Developing Economies: Modern-Day "Cola-nization"

Transnational corporations (TNCs) are a major component in the global economy in which they occupy an increasingly powerful position. In their persistent quest to boost profits they have sought refuge in the developing world, which holds many appealing opportunities.

Multinational business is increasingly hindering developing economies, and must be checked before they cause too much harm.

TNCs have used their money, size and power to influence international negotiations and host governments’ policies by taking full advantage of the move towards privatization. TNCs tend not to take in consideration of local peoples’ plans. Most decisions are taken by their parent companies on the basis of expectations and information known only to them. TNCs rest on the principle of comparative advantage — everyone gains when countries specialize and TNCs help in their specialization. However, even when countries have specialized economically, local people fail to benefit from the globalization. This is because the money invested by a corporation is often borrowed from banks in developing countries, reducing the amount of money that the banks have available to lend to local businesses. Consequently, corporate efficiency is good for profits, but this is at the expense of smaller companies in developing countries.

Jobs created by TNCs largely come at the cost of already existing jobs. Most of the jobs created tend to be low skilled, low-paid and specific to a particular company operation; furthermore, a worker may not gain sufficient expertise that can be used elsewhere.

For example, sales of Coke are dull in developed countries, and in order for Coke to maintain profit margins it must turn to Africa and other under-developed regions. In fact, North Americans bought $2.6 billion worth of Coke in 1989 and $2.9 billion 20 years later. As a result, Coca-Cola will rely on some of the poorest nations to generate the 7% to 9% earning growth promised to investors.

Africans buy 36 billion bottles of Coke a year, and ironically, the price is lower than that of the average newspaper. Because sales are deeply scrutinized by Coca-Cola, the Coke bottle may be one of the continent’s best indexes of happiness in Africa since it reflects major macro trends in shaky economies.

According to the documentary Blue Gold: World Water Wars the Coca-Cola water brand Dasani is considered a monopoly because it is the only potable water available in Kenya. Plus, it costs significantly more than a bottle of Coke despite being a basic need. Coca-Cola is omnipresent in Africa and affects three different aspects. Economically, expensive water has a high opportunity cost in an already poor nation. This money could be spent in more efficient ways, such as education and research and development that would increase African human capital on the long term. Culturally, the absence of clean water rights engenders a dependence on an international economy, preventing Kenyans from living a fully dignified existence away for a new form of colonialism. And environmentally, water bottles are neither “nature friendly” nor biodegradable. Therefore, bottles pile up in many places where recycling facilities are not available.

Finally, there is an urgent need for fundamental changes to TNCs. According to Christian Aid, “a new body is needed to oversee the regulations of multinational business, to ensure that its activities safeguard people’s basic rights and contribute to the eradication of poverty globally.” TNCs need to enhance their image beyond slogans of “corporate responsibility.” Changes need to happen on the ground and tackle accountability and transparency policies.

Photo Credit: Jonathan Assink