Amazon S3



CHAPTER 6

THE GLOBAL PRODUCTION STRUCTURE

Overview

This is the first edition of this text to devote a chapter to the global production structure. We stress that middle-income developing countries are accounting for an increasing proportion of the world’s manufacturing. We explain the role of transnational corporations as drivers of this shift through foreign direct investment, offshoring, and outsourcing. We also focus on how global production is organized through global value chains and how TNCs interact with states.

TNCs compete in regional and global markets and provide foreign direct investment (FDI) that is much sought after by national governments keen to create jobs, gain access to technology, and grow their economies. We explain the changes in the magnitude of FDI and patterns of its geographical distribution. There is also coverage of some of the primary factors that influence FDI flows. TNCs have always been controversial because of the power they seem to possess and because their global reach makes them difficult for nation-states to regulate or control. Considerable attention is given to corporate tax avoidance and wrongdoing, as well as how TNCs extract benefits from governments. There is also discussion of how governments instrumentalize TNCs in support of foreign policy goals and how state and civil society try to hold global producers accountable for their actions. Through examination of tax avoidance, tax scandals, and corporate wrongdoing, we hope to give students a better understanding of processes by which producers maximize profits and impact various groups in society.

Instructors will find considerable discussion of how automation and the globalization of production are impacting workers in various ways in developed and developing countries. There is a short discussion of the rise of sovereign wealth funds and the importance of state-owned TNCs. This chapter gives students greater context to understand the growing backlash against globalization and the recent turn to more protectionism in a number of countries (as covered especially in Chapters 1, 7, and 12).

Key Terms

• foreign direct investment (FDI)

• transnational corporations (TNCs)

• intermediate goods

• outsourcing

• offshoring

• scaling

• vertically-integrated

• global value chain (GVC)

• corporate social responsibility

• investor-state dispute settlement (ISDS)

• tax havens

• transfer pricing

• tax inversion

• base erosion and profit shifting (BEPS)

• precariat

• guaranteed basic income

• sovereign wealth funds (SWFs)

Teaching Tips

• The first part of the chapter defines TNCs and discusses some of the major issues associated with them such as their size, why they have become so important, the pattern of their operations, and why and where they invest. Spend some time going over these basic characteristics of TNCs along with some of the controversial issues surrounding their role in the global economy. This could be a good place to discuss different ways to measure the size and value of TNCS (using Tables 6.2 and 6.3), as well as the degree to which TNCs are transnational.

• An interesting topic for many students is the connection between TNCs and political power. This might be a good time to use a film in the class, especially one that deals specifically with this sort of issue. It is also a strategic point in the class to connect TNCs to many other issues such as energy, economic development, and hunger.

• Spend some time with students explaining the issue of governing TNCs. This connects TNCs to other actors such as international organizations and nongovernmental organizations. Students may enjoy debating the relative merits of corporate social responsibility and ISDS. We have found that many students are unfamiliar with the organization of production through GVCs. And it helps students to explain how something can be “governed” even if not directly by a government or laws.

• Divide the class and have them debate in favor of/against an international agreement on governance of foreign direct investment. Who stands to benefit from such agreement?

• Have students do homework or assignments drawing on data from UNCTAD’s most recent World Investment Report.

• Instructors can assign newspaper articles to show students concrete examples of global commodity chains linking producers, GVC lead firms, wholesalers, retailers, and consumers. Excellent articles include:

o The Washington Post’s 2017 multimedia series “Mobile Power, Human Toll,” which looks at cobalt, graphite, and lithium used to produce batteries for electric cars and smart phones.

o The Guardian’s 2018 series on “Tobacco: A Deadly Business.” At .

o Spiegel Online’s 2017 article “The Booming Coffee Industry and Those It’s Left Behind.” At .

o The Pulitzer Center’s series “Global Goods, Local Costs” has many reports on how the world’s demand for commodities impacts different countries and communities. At .

o Planet Money’s T-shirt Project. A series of reports on the global garment industry. 2013. At

