Constructive Engagement

Corporations often make the point that their actions can actually be positive. Their “constructive engagement” allows the spread of democracy, new technologies, human rights and so on to those regions, which, over time, would allow more positive benefits to be realized.

This sounds nice and comforting. However, critics point out that

• Often those countries which have been dictatorships are often regimes that have been placed in power, or supported, by western nations and the larger corporations have benefited from the dictatorships' ability to control their own people.
• In some countries, large corporations have even funded media suppression or military activities against workers, themselves.
• Human rights conditions have hardly improved due to corporate activities and the technologies brought in are usually still owned by the company itself, so that the self-empowering benefits of technology transfer is less than what it could be.
• However, some public pressure has forced certain large companies to address their human rights issues. Such companies include large oil corporations like BP Amoco and Statoil. It remains to be seen if their drive is from a public relations concern, or a genuine concern for the well being of the people that either work for them in other countries or are affected by their work practices.
• The constructive engagement argument is then seen as a nice cover to continue exploitative practices.

In toys, garments and clothing, the brief history of voluntary Codes of Conduct is one of TNCs being dragged into them with little enthusiasm and not very much willingness to comply unless they have to—although of course, they stoutly maintain the opposite.

… As governments spend resources on EPZs [Export Processing Zones], they foresake the opportunity to “create more jobs for the same amount of money by investing in and supporting small enterprises serving the local market.” EPZs require government funds which could be used elsewhere for projects that directly help the poor. Their growth is coming at the expense of the poor. Whether they operate inside or outside such zones, TNCs involved in manufacturing have not helped most developing countries to improve the decline in their terms of trade, neither have they provided the poor with an escape from poverty.

… [With respect to tourism] [n]et foreign exchange earnings for developing countries are “often lower than the income figure might lead one to believe”, says a UN report. The difference is due to “leakages”—the percentage of the tourist’s money which does not stay in the country being visited, but which goes instead to the foreign-owned airline, tour operator and hotel. … These figures are significant. They show that a great deal more foreign exchange stays in a country when hotels are locally owned.

— John Madeley, Big Business Poor Peoples; The Impact of Transnational Corporations on the World’s Poor, (Zed Books, 1999) pp. 112, 114, 135 - 136.

Gordon Hanson, in an article for UNCTAD (United Nations Conference on Trade and Development) and the G-24 titled Should Countries Promote Foreign Direct Investment?, February 2001, concludes that “countries should be sceptical about claims that promoting FDI [Foreign Direct Investment] will raise their welfare.”

We hear more and more about philanthropic organizations set up by mega-successful business elites, where millions of dollars are donated to seemingly worthy causes. However, the fact that such donations are needed also serves as an indication that development policies and globalization policies in their current form are not sustainable! The following quote summarizes this notion quite well:

It is all very well for Bill Gates to charitably donate $750m to pay for immunization programmes for certain diseases, as he recently announced he would do, and for James Wolfensohn to urge transnational companies setting up in poor countries to contribute financially directly to local education services. Societies which depend on such largess to meet their basic health and education needs are neither sustainable, democratic nor equitable—yet new dimensions of power are ceded to large companies.

— Brendan Martin, New Leaf or Fig Leaf? The challenge of the New Washington Consensus, Bretton Woods Project, March 2000.

Economic Power also wields Political Power

While the drive for efficiency is always a good thing (as it should help prevent wasting resources), it is a shame that the goal of keeping these costs down (while increasing revenues for overall increased profit) also leads to reducing wages, working conditions and often the basic rights of people. This occurs because these corporations and even some nations seek out places where poor labor regulations can be taken advantage of in an unfair way, or by not supporting—or even opposing—international or national bodies and regulations that help to ensure fairness.

Whilst it is in the public’s interest that resources be used sparingly and in a sustainable reusable manner, Corporations choose to create disposable products which require constant replacement/repurchase. The Corporations' interest in maximising sales and profits is in direct conflict with our own democratic right to choose how finite resources are allocated.

— Daniel Bennett, Program on Corporations Law & Democracy, Corporate Watch, March 1999

And regarding the notion of efficiency, there is a difference between an industry or corporation driving towards efficiency for maximizing profits, versus driving towards efficiency that would benefit society. An example of this will be seen in the next section on this site about medical research and the pharmaceutical industry.

To highlight this point further, take for example the illegal drug or tobacco industries. They, like other industries need to operate efficiently and minimize unnecessary costs. However, their impact on society is negative to say the least.

In the same way, other industries, such as the automobile/transportation industries, health industries, even how various laws are structures etc can all have a net effect of improving efficiency for those industries but not always for society in general. For more detail about this aspect, refer to The World’s Wasted Wealth II, by J.W. Smith (Institute for Economic Democracy, 1994).

