The “Nested” Power of TNCs: Smallholders’ Biggest Challenge

Abstract

The plight of smallholder farmers vis-à-vis their highly concentrated input providers and distributors is well known. This article highlights the embeddedness of dyadic power relations within broader economic, political, and social institutions governing the relations between transnational corporations (TNCs) and smallholders. It provides a Gramscian gaze into the deep roots of TNCs in the neoliberal historic bloc and argues that challenging the power of the TNCs requires a comprehensive strategy that goes much beyond the capacity of smallholders. It requires a broad-based popular movement crossing the North-South divide.

Introduction

The plight of smallholders vis-à-vis their highly concentrated input providers and distributors are well documented (Amanor, 2019; Scherrer & Verma, 2018). In a previous study, I have argued together with Ismail Doga Karatepe for the need for collective action for economic and social upgrading of smallholders (Karatepe & Scherrer, 2019). While we emphasized coalition building, our analysis of the power relations in agricultural production networks stayed mainly focused on dyadic relations, that is, the interaction between smallholders and their immediate counterparts. In this article, I want to dig a bit deeper and highlight the embeddedness of dyadic power relations within broader economic, political, and social institutions.

From a dyadic perspective, the power of transnational corporations (TNCs) rests on their oligopolistic market position. Smallholders cannot easily substitute for the inputs provided by producers of pesticides and fertilizers, and they cannot effortlessly bypass wholesalers and retail chains in reaching the final consumers. This perspective, however, does not explain how the position of TNCs in the market, and the market itself, has come about.

As much as global sourcing involves a variety of actors that do not fit on a metaphorical supply “chain,” the relationship between two actors is embedded in a complex web of institutions. Sociological institutionalism makes us aware of regulative, normative, and cognitive institutions shaping the interactions within global production systems (GPS). Transnational corporations’ capacity to source globally rests on their legal status as juridical persons, on intellectual property rights enforced by international treaties, and on trade agreements safeguarding them against discrimination vis-à-vis local competitors.

The strength of the institutionalist perspective does not necessarily lie in an understanding of change, especially endogenous change (Scott, 1981, p. 187). A more fruitful conceptualization of structure and agency seems to be offered by the Gramscian theoretical framework. It allows for the integration of many of the insights produced by the dyadic and institutionalist perspective, while its emphasis on collective actors enhances an understanding for the genesis, reproduction, and demise of institutions. Gramscianism is also more attentive to issues of power. Its application to the international level, the so-called neo-Gramscian approach (Cox, 1987; Gill, 1993), is well suited for analyzing production systems in their global dimension.

The Gramscian gaze sheds light on the deep roots of TNCs in the neoliberal historic bloc. Challenging the power of the TNCs, therefore, implies the necessity for a comprehensive strategy that goes much beyond the capacity of smallholders. It requires a broad-based popular movement crossing the North-South divide.

The remainder of this article is structured as follows. A brief overview of key Gramscian concepts is followed by a sketch of the dynamics of the neoliberal historic block in which the global sourcing strategies are embedded. Then the key role that finance plays at the current juncture will be addressed before concluding with a reflection on the ramifications of the existence of the neoliberal historic bloc for an agenda of change.

Key Gramscian Concepts: Hegemony, Transformism and Historic Bloc

Among the key concepts of Gramscianism, the term “hegemony” occupies an elevated position. Hegemony will be exercised, when it can be achieved, to universalize to a large extent particular interests and to protect them with state coercion (Gramsci, 2011, p. 783). The emphasis here is on “to a large extent” because Gramsci identified a state of domination as hegemonic not only when this domination is seen as legitimate by all—a fact often overlooked even within the Gramscian School. The “enemies” could be located both inside and outside the community.

As it is well known, the Gramscian concept of hegemony includes the dimension of consent in addition to coercion. It thereby opens space for discourse as an important part of any explanation of social power relations. A Gramscian perspective does not remain at the level of analyzing the frames used in the debate (cp. Boin et al., 2009); it also enquires into the other power sources of actors in the field, such as their position in the accumulation process and in the institutional set-up of any given society.

