Introduction
The economic activities of companies operating domestically cannot but prove beneficial to the home county. Manipulating large working capital, often having the high rate of liquidity, and generating significant revenue, large ventures naturally are great producers. As such, they contribute to the gross domestic product of a country increasing the overall output picture, as may be seen in the case of Canada and the USA home to large and successful multinational and domestic companies. Besides the GDP, a litmus paper of economic growth, the coefficient of value of large companies is measurable through different economic development indicators. Large companies do pay higher salaries and provide employment, which inevitably boosts the economic development influencing indices like poverty, unemployment, and median household income. However, large companies often look for foreign talents and cheaper labor force elsewhere or relocate their production to tax havens, thereby benefitting foreign countries and their economic development. Overall, large companies’ contribution to economic growth of home states is positive, as is the impact on economic development when achieved domestically.
GDP as an Indicator of Large Companies’ Contribution to the Economic Growth of Their Respective Countries
Slorach, Embley, Goodchild, and Shephard (2013) noted that GDP was of great importance as the principal measure of economic growth, that is to say, the increase in the economic production or output demonstrating the level of economy performance. Lee, Kim, Park, and Sanidas (2011, p.12) stated that big companies had a very considerable stabilizing and positive effect on the economic growth of a country. The sales and number volume of large commercial enterprises are the source of positive coefficients shaping the trend. The increase in the number of Fortune 500 top companies of at least 10% is directly proportional to the increase in the gross domestic product per capita that rises by 0.1%. The tendency holds true for the Business Week Global 1000 and Fortune 500 alike. It has been scientifically proved that big businesses, not small and medium-sized ventures have more robust and independent effect on the economic growth of countries (Lee, et al. 2011, p.12).
More specifically, Leung, Rispoli, and Chan (2012, p.10) compared the GDP dynamics of small, medium, and large-scale businesses in Canada between 2001 and 2008. During the time, SMEs combined were responsible for upwards of 50% of GDP in the business sector, yet the percentage took a drop thereafter. The contribution of SMEs to the gross domestic product fell from a high of 55% in 2001 to 52.1% in 2008, with 2003 considered the starting point of the decline. If considered separately, according to Leung, Rispoli, and Chan (2012, p.7), the percentage of small business contribution dropped from 41.9% to 40.6% while that of medium ventures did from 13.1% to 11.5% over the comparable period. The contribution of large businesses to the GDP in the Canadian business sector in 2008 went 2.9% up on 2001 when it was 45% (Lee, et al. 2011, p.7). In monetary terms, the GDP of small companies in 2008 stood at 469.518 million dollars while that of medium firms run up to 133,040 million dollars. The GDP of large enterprises was estimated at 554,192 million dollars (Lee, et al. 2011, p.12). To quote another example, Statista (2015) computed the contribution of US companies in terms of GDP during the years between 2002 and 2010. Small ventures were responsible for 45.8% of nonfarm, private GDP in 2008, which was equivalent to 5.2 trillion dollars, as against 6.1 trillion of GDP produced by large companies. While the rate remained static for small businesses, large counterparts added another 0.3 trillion (Statista 2015). Both countries demonstrate similar trends like the prevalence of large firms over small or medium ones and a positive growth of contribution made by large companies, as opposed to small and medium-scale ventures.
The Ways Large Companies May Contribute to the Economic Development of a Country
According to BBC (2014), GDP, GNP, economic growth, wealth inequality, inflation, unemployment, economic structure, and demographics are the chief indicators of economic development. King Country (1998, p.1) proposed such economic development indicators as median and personal income of a household, the percentage of population below the poverty threshold, the creation of new businesses and new jobs, and employment in industries oriented in export from the region (King Country 1998, p.2). According to the US Small Business Administration (n.d.), small business accounting for 99.7% of all employers in the USA produce less than two thirds of new jobs. A remaining 0.3% of companies that are large-sized generate every third new job (cited in Harrison 2013). Over the past 20 years, medium and small-sized firms have kept 27% and 29% of employees employed adding 19% and 16% of new employees to the workforce respectively. Over the comparable period, companies with 500-plus employees have kept almost 45% of the workforce employed contributing to an impressing 65% if new jobs produced since 1990. Jobs in the sector of large-scale businesses are more valuable since larger ventures have historically paid their employees more than smaller companies have. Thus, an employee engaged in a large company earns twice as much as the one in a small company does; however, there is one objection to the economic development virtue of larger firms.
The point is that, as soon as a company has become large, it will stop benefitting its country, which means it is done employing people on the domestic labor market. The next thing it does is go headhunting on the lookout for a cheaper labor. In the course of the 1990s, the US multinationals enlarged the workforce by 4.4 and 2.7 million jobs in the United States and foreign countries in that order. The positive dynamics notwithstanding, the companies increased the number of employees in foreign states by 2.4 million jobs and downsized the domestic employee presence by 2.9 million specialists (Harrison 2013). Bort (2011) claimed the American companies to be vying with each other in filling their high-salaried vacancies with foreigners, as is currently the case with IBM and Microsoft reported to have distributed a maximum of 65.000 H-1B visas. American workers raised concerns about a visa program letting firms disregard US employees in favor of foreigners imported to work for lower salaries on a temporary basis until visa expiry (Bort 2011). Chaffin (2004) asserted that Apple Computer was among US large companies that, as confirmed by CNN, either employ overseas labor or export American jobs to foreign countries. The technology giant tends to outsource the production of laptop, desktop products, and a large portion of accessories abroad.
Job generation is synonymous with employment and welfare improvement and the reduction of unemployment and poverty that it implies. If employment in top-grossing companies provides the staff with higher-salaried positions, it contributes to the reduction of wealth inequality, which is one of economic development indicators. Higher salaries paid by larger companies improve the welfare of individuals hired theoretically influencing poverty threshold, another essential indicator, reducing the number of people on the poverty line through employment and high wages. If successful, large companies are willing to diversify their consumer markets or fight for larger market shares, which will necessitate the expansion of production and the employment of the workforce stimulating the economic development and its social aspect. The problem is that the beneficiary of the goods may be any state but the home country. If the employment of foreign employees, whether left in a foreign country or brought to the USA, is the case, large companies that hire employees other than Americans contribute little to the economic development of the country since high-income positions are anyone else’s benefit but American. Outsourcing, establishing subsidiaries in foreign countries, or having temporaries working on a project-by-project basis look more economically profitable to US large businesses for tax-related reasons.
Rubin (2014) stated that US corporations are relocating their profits offshore, to tax havens or the countries with lower income taxes. What they do is book their revenue abroad and leave it there, without bringing back to the USA. American multinational giants have accrued 1.95 trillion dollars beyond the country, which is 11.8% as much as they did the year before. Apple Inc., Microsoft Corp., and International Business Machines Corp. have exceeded their 2013’s revenue by 37.5 billion accounting for 18.2% of the overall increase. McBride (2014) explained that plenty of American companies did not hide their intentions of abandoning the USA due to taxation issues. USA-based companies resort to what is a corporate inversion, whereby American enterprises acquire smaller foreign firms making the headquarters of companies their own. To quote a simple example, Pfizer is looking to merge with AstraZeneca, a British company, relocating headquarters to Britain since the corporate tax level locally is 21%, as against 39.1% in the United States (McBride 2014). Interestingly, the tax code enables large ventures to defer paying taxes on offshore revenue unlimitedly up to the point of returning corporate income to the USA (AFL-CIO 2014). Thus push high taxes the relocation of large companies’ revenues along with the benefits the home country would be enjoying if they did not. Whatever the reason, development benchmarks like employment, median or personal household income, and wealth disparity improve in the country that is the recipient of jobs exported by large companies. As far as such indicator as the creation of new businesses is concerned, large companies’ contribution to economic development from this perspective may be dual since they set up new ventures known as subsidiaries in foreign countries an may launch some domestic affiliated companies.
Conclusions
References
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