Multi Nationals as Engines of Growth

Multinationals as Engines of Growth

United Fruit and the Banana Republics

The United Fruit Company, a U.S. concern, is notorious for having economically colonized Central American in particular, using the support of the U.S. politically--and, on occasion, militarily--to ensure its taking of large profits in the region. Dissent within the U.S. against the U.S. government-United Fruit Company collaboration reached its peak in the second decade of the 20th century.

The United Fruit Company owned vast tracts of land in Central America, and sometimes the Company was said to be the real power in control of those nations, the national governments doing the Company's bidding. The Company several times overthrew governments which they considered insufficiently compliant to Company will. For example, in 1910 a ship of armed hired thugs was sent from New Orleans to Honduras to install a new president by force when the incumbent failed to grant the Fruit Company tax breaks. The newly installed Honduran president granted the Company a waiver from paying any taxes for 25 years.

The Company had a mixed record of encouraging and discouraging development in the nations it was involved in. For example, in Guatemala the Company built schools for the people who lived and worked on Company land, while at the same time for many years prevented the Guatemalan government from building highways, because this would lessen the profitable transportation monopoly of the railroads, which were owned by United Fruit. A popular name for the company was Mamб Yunay ("Mommy United").

Oil and Banking in Iran before the 1950s

In the nineteenth century Iran was one of the poorest countries on the world. The technological level was very low. The economy was dominated by foreign enterprises. The two most important of these were the British-owned bank and Oil Company. The Imperial bank of Pershia, was a state bank, and held a de facto monopoly on modern banking until the late 1920s.

Major findings:

a. The presence of foreign multinational enterprises, in addition to the companies themselves, may benefit local economies.

b. MNEs might discover hidden natural resources that in the future might be the main player in major development of the country’s economy.

c. Free zones are one of the best tools to encourage multinational companies.

d. In order to avoid negative affects on the country’s economy, other governments should not interfere in the host country.

e. In order to have successful results from multinational operations, both parties should agree upfront on a contract that is based on mutual benefits of both parties.

Q1) List and explain the positive and negative influences of the multinational on each country, as explained in the case.

1. United Fruit and the Banana Republics

Central America:

a. Positive:

i. Building infrastructure which includes rail roads, drainage and water system, hospitals and towns.

ii. Transfer the region to a well-organized plantation economy.

iii. Solve employment problems.

iv. Income to the government from taxation.

v. Funding local producers (planters).

b. Negative:

i. The economy is dominated by a single company.

ii. Cutting down jungle forest.

iii. Importing labor from outside.

iv. Few inputs from local origins. For example, machineries are imported from outside.

v. Workers were paid in vouchers which can only be used in the company’s stores.

vi. Depleted soils.

vii. One sided contracts. For example, if the US health authorities do not accept the product, the company will not pay for it.

viii. Enforced the local government by getting support from the US government.

ix. Backing coups.

x. Bribing officials.

2. Oil and banking in Iran before the 1950s:

a. Positive:

i. Building