A Gramscian perspective focuses on actors. A ruling class is said to be hegemonic and not just dominant if it succeeds in winning approval for its authority among the members of other societal classes. The more this authority is not merely passively tolerated but actively supported, the more secure is the hegemony. The degree of approval generally rests on how far the ruling institutions address the respective interests of the other classes. One particularly effective form of hegemony by deception, Gramsci argued, is the co-option of the leadership of subordinate classes, so-called transformism. The ethical side of hegemony—leading other groups to the pinnacle of knowledge, technology, and culture—pertains only to allied classes, not to rival, “ruled” classes (Gramsci, 2011). While in Gramscian thinking ideology is a relatively coherent articulation of meaning that shapes people’s identities and interests, its effect is mediated by people’s common sense. This common sense is informed by previous ideological appeals, local tradition, and everyday experiences. In other words, it is not coherent and, therefore, leaves space for resistance (Crehan, 2016).

Another Gramscian concept is the “historic bloc.” It refers to a period at the national or international level in which ideas, politics, ethics, and the social relations that result from the material conditions of production are interwoven. A hegemonic class in a state or with a state (or states) at the international level maintain “cohesion and identity within the bloc through the propagation of a common culture” (Martin, 2002, p. 364). New historic blocs may come about through shifts in accumulation strategies and the accompanying rise of new dominant capital fractions, as well as through counterhegemonic struggles by subordinated classes.

The Neoliberal Historic Bloc: A Precondition for TNCs’ Global Sourcing

In the 1960s and 1970s, Latin American and many newly independent states challenged the post-World War II liberal world. Under the slogan of a “New International Economic Order” (NIEO), many of them nationalized key industries and placed limitations on transnational corporations (Akinsanya, 1980). By fostering the domestic industry, they aimed at breaking out of the colonial division of labor in which their assigned place was as suppliers of raw materials (Biel, 2000). In the wake of the so-called Latin American debt crisis of the early 1980s, the creditor nations “hiding” behind the International Monetary Fund (IMF) pushed these “catching up” countries to abandon import-substitution policies in favor of export policies and attracting foreign direct investments. Many of the restrictions on transnational corporations were subsequently lifted (Devlin & Ffrench-Davis, 1995). The IMF-enforced structural adjustment programs were inspired by the static concept of comparative advantage, that is, that countries should concentrate on their comparative advantage in resources and large unskilled labor pools (Herr & Priewe, 2005).

The backlash to the NIEO was preceded in the United States by the Business Roundtable’s mobilization against the demands from the labor and the environmental movements (Ornstein & Elder, 1978, pp. 123–154). The Roundtable’s international counterpart, the Trilateral Commission, engaged organic intellectuals like Samuel Huntington, an early proponent of deregulation, to write about the ungovernability of modern democracies because of an overload of the so-called popular demands on governments (Crozier et al., 1975). The means of reestablishing liberal capitalist domination were not restricted to ideas and structural adjustment programs but also included military coercion, as happened early in the case of the 1973 coup against President Allende in Chile (Kohli, 2020, ch. 5). The blood that has flown in these acts of repression receives seldom attention in the literature on global supply chains.

Thus, the political power of TNCs rests on the interlaced hegemony of the US state and an emergent international capitalist/managerial class (Scherrer, 2001). This hegemony finds its institutional form in the various regulative, normative, and cognitive institutions, a distinction taken from sociological institutionalism (DiMaggio & Powell, 1983; Scott, 2001).

Regulative institutions are laws and regulations that are imposed, interpreted, and adjudicated by governments (including supranational and international organizations), regulatory bodies, and courts (cf. Bello et al., 2004). Laws as regulative institutions provide the underpinnings for authoritative power and the legitimate exercise of power. Key for the exercise of power within companies are constitutional laws enshrining the sanctity of private property. These laws provide owners with discretionary command over their property. Of course, constitutional law also entails certain limitations on the discretionary powers of owners which are further circumscribed by national laws, especially company and labor laws. Of great importance for focal companies in global supply chains is their status as juridical persons; a status that had to be won over an extended period in the past (Richter, 2001). The status allows them to contract with other firms and persons and to access courts for enforcing their contractual rights (Bello et al., 2004, p. 61).

Over time, property rights have been extended to the ownership of intellectual efforts such as inventions of products, processes, and software, of names, and of production regions. Patents, trademarks, and geographical indications are protecting the first movers against imitators. The powers of the owners of intellectual property rights in global supply chains are enhanced through their enforcement by international treaties, especially through the 1995 Agreement on Trade-Related Aspects of Intellectual Property Right (TRIPS) under the World Trade Organization (WTO; cf. Panagariya, 2004).

Group values and norms constitute normative institutions that guide human behavior through social obligations and expectations (Scott, 2001). In today’s business world, the key social obligation is compliance with the respective laws. However, it is also accepted that businesspersons try to interpret the law in their favor or find loopholes that exempts them from the law (e.g., banking regulation; van Staveren, 2020). The social norms shaping organizational cultures can influence behavior more than laws (Ellickson, 1998, p. 540). The widely shared expectation concerning the behavior of businesspersons is that they pursue profits. The extent to which the pursuit of profits takes precedence over other objectives, such as the concern for the well-being of the community, is context specific.

The rise of calls for Corporate Social Responsibility (CSR) has led many focal corporations to establish respective departments. However, these concerns have not been “mainstreamed” in most focal corporations (Schneider, 2019). The routines of most purchasing departments follow the age-old dictum “buy cheap and sell dear.” These routines come with their own legitimation, that is, the weight of habit and their proven functionality. In addition, they are supported by respective incentive systems and are reinforced by the competition among businesses (cf. Anner, 2019).

Cognitive institutions provide individuals and groups with frameworks for meaning-making of events and environments. They guide actors’ behavior with “prefabricated organizing models and scripts” (Scott, 2001, p. 58). Whereas normative institutions prescribe socially acceptable behavior, “cognitive institutions give rise to ‘reflex’ action, which is deeply ingrained in individuals and difficult to transcend” (Munir, 2002, p. 1412).

If applied to the question of TNC power, a widely shared cognitive framework in the business world comes to mind: technical rationality. The focus on efficient achievement of a given end (i.e., increasing sales and lowering costs) leaves less room for objectives which might not so easily fall under the efficiency dictates such as providing support for economic upgrading of a supplier (cf. Fleming & Spicer, 2007, p. 21).

Technical efficient practices diffuse through a process called “cognitive isomorphism” (Meyer & Rowan, 1977). Businesses copy these practices from one another, whereby the spread of specific practices is accelerated by consultancies, business schools, business journals, and professional associations. The diffused practices may not be the most effective for the adopting firm but as they are generally considered to be the most appropriate their implementation will be viewed as legitimate (Fleming & Spicer, 2007, pp. 21–22). Those implementing them, therefore, will face less resistance.

In their sum, these institutions amount to what Stephen Gill (1995a) has labeled a “new constitutionalism.” While the “old” constitutionalism defined the rights and freedoms of citizens through the king (or autocratic state), the new constitutionalism protects property holders against the modern state. The democratic as well as the developmental state have taken an expansive view of property rights: they include obligations toward the common good, for instance universal service, accountability, or the protection of workers’ health. In contrast, new constitutionalism takes a narrower view of property rights: the interests of stakeholders other than owners, such as workers, consumers, or citizens, are excluded. It aims not only at committing present governments to its definition of property rights but, furthermore, tries to prevent future governments from undoing liberal governmental and market reforms. Comparable to constitutional rights in the national arena, a simple majority is not sufficient for withdrawal from or revision of the once agreed upon rights of capital in international agreements.

Economically, the neoliberal historic bloc is based on the key capitalist institution, that is, oligopolistic competition. While most of the literature considers competition quite rightfully as a key constraint on members of a production network (Coe & Yeung, 2019), competition also provides power opportunities especially for the focal firms. The competition among focal firms forces them, on the one hand, to become ever more innovative and/or cost-efficient. It drives out weaker firms and leads to higher market concentration (Kumar, 2020, pp. 173–204). On the other hand, it provides them with an “excuse” to demand concessions from their suppliers and workers based on the credible threat the competition poses to the overall network (Bronfenbrenner, 2000). Of course, other firms in the network can likewise support claims for more favorable contract terms vis-à-vis their business partners (and workers) who are more dependent on them than vice versa.

The power of capital is enhanced by an oversupply of labor, fueled by the stepwise opening of the People’s Republic of China to foreign direct investments, the demise of the Soviet Union, and India’s turn to neoliberal policies (Polaski, 2004), as well as population growth, insufficient industrial investments (Scherrer, 2018), and land dispossession (Moyo et al., 2019). Materially, advances in transportation and communication technologies made the governance of complex cross-border production systems possible.

This neoliberal hegemony could count on the active consensus of a large part of capitalists of many countries as it strengthens their position vis-à-vis labor (Robinson, 2004). The consensus of a large swath of the working class in the rich countries has been secured by a consumer and self-actualization ideology (Gill, 1995b, p. 401). The so-called middle classes in the developing world appreciate access to advanced consumer products made possible by liberalization policies (cf. Yi, 2020). In Gramscian terms, the consumers’ consensus is more of a passive kind.

Finance Drives the TNCs before It

Even the Asian crisis of the late 1990s, which discredited much of the neoliberal recipes, did not stop the process of financialization, that is, “the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies” (Epstein, 2005, p. 3). As Arrighi et al. (2003) have pointed out, the shift from production to finance in the capitalist core has leveraged the comparative advantage of the rich countries, that is, a large capital stock to the detriment of most countries trying to catch up. Finance capital in the core captures most of the value created in the global economy (Foster & McChesney, 2017, p. 18).

The rising power of finance was accompanied by panoptic surveillance mechanisms imposing financial discipline on states, companies, and individuals. This “disciplinary neoliberalism” (Gill, 1995b) not only curtailed states’ ability of social spending but also had a profound impact on corporations. The huge liquid sums available to institutional investors enable them to buy or threaten to buy even the biggest corporations and, thereby, take control of or influence business decisions up to the point of selling off large parts of these corporations (Höpner & Jackson, 2006). This “market for corporate control” forces upon stock corporations strategies for high stock market valuations. The focus on stock market valuation is reinforced by the practice in the name of the shareholder ideology to tie the remuneration of the executive managers to the stock market performance (Froud et al., 2000). The respective strategies entail, on the one hand, maximizing profits through concentration on core competencies and cost-cutting and, on the other hand, spending profits on high dividends and share repurchase (Lazonick, 2016). Therefore, even if a lead firm operates successfully in its market and is, therefore, highly profitable, it will not share those profits with ordinary employees or suppliers but with shareholders.

Even the critical literature seldomly sheds light on the role of finance capital in ensuring a clear hierarchy of value capture along the chain. And, of course, the prevalent emphasis of the literature on supply chains on value capture takes an economy of exchange value for granted instead of exploring the possibilities of an economy based on the production of use values (cf. Levy, 2008, p. 35).

The result of disciplinary neoliberalism, the highly exploitative working conditions, has been scandalized since the late 1980s. Especially brand-name companies have responded with codes of conduct and CSR initiatives. This “new ethicalism” (Sum, 2010, p. 70) did not touch structural features of the global production systems (Levy, 2008; Schneider, 2019). Initiatives by International Organizations such as the United Nations’ Global Compact, the ILO conventions, OECD Guidelines for Multinational Enterprises, and social clauses in trade agreements have with few exceptions not fared better (Moore, 2017). Efforts to make the responsibilities of lead firms legally binding have been stymied by the business lobby with the help especially of those ministries with a long history of close ties to the business community such as the ministries of finance and commerce (Cantú Rivera, 2019).

Conclusion: Challenging the TNCs

The origin and reproduction of the institutions that underpin the power of transnational corporations is made visible by putting on Gramscian lenses. These institutions are the outcome of struggles for hegemony that are based on the interplay of material capabilities, ideas, and institutions. Subordinated social groups come also into view because their consensus to rule is necessary for hegemony; in contrast to domination. A ‘historic bloc’ emerges when a class or class fraction attains hegemony and key economic, political, and social institutions are somewhat coherent.

The existence of a historic bloc has major ramifications for strategies attempting to overcome the status quo. As a historic bloc stands for the interwovenness of key institutions, attempting to redress power imbalances by changing a specific institution is likely to fail. Global sourcing gained momentum under the capitalistic neoliberal historic bloc. Corporate social responsibilities or fair-trade initiatives are addressing a far too narrow segment of this historic bloc for being able to achieve their stated objectives. Their function, perhaps unintended, is to serve as a buffer, as an absorber of critique of current standard business practices. This “new ethicalism” complements but does not supersede neoliberalism. The focus on economic upgrading of much of the literature on global supply chains stays within the confines of the neoliberal historical bloc and, thus, contributes to its legitimacy.

A historic bloc, however, is not a permanent fixture. It does not freeze hegemonic struggles. Failure to deliver the promised results, shifts in material capabilities, the spread of new ideas and fresh strategies of resistance are among those factors that might lead to a “critical junction,” a situation of disrupted power relations. Whether such a relatively open situation can be made use of by the current “weak interests,” the ones which are sitting at the lower end of the U-shaped “exploitation curve,” depends on too many factors to be predictable. But what is certain is that they alone will not be able to overcome neoliberal hegemony. A broad-based global movement is necessary that not only questions the prevalent production and consumption norms but also the legitimacy of finance and corporations as such.