The Theory And The Maximisation Of Economic Efficiency

1595 Words Mar 2nd, 2015 7 Pages
This paper will attempt to show that, even though theory is useful in providing clues to predict empirical results, each situation has a historical and geographical context that determines the outcome of a socioeconomic relationship. Although the nature of multinational corporations (MNCs) as capitalist enterprises makes them a force for progress in terms of maximizing economic efficiency, that same nature is problematic when considering a wider understanding of progress. MNCs’ potential to be a force for progress ultimately depends on the country and industry that is concerned, but it is important to understand – excluding any normative considerations of moral responsibility – that MNCs are businesses, and thus seek profit.

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Thus, the multinational corporation is intrinsically a force for progress in the sense that its very existence participates in the maximisation of profits by eliminating or reducing the harmful effects of market imperfections. Internalisation theory, and other mainstream theories of the multinational firm such as eclectic theory are useful in this analysis since they establish the nature of MNCs as behaving in a way that is the most efficient, and thus beneficial to them. If we accept that firms are beneficial to the world in that they create wealth, then MNCs are a force for progress. However, the buck stops here for these theories. Although they provide insight into the nature and behaviour of firms, mainstream theories of economics and international business do not provide any analysis of the consequences firms’ behaviour has on less developed countries (LDCs) and the world order . As we expand our definition of progress, or the field of the visible in terms of the harm that MNCs can cause, then a different picture is painted.

The development potential of multinationals
The case against MNCs

Beyond the more efficient and profitable creation of wealth, MNCs as a source of foreign direct investment (FDI) have certain direct effects and externalities. From the point of view of the host country, there can be a positive impact. In

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