• A specific kind of research paper that we have found helps students think in IPE terms and see connections between economic actors and countries is the following:

In a product-tracing paper, examine the production and circulation of a commodity or product in the global economy. Trace the product from the point of production to the point of consumption, telling an IPE story about it as it moves along. You can think of the product as going through stages: 1) mined, grown, or caught; 2) processed or refined; 3) exported and transported; 4) imported and maybe processed more; 5) marketed and sold to consumers; 6) disposed of. At each stage there are potential social/political/economic questions that could be discussed. Products to consider include, but aren’t limited to, a mineral (like coltan, diamonds, rare earths), hazardous waste, an illegal drug, cigarettes, tuna, shrimp, shoes, flowers, coffee, tea, honey, sugar, olive oil, and a fruit/vegetable. It’s probably easiest to look at the product moving from one source country to a consuming country rather than the whole world. In the whole product cycle, what seems fair or unfair? What political struggles are there over it? Some examples of questions you might focus on at each stage:

o What political and economic factors determine where and how it is produced? How is it mined or grown, and what is the effect on the environment? What are work conditions like and how do workers fare? Is there any pressure from outside countries or NGOs to change the conditions of its production?

o Is the commodity processed/refined in the country it comes from?

o Where is the product exported to? Is it controlled by a multinational company or a cartel or a government? Do any political or economic factors affect who it’s exported to and how? Is there some kind of international institution or global rules that are supposed to regulate its production and trade in the world (like fair trade, free trade, a cartel, or a bilateral agreement)?

o What conditions affect its importing? Does it face tariffs or trade restrictions or quotas? If so, what lobbying groups in the consuming country try to regulate its importation? Is the commodity processed in the importing country? What is it assembled into?

o What are trends in prices? Who controls design, marketing, and intellectual property rights, if any? Who buys it? Is it regulated by any laws? Is there a political debate about it?

o What happens to it when people are done with it? Is it recycled or re-exported?

Sample Essay Questions

1. What benefits do economic liberals think result from the shift of a greater proportion of global manufacturing from developed to developing countries?

2. What are mercantilists’ main worries about the changing global production structure?

3. Why do TNCs engage in foreign direct investment (FDI)? Assess several factors that contribute to the decision by TNCs to establish operations abroad.

4. Explain what is right and what is wrong with the following statement: “Most TNCs invest in less developed countries because of the low wages that they can pay there.”

5. How would an international agreement on governance of foreign direct investment benefit TNCs? How would such an agreement benefit states? What prevents such an agreement from being realized?

6. Explain the different perspectives of liberals, mercantilists and structuralists on TNCs.

7. What kinds of assistance do states give to TNCs? Do you agree with the claim that states are losing control over TNCs? Why or why not?

8. Why haven’t states done more to crack down on corporate tax avoidance? Why is it hard for governments to reduce tax avoidance and tax evasion by TNCs?

9. Explain some of the methods that TNCs use to reduce their taxes.

10. Are TNCs held accountable enough for their misdeeds? Should they be subject to much more stringent regulations? If so, through what political, economic, or social institutions or mechanisms? Why might voluntary corporate social responsibility codes be insufficient instruments to attain important social goals?

11. How are automation and the globalization of production affecting workers in developed and developing countries?

12. What kinds of rules and regulations would you like to see states agree to apply to GVCs, SWFs, and TNCs? Why?

Sample Multiple-Choice Questions

1) Which of the following is most accurate?

a) TNCs are not subject to nation-state regulation.

b) TNCs’ investments in developing countries have decreased since 2000.

c) China in the largest recipient of FDI.

d) Structuralism is the IPE perspective that sees TNCs as agents of capitalist imperialism.*

2) Which of the following is not one of the fifteen largest nonfinancial TNCs (based on foreign assets owned?

a) General Electric

b) Boeing*

c) Toyota

d) BP

3) As of early 2017, which four TNCs had the largest market capitalization, i.e., the highest total value of outstanding stock?

