The term also implies a clear distinction between the national and the international—between what goes on inside states and what goes on outside states. With just a little reflection, though, it is clear that a great deal of, and likely most, economic activity that occurs in the world today is conducted—and sometimes controlled—by nonstate actors in ways that transcend national boundaries. Most of us know, for example, that large corporations engage in all sorts of economic transactions and activities that cut across borders: from buying, selling, and trading products and services, to building and investing in global chains of production (whereby a single product is designed, manufactured, assembled, distributed, and marketed in various locations
throughout the world), to forging strategic alliances with other corporations based in a range of different countries. We even have a special name for these types of firms: transnational corporations, or TNCs for short. The ability of TNCs to quickly and (relatively) cheaply move operations and assets—physical, financial, technological, et cetera—across borders is a fairly recent phenomenon. To be sure, for a very long time corporations have had operations in multiple territories, but establishing and maintaining a presence across the globe was a slow, arduous, and expensive undertaking. As technological, financial, and political barriers have begun to fall away—as the world, according to a popular saying, has become “smaller” (this refers to the notion of time-space compression, which I discussed earlier)—the costs associated with operating on a transnational basis have decreased rapidly. Today, according to UNCTAD (United Nations Conference on Trade and Development), there are over 82,000 TNCs with as many as 810,000 foreign affiliates (UNCTAD 2009, p. 222). Consider just one well-known example: Toyota Motor Corporation. Toyota has operations and facilities in 27 countries and regions, and its products are sold in 160 countries. Toyota’s revenues, moreover, totaled almost $203 billion in 2011, which was more than the GDP of 150 countries. Indeed, as a group, corporations—not states—directly control most of the world’s productive, financial, and technological resources. The combined sales of the top ten corporations in the world in 2011 were $2.69 trillion, which is larger than the GDP of all but four countries (the United States, China, Japan, and Germany). While a comparison of corporate revenue to GDP is admittedly simplistic, it nonetheless gives a general sense of the economic size of corporations relative to most states. Where, when, and how TNCs decide to invest, manufacture, and/or distribute their products is therefore of considerable importance to the world political economy. The rise of the transnational corporation, in sum, means that we can no longer just talk about states (actually, this has been true for quite some time). This does not mean, however, that corporations have surpassed states as the primary sources of power in the global economy. They have not. Yet, it does mean, to repeat, that we can no longer analyze the international political economy as if only states have power. Indeed, many scholars argue that TNCs are now able to directly challenge states’ authority to regulate their activity. Consider this simple, but oft-cited example: by threatening to limit or close down their operations in a given location, corporations can compel governments to modify local regulations or standards for health, safety, wage levels, and/or the environment—a phenomenon dubbed regulatory arbitrage.
The essence, TNCs are telling states, including the most powerful ones: “If you want our business, then you have to play by our rules.” Another example can be found in the area of corporate tax arbitrage—an issue that became particularly salient in 2013, when Apple Computer was criticized for “offshore profit shifting” in order to cut dramatically the taxes it pays in the United States. Again, this is not to say that TNCs have necessarily become the equals of the largest and most powerful states; instead, it means that the relationship between states and large corporations is not as clear-cut or unilateral as it once appeared to be. In fact, even the most powerful state in the world—the United States—is not immune from corporate power. In the area of international trade, for instance, it is well understood that U.S. policy is influenced, and even sometimes dictated, by the interests of corporations.
A noteworthy example of this was the decision, by the Bush administration in 2002, to impose tariffs on imported (foreign) steel. Many observers have argued that it was pressure from the U.S. steel industry that drove the administration’s policy decision, rather than the interests of the country as a whole. This may seem an obvious point, but it is a very important one to keep in mind: if state action is even partially determined by nonstate actors, this tells us again that we cannot focus exclusively on what states themselves do. (As we will see, too, such policy decisions are complicated: Bush’s actions may have pleased steel-producing companies, but they hurt steel-consuming companies, as well as consumers.)