Did you know that some transnational corporations make more in sales than the GDPs (Gross Domestic Product) of many countries! In fact, of the 100 hundred wealthiest bodies, 51 percent are owned by corporations. While this can be seen as a success story from some viewpoints, others suggest (see previous link) that these and other large corporations are largely unaccountable for the many social and environmental problems that they leave in their wake, and that their size means that their effects are considerable.

It is not that every single corporation is inherently bad or greedy or something like that, but oftentimes, the very large, multinational corporations who naturally have vested interests in international development and trade policies (like any group) are able to deploy enormous financial resources in an attempt to get favorable outcomes. The political power that is therefore held by such a small number of people impacts the planet significantly. As a result a few of these corporations make up some of the most influential sources of political and economic power.

Despite its prominence in political debate, corporate power and its systems of checks and balances are not well understood. Corporate power at its current level was not foreseen by early lawmakers and constitutional scholars, and its foundation in law is uneasy and inconsistent. But it is clear that the question of the legitimacy of corporate power in the United States has been transformed. Originally, the government had to review and specifically approve each corporate charter as being essential for a specific purpose that was in the public interest. Now one does not ask so much as notify the state that a corporation has been created. Anyone can incorporate for any activity that is not illegal. And the corporation, granted at least some of the constitutionally protected right of free speech originally contemplated for individual citizens, has now been accorded the right to question and challenge whether government is acting in the public interest.

In fact, government is now as much a creation of business as the other way around. Businesses grew so fast that there was no opportunity for other national institutions to develop adequate power to filter the impact of commerce on civil life. So Big Business begot Big Government. Because the goals of business are not always identical to the goals of society (which is partially a failure of the corporate governance system …), some institution was needed to harmonize the undoubted benefits of active commerce with the various needs of other constituencies. In the United States, this organization was the federal government, the only other major national institution.

— Robert A.G. Monks and Nell Minow, Power and Accountability, (an on-line book, originally written 1991)

Through influencing governments, larger multinational companies especially, with their enormous resources wield significant political as well as economic power as also highlighted by the above quote as witnessed by the 2000 Presidential Election in the United States, where corporate donations to both Bush and Gore were in the millions of dollars.

Will Corporations Rule the World?

For all the vivid examples of modern corporate power, such as the annual income of Motorola being equal to the annual income of Nigeria's 118 million people, it is folly to believe that big business on its own is shaping the new world order. This allows the argument against globalisation to be depoliticised, reducing it to single issues of “ethical trading” and “codes of conduct”, and inviting its co-option. Above all, it misses the point that state power in the west is accelerating.

— John Pilger, The state is more powerful than ever; the view that big business alone shapes the new world order is wrong, 9 July 2001

A common perception is that due to the enormous influences and power of many major multinationals, corporations are therefore going to “rule the world”; that corporations will reduce the need for a government and will dismantle the state. Yet, this is not completely true.

• Corporations still require the state to provide them the environment conducive to their needs.
• The state may reduce its functions and obligations and thus “roll back” its commitment to its people, but that doesn't mean that they won't be needed and become obsolete.
• Such rollback will also enable decision-making (and therefore control) to be further concentrated.
• This “rollback” happens both in the North and the South.
  • The South has been “structurally adjusted” to open up the economy and roll back the functions of the state, and even concentrates further the decision-making. That is, these IMF-, World Bank-prescribed policies have reduced democracy. (See this web site's section on SAPs for more.)
  • In the North, in countries ranging from New Zealand, to the United Kingdom, and most aggressively in the United States, the functions of the government have been constantly rolled back. Less is spent on health, education etc, while more on military, policing and so on. (See Walden Bello, Dark Victory, (Food First, 1994, 1999 Second Edition) for more on this.)
• Yet governments will still be required to provide repressive functions to “keep the rabble in line” so to speak, as described by Noam Chomsky.
• They will also be required to help create or open up markets, or even provide military support for such things (as described in the military expansion section on this site).
• Also, an interception of society's wealth is sometimes provided to large businesses to just survive. Western nations provide a lot of protectionism to their industries, while forcing the poor countries to completely open up. If there was true free trade and fair competition, many wealthy western corporations might not be able to survive, as John Pilger suggests. (See also the corporate welfare and evasion of responsibilities section on this site.

So, while corporate influence increases and continually drives many aspects of our lives, from influencing and even buying elections, public policy and so on, they still require a government that functions to serve their needs as well. International institutions such as the IMF, World Bank, and World Trade Organization, are also needed. The irony is that by often using tax payer money, the tax payer unwittingly supporting a process that is leading to more exploitation of tax payers. For the poor countries, the multinational corporations of the west are seen as further extensions of those western nations.

As the post September 11, 2001 corporate scandals have shown in the U.S., even U.S. multinationals are not exempt from all issues. Corporate accountability has come to the fore especially for shareholders due to accounting and other scandals (though there are still concerns of corporate welfare going on by using the war on terror as an excuse -- sometimes legitimate, sometimes not). As one example, the L.A. Times reported that “In a setback for multinational corporations, a federal appeals panel ruled [