a) Apple, Alphabet, Microsoft, Amazon*

b) Royal Dutch Shell, BP, ExxonMobil, Chevron

c) Toyota, Volkswagen, Daimler, Honda

d) General Electric, AT&T, Samsung

4) Which of the following statements is incorrect?

a) In 2016 developed countries were hosts to 59 percent of all inward FDI.

b) The United States receives more inflows of FDI than all or South and Central America combined.

c) Sub-Saharan Africa received 10 percent of FDI in 2016.*

d) The majority of large TNCs have their headquarters in developed countries.*

5) Since 1990, which of the following countries or regions has usually had the highest annual net inflows of FDI?

a) The United States

b) China

c) South and Central America

d) The European Union*

6) The United States and China have the world’s two largest economies, as measured by the size of their GDP. Which country has the 3rd largest economy?

a) India

b) Germany

c) United Kingdom

d) Japan*

7) What does a mercantilist think will be a consequence for the United States of outsourcing and offshoring?

a) It will raise the price of imported consumer goods.

b) It will strengthen U.S. labor unions.

c) It will weaken U.S. national security.*

d) It will reduce the profits of U.S.-headquartered transnational corporations.

8) Outsourcing by TNCs can result in:

a) increased employee insecurity among workers in the home countries of the TNCs.

b) increased sales of the TNCs’ products in the countries where it outsources or has offset agreements.

c) increased competition from firms that have received outsourced work.

d) all of the above.*

9) Which of the following is a likely reason why TNCs invest in production overseas?

a) to overcome trade barriers

b) to be closer to foreign customers

c) to manage the risk of foreign exchange rate fluctuations

d) to get direct access to natural resources

e) all of the above*

10) The process in which a TNC contracts with other companies overseas to provide it goods and services is called

a) outsourcing.*

b) insourcing.

c) offshoring.

d) scaling.

11) Which statement accurately characterizes Global Value Chains?

a) They are governed by the Multilateral Agreement on Investment.

b) They encompass all the tasks that companies and workers perform to bring a product from conception to final use.*

c) Firms in the GVCs seek to move from design and marketing activities to labor-intensive manufacturing.

d) All of the above.

12) Given the expanding importance of TNCs in global markets, the role of the state seems to

a) have changed, where the state’s role now is to bargain with TNCs.*

b) have diminished drastically; TNCs now call all the shots.

c) have become stronger because neoliberal policies are more important now than ever before.

d) have stayed the same; the state’s role has always been to encourage its businesses.

13) Which of these statements is incorrect?

a) U.S corporations are exempt from taxes on profits they repatriate back to the United States from overseas.*

b) TNCs can lower their taxes by shifting control of their intellectual property to a shell company in a tax haven.

c) Transfer pricing is a means for TNCs to lower their global tax bill.

d) The OECD has for years tried to tackle base erosion and profit shifting (BEPS).

14) Which of these corporate scandals involved manipulation of a benchmark rate in financial markets?

a) The LuxLeaks scandal

b) The NY-LON scandal

c) The LIBOR scandal*

d) The VW scandal

15) In developed countries, the globalization of production is connected with

a) the growth of the precariat.

b) stagnation of wages.

c) declining union membership.

d) none of the above.

e) all of the above.*

16) Which of the following statements about sovereign wealth funds (SWFs) is correct?

a) SWFs manage pools of money on behalf of governments.*

b) SWFs are managed by private investment banks, especially those based in New York and London.

c) SWFs cannot be used to advance a country’s foreign policy interests.

d) SWFs are usually accountable to regulators and voters.

Suggested Readings and Links

Baldwin, Richard. The Great Convergence: Information Technology and the New Globalization. Cambridge, MA: Belknap Press, 2016.

Bartley, Tim. Rules without Rights: Land, Labor, and Private Authority in the Global Economy. New York: Oxford University Press, 2018.

Dauvergne, Peter. Will Big Business Destroy Our Planet? Medford, MA: Polity Press, 2018.

Gilpin, Robert. The Challenge of Global Capitalism: The World Economy in the 21st Century. Princeton, NJ: Princeton University Press, 2000.

Hamilton, Gary, Misha Petrovic, and Benjamin Senauer, eds. The Market Makers: How Retailers Are Reshaping the Global Economy. New York: Oxford University Press, 2011.

Korten, David. C. When Corporations Rule the World. 3rd ed. (20th anniversary ed.) Oakland, CA: Berrett-Koehler Publishers, 2015.

Mazzucato, Mariana. The Value of Everything: Making and Taking in the Global Economy. New York: PublicAffairs, 2018.

Mikler, John. The Political Power of Global Corporations. Medford, MA: Polity Press, 2018.

Munck, Ronaldo. “Globalisation, Labour and the ‘Precariat’: Old Wine in New Bottles?” In Politics of Precarity: Migrant Conditions, Struggles and Experiences, 78-98.(Leiden, The Netherlands: Brill, 2017.

Obermeyer, Bastian, and Frederik Obermeier. The Panama Papers: Breaking the Story of How the Rich and Powerful Hide Their Money. London: Oneworld Publications, 2017.

Stopford, John, and Susan Strange. Rival States, Rival Firms: Competition for World Market Shares. Cambridge: Cambridge University Press, 1991.

World Investment Report. United Nations Conference on Trade and Development. These annual reports provide a plethora of data on global production and TNCs. At .

Audiovisual Resources

Black Gold. Nick Francis and Marc Francis, dirs. Fulcrum Productions and Speakit Films, 2006. Shows how multinational coffee companies affect poor coffee farmers in Ethiopia.

Clothes to Die For. Zara Hayes, dir. Quicksilver Media production for BBC, 2014. Examines the Rana Plaza building collapse in Bangladesh and conditions in the garment industry.

The Corporation. Mark Achbar and Jennifer Abbott, dirs. Big Picture Media, 2003. “Provoking, witty, stylish and sweepingly informative, The Corporation explores the nature and spectacular rise of the dominant institution of our time” ( website).

Dying for Fashion. Inge Altemeier, Reinhard Hornung, and Steffen Weber, dirs. Altemeier and Hornung Filmproduktion, 2016. “The collapse of the Rana Plaza factory building in April 2013 killed 1,127 people, injured 2,000 and exposed the western world to the diabolical working conditions in Indian clothing factories. Labels were quick to distance themselves from the tragedy. Following the events, a team of lawyers at French NGO Sherpa, supporters of victims of economic crime, are working to expose the continuing hypocrisy of major high street brands and see that they're held liable for violations against international standards” (Journeyman Pictures website).

Harvest of Greed: How Bayer and Monsanto Could Reshape Agriculture. A report by Ingolf Gritschneder and Michael Heussen. WDR, 2018. Broadcast by Deutsche Welle. Examines how the merger of Bayer and Monsanto might affect consumers and farmers around the world.

Is Walmart Good for America? Rick Young, dir. FRONTLINE and Hedrick Smith Productions, 2004. Examines how Walmart shifted to Chinese suppliers and affected U.S. manufacturers and workers.

Luxemburg Leaks (English version). Panorama-die Reporter (NDR/ARD), 2014. “International corporations, big names like IKEA, E.ON, Deutsche Bank, Amazon and others, were able to minimize their tax burden down to almost nothing - at the expense of the public” (ARD Mediathek website). At .

Outsourced. John Jeffcoat, dir. ShadowCatcher Entertainment, 2006. A romantic comedy. “Todd Anderson (Josh Hamilton) spends his days managing a customer call center in Seattle until his job, along with those of the entire office, are outsourced to India. Adding insult to injury, Todd must travel to India to train his new replacement. As he navigates through the chaos of Bombay and an office paralyzed by constant cultural misunderstandings” ( website).

Pulp Friction. Ron Harpelle, dir. ShebaFilms, 2014. Examines how workers in the pulp industry in Canada, Finland, and Uruguay are connected.

Who’s Behind the Chinese Takeover of World’s Biggest Pork Producer? PBS Newshour, September 12, 2014. An interesting report on a Chinese company’s purchase of U.S. pork producer Smithfield Farms.

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download