Multinational Corporations in the Global Economy

1. 1 Multinational Corporations in the Global Economy

2. 2 Lecture 3 The downside of MNC In their global expansion, some of the MNCs have at times misbehaved. Taking advantage of some host countries� slack regulations and lack of controls, MNCs have become responsible for the exploitation of human resources, the destruction of the natural environment, and for corruption and illegal behaviours. We will discuss some notable cases, and also see how MNCs and policy makers have (or could have) addressed these problems.

3. 3 MNC, power and ethics MNCs can be very powerful institutions: �Corporations control a great amount of capital, generating about one fifth of the worlds� wealth� �Corporations may have as much or more power over individuals as governments� �Only six nations (US, Germany, Japan, United Kingdom, Italy and France) have tax revenues larger than the nine largest MNCs� sales. Some believe that this is beneficial: MNC bring technologies, progress and wealth (spillovers � Lect 2) Some believe that this is for the worst: MNC accentuate existing inequalities and have a history of human rights� abuses (Today�s Lecture)

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5. 5 Key historical facts 1970s: ITT, the International Telephone & Telegraph: participated in plans by the U.S. (CIA) to overthrow the government of President Allende in Chile (US National Security Archive, 2000) 1984: Union Carbide (now part of DOW Chemicals) and the Bhopal distaster in India 1960-today: Shell Oil Company and environmental damages in Nigeria

6. 6 Bhopal distaster

7. 7 Niger Delta distaster

8. 8 Two different views: �the social responsibility of business is to increase its profits� Milton Friedman (1970) �hence it is illegitimate for a corporation to act in a way that is detrimental to shareholders returns

9. 9 Questions What is your own view? Who are the actors involved? What should these actors do?

10. 10 Actors involved

11. 11 Actors involved 1 Regulate Control Sanction Why do host country governments not always do that? What does the Nigeria case tell us?

12. 12 Actors involved 2 Set global standards and guidelines Exert pressure on governments and other stakeholders Raise awareness

13. 13 Codes of conduct Set of �guidelines� to encourage the positive contribution which MNC can make to economic and social progress Among the most important ones: Internat. Labour Organization (ILO) Declaration of Principles Covering MNC and Social Policy (1977) OECD Guidelines (1976-2001) UN Commission on Transnational Corporations (1990): UN GLOBAL COMPACT http://www.unglobalcompact.org/

14. 14 UN Global Compact Human Rights Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: make sure that they are not complicit in human rights abuses.�� Labour Standards Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labour; Principle 5: the effective abolition of child labour; and Principle 6: the elimination of discrimination in respect of employment and occupation.�� Environment Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies.��� Anti-Corruption Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.�

15. 15 The problem of implementation Communication: some MNCs ignore the existence of Codes of Conduct! Monitoring: Who does it? Governments, International Organizations, NGOs, Civil Society Sanctioning: difficult because Codes of Conduct are voluntary and there is not an �international companies law� that can be used against MNCs when they break common conducts After more than 20 years Union Carbide/Dow Chemicals has not yet admitted full responsibility for the Bhopal Disaster.

16. 16 Actors involved 3 Monitoring and denouncing MNC violations of human rights Raising awarness in civil society Campaining against MNCs and governments that violate HHRR.

17. 17 Actors involved 4 �Good corporate citizenship� Social Corporate Responsibility How does it work?

18. 18 What do MNC do? Social Corporate Responsibility Procter&Gamble: http://www.pg.com/company/our_commitment/drinking_water.jhtml Chiquita: http://www.chiquita.com/content/CVenglish01.asp Dow Chemicals Commitment to the Planet: http://www.dow.com/commitments/commit.htm Shell Oil http://www.shell.com/static/responsible_energy/downloads/sustainability_reports/shell_sustainability_report_2007.pdf

19. 19 Starbucks CAFE�: Globalisation of justice Starbucks CAFE� Practices Programs Only suppliers that comply with certain economic, social and environmental standards are selected CAFE Practice Providers represent 25% of all coffee purchased by the company Important to generate �demonstration effects� to other multinationals in the coffee industry

20. 20 How does it work? Acceptance Guidelines for the selection of suppliers: Product Quality Economic accountability (financial transparency: how much do your workers get paid?) Social responsibility Environmental leadership

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22. 22 Incentives Farmers/coffee growers are also given premium prices when they are excellent under all dimensions (incentives)

23. 23 Does it work? Starbucks has brought about significant improvements in the well-being of its workers and producers BUT, Starbucks + Fairtrade account only for 3% of global coffee trade The rest is done with conventional supply chains The key point at this stage is the �demonstration effect� �If there weren�t companies willing to take the lead, other companies just sit on their hands saying there is no solution. But with someone as visible as Starbucks, they realise that just talking about the problem is not enough to satisfy consumers� (MacDonald, 2007)

24. 24 Monsanto�s Smallholder Program (SHP) Monsanto is a large MNC producing agricultural inputs (seeds, fertilizers, etc.) and being one of the dominant actors in the production of Genetically Modified Seeds What are GM seeds? Seeds whose genetic composition has been altered to become resistant to certain pests

25. 25 What are the claimed benefits of GM seeds Increse the productivity of crops (because of reduced pests): Increase profitability of farmers Good to reduce famine and poverty Reduce use of pesticides because each GM seed only needs one type of pesticide, also provided by Monsanto Good for the environment

26. 26 What are the problems with GM seeds? The property rights of the GM seeds are owned by Monsanto, hence farmers need to buy them Monsanto developed �terminator� seeds: farmers have to buy GM seeds every year (from Monsanto) together with its pesticide The effects of GM crops on the environment and public health are not known

27. 27 What did Monsanto do? AIM: reduce underdevelopment It claimed to target smallholders (small farmers) and to help them with �technology transfer� programs Help farmers in the transition between traditional agriculture to GM agriculture It claimed also to target the poorer areas of developing countries

28. 28 What did Monsanto do? In fact: Targeted farmers were medium-large sized Areas targeted were those with higher expansion potential for GM crops Final objective was to convince farmers to adopt GM seeds and to increase Monsanto�s profits When a farmer switches to GM seeds the change is irreversible because the field gets contaminated This transformed SCR strategy into a pure commercial strategy and when crisis struck the headquarters cut funding to SCR programs

29. 29 Conclusions MNCs voluntary initiatives (SCR) are not the solution The role of IO/NGOs is important in setting codes of conduct, raising awareness and denouncing violations The role of Governements is crucial in sanctioning