The Disadvantages of Transnational Corporations

BananaStock/BananaStock/Getty Images

The increasing ease of transportation, communication and commerce that characterized the 20th century has led to ever larger and more global transnational corporations. These enormous companies can utilize economies of scale to offer goods and services at lower prices to consumers. However, their existence also leads to a number of complications and drawbacks.

Consolidation of Wealth

Large corporations tend to draw wealth from small communities and consolidate it in locations where the corporation is headquartered. In extreme cases, this can lead to the impoverishment of less central communities, particularly in developing nations. Unlike small, local businesses, which recirculate both wages and profits through the local community, transnational corporations pay local employees wages, but take profits away to other locations. Individuals at the top of corporate pyramids, such as CEOs, are frequently paid enormous yearly bonuses based on the profitability of the corporation. This practice intensifies the phenomenon of wealth consolidation.

Environmental Damage

The transportation of nearly all goods in the modern economy depends on the use of fossil fuels. Transnational corporations frequently manufacture goods in countries such as China and Thailand, where wages are low, and import them to Europe and North America using large cargo ships. This practice of extensive transport, combined with the energy and resource use inherent in large-scale production, leads to extensive environmental damage. The damage becomes worse because many of the countries where the manufacturing is done do not have as stringent environmental regulations as countries in Europe and North America. This lack of enforcement can lead to high levels of pollution, waste, and worker exposure to toxic substances.

Economic Vulnerability

A basic premise of ecology is that diversity equals stability, and the same applies to economics. A large number of small, independent companies create a stable economy, because if one fails, the others continue to function. However, if the economy is dominated by a very small number of enormous corporations, it becomes more vulnerable to damage by the failure of any one of them. This situation also presents a challenge to democracy, because transnational corporations become "too big to fail," and governments bail them out, even when they are financially unsustainable. These bailouts, such as those seen in 2008 and 2009 when large banks were rescued by the U.S. government, often take place without the consent of the voting population.

Cultural Homogenization

As with ecology and economics, cultural diversity is valuable for the stability that it provides. Multinational trade exposes cultures to one another. While this can lead to greater levels of understanding between different types of people, it can also lead to the overwhelming of small, local cultures by larger and wealthier ones. The result is the replacement of vernacular ways of living with new ways dominated and shaped by the corporations themselves.

References

About the Author

Jagg Xaxx has been writing since 1983. His primary areas of writing include surrealism, Buddhist iconography and environmental issues. Xaxx worked as a cabinetmaker for 12 years, as well as building and renovating several houses. Xaxx holds a Doctor of Philosophy in art history from the University of Manchester in the U.K.

Photo Credits

  • BananaStock/BananaStock/Getty Images