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Political Implications

As well as the direct constraints they impose on economic policies, direct and equity investment have potentially important political dimensions. As noted above, with very high rates of return on FDI, avoiding net foreign exchange outflows entails a very rapid increase in the stock of foreign investments. This in turn implies a commensurate increase in the role of TNCs in the economy. TNCs can thus be expected to acquire a major and increasing role in the political process, to defend their commercial interests. Moreover, their resources and corporate experience in political lobbying will generally be considerably greater than that of domestic interest groups, particularly those representing non-commercial interests, or even political parties; and their objectives will often be shared with other influential external agencies, such as the developed country governments and the IMF and the World Bank.
Coupled with the tight resource constraints, and often weak administrative capacity, of many governments, particularly in low-income countries, there is a real risk that TNCs will thus exercise a disproportionate influence in the policy-making process, skewing policies further towards their interests and, within the constraints imposed by their need to maintain political stability, away from the interests of the population at large. This suggests at best a weakening of the democratic process, and in some circumstances may actually reinforce anti-democratic pressures22.

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