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Ashish Kumar Sinha
Under The Guidance of
Mrs. Aparna Datt Sharma,
India Brand Equity Foundation, CII
(Ministry of External Affairs Govt. of India)
FOREIGN SERVICE INSTITUTE
I am extremely thankful to my thesis guide Mrs. Aparna Dutt Sharma, for providing me valuable guidelines at each stage of its completion and taking pains to go through the rough draft many times. I am indebted for her kind heart. I would like to express my deep sense of gratitude to Foreign Service Institute, Mr. Surendra Kumar, DEAN, and FSI and to Mr. Atish Sinha former Dean, FSI for providing me this opportunity of great learning by doing this thesis. No words can express my gratitude to the Additional Secretary, Mr. Banbit Anthony Roy for approving the topic and giving the right direction to approach the paper and also taking pains to find the right guide for me. Last but not the least I would like to thank Mr. Somnath Halder,
Under Secretary, and FSI for his help and encouragement.
The paper is a reflection of my desire to see India achieving strategic heights because of its economic performance driven by MNCs.
Table of Contents
Page No: 1. Introduction 2. Significance of MNCs in world Affairs a. Influence in Nations' Political Affairs b. MNCs and International Politics 3. Dimensions of MNCs involvement in world affairs a. Direct engagement between states and non-state actors b. Selective engagement, or episodic burden sharing c. MNCs circumventing states 4. MNCs and The WTO 5. American Foreign Policy and Multinational Corporations 6. Indian MNCs-Can Indian brands make ‘Brand India’ global? 7. Corporate Social Responsibility 8. Conclusion 26-29 30-32 33-38 19-23 10-18 2-8 8-9
The way is long, the path is full of thorns, People may criticize, But, I have to fly… from one region to another, from the Earth to the sky, to utilize my potential, to bring prosperity to everyone, I have to fly……… Don’t obstruct me, don’t criticize. Channelise me In right direction, And you will find that I can take you, through a prosperous ride. I believe, I can fly…..
In the poem ‘I’ stands for Multinational Companies
Changing role of nation state in world affairs and Non state actors viz. MNCs
Over the past decade, the way we view foreign policy has fundamentally shifted. While the years from the Treaty of Westphalia in 1648 to the fall of the Soviet Union in 1991 was the era of the nation-state, the period since may be viewed in a vastly different light as the era of the non-state actor. For more than three centuries, the nation-state has served as the foundation of the global political order—hence the “international” system. Although the nation-state remains dominant, no longer can it necessarily be considered preeminent. With the fading of superpower rivalry, the advent of economic and political globalization, the diminished role of the state in economic affairs, the absence of strong supranational authorities, and the spread of new communication technologies, the role of the nation-state has dramatically eroded. The “end of the Cold War has brought about a novel redistribution of power among states, markets, and civil society. National governments are not simply losing autonomy in a globalizing economy. They are sharing powers...with businesses, international organizations, and a multitude of citizen groups known as nongovernmental organizations. The challenge for policymakers is to comprehend the full panoply of NSAs (Non-State Actors), how states can most effectively engage them, and the partnerships that can be created in furtherance of foreign policy goals.
In 1995, private military contractors—with the active support of the Clinton administration—trained the Croatian army for its military offensive against Serbian rebelheld positions in Croatia and Bosnia, which helped push the region’s warring parties toward peace talks. This is one small example of what may be the most important yet misunderstood political and social developments of the post–Cold War era: the growing prominence and influence of NSAs in global affairs. Non-state institutions, corporations, and advocacy groups are playing an increasingly prominent role in nearly every aspect of foreign policy, from promoting democracy, providing humanitarian relief, and fighting
international terrorism to propelling economic liberalization, curing disease, and even waging war.
The international landscape abounds with examples: •After more than a decade of international sanctions, Libya was finally forced to accept culpability in the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland, in part due to a civil lawsuit initiated by the families of the victims and a group of enterprising trial lawyers. •In 1997, a determined activist—using e-mail as her tool—brought together an array of human rights advocates to lead a global campaign to ban landmines. •Stretched thin by multiple conflicts in Afghanistan and Iraq, the U.S. military has increasingly relied on private military contractors. As a result, more than 20,000 unregulated military contractors, equivalent to a U.S. Army division, serve in Iraq alongside coalition forces. •Contagious diseases that threaten millions are being attacked as never before by philanthropists and corporations to make a difference.
The Changed Scenario
Technological advancement has become the one-size-fits-all explanation for myriad social, economic, and political changes. But there is little doubt that the development of communications technology has played a crucial role in diminishing state power. To be sure, the transformative impact of technology is not a new phenomenon. The roots of twentieth-century totalitarian rule derived in part from the ability of leaders to manipulate new forms of mass communication. Today, we are witnessing the reverse.
Information technology is slowly chipping away at the power of states to shape and create public opinion. Today, more than 100 million Chinese are surfing the Web, and China has more than 4 million blogs. In fact, during the SARS epidemic, it was Chinese citizens, over the objections of government officials, who used the Internet to bring the issue to the fore. More significantly, advances in technological penetration and the
decreasing costs of cross-border communication also provide non-state actors with the ability to operate globally. Creating an overseas presence can be as simple nowadays as plugging in a broadband Internet connection or relocating a call center to a foreign locale. The possibilities are not limited to for-profit institutions. Following the tsunami in the Indian Ocean last December, the Internet became an invaluable tool for raising money, helping families find missing relatives, providing news and information, and even serving as an early-warning tool. On-line donations helped humanitarian agencies raise and distribute money, so much so that within ten days of the calamity, online donations almost matched the initial $350 million pledged by the U.S. government. For better or for worse, corporations are increasingly seen as essential providers of capital, technology, management skills, and even access to foreign markets in developing countries. The states set the rules, and they may have some input into building and paying the team, but they are not necessarily the ones on the field playing the game.
Before September 11, economic integration and trade liberalization defined the international agenda, a process largely driven by private actors. The World Trade Organization, the International Monetary Fund, and the World Bank obviously played a role. The Clinton administration also pressed other countries to open their markets, build transparent regulatory regimes, and protect intellectual property. However, states like China, India, and the former members of the Warsaw Pact undertook the often-painful recess of economic liberalization not simply to please Washington or international financial institutions, but to gain access to global capital markets, attract foreign direct investment, and thereby achieve robust and sustainable economic growth.
In this process, the efficacy of foreign aid has diminished. Twenty years ago, government assistance was four times greater than that of private capital flows. Today the numbers are reversed: private investment is now six times greater than foreign aid, and charitable giving to international development is three times greater than the amount given by the U.S. government. Few would dispute that competitive markets, the flow of cross-border capital, and investment decisions by huge corporations are driving globalization. These corporate entities have become the most important economic and social actors on the
world stage, rivaling and sometimes surpassing the influence of states. More than 50 of the world’s 100 largest economies are publicly owned companies with workforces in the hundreds of thousands and offices in every major region of the world.
Mega-sized businesses can be as consequential to the world economy as even some medium-sized countries. To be sure, the influence of multinationals is hardly a new development. The difference is that in the past large conglomerates often operated in tandem with home governments; while today’s corporate behemoths are global actors in their own right.
What are MNCs?
As the name implies, a multinational corporation is a business concern with operations in than one country. These operations outside the company's home country may be linked to the parent by merger, operated as subsidiaries, or have considerable autonomy. They have the capacity to shape global trade, production, and financial transactions. Multinational corporations are viewed by many as favoring their home operations when making difficult economic decisions, but this tendency is declining as companies are forced to respond to increasing global competition. Multinational corporations are sometimes perceived as large, utilitarian enterprises with little or no regard for the social and economic well being of the countries in which they operate, but the reality of their situation is more complicated.
Multinational corporations have existed since the beginning of overseas trade. They have remained a part of the business scene throughout history, entering their modern form in the 17th and 18th centuries with the creation of large, European-based monopolistic concerns such as the British East India Company during the age of colonization. Multinational concerns were viewed at that time as agents of civilization and played a pivotal role in the commercial and industrial development of Asia, South America, and Africa. By the end of the 19th century, advances in communications had more closely linked world markets, and multinational corporations retained their favorable image as
instruments of improved global relations through commercial ties. The existence of close international trading relations did not prevent the outbreak of two world wars in the first half of the twentieth century, but an even more closely bound world economy emerged in the aftermath of the period of conflict.
In more recent times, multinational corporations have grown in power and visibility, but have come to be viewed more ambivalently by both governments and consumers worldwide. Indeed, multinationals today are viewed with increased suspicion given their perceived lack of concern for the economic well-being of particular geographic regions and the public impression that multinationals are gaining power in relation to national government agencies, international trade federations and organizations, and local, national, and international labor organizations. Despite such concerns, multinational corporations appear poised to expand their power and influence as barriers to international trade continue to be removed.
The World Trade Organization (WTO), the International Monetary Fund (IMF), and the World Bank are the three institutions that underwrite the basic rules and regulations of economic, monetary, and trade relations between countries. Many developing nations have loosened trade rules under pressure from the IMF and the World Bank. The domestic financial markets in these countries have not been developed and do not have appropriate laws in place to enable domestic financial institutions to stand up to foreign competition. The administrative setup, judicial systems, and law-enforcing agencies generally cannot guarantee the social discipline and political stability that are necessary in order to support a growth-friendly atmosphere. As a result, most multinational corporations are investing in certain geographic locations only. In the 1990s, most foreign investment was in high-income countries and a few geographic locations in the South like East Asia and Latin America. According to the World Bank's 2002 World Development Indicators, there are 63 countries considered to be low-income countries. The share of these low-income countries in which foreign countries are making direct investments is very small; it rose from 0.5 percent 1990 to only 1.6 percent in 2000.
Although foreign direct investment in developing countries rose considerably in the 1990s, not all developing countries benefited from these investments. Most of the foreign direct investment went to a very small number of lower and upper middle-income developing countries in East Asia and Latin America. In these countries, the rate of economic growth is increasing and the number of people living at poverty level is falling. However, there are still nearly 140 developing countries that are showing very slow growth rates while the 24 richest, developed countries (plus another 10 to 12 newly industrialized countries) are benefiting from most of the economic growth and prosperity. Therefore, many people in the developing countries are still living in poverty.
Similarly, multinational corporations are viewed as being exploitative of both their workers and the local environment, given their relative lack of association with any given locality. This criticism of multinationals is valid to a point, but it must be remembered that no corporation can successfully operate without regard to local social, labor, and environmental standards, and that multinationals in large measure do conform to local standards in these regards.
Multinational corporations are also seen as acquiring too much political and economic power in the modern business environment. Indeed, corporations are able to influence public policy to some degree by threatening to move jobs overseas, but companies are often prevented from employing this tactic given the need for highly trained workers to produce many products. Such workers can seldom be found in low-wage countries. Furthermore, once they enter a market, multinationals are bound by the same constraints as domestically owned concerns, and find it difficult to abandon the infrastructure they produced to enter the market in the first place.
The modern multinational corporation is not necessarily headquartered in a wealthy nation. Many countries that were recently classified as part of the developing world, including Brazil, Taiwan, Kuwait, India and Venezuela, are now home to large multinational concerns. The days of corporate colonization seem to be nearing an end.
Significance of MNCs in world Affairs
Influence in Nations' Political Affairs MNCs' influence over countries, particularly those in the less-industrialized world, has not been manifest solely in sheer economic power or manipulative price transfers. Such influence has also been reflected in corporations' willingness and ability to exert leverage directly by employing government officials, participating on important national economic policy making committees, making financial contributions to political parties, and bribery. Furthermore, MNCs actively enlist the help of Northern governments to further or protect their interests in less-industrialised nations; assistance that has sometimes has involved military force. In 1954, for instance, the US launched an invasion of Guatemala to prevent the Guatemalan government from taking (with compensation plus interest) unused land of United Fruit Company for redistribution to peasants.
Perhaps the most notorious example of MNCs' meddling in the political affairs of a sovereign state, however, occurred in the early 1970s, when International Telephone and Telegraph (ITT) offered the US Central Intelligence Agency US$1 million to finance a campaign to defeat the candidacy of Salvador Allende in Chilean national elections. Though this offer was refused, and Allende democratically elected, ITT continued to lobby the US government and other US corporations to promote opposition to Allende through economic pressure including the cutoff of credit and aid and support of Allende's political rivals. After copper mines in Chile owned by the firms Kennecott and Anaconda were nationalised, the US government took a series of steps based largely on the recommendations of ITT to subvert Allende.
Disclosure of ITT's efforts to overthrow Allende helped prompt initiatives in the United Nations to draft a TNC Code of Conduct to establish some guidelines for corporate behaviour. This move was part of more general concern about the extent of corporations' economic and political influence which emerged in the 1960s and 1970s, and which led some less-industrialised countries to demand that MNCs divest from certain sectors or to
require changes in the terms of a company's investment. Yet such developments have been minor and temporary obstacles to the augmentation of MNCs' economic power, and overall the past three decades have been characterised by increased regional economic integration, the liberalisation of many international markets, and the opening up of new are as such as Central and Eastern Europe.
MNCs and International Politics Especially since the 1980s, MNCs' involvement at international political negotiations and fora has accompanied and encouraged the rise of global corporate economic power. In an effort to reduce barriers to trade and investment capital flows in the last decade, MNCs have lobbied vigorously to shape to their liking Europe's Single Market agreement, the North American Free Trade Agreement (NAFTA), and the World Trade Organisation ( WTO). For MNCs, so-called free trade lessens governmental restrictions on their movement and ability to maximise returns. "The deregulation of trade aims to erase national boundaries insofar as these affect economic life," economists Herman Daly and Robert Goodland have noted. "The policy-making strength of the nation is thereby weakened, and the relative power of MNCs is increased."
WTO) regarding trade-related intellectual property rights (TRIPs) and trade-related investment measures (TRIMs) will be of particular benefit to MNCs. The first gives corporations greater capacity to privatise and patent life forms, including plant and other genetic resources of less-industrialised nations and peoples. TRIMs render illegal certain measures which countries notably Southern nations have employed to encourage MNCs to establish linkages with domestic firms.
In another demonstration of transnationals' growing political might, and perhaps the most striking example to date of organised corporate lobbying on the world stage, MNCs' efforts at the 1992 United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro undermined sections of the Summit's key documents. And
well before the Summit took place, MNC pressure had led to the removal from UNCED materials proposals to regulate the practices of global corporations.
This success in Rio underscores a broader issue: although MNCs are collectively the world's most powerful economic force, no intergovernmental organisation is charged with regulating their behaviour.
Dimensions of MNCs’ involvement in world affairs
In March 2004, Americans were shocked by images of charred and dismembered bodies being dragged through the streets of the Iraqi city of Fallujah and then hung in gruesome display. The scene brought back memories of another tragedy that deeply affected Americans and the conduct of U.S. foreign policy—the killing of 19 Rangers in Somalia in 1993. But this time the corpses were not those of U.S. soldiers. These men were employees of Blackwater USA, a private military contractor. The U.S. war in Iraq has underscored one of the more profound examples of public-private cooperation—the use of private military companies (PMCs), also known as private security companies. It is a relationship with visible implications for the way the U.S. government plans and manages global security operations. Among the thousands of private contractors providing logistical support in Iraq, at least 20,000 employees from 60 different PMCs are under contract to the U.S. government to provide security services. (Another 50–70,000 unarmed civilians are in Iraq to provide other services, from delivering mail to rebuilding essential infrastructure.) Armed civilians, many of them former Special Forces, handle an estimated 30 percent of essential security services, guarding reconstruction projects, escorting convoys through hostile areas, and defending strategic locations and individuals, among other things. Even the president of Afghanistan, Hamid Karzai, is protected by a private contractor, the U.S. firm, DynCorp.
The use of PMCs has grown steadily since the early 1990s. During the Gulf War, the ratio of soldiers to private security contractors was 50 to 1; today, it is closer to 7 to 1. Private military companies are not only supporting a shrinking U.S. force in Iraq; they are also playing critical roles for both state and non-state actors in stabilization, drug interdiction, and humanitarian operations around the world.
Mercenaries have long been a part of war, but as one of the fastest-growing sectors in the defense industry, some PMCs are shedding their “guns for hire” reputation for a more respectable, corporate image. Peter W. Singer, a senior fellow at the Brookings Institution, estimates that “the 1,000 or so companies that define the industry...currently rake in $100 billion per year for active operations in over 50 countries around the world, and the industry is expected to double in size to $200 billion by 2010.” Sensing the business potential, large defense contractors have been buying up some of the oldest private firms—MPRI, DynCorp, and Vinnell Corporation are now subsidiaries of L-3 Communications, Computer Sciences Corporation, and Northrup Grumman, respectively. Private military companies are increasingly part of larger conglomerates that offer a range of services from combat support to post-conflict reconstruction and provide governments with a virtual “one-stop” war-fighting shop. The privatization of military operations reflects a government-wide emphasis on achieving greater cost-effectiveness and efficiency in public institutions. Testifying before Congress earlier this year, US Secretary of Defense Donald Rumsfeld asserted that contracting civilians was “freeing up additional tens of thousands of military personnel for military responsibilities—resulting in an increased usable military end strength without an increase in overall numbers.” At the same time, however, the government’s reliance on PMCs has grown faster than its ability to monitor them, particularly since these firms largely operate in a gray zone beyond congressional oversight, military codes of conduct, and even international humanitarian law—creating a host of legal, financial, and political concerns. Still, it is exactly these “political” attributes that make PMCs so attractive to policymakers. In an era of the all-volunteer force, contracting can make it possible for policymakers to underplay the costs of war. For example, Singer notes that PMCs in Iraq
have suffered more dead and injured than all non-U.S. coalition forces combined. Hiring contractors can also give decision-makers the political breathing room to support military operations in response to national security interests that enjoy little public support. For example, in 1998, Nigerian peacekeepers were sent to reinforce Sierra Leonean troops fighting Revolutionary United Front (RUF) rebels. The U.S. contribution to ECOMOG, the West African peacekeeping force, was combat support from a private firm, International Charter Incorporated of Oregon.
The complexity surrounding the legal status of PMCs also points to the difficulty of defining appropriate public-private cooperation. As armed civilians working abroad for private firms, contractors may be governed by their company’s code of conduct, but not by the Uniform Code of Military Justice. The resulting difficulties were painfully exposed in the wake of the Abu Ghraib prison scandal. U.S. Army investigations determined that a third of the incidents there—ranging from abuse to rape and assault— involved private contractors (including translators and interrogators). Thus far, none have been disciplined. Disturbingly, if a private contractor were to kill an Iraqi civilian, the victim’s family would have practically no legal recourse. In considering the dilemma of PMCs that may violate international humanitarian law while employed on a mission, then one is prompted to ask, “Who can be held to account? The shareholders?”
Mixing public and private warriors in security operations is also affecting the morale of enlisted troops and is leading to practical dilemmas in the field. In Fallujah, the political ramifications of the violent deaths of Blackwater employees forced military planners to engage insurgents sooner than they would have preferred. The subsequent combat operations resulted in significant U.S. casualties and further strained relations between the military ranks and contractors. Relying on PMCs may be militarily and politically expedient, but it challenges policymakers to consider the appropriate balance between public and private authority in foreign policy. In the scheme of state/ MNC relations, privatizing military operations requires that governments become vigilant clients while at the same time retaining their role as regulators of the public interest.
Dimensions of MNCs’ involvement in world affairs
Selective Engagement Since the end of the Cold War, democracy promotion has gained broad acceptance as a foreign policy goal. Democracy assistance is a relatively new phenomenon that typically includes helping to develop the formal political institutions of democracy; assisting the preparation, conduct, and monitoring of elections; and strengthening independent organizations in civil society. For decades, the United States has funded its own official programs and organizations (both covert and overt) and has contributed to a dense network of private NGOs whose philanthropic aim is to foster democratic practices at the grass roots. The explosion of young democracies emerging from the Cold War has only intensified these efforts.
In recent years, however, budget constraints and a disproportionate preoccupation with democracy promotion in Iraq and Afghanistan have constrained U.S. policy-makers’ ability to match their rhetoric with adequate resources. At the same time, the growing influence of media and the emphasis on “image-based” elections has changed the business of politics, creating a lucrative market for communications and marketing professionals. American political consultants, working on their own abroad, are having a significant impact on democratization—not only by changing the style of global electoral politics but also by promoting their own vision of democracy.
The fingerprints of consultants can be found on nearly every major campaign of the past two decades—South Africa’s first democratic election in 1994, Boris Yeltsin’s defeat of resurgent Communists in 1995, the crucial Israeli plebiscites in 1996 and 1999, in which Benjamin Netanyahu and Ehud Barak were the respective winners, the election of longtime dissident Kim Dae Jung in South Korea in 1997, the end of eight decades of PRI rule in Mexico in 2000, Tony Blair’s successful efforts in Britain, the unsuccessful campaigns to unseat Robert Mugabe in Zimbabwe in 2002 and 2005, and even the defeat of Eduard Shevardnadze in Georgia in 2004. In fact, almost 60 percent of U.S. political consulting firms report working overseas.
Their influence stretches beyond campaigns. Consultants with corporate experience have shown candidates and democracy movements how to adapt corporate marketing approaches for political ends. The Yugoslav student movement “Otpor” (“Resistance”) built support for its anti-Milosevic movement using a simple slogan, “Gotov Je!” (“It’s time for him to go”), and a compelling logo (a clenched fist in black and white). Both were plastered around the country on 1.8 million bumper stickers (paid for with U.S. help). “Our inspiration came from multinational companies and things like Coca-Cola and—or Levi’s” said one of Otpor’s student leaders. Using other well-established echniques, like door-todoor canvassing and the targeting of key groups, Otpor created momentum for the nonviolent ouster of Slobodan Milosevic. With the help of the Internet and well funded NGOs, Otpor’s experience with Western campaign techniques has spread to nascent democratic movements from Ukraine and Zimbabwe to Iran and Egypt. In addition, Western-style focus groups and public opinion surveys that test the potential effectiveness of campaign strategies and policy initiatives, and find an opponent’s weaknesses, have become de rigueur in developing democracies. In 2002, South Korean presidential candidate Roh Moo Hyun took the advice of consultants and political pollsters in employing anti-American rhetoric to mobilize a critical constituency of voters under the age of 35. The strategy paid off, despite the diplomatic ill will it created, as Roh won the presidency by a slim 2 percentage points. The power of polling information is not lost even on those who fail to embrace democratic norms. In Nepal, Maoist rebels kidnapped a polltaker that was testing public opinion for an international polling firm. In the ensuing hostage negotiations, the pollster’s captors did not ask for money or the release of political prisoners—they wanted the group’s survey results.
By taking on some of the most important international campaigns of the past ten years, political consultants have put an indelible stamp on democracy promotion. In fact, political consultants are in some respects running their own foreign policy by deciding who they will work with in the first place. Many say they do not choose clients according to the size of their wallets but look for candidates who embody a positive vision of democracy (and have the skills to realize that vision). The unique capabilities of political consultants present genuine opportunities for U.S. policymakers to harness this expertise
to foreign policy ends. The campaign that ultimately ousted Slobodan Milosevic from power in 2000 was a dramatic example of how the U.S. government can effectively work with private political consultants to advance specific policy objectives. Washington’s aid package to help Serbia’s democrats included funds to hire leading U.S. pollsters and political consultants. The United States also funded some NGOs, including the International Republican Institute and the National Democratic Institute, which organized Voter education and political training for activists, citizens, students, and the media. To be sure, it was the courage of the Serbian opposition, and of voters who endured violence and intimidation, that brought Milosevic down. But political consultants provided the strategic insights and polling data that changed the course of the opposition’s flagging campaign and gave Serbians a true political alternative. The lesson for U.S. policymakers from the Serbian experience was clear: defeating dictators at the ballot box can often prove cheaper than trying to defeat them militarily. However, some techniques promoted by political consultants have more to do with enforcing simple respect for the will of people than with pushing a particular democratic model. Exit polls are but one example. Exit polling conducted by consultants in the 2000 Serbian election campaign played a critical role in keeping the election honest. With correct polling information leaked to the media early on Election Day, it became much harder for the governing clique to orchestrate voter fraud. Foreign governments and international organizations have repeatedly used this technique to counter electoral theft, replicating it with similarly positive results in Mexico (2000) and Ukraine (2004) where government efforts to steal elections were thwarted by savvy pollsters.
As American political consultants continue to work abroad, the ripple effects of their influence on the development of democracy will be felt globally. And, as knowledge about campaign techniques spreads, Western methods of electioneering are evolving to suit diverse historical and cultural contexts. Granted, in the wrong hands, modern political campaign techniques can be manipulated to consolidate an autocrat’s power and work against democratic forces. Focusing expertise that is already in demand in the marketplace is one way of achieving foreign policy goals through private means.
Dimensions of MNCs’ involvement in world affairs
Circumventing the State
Microsoft founder Bill Gates, whose personal billions were turning the global health community on its head. explained that his commitment to global health began after he learned that diseases that had largely been eradicated from the developed world— tuberculosis, malaria, diphtheria, measles—were still killing millions in the developing world. Vaccines existed, but the funds to buy them and the political will to distribute them were lacking. Moreover, there was no market incentive that would entice pharmaceutical firms to step forward. Millions were dying while life-saving vaccines sat on the shelves unused. Gates, among the world’s wealthiest men, decided to put his vast personal fortune to work to address an issue that states were unable to fully address on their own. Ensuring public health is among the obvious ways that states safeguard their citizens. However, the ease of cross-border travel has helped to transform health care from a public good into a foreign policy issue. With epidemics like mad cow disease, SARS, and avian flu reaching beyond borders, states are compelled to reshuffle spending priorities. Fighting HIV/AIDS, particularly in the world’s least-developed nations, has become a U.S. priority, not simply for health reasons, but also because of the disease’s potential for undermining democracy and economic development, and its crippling effect on already meager national budgets.
Entities like the World Health Organization (WHO) play a critical role in setting priorities and coordinating policy at the global level. But follow-through is dependent on the stretched resources and uncertain will of states. As a result, non-state actors are starting to put their own money to work addressing problems that governments are barely able to tackle. For example, even though the U.S. Agency for International Development devotes approximately half of its annual budget to health issues, from 1985 to 2000, USAID spending on global health totaled only $13.8 billion.40 In comparison, the Bill and Melinda Gates Foundation has given more than $4 billion to global health programs in the past five years alone.
That private funds can sometimes overmatch public resources is not new. What is new is that individuals are organizing to raise the profile of issues far down the list of state priorities. For instance, in January 2005 the Gates Foundation pledged $10 million to develop a vaccine that would eradicate the last pockets of polio from the globe. The pledge revived a WHO mission that states had largely left unfunded.
Bill Gates is not only giving money, he is also helping governments leverage their resources to tap into the power of the global capital markets. In 2000, he put up $750 million to kick off the Global Alliance for vaccines and Immunization (GAVI)—a project to help low-income countries buy and deliver vaccines for children. Several nations followed with their own pledges. In just two years, GAVI’s efforts saved an estimated 670,000 children and strengthened poor countries’ ability to deliver vaccines on their own.
Not all global health problems can be made sufficiently attractive to the market, but such models of public-private partnership demonstrate that even the most difficult ones can be successfully addressed when corporations and states collaborate creatively and use their respective advantages.
With one dose per year, at the cost of $1.50 per tablet, Mectizan (the human form of Ivermectin) had the power to save lives. But most affected patients lived in places where public health spending per person is about $1 a year. Even at pennies per tablet, the medicine would be too expensive. When Merck approached Washington and governments in Africa and Europe to buy the drug at cost and distribute it for free, it was rebuffed. Faced with the prospect of shelving drug that could cure millions, Merck decided to donate Mectizan free of charge. The announcement of this socially responsible corporate act generated millions in free publicity for Merck and helped burnish the company’s corporate image.
As states find themselves challenged by the scope of transnational problems, corporations are stepping in to contribute resources. While they are motivated by self-interest as well as altruism, it is clear that they are often freer than states to craft innovative approaches to global problems. The ability of MNCs to work outside the state apparatus and foster conditions for change can be a tremendous asset to resource-limited states. The challenge for states is to ensure the maintenance and continuation of public-private collaborations that benefit the public when some of their partners may be more accountable to shareholders than to those in need.
The Test Ahead
The examples cited above highlight the breadth and influence of non-state actors on foreign policy. Across the globe, NSAs/MNCs are fundamentally changing state-to-state relations. Their ability to do so is a result of the deliberate and unintended weakening of state power in an international system buffeted by technological and political change.
In this new world, individuals and organizations can use communications technology to create powerful transnational networks, global commerce and investment trumps the fiscal and monetary levers of the past, and the removal of trade barriers is making it harder for nations to protect domestic industries. The challenge of adaptation applies to non-state actors as well. They are operating in a virtually unregulated political vacuum in which the constraints on their behavior are increasingly inadequate for coping with the challenge they pose to existing global norms.
But the greater burden is on states, which continue to lag in adjusting to the new NSA reality. This is scarcely surprising—the doctrine of sovereign immunity has long served as the basis of legitimacy. It would be foolhardy to expect states willingly to surrender the power and influence conferred by the principle. However, the influence of non-state actors is only going to intensify, and finding the proper balance between the responsibilities and accountability of public and private actors may well become the foremost policy challenge of the twenty-first century.
MNCs and WTO
Multinational companies have an undue influence over the making of global trade rules at the World Trade Organization (WTO). Big business lobbyists have privileged access to government policymakers and use it to push trade agreements that undermine the fight against poverty.
Lobbying the trade superpowers
In recent years, huge lobbying industries have mushroomed in the EU and US capitals, where the two trade superpowers develop their policies for WTO negotiations. In the EU Around 15,000 lobbyists are based in Brussels – roughly one for every member of staff at the European Commission (EC) More than 70% of Brussels lobbyists represent business interests, while only 10% advocate for environmental, human rights, public health and development interests Annual corporate lobbying expenditure in Brussels is estimated to be between €750 million and €1 billion. In the US Around 17,000 lobbyists work in Washington DC, outnumbering lawmakers in US Congress by about 30 to one Nearly half of all US legislators who go into the private sector when they leave Congress join the lobbying industry Corporations and lobby groups spent nearly $13 billion influencing US Congress and federal officials from 1998 to 2004 – equivalent to the combined economic output of Cambodia and Ethiopia in 2004 The pharmaceutical industry spent over $1 billion lobbying in the US in 2004 alone.
The EU and US’s corporate trade agenda
The EU and the US are home to 80% of the world’s biggest multinational corporations. They are also the world’s dominant trade powers, and have a publicly stated commitment to promote their commercial interests by opening up markets in developing countries through the WTO. The EU and US continue to claim they are acting in the interests of poor countries in the current ‘development’ round of trade negotiations, due to conclude this year. But the outcome of last December’s WTO summit in Hong Kong shows the reality is very different. By offering small cuts in agricultural export subsidies in return for greatly increased access to the developing countries’ markets for services and manufactured goods, the EU and US are aggressively pursuing a self-interested agenda on behalf of their multinational companies. This threatens to undermine poor people’s rights and outlaw the trade policies that developing countries need to build thriving economies.
1) Given privileged access to WTO policy-makers that is denied to poor people and public interest groups:
In the EU
The European Services Forum (ESF) – a corporate lobby group set up by former EU trade commissioner Leon Brittan when he was still in office – represents services multinationals such as British Telecom, Lloyds, Suez and Vodafone. Despite denials from top EC officials, new evidence confirms ESF enjoys privileged access to senior policy-makers in EU commissioner Peter Mandelson’s trade department. ESF also has easy access to the ‘133 Committee’, a powerful but secretive body made up of EC officials and trade experts from the EU’s member states, which formulates important EU policies for WTO negotiations. In contrast to ESF’s easy access, details of 133 Committee meetings are kept secret from the public and parliaments in the EU.
In the US
Business lobbyists representing corporations such as Coca-Cola, McDonalds, Pfizer and Wal-Mart dominate the US Trade Policy Advisory Committees, giving multinationals a free rein to influence the development of the US’s WTO negotiating positions in Washington DC. A total of 742 official external advisors to the US’s trade department have access to confidential WTO negotiating documents and attend meetings with US trade negotiators. Of these 742 advisers, 93% represent business lobby groups and corporations including Burger King, Halliburton and Monsanto.
At the WTO’s base in Geneva
The US government brought corporate lobbyists on to its delegation at the WTO’s base in Geneva to negotiate directly with developing country officials during the run-up to the WTO’s Hong Kong summit in 2005. These meetings are meant to take place between governments only. The US included the business lobbyists in its delegation to promote its negotiating positions on food aid and cotton subsidies. These policies benefit US agribusiness multinationals including Archer Daniels Midland and Car gill, but often hurt poor communities in developing countries.
2) Having undue influence over WTO policies that has damaging impacts on poor communities: WTO negotiations on services The EC adopted key demands made by corporate pressure group the European Services Forum (ESF) to force open services markets in poor countries for multinational companies. The EC is pushing ESF’s agenda aggressively in WTO negotiations, including by the use of ‘arm-twisting’ tactics. Despite massive opposition from developing countries, the EC and ESF got almost everything they wanted into the services text of December’s Hong Kong WTO ministerial declaration. If adopted as it stands, the deal is set to increase pressure on poor countries to open up their markets for basic services such as water, healthcare and
education. Previous episodes of liberalisation in these sectors have restricted poor people’s access to these essentials.
WTO negotiations on intellectual property Senior officials from Pfizer, the world’s largest drug company, negotiated directly with the director-general of the WTO and officials from WTO member states in 2003 to block a proposal from developing countries that would allow them to import cheaper copies of patented drugs during public health emergencies, including the HIV and AIDS pandemic. Although the agreement reached allows countries in theory to import copies of drugs during health crises, relentless and sometimes aggressive lobbying by the drug multinationals helped ensure the process – known as ‘compulsory licensing’ – is so restrictive and complex that to date no developing country has successfully used it. The drug lobby also helped to make sure the WTO’s agreement on intellectual property means key countries that are able to manufacture cheaper copies of patented medicines – including Brazil, India and Thailand – are only permitted to do so under compulsory license. This is in spite of the fact that large numbers of people in poor countries suffering with conditions such as HIV and AIDS rely on cheaper drugs from these countries for treatment.
3) Setting up global networks of influence to shape countries’ WTO positions and national trade policies: Global networks – the Yum! Brands alliance Yum! Brands, a group of multinational fast food chains including KFC, Pizza Hut and Taco Bell, has helped set up new global lobbying networks to influence the WTO’s agriculture talks. It formed the US Food Trade Alliance in 2005, whose members include the food multinationals Burger King, Dominos, Dunkin’ Donuts, McDonald’s and Starbucks. Yum! Brands’ corporate coalition heads the Global Alliance for Liberalized Trade in Food and Agriculture, which is made up of food industry lobby groups from 15 countries
including Australia, Brazil, Canada and Japan. The Global Alliance’s members are pushing governments to price open agricultural markets through the WTO, including in developing countries. Influencing national laws – India’s new patent act PhRMA, a US drug industry group whose members include Pfizer and Merck, waged a comprehensive lobbying campaign in India that helped push through a new WTOcompliant patent law in 2005. Drug industry representatives lobbied the Indian prime minister’s office and used their easy access to government officials to put pressure on the Indian government to bring in the new law. Campaigners fear it will deny AIDS treatment to up to 350,000 people who depend on low-cost Indian drugs worldwide.
4) Funding think-tanks and front groups that advocate trade policies harmful to poor communities A large number of hardliner pro-business think-tanks have grown rapidly in the EU recently. Analysts believe donations funneled from corporate backers are a major factor behind their expansion. Institutes such as the Center for a New Europe, the Edmund Burke Foundation and the International Policy Network promote policies that benefit a narrow set of corporate interests, including stronger intellectual property protection for the multinationals’ patented drugs in developing countries. Almost all of the radically pro-business think-tanks that were asked to disclose their funding sources in a recent survey failed to do so. However, recent investigations reveal Pfizer gave $470,000 to the Edmund Burke Foundation between 2001 and 2004 on condition that it would promote private healthcare policies.
American Foreign Policy and Multinational Corporations
According to Jeffrey Garten, former dean of the Yale School of Management, “The most important and enduring relationships between the United States and other countries are often based on the trade and investment of American businesses. Today, U.S firms have a significant presence in virtually every large country. They advise foreign governments. They are transmission belts for American culture and values. Indeed, U.S. businesses often surpass the influence of American embassies on the societies in which they have become rooted.” The influence of multinational firms can also be seen in the regulatory framework of international economics. Debt-rating agencies maintain enormous influence over fiscal policy, private arbitration services are supplanting the role of the judiciary, and corporate lobbyists have helped set new global rules on intellectual property rights.
Especially for the period beginning at the end of the nineteenth century and continuing throughout the twentieth century, there has been a strong correlation between U.S. foreign economic policy and U.S. foreign policy. Simply stated, historians and others have shown, rather convincingly, that economic expansion—the search for foreign markets for U.S. surplus agricultural and industrial production—has played a key role in American foreign policy, particularly after President Woodrow Wilson (1913–1921) enunciated his concept of a new world order predicated on classical liberal and capitalist principles.
Americans had, of course, been involved in world commerce ever since the founding of the colonies in the seventeenth and eighteenth centuries. Colonial merchants often employed agents abroad (frequently family members) to promote their interests wherever they conducted significant commerce, most notably in London and the West Indies. Following the American Revolution and through much of the nineteenth century, they expanded their stakes abroad by opening branches that sometimes included fixed investments like warehouses. Some Americans even opened small businesses overseas or inherited existing businesses through loan defaults and bankruptcies.
A dramatic increase in the speed of steamships plying the oceans between American and world ports, the completion in 1866 of the first transatlantic cable, the need or desire on the part of American business leaders to seek out new markets for increased U.S. industrial and agricultural production, and the need also to have reliable sources of raw materials and native agriculture, such as bananas from Central America, were only some of the supply-side forces driving U.S. economic expansion overseas after the Civil War. On the demand side were the attraction abroad of new U.S. industrial output and the importance of having a trained sales force able to explain and service the highly sophisticated technology that American manufacturer were producing.
After the war Washington passed two measures designed to strengthen the nation's position in foreign trade, especially in Latin America. The first of these was the WebbPomerene Act (1918), which exempted business combinations from the provisions of the antitrust laws. Congress approved the measure as a way to help small businessmen enter the foreign field by being allowed to form joint selling agencies engaged in business abroad. But the measure had also been pushed by larger business concerns interested in organizing more complex vertical combinations (that is, combinations performing more than one function in the chain of production, extending from the acquisition of raw materials through the manufacturing process and ending with the distribution and sale of the finished product).
The second measure approved by Congress after the war was the Edge Act (1919), which provided for federal incorporation of long-term investment and short-term banking subsidiaries doing business abroad. Like the Webb-Pomerene Act, the measure was intended to encourage small banking firms to compete successfully against more established British firms and a few American financial institutions like the National City Bank, which had established foreign branches throughout Latin America, more in order to attract accounts at home than to make profits abroad. The Edge Act was also part of the government's program for meeting Europe's capital and banking needs and President Woodrow Wilson's larger program for economic expansion.
Can Indian brands make ‘Brand India’ global?
Bollywood, Bangalore, IT and ITES, Ranbaxy, Infosys, Hero Honda, all are Indian brands with international presence. The segment does not matter; it’s the India brand that seems to be catching on. Or is it? With leading industry players like Mukesh Ambani, Kumar Manglam Birla and many others espousing the notion of “Brand India” and Indian global brands leaving footprints across segments spanning services, manufacturing, culture and knowledge, consensus is that time has never been more right for Indian brands to debut on a global stage. Can Indian companies take on the challenge to build brands that scale up to global eminence? Charles Berley Jenarius,group CEO, Carat India says, “We do not have a culture of creating brands...It is simply a case of lack of imagination and ambition.” Years of closed economy led to inefficiencies and a lack of brand building mindset, he says. Sandeep Goyal,CEO, Dentsu India, compares the Indian global bid to that of Japanese companies: “perhaps the most important ingredient in the success of Japanese companies was their ability to think global and create entities and brands that could scale up to global size.” Historically, the “made in India” brand has been associated with poor quality and inefficiency. Strategic use of the country of origin is an enabler. For instance, brands out of Italy are instantly identified with art and design making it much easier for a Bulgari or Armani to gain global acceptance as international style czars. Alternatively, as Professor LD Mago, IIFT points out China’s low cost, low quality image has made it difficult for Chinese brands to gain global acceptance as being high quality, high technology brands. When, for instance, he went to Malaysia TV sets with the same attributes and quality and with the same brand name sold at vastly different prices of $ 235 and $527. The cheaper one had been assembled in China, while the other had been assembled in Malaysia itself. “The image of the Indian pharma industry abroad was not very good at the time we started our expansion,” DS Brar, CEO and MD, Ranbaxy has said. He had a tough time convincing foreign companies to do business with an Indian company. He recalls how a CEO of a global pharma company kept him waiting for over 6 hours before granting an audience. That was largely how global companies treated brands from India those days. Today, however, when Deepak Kapoor, executive director, PWC attended the international meet for employees, the officially allocated time
of 7 minutes for a Q&A session extended to over 35 minutes till paucity of time and waiting presenters forced organisers to ask those asking questions to call it a day. Fortunately, Indian brands like Hero Honda, Bajaj and Tata have started gaining acceptance in international markets for their quality products. Indian service sector too has started transforming its work profile from being low quality BPOs to high quality Knowledge Process Outsourcing (KPO) centers. But the Indian government can do more to promote Brand India as a credible brand. A definite push from the Japanese government was also a key factor in the success of Japanese brands. It followed a policy of encouraging high-tech industries with products like auto and consumer electronics. It is not coincidental that brands out of Japan are brands like Toyota, Sony, Canon etc, all hi-tech brands. India Brand Equity Foundation (IBEF) is one such joint effort by the government and the industry body, CII. “IBEF's endeavor has been to build positive economic perceptions of India globally. While we have managed create a buzz internationally, there’s a lot more that can be done and will be done in the coming years,” says IBEF CEO Ajay Khanna Distinction and differentiation are other parameters for creating global brands. But Indian companies have been pushing “mass” labour advantage more over its “distinct” knowledge advantage. Going ahead, the focus needs to be more on innovation and knowledge. Says Mr. Kapoor of PWC, “India is perceived to be better on the innovation curve than China. We need to leverage this factor more.” As Mr. Goyal points out, “Japanese global brands pride themselves on creating technologies, solutions and products that help make the world a better place to live in. The entire accent is on better, not cheaper.” He adds that Japanese used scientific skill and imagination to build and create products that have revolutionised not just product categories, but have metamorphosed human minds. It is this will to lead the future that has helped Japanese corporate create global self-confidence epitomized through their brands. Indian companies need to do the same. Customer focus is another key element. A brand must concentrate on consumer markets that it intends to capture. It is not necessary to first cater to domestic market and then take on foreign ones. For instance, Samsung has led its brand building exercises in foreign markets. In Korea, it remains a conservative brand with not much trace of the élan associated with it in its foreign markets. A case of catering to consumer interests in markets one intends to capture is Deepak Vohra who has
been exporting silver jewellery to all major international design houses. He is now setting up his own international silver jewellery brand, Episode. He points out that he has focused on European designs as a strategy to gain a foothold in the European markets. Fair and Lovely, too, that markets itself as Dark and Lovely in African countries according to the sensibilities of its target audience in Africa. Mr Jenarius gives the example of Korean brand LG and Samsung as pointers to customer focus: “LG and Samsung, adapted to the needs of the Indian customer to emerge as market leaders. They have beaten the domestic Indian companies like Onida and Videocon, once market leaders, in their own markets.” Quality is an issue as well. SC Sehgal, MD, Ozone Ayurvedic, whose Nomarks brand is sold in 30 countries, points out: “the customers in western countries are more demanding in terms of quality. One cannot get away in international markets by providing substandard products.” India’s internal environment viz a viz, infrastructure, regulations and ethical practices are also impediments to making our brand global. Take the case of out IT city brand, Banglore, or travel brand, Incredible India. Both are struggling due to poor quality of infrastructure in India. Most travelers to Banglore complain of the time consumed in travelling via the city’s congested road network. Tourists, too arrive to find infrastructure that takes the credible out of “ incredible”. The recent Mumbai debacle, poor roads network, lack of power facilities all dilute the “brand India” experience. Recent incidents like data theft from Indian call centers significantly affect the ethical standpoint of the country. Though Nasscom, PM interventions on time are a proof that the India brand has now become important for government agencies to take proactive steps, these incidents point to the loopholes in the country’s regulatory environment. As Kapoor points out: “India ranks around 85 on the most corrupt countries in the world index. This internal environment can be a sure dampener to India’s global ambitions.” With the global emphasis on transparency, corporate sustainability practices after the Worldcom and Enron corporate frauds, poor Indian work ethics will also come under the scanner as India gets more global. Says Mr. Goyal: “India is indeed a brand pregnant with potential. A Bose or a Hotmail were products of an Indian mind, albeit created and grown elsewhere. But we still need to put our money where our mouth is. India is definitely on the move. We have the potential and global perception has also started falling in place. But do we have it in us to capture this
opportunity and make the world our oyster? Expectations from global brands Consumers all over the world associate global brands with three characteristics and evaluate them on those angles while making purchases. Quality signal Consumers watch the fierce battles transnational companies wage over quality and are impressed by the victors. One like [global] brands because they usually offer more quality and better guarantees than other products.” That perception often serves as a rationale for global brands to charge premiums. Global brands “are expensive, but the price is reasonable when you think of quality,” say consumers. Consumers also believe global companies compete by developing new products and breakthrough technologies faster than rivals. Global myth Consumers look to global brands as symbols of cultural ideals. They use brands to create an imagined global identity that they share with like-minded people. Transnational companies therefore compete not only to offer the highest value products but also to deliver cultural myths with global appeal. “Global brands make us feel like citizens of the world. They somehow give us an identity,” say consumers. “Global brands make you feel part of something bigger and give you a sense of belonging,” Local brands show what we are; global brands show what we want to be,” were some other views.” Myths are now spun by virtually all global brands, in industries as diverse as IT and oil. Social responsibility People recognise global companies wield extraordinary influence, both positive and negative, on society’s well being. They expect them to address social problems linked to what they sell and how they conduct business. Consumers vote with their checkbooks if they feel that these companies are not acting socially responsible. “I still haven’t forgiven Shell for what they [did] with that oil rig, says a consumer. While consumers don’t demand that local companies tackle global warming, but they expect giants like BP and Shell to do so. People may turn a blind eye when local companies take advantage of employees, but they won’t stand for transnational players like Nike and Polo adopting similar practices.
CORPORATE SOCIAL RESPONSIBILITY(CSR)
We live in an age in which companies equivalent in wealth to countries call the shots and control much of the earth's resources. Because corporate intervene in so many areas of social life, they must be responsible towards society and the environment. In India as in the rest of the world there is a growing realisation that capital markets and corporations are, after all, created by society and must therefore serve it, not merely profit from it. And that consumers and citizens’ campaign can make all the difference
PERSPECTIVES ON CSR On the one hand globalisation and liberalisation have provided a great opportunity for corporations to be globally competitive by expanding their production-base and market share. On the other hand, the same situation poses a great challenge to the sustainability and viability of such mega-businesses, particularly in the context of the emerging discontent against multinational corporations in different parts of the world. Labourers, marginalised consumers, environmental activists and social activists have protested against the unprecedented predominance of multinational corporations. The ongoing revolution in communication technology and the effectiveness of knowledge-based economies has created a new model of business and corporate governance. A growing awareness about the need for ecological sustainability and the New Economy framework, with an unprecedented stress on communication and image merchandising, have paved the way for a new generation of business leaders concerned about the responses of the community and the sustainability of the environment. It is in this context that the new trends in corporate social responsibility (CSR) be understood. Corporate social responsibility is qualitatively different from the traditional concept of corporate philanthropy. It acknowledges the debt that the corporation owes to the community within which it operates, as a stakeholder in corporate activity. It also defines the business corporation's partnership with social action groups in providing financial and other resources to support development plans, especially among
disadvantaged communities. The emerging perspective on corporate social responsibility focuses on responsibility towards stakeholders (shareholders, employees, management, consumers and community) rather than on maximisation of profit for shareholders. There is also more stress on long-term sustainability of business and environment and the distribution of well-being. There is an increasing recognition of the triple-bottomline: People, Planet and Profit. The triple-bottomline stresses the following: • • • The stakeholders in a business are not just the company's shareholders Sustainable development and economic sustainability Corporate profits to be analysed in conjunction with social prosperity.
In I991, the company Patagonia Garments sought replacement materials, dropped 30 per cent of its clothing line and planned for a restricted growth of its operations, because an environmental audit of its products found that all its garments, including cotton clothing, cause pollution. Yvon Chouinard, the company's founder and president, defended the principle of restricted growth, saying, "We also committed ourselves to a lifespan of a hundred years. A company that intends to be around that long will live within its resources, care for its people, and do everything it can to satisfy its community of customers." Body Shop, the environmentally alert cosmetics company, and Ben and Jerry's Homemade Ice-cream are two other world-famous examples of ethical business. Corporate social responsibility offers a two-way street to companies, on the one hand stimulating innovative business and technological initiatives, which would open up new avenues for company operations and focus on the prospect of touching new market zones. On the other hand, it would give a cleaner societal reputation and socially responsible identity to companies, involving the companies and their employees in the long-term process of positive social transition.
Social action and citizens' campaigns The relevance of social action and campaign interventions stems from the very growth of global corporations and major paradigm shifts in the polity. In a liberal democratic policy, citizens are supposed to define the boundaries of the State and the State in turn defined the boundaries of the market. A reverse pattern has now evolved: the market is increasingly defining the boundaries of the State's operations. From being a mediator of
multiple societal interests, the State has been minimised into an arbitrator of risk and interest, primarily driven by market forces. It has been pointed out that "the triumph of economic globalisation has inspired a wave of techno-savvy investigative activists who are as globally minded as the corporations they track. This powerful form of activism reaches well beyond traditional trade unions." (Naomi Klein, the author of No Logo, 2000) In the last 20 years, social action interventions, boycotts and citizen campaigns have, however, brought a new player to the global market. Rob Harrison, co-editor of Ethical Consumer, UK, heard arms-trade manufacturers admit, "The four women who did 'criminal damage' to British Aerospace Hawk jets destined to help Indonesia's suppression of East Timor, achieved more in 10 minutes than 10 years of more conventional campaigning. "In the mid-'90s, carefully planned citizens' campaigns brought RJR Nabisco to its knees at its annual general meeting, almost forcing the MNC to split its food and tobacco divisions. In the USA, and elsewhere, time seems to be running out for those who are content to maximise profits with minimal regard for the social, economic and environmental impact of their business. New forms of activism that are acting as a countervailing force to corporate brand domination and the diminution of public and private space are constantly emerging. The Internet has rapidly become the tool of choice for spreading information about multinationals around the world. For example, each day information about Nike flows freely via e-mail between the US National Labour Committee and Campaign for Labour Rights; the Dutch-based Clean Clothes Campaign; the Australian Fairwear Campaign and many others spread throughout the world. In a September 1997 press release, Nike dismissed its critics as 'fringe groups'. But by March 1998 it was ready to treat Nike's online critics with more respect. It introduced yet another package of labour reforms and admitted, "You make changes because it's the right thing to do. But obviously our actions have been accelerated because of the World Wide Web." ('Sites for Sore Consumers', Washington Post, March 29, 1998) The thing every company fears most "is becoming the target of a powerful single-issue campaign group. So, rather than wait for it to happen, managers are taking pre-emptive action in the form of environmental product development and labelling, or engaging in such ideas as codes of conduct and social audits." (Rob Harrison, 'Consumers can make all the difference', 2000) When this public
resistance began taking shape in the western world in the mid-'90s, it seemed to be an activity precipitated by a group of protectionists. But, as connections have formed across national lines, a different agenda has taken hold, one that makes use of the communication networking and global reach- out. As a result of the successful campaigns and the ever-increasing solidarity between the media and international advocacy and campaign groups throughout the world, changes have been felt in corporate attitude, allowing social responsibility to be directed towards non-traditional stakeholders. These new attitudes have been induced jointly by campaigns, which publicised the need for supportive social action, and the media, which inspired these positions and generated consumer awareness. Thus campaigning, the media and consumers formed a partnership that led to the introduction of environmental protection as part of the factors that determine company success. More recently, other corporate elements of social responsibility, such as labour practices -- and, more specifically, child labour -underwent similar processes.
Concerns about multinational corporations While no one doubts the economic success and pervasiveness of multinational corporations, their motives and actions have been called into question by social welfare, environmental protection, and labor organizations and government agencies worldwide.
National and international labor unions have expressed concern that multinational corporations in economically developed countries can avoid labor negotiations by simply moving their jobs to developing countries where labor costs are markedly less. Labor organizations in developing countries face the converse of the same problem, as they are usually obliged to negotiate with the national subsidiary of the multinational corporation in their country, which is usually willing to negotiate contract terms only on the basis of domestic wage standards, which may be well below those in the parent company's country.
Offshore outsourcing, or off-shoring, is a term used to describe the practice of using cheap foreign labor to manufacture goods or provide services only to sell them back into the domestic marketplace. Today, many Americans are concerned about the issue of whether American multinational companies will continue to export jobs to cheap overseas labor markets. In the fall of 2003, the University of California-Berkeley showed that as many as 14 million American jobs were potentially at risk over the next decade. In 2004, the United States faced a half-trillion-dollar trade deficit, with a surplus in services. Opponents of off-shoring claim that it takes jobs away from Americans, while also increasing the imbalance of trade.
When foreign companies set up operations in America, they usually sell the products manufactured in the U.S. to American consumers. However, when U.S. companies outsource jobs to cheap overseas labor markets, they usually sell the goods they produce to Americans, rather than to the consumers in the country in which they are made. In 2004, the states of Illinois and Tennessee passed legislation aimed at limiting off shoring; in 2005, another 16 states considered bills that would limit state aid and tax breaks to firms that outsource abroad.
In sourcing, on the other hand, is a term used to describe the practice of foreign companies employing U.S. workers. Foreign automakers are among the largest insourcers. Many non-U.S. auto manufacturers have built plants in the United States, thus ensuring access to American consumers. Auto manufacturers such as Toyota now make approximately one third of its profits from U.S. car sales.
Social welfare organizations are similarly concerned about the actions of multinationals, which are presumably less interested in social matters in countries in which they maintain subsidiary operations. Environmental protection agencies are equally concerned about the activities of multinationals, which often maintain environmentally hazardous operations in countries with minimal environmental protection statutes.
Finally, government agencies fear the growing power of multinationals, which once again can use the threat of removing their operations from a country to secure favorable regulation and legislation.
All of these concerns are valid, and abuses have undoubtedly occurred, but many forces are also at work to keep multinational corporations from wielding unlimited power over even their own operations. Increased consumer awareness of environmental and social issues and the impact of commercial activity on social welfare and environmental quality have greatly influenced the actions of all corporations in recent years, and this trend shows every sign of continuing. Multinational corporations are constrained from moving their operations into areas with excessively low labor costs given the relative lack of skilled laborers available for work in such areas. Furthermore, the sensitivity of the modern consumer to the plight of individuals in countries with repressive governments mitigates the removal of multinational business operations to areas where legal protection of workers is minimal. Examples of consumer reaction to unpopular action by multinationals are plentiful, and include the outcry against the use of sweatshop labor by Nike and activism against operations by the Shell Oil Company in Nigeria and PepsiCo in Myanmar due to the repressive nature of the governments in those countries.
Multinational corporations are also constrained by consumer attitudes in environmental matters. Environmental disasters such as those which occurred in Bhopal, India (the explosion of an unsafe chemical plant operated by Union Carbide, resulting in great loss of life in surrounding areas) and Prince William Sound, Alaska (the rupture of a singlehulled tanker, the Exxon Valdez, causing an environmental catastrophe) led to ceaseless bad publicity for the corporations involved and continue to serve as a reminder of the long-term cost in consumer approval of ignoring environmental, labor, and safety concerns.
Similarly, consumer awareness of global issues lessens the power of multinational corporations in their dealings with government agencies. International conventions of governments are also able to regulate the activities of multinational corporations without
fear of economic reprisal, with examples including the 1987 Montreal Protocol limiting global production and use of chlorofluorocarbons and the 1989 Basel Convention regulating the treatment of and trade in chemical wastes.
In fact, despite worries over the impact of multinational corporations in environmentally sensitive and economically developing areas, the corporate social performance of multinationals has been surprisingly favorable to date. The activities of multinational corporations encourage technology transfer from the developed to the developing world, and the wages paid to multinational employees in developing countries are generally above the national average. When the actions of multinationals do cause a loss of jobs in a given country, it is often the case that another multinational will move into the resulting vacuum, with little net loss of jobs in the long run. Subsidiaries of multinationals are also likely to adhere to the corporate standard of environmental protection even if this is more stringent than the regulations in place in their country of operation, and so in most cases create less pollution than similar indigenous industries.
The future for multinational corporations Current trends in the international marketplace favor the continued development of multinational corporations. Countries worldwide are privatizing government-run industries, and the development of regional trading partnerships such as the North American Free Trade Agreement (a 1993 agreement between Canada, Mexico, and United States) and the European Union have the overall effect of removing barriers to international trade. Privatization efforts result in the availability of existing infrastructure for use by multinationals seeking to enter a new market, while removal of international trade barriers is obviously a boon to multinational operations.
Perhaps the greatest potential threat posed by multinational corporations would be their continued success in a still underdeveloped world market. As the productive capacity of multinationals increases, the buying power of people in much of the world remains relatively unchanged, which could lead to the production of a worldwide glut of goods and services. Such a glut, which has occurred periodically throughout the history of
industrialized economies, can in turn lead to wage and price deflation, contraction of corporate activities, and a rapid slowdown in all phases of economic life. Such a possibility is purely hypothetical, however, and for the foreseeable future the operations of multinational corporations worldwide are likely to continue to expand.
Public opinion and government policy with respect to MNCs, in other words, conjure up the image of a fault line along the earth's crust, quiet for the moment but with pressures building below that could—will—divide the earth above. Despite the best-educated guesses, however, nobody really knows just when and under what circumstances this will happen or how severe the damage will be. Already odd alliances have been formed among the parties most affected by the growth of MNCs. One of these took place beginning in 1991 when free-trade advocates in the United States found themselves joined by the multinationals but strongly opposed by rank-and-file workers over the approval of the North American Free Trade Agreement (NAFTA), which was ratified in 1992 despite labor's objections. In 1994 the MNCs and free traders won a limited victory with the establishment of the World Trade Organization (WTO), which since its founding has focused much of its attention on breaking down remaining restrictions on the expansion of MNCs worldwide. It has had only moderate success, however, because it lacks judicial authority, something the U.S. negotiators refused to give it because of congressional reservations about granting extensive powers to the new body.
In the late 1980s, free traders in Europe joined with European workers in successfully opposing the proposed merger of Honeywell International and General Electric on antitrust grounds. The United States and the European Union also entered in a trade war. They clashed over European restrictions on imports of American beef and bananas, and the U.S. steel industry accused European firms of dumping steel on American markets. European business and political leaders retaliated with charges that Washington unfairly subsidized U.S. exports and rejected its efforts to resolve trade disputes.
These claims and counterclaims suggest that, in a world becoming smaller each day, with corporate mergers across national boundaries becoming more common and a technological and information revolution unlike any in the past, calls will continue to grow about bringing the aspirations of private enterprise more in line with national needs. How that will happen or whether it is even possible remain unanswered questions. The failure of the United States and Europe to resolve their economic differences and a growing movement toward economic regionalism in East Asia, including mutual currency supports, cooperative exchange systems, and an East Asian free trade area, even suggest a worldwide backlash already under way against economic globalization. At the same time, it is difficult to imagine anything less than a highly integrated world economy or one without the glue of the multinational corporations that helped bring it about in the first place.
• • • • • • • Paper on Trade Justice Campaign: Action Aid International India: beyond cost arbitrage: Arun Das Mahapatra and Gauri Padmanabhan Going global: Indian multinationals; India Brand Equity Foundation(IBEF) Lourdes Casanova (2004) "East Asian, European, and North American Multinational Firm Strategies in Latin America," Business and Politics: Vol. 6 : Iss. 1, Article 6. David Held et. al., Global Transformations: Politics, Economic and Culture (1999). Paul Hirst and Grahame Thompson, Globalization in Question, 2nd ed. (1999). Colin Hay and David Marsh (eds.), Demystifying Globalization (2000).
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