Digitalization and the transnational corporations. Rethinking economics
Grazia Ietto-Gillies
Emeritus Professor of Applied Economics London South Bank University and Research Professor Birkbeck University of London.
Please cite the paper as:
Grazia Ietto-Gillies, (2019), Digitalization and the transnational corporations. Rethinking economics, World Economics Association (WEA) Conferences, No. 1 2019, Going Digital, 15th November to 20th December, 2019
Abstract
Digitalization has been with us for a couple of decades and is now all pervasive. It affects every sphere of economic activity: from production to consumption to the interaction between the State and its citizens. The latter interaction is in terms of: the delivery of public services; the collection of revenue; and the development and implementation of public policies.
The transnational companies (TNCs)2 have been with us for much longer. Steven Hymer (1976 [1960]) – who developed the first theory of the international firm – dates the modern transnational to after the Second World War. Its very distant antecedents can be dated much further back even before the birth of nation-states. Transborder direct business operations were indeed part of the activities of the Medici bank with headquarters in fifteenth century Florence.
More recently-established companies, such as the East India Company, the Royal African Company, the Hudson Bay Company and others dating back to the seventeenth and eighteenth centuries, are sometimes considered to be the forerunners of the modern TNC. However, these companies were chartered by governments to carry trading business operations in colonies. The specificity of their operations and the fact that the charter was for business in the colonies – which were considered part of the country whose government had granted the charter – make these companies substantially different from the modern transnational corporation.
Hymer does not consider any of these companies to have been the forerunners of the modern TNC because they lacked a key element of modernity on business: the ability to control and manage at a distance3. This became possible only with the modern means of transport and communication available after WWII. Management and control of operations became possible owing to cheaper and faster transportation and communication technologies. Changes in the internal organization of companies developed alongside improvement in such technologies and they all contributed to the increase in the number and activities of transnational companies worldwide.
In this paper I shall concentrate on developments in the last decade, the years that have seen the emergence and growth of the digital transnational corporations though I shall deal with wider issues linked to technology transnational in general.
The next section deals with digitalization and the TNC. Section three and four tackle, respectively, issues of theory and policy with regards to the transnational companies and which arise from digitalization. Section five deals with macro issues and the last section summarizes and concludes.
This is a great work and well thought idea however can you share more lights on how the forth industrial revolution will change the dynamics of Transnational companies?
Thank you.
James.
Dear James,
I write again because I am not sure that I have actually posted my earlier comment.
I have not studied in details the 4th industrial revolution. Such a stusy is currently undertaken by UNCTAD and I expect it will be published in a few months or a year.
Best wishes
Grazia
Very important topic of the present day. An exhaustive study conducted by the author related to initialization and its impact on transnational companies. Historical perspectives and emerging trends have been studied in a proper way.
Dear Shashi
thank you for your comment. Yes, the historical perspective is very important in both applied and theoretical studies. In my book ‘Transnational Corporations and International Production’ the theories of the transnational Corporations are indeed presented in historical development to give to the reader two connected perspectives: (a) the sense in which the theory is related to real developments on the ground; and (b) To help the reader unbderstand how each theory is connected to the ones that preceded it.
Best wishes
Grazia
Grazia letto-Gillies’ paper about transnational corporations in relation to the digital economy is interesting and thought-provoking. The paper is certainly a study in heterodox economics but could as well be part of business management literature and journals. University departments of business management respect much more of the complexity of the real world than is the case with mainstream neoclassical economics. My question is then why do we not cooperate more with departments other than economics? While neoclassical economists continue to sell a simplistic (and dangerous) idea of markets and business a lot happens in other disciplines. I just want to mention two books, one about markets from different perspectives by William A. Jackson (2019) and one about transnational corporations by Mats Forsgren (2017). The title of the latter book is “Theories of the Multidimensional Firm”. The transnational corporation is discussed in relation to 6 different perspectives. The theories certainly have traits in common but each perspective adds to what is offered by the others.
As heterodox economists we can cooperate with management scholars but what about cooperation among us as heterodox economists? One possibility suggested by Ulrich Thilemann (2019) is that a mainstream of heterodox economists still believe in positivism and value-neutrality and my subjective experiences point in a similar direction. Many heterodox economists aim at a new economics while still sharing beliefs in positivism with neoclassical economists.
Another group of heterodox economists believe that value issues, i.e. issues of ethics and ideology, have to be taken seriously. Thilemann points to ethics and I tend to argue in terms of ideological orientation. As an example neoclassical economists assume that firms (transnational ones included) are maximizing monetary profits and have little to say about other concerns. But maximizing monetary profits is a speccific ethical and ideological viewpoint. And limiting oneself to this viewpoint may be an essential part of the problems faced. We should perhaps not permit big global companies in the digital and other industries operate with such narrow motives. New ideas of economics and new institutional arrangements are needed.
I think that one of the strengths of heterodox economics is a willingness to openly discuss ethical and ideological issues. When we do that and also recognize democracy as a fundamental perspective in our societies then it is no longer reasonable to limit attention to one paradigm (theoretical perspective) with connected ideological orientation. To deal with climate change and other challenges economics has to become pluralistic. And power issues have to be discussed openly as suggested by Thilo Bode (2018) among others. Is it meaningful to discuss “surveillance capitalism” in the digital sphere (Zuboff, 2015, Silverman, 2017) if we avoid issues of power and ideology? And as pluralists we should not be afraid of some heterogeneity among heterodox economists.
References:
Bode, Thilo,2018. Die Diktatur der Konzerne. Wie globale Unternehmen uns schaden und die Demokratie zerstören. Frankfurt am Main, S. Fischer Verlag
Forsgren, Mats, 2017. Theories of the Multinational Firm. A Multidimensional Creature in the Global Econnomy. Edward Elgar, Cheltenham, UK.
Jackson, William A., 2019. Markets. Perspectives from economic
and social theory. Routledge, London.
Silverman, Jakob,2017. Privacy under Surveillance Capitalism, Social Research, Vol.84, Issue 1 (Spring 2017), pp. 147-164.
Thilemann, Ulrich, 2019. Heterodoxie, Positivismus und Ökonomismus.Ûber die Vergeblichkeit der Ûberwindung des Neoliberalismus auf positivem Wege. In Walter Ötsch editor (to be published).
Zuboff, Shoshana, 2015. Big Other: surveillance capitalism and the prospects of an information civilization, Journal of Information Technology, Vol. 30, Issue 1(March 2015), pp. 75-89.
In his comment to my paper Peter points out an important characteristic of today’s economics debates: the very low interest in transnational companies (TNCs) by economists, those working within the neoclassical paradigm – the prevalent, orthodox one – as well as by those working in other paradigms from the Keynesians to the Sraffians to the Marxians or the institutionalists. The underlying assumption behind the lack of interest is that TNCs are firms and their activities and behaviour are covered within the theory of the firm and market structures.
I have dealt with this problems at some length in various works and lately in the Introduction and in Ch 15 of my 2019 Transnational Corporations and International Production. Concepts, Theories and Effects. Third edition. My contention is that we need specific theories of the TNC – over and above the theory of the firm – because nation-states with their specific regulatory regimes generate scope for advantages of multinationality. Companies can gain by developing strategies linked to different regulatory regimes in terms of: labour; fiscal laws; and, generally, negotiations with host governments for ‘sweeteners’. I have considered some of these issues and effects in the paper for this conference. The strategies have major impact on the firm, the industry and the macro economy particularly given the size of some of the TNCs. It becomes therefore essential that we study the TNCs in their own right – over and above the study of the theory of the firm – and that we concentrate on strategic behaviour rather than equilibrium and maximising behaviour.
Here is where interaction with colleagues and literature from other disciplines becomes useful, something I have been involved in for a long time. I am aware of some of the works you kindly suggest. In particular, I know Mats Forsgren and his excellent work well. Mat has been kind enough to give a generous endorsement to my recent book. Multi- and inter-disciplinarity is likely to be fruitful in many subjects. In today’s economics it is essential if we want to begin to understand what is going on. That the study of the major actors in our economies should be seen by many economists – from a variety of paradigms – as belonging to disciplines other than economics would be hilarious were it not to be a very serious matter.
Readers of the present comment may notice that I avoid using the terms heterodox for the non-neoclassical paradigms. This is deliberate. I resent that my work and those of colleagues following non-neoclassical paradigms should be categorised by a negative: by what it is not. Moreover, there is NO heterodox paradigm in economics there are a variety of well developed paradigms outside the neoclassical one.
I wonder how long before digital companies are just so many algorithms on a smartphone?
I suspect that some banks may already be so. :/
Dear Steve,
thanks for your comments. Yes, companies may be an algorithm on a smartphone but the question for us is to go behind it and see where the power and conflicts and monies are are how they are channelled there.
I thoroughly welcome Grazia’s contribution. She was my main PhD supervisor and remains a source of aspiration. Her analyses and thoughts are always historical and unpretentious. I read through her paper with great interest, as I have always done in the past. I wish she would write more regularly on this blog, and am sure that we could move forward towards a better agenda that would address the burning issues of our times, which I, and other colleagues, have pointed to in the past.
With warmest wishes to all above,
Helen
Well, that is what you get from having clever, committed and generous students!
Grazia
Dear Peter Söderbaum,
As for your question “why do we not cooperate more with departments other than economics?”, I respond with definitive “Yes, we should.” High learning taught in Business Schools has a good chemistry to cooperate with heterodox economics that opposes the assumption of unbounded rationality. As Herbert A. Simon once wrote, “If there is no limit to human rationality, administrative theory would be barren. It would consist of the single precept: Always select that alternative, among those available, which will lead to the most complete achievement of your goals” (Simon 1997[1945] Administrative Behavior, p.322; <a href="https://www.researchgate.net/publication/334508762_Microfoundations_of_Evolutionary_Economics" title="Shiozawa, Morioka and Taniguchi 2019 Microfoundations of Evolutionary Economics“> Ch. 1, p.7). So, it is inevitable that people in Business Schools have more sympathy with heterodox economics than mainstream.
As for you opinion that “one of the strengths of heterodox economics is a willingness to openly discuss ethical and ideological issues”, I respond “Yes and No” in an “amphibious” way. It (the willingness to openly discuss …) may be “one of the strength” of heterodox economics but it can be also weakness or a bad side of heterodox economics. Please read Geoffrey Hodgson’s recent book: <a heref="https://www.amazon.com/s?k=is+there+a+future+for+heterodox+economics" titel="Is There a Future for Heterodox Economics?“> In Chapter 1 “Space exists to stop everything happening in Cambridge” Hodgson described in detail what was happening in Cambridge and how ideology misled economists to politics rather than studying economics itself. If economics is to be a science, we should first pay attention to what is happening in the actual economy than how to think how to change it. Without right theory and understanding of what is happening in the economy or how economy works, how can we make a good policy inducement or how can we appeal for better behavior on ethical basis? Ideological orientation is a dangerous sword with two edges. It can be a powerful tool of persuasion but it can also be a sword that injure heterodox economics itself.
The survey as such is certainly meaningful, however, as an “Algorithmic” economist, I’d like to additionally stress that 1): By far a definition of enterprise has not been given “theoretically”, economics do not know really what an organization is, which is subject to clarification by use of computer science, i.e. the Algorithm Framework Theory(AFT). 2). Minds, thoughts and information should otherwise to be deemed “entities” equally with physical objects, even from the beginning of economics. 3) Unfortunately economics have precluded thoughtful or digitally objects, therefore, economics, whatever mainstream or non-mainstream, need now to be essentially and greatly digitalized, viz. to be reformed, re-organized or re-built by AFT into a unified one. 4) Once economics were digitalized or “Algorithmized”, applied economics as such would be run fluently, and be more useful than ever, even attractive to common readers. Thanks.
Dear Bin Li
thanks for your comments. Regarding the definition of firm/enterprise I think Edith Penrose in her seminal 1956 book (The Theory of the growth of the firm) did give a definition and boundaries
best wishes
Grazia
I am sorry, When I said “definition”, I meant “endogenization” by economic theoretical logics. An enterprise means in economics only a production function. “Algorithmically” speaking, an organization arises from conflicts, pluralities and disorder among persons, which were precluded from mainstream economics, and which cause wastes; a person, as the head, commands others to act (relatively) orderly to pursue additional profits. And, Bounded Rationality leads to conflicts, pluralities and disorder, Algorithm Framework Theory gives a general model for Bounded Rationality. Moreover, inside an organization, institutions intensify as the outcomes of roundabout production of thoughts, but which cannot cover everything (because of Bounded Rationality), the rested affairs are subject to the prompt commands from the head. So, the decision-making machanism of an organization is just like that inside a person’s brain-roundabout, knowledge-driving, and stratified operations. Thanks.
Dear Grazia,
Congratulations for your great contribution to the Discussion Forum about the global current digital challenges.
After reading your paper, I would like to ask you if you think it is feasible to build a broad classification of current regulatory regimes reagarding the relationsihip between nation-states and TNCS.
Moreover, yur paper clearly shows that the expansion of the new frontier of global accumulation in the services sector is directly connected with the digital economy. Considering that role of the TNcs has been a key driver of growth in the services sector, which kind of business models are being adopted by knowledge-intensive business services? Are pure labour-cost considerations still relevant in the process of spatial dispersion?.
Thanks again for your excellent paper.
Maria
Dear Maria,
many thanks for organizing the conference and for your comments to my paper.
As far as I know there are no classification of regulatory regimes though UNCTAD does publish papers and reports on policy positions of various countries.
Regarding your second question I do not really know about specific business models for Kibs.
On the third question my answer is that labour-cost considerations are still relevant for the manufacturing sector and for those services which are labour-intensive and which are spatially mobile; some are not like hotel services; some are like copy-editing. Regarding the digital companies again, some are not labour intensive – Google – but some are like Uber or Amazon and the latter are also location bound. So, I would say, we have a mixed picture.
Best wishes for 2020 to all participant to this conference
Grazia
Dear Grazia,
Many thanks for your stimulating answers. You present some interesting clues for further research on regulatory regimes and business models.
Indeed, the labour-cost considerations still seems to be relevant, but we certainly need to add some new elements in the analysis about the TNCs in the tertiary sector.
All the best for the New Year!
Maria
Dear Grazia,
Thank you for your excellent and insightful paper. For me, your analysis and conclusions raise fundamental questions of social justice, human rights, and safe future in a globalised world. Your call for a more engaged scientific practice – by pointing to economist’s duty and right to be involved – is well placed in the context of current challenges. My question is this: do you see any openings in rethinking conceptualisation and definition of TNCs to include concerns of fair trade and fair labour (broadly construed)?
Thank you!
All the best,
Malgorzata