Transnationals

When corporations go transnational, they are consequently able to transcend local markets and hence shield themselves from the very market discipline they are trying to force on everyone else. Market discipline, that is, competition, can only occur within a market. Let's say that you and I both own factories (for more details, read microeconomics), and we both produce widgets. (Aside: what the hell is a widget?) Our factories are on opposite sides of the road. Through our dingy windows, we can see each other peering across the road, trying to decide what we have up our sleeves.

We both hire workers from the same labour pool, so the wages we pay our workers are both subject to the same supply characteristics. Specifically, how much money the workers can demand is partly a function of how many workers are available. If the jobs are highly skilled and we only have a small pool from which to hire, we must pay our employees more money to retain them. Also, we must pay them approximately the same wage, or else the skilled employees will go to the factory with better pay.

On the other hand, if the work is unskilled and anyone can do it, then workers will "bid each other down" as the parlance goes. For example, Jones says, "I'll do it for six bucks an hour," but Smith walks up and says, "I need a job; I'll do it for five bucks an hour," and the employers (in our example, you and I) can pick and choose who we hire, and for how much.

Wage rates are also a function of the level of unemployment. If the economy is close to full employment - that is, if just about everyone who wants to work has a job - then we need to offer higher wages to get people to leave the jobs they already have, even if the work is relatively unskilled. Of course, if everyone's working, there will be lots of money to buy more widgets, so sales will be up and we can afford higher wage costs. By contrast, if unemployment is high, then we can offer lower wages because there is a larger pool desperate for work, even if the work is skilled.

In short, wages might be higher or lower, but as employers in a local economy, we don't have too much control over how low we can bring wages. The lower limit is set by forces that are more or less outside our power to direct. If we set our wages too low, people simply won't work for us, especially if unemployment is low. If, on the other hand, we set wages too high, we won't be able to make any money. So we're working within a fairly narrow range.

Competition, in circumstances like this, can refer to one thing over which we do have some control: production. Let us say that you are very creative and mechanically inclined, and develop a new production technique that is cheaper to build and maintain and requires less labour. You can then lower your selling price, or increase your revenue (or both) as long as your new method results in a product of the same quality. Since you lower your price, more people will buy your widget, and your "market share" will increase.

But then I figure out a way to cut my energy costs and recycle my waste and left-over materials back into the production line. My costs will go down, and I can also lower my price, regaining the market share that I lost. Then we both go back to the drawing board.

Another way we can compete is through marketing. I might try to develop an upscale widget that I can sell for a higher price on the strength of its superior quality. You might try to diversify your line, selling a variety of related products, so that your revenue is not tied to market share on a single volatile product. You might even try to sell your products as a bundle. Whatever. The competitive possibilities are exhausted only by the imaginations of the players.

What is important to keep in mind is that both (or all) competitors are bound by the same basic market conditions. We have to pay the same prices for our raw materials, the same wages for our employees, the same taxes, the same real estate proces, etc. Competition refers to what we do to make the most of the resources available to us.

But what happens if I gain special access to a labour pool who will work for outrageously low wages - just a fraction of what we our accustomed to paying our workers? I close my factory, lettting all my old workers go, and move my operations to a place where I can hire these new, much cheaper, workers. Suddenly I have a huge advantage over you, even after paying to have my widgets transported back for sale. I drop my prices to levels that you simply can't match, and drive you out of business.

I didn't beat you by producing a superior product, improving my production technique or increasing efficiency. I didn't beat you through superior branding or marketing. That is, I didn't beat you by practising market competition. I beat you by changing the rules of the game. I didn't find ways to make my workers more productive, I just found much cheaper workers in a different labour market, with different supply and demand characteristics. I transcended the limits of my own market by locating my production facility in a place where the same rules didn't apply.

This is what transnationals do. Only, they don't just do it with labour. Transnationals search all over the world for the best local markets for everything: raw material, labour, capital, technology, taxation, you name it. Essentially, transnationals win in the markets in which they are sellling because the selling markets are invariably different from the markets in which they buy the means of production. The cannot help but outperform competitors who have to buy labour in the same market in which they sell goods. The people who can afford to buy the goods are bound to cost more to hire than poor, oppressed third world peasants.

The transnational can set up its factory where labour is cheap, get its financing where money is cheap, get its materials where resources are cheap, declare its profits where taxes are cheap, and sell its goods where prices are high. In this way, the transnational makes a mockery of market capitalism by steadfastly refusing to be bound by the rules of the market.

How do transnationals respond to this charge? Simple: make the whole world into one big market, and competition is restored, only now it is the transnationals competing to see who can take the most advantage of local variance in the "world market". Now, workers in Toronto and workers in New Delhi are bidding for the same jobs. If the workers in Toronto can't find work, maybe they're asking too much for the work they do. By contrast, if the workers in New Delhi manage to form a union (that is, if unions are not illegal and if the local thugs don't kill the union leaders), then the transnational will either fire all the employees and agree to hire them back at lower wages with a no union contract (Ford did this in Mexico a few years ago) or, if the workers as a whole get too many funny ideas, just close shop altogether and relocate in a different, more compliant, country. "trade agreements" - which are seldom about trade - are negotiated mainly to make it easier for transnationals to do precisely this.

Ironically, this lends credence to John Ralston Saul's half-kidding claim that the boardrooms of the transnationals are home to the last functioning marxists in our society. Modern world system theory, which grows out of marxist-leninist thinking, sees the whole world as a single labour pool in which "core" countries systematically underdevelop "edge" countries in order to extract wealth and resources so that the value added never accrues to those whose labour produced it.

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