the laissez-faire theories of the traditional capitalist economists, but was not as extreme as the Marxist theory. Known as the dependency theory, this view held that the resources of t

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to a net loss in finance capital, it has been asserted that between 1965 and 1970, the net investment flow into 43 developing countries was only 30% of the outflow. Between 1965 and 1968, 52% of the profits generated by Latin American subsidiaries of U.S. corporations was repatriated back to the parent corporations. In response, statistics have been presented showing that the exports of these same Latin American subsidiaries were worth more than three times the value of the materials and supplies imported during 1966. In fact, however, multinationals often borrow money from local sources for investment in developing countries, or reinvest profits from overseas operations, rather than commit profits earned in their home country. Multinational operations in developing countries tend to discourage locally-owned businesses from competing in the same industry because the locally-owned businesses cannot match the prices or output of the big corporations. The amount of investment capital available to the foreign corporations is almost always considerably more than could be raised by local corporations; consequently, the multinationals can establish larger operations and even acquire the local competitors. On the other hand, global

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