The Power Shift in State/ Firm Bargaining
The relationship between states and multinationals is rather important. Even though there is no way to determine the effect of development on multinationals, one should not overlook the fact that the vital part of this relationship is how government arbitrates this relationship (Haslam et al. 204). Moreover, the internationalization should never be evaluated as a basic factor due to the fact that it cannot be considered either static or always beneficial. On the contrary, the obsolescing bargain approach is dynamic and represents a way to capture more benefits in the international market environment (Haslam et al. 204).
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The outcome of this bargaining depends on the unique resources possessed by each of the parties, strategy, and business constraints. When put together, these assets are called relative bargaining power. The problem of the power shift consists in the fact that the government usually strives to outdo any other firms and tries to offer attractive conditions in order to outperform the firms that initially hold the upper hand when it comes to monetary investments (Haslam et al. 205). By doing this, the government is able to get more benefits from the firm and change the rules of the game in compliance with its prerogatives. What is more important, the firms found effective ways to become resistant to the influence of the state. The key advantage of firms to the state is reflected in their ability to provide products and services that cannot be replicated by the government (Haslam et al. 206).
If the company is vulnerable to the regulations, it has the right to move elsewhere in order to escape the influence of the government. This approach is also called footloose investment (Haslam et al. 206). There were times when state-firm bargaining was not very effective. Instead, it was counterproductive and unpretentious. The biggest complications regularly transpired when multinationals were in charge of making important decisions regarding the company’s all-inclusive strategy (Haslam et al. 206). Companies that were not controlled by the government proved to be more profitable (up to ten times more) and used technology that is much more advanced than the technology used by the government. The practice shows that an effective collaboration between foreign and domestic firms is necessary. Therefore, the question of bargaining becomes rather simplistic due to the fact that world trade regime necessitates change (Haslam et al. 208).
The Role of the East Asian “Miracle”
The East Asian “miracle” was preceded by the creation of the IMF and World Bank. The decision to form this kind of structure was supported by the economic relationships between the countries worldwide in the post-World War II period (Haslam et al. 160). Development economists of that time defined the development rate as the amount of resources an organization could spend on the developmental procedures. The United States was one of the most influential countries in terms of the governance structures and their impact on the IMF and the World Bank (Haslam et al. 162). Despite the worldwide implementation of the new system, the Four Asian Tigers were not following that structural model. They concentrated their efforts on the export of their goods and competed on the international scale while being involved in a sustainable process of development. This particular approach and its outcomes were called the East Asian “miracle” (Haslam et al. 166). In fact, the performance of these four Asian countries was something out of the ordinary, and most of the countries in Africa and Latin America were unable to catch up.
The East Asian “miracle” was followed by changes in the World Bank. First of all, the World Bank introduced the concept of good governance. This policy emphasized the importance of thoughtful business decisions and support market economies (Hopkins 111). Another key change in the policy consisted in the fact that private property had to be properly secured. For the most part, the decision to transform the IMF and World Bank policies was triggered by the determination to eradicate corrupt conduct of the majority of the executives and their prejudiced outlooks (Haslam et al. 167). The IMF liberalized their approach to capital accounts. The goal was to minimize the risk of financial crises in the countries with a stable economy.
The World Bank and the IMF even had to reform their structural adjustment programs. On a bigger scale, these decisions were seen as malicious by the majority of the experts (Haslam et al. 170). They believed that the influence of the IMF and World Bank would ultimately result in a crisis instead of bringing the economies of the Four Asian Tigers to a whole new level. That is, the East Asian “miracle” ended in these four countries with the building of large external reserve supplies (Haslam et al. 170). Even though the IMF points out the fact that it reviewed the strictness of its policy, the profitability of this policy is questionable. The outcomes of the East Asian “miracle” showed that there are flaws in the system that should be addressed in order for the IMF and the World Bank to gain their credibility back.
Haslam, Paul et al. Introduction to International Development: Approaches, Actors and Issues. 2nd ed., Toronto, Oxford University Publishing, 2012.
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Hopkins, Michael. Corporate Social Responsibility and International Development: Is Business the Solution? London, Earthscan, 2012.