The conduct of MNCs in the less developed countries is severely criticised. These countries complain that multinational firms have failed to transfer technology and to train local personnel; they have corrupted local officials and intervened in national politics.
Governments of developing countries complain that MNC exerts “external control” in its affairs, exploits its labour and natural resources, realises “excessive” profits which it “drains off’ into the hands of foreign investors and fails to reinvest in local development. In particular, charges of exploitation, plundering and greed for profits are often made.
Multinationals earn “super profits”. A huge sum of money flows out of the country in the form of dividends, profits and royalties. In 1969-70, the remittance made abroad by MNCs in India was Rs. 72.26 crore and it rose to Rs. 813.5 crore in 1986- 87.
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Caltex with a total investment of Rs. 16.92 crore in India, remitted profits amounting to Rs. 43 crore in the period 1968- 70. Esso with a total investment of Rs. 29.58 crore remitted profits totalling Rs. 83 crore during the same period. Coca-cola remitted profits of Rs. 10 crore on an initial investment of Rs. 6.6 lakh only.
Two Marxist economists Paul Baran and Paul Sweezy have pointed out in their Monopoly Capital that the Standard Oil Company’s foreign investments were half as large as its domestic investments but its profits were twice as large as its domestic profits. This indicated profit rate abroad was thus four times the domestic rate.
Profit rate abroad are higher than profit rates on domestic sales, because of lower wage costs abroad and less of competition. It is alleged that foreign investment through MNCs opens up the doors of neo- imperialism.
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Secondly, there is hardly any reason to justify the term ‘multinational’ because in most cases only nationals of one country serve on the governing body.
They operate in several countries and may have employees from many nations but most a policy and investment decision as well as control is from one centre.
Multinationals have no obligation to serve the interests of the region in which they are located. They neglect the training of the local people for the top management position.
Thirdly, there is also an inherent danger in the existence of multinationals because at the time of crisis, these corporations are capable of diverting vast sums of money from one area to another which could bring about the collapse of the entire economic system.
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Fourthly, the technology that MNCs transfer was invented in an environment where capital was abundant and labour was scarce.
The reverse is true for the Third World countries which are long on labour and short on capital. So the technology is not appropriate for the developing countries.
Fifthly, Paul Prebisch and Hans Singer speak of the “enclave” effect of foreign investment, in that the multinational tycoons never become part of the internal economic structure of the less developed countries.
Sixthly, worse than the economic dominance is the cultural devastation in the host countries. Operations of these multinationals strike a resounding similarity to the ways of the old imperialists which imposed their own culture on the colonies.
They create a small nucleus of parallel culture in the host countries through payment of considerably higher salaries and perks to the local staff thereby alienating them from the mainstream of life.
Seventhly, a French critic has said that governments cannot stop inflation partly because they can no longer control huge multinational tycoons whose search for profits and creation of consumer demands are at the base of the problem.
In fine, as General Motors President declared, “what is good for General Motors is good for America”. But what is good for America may not be good for the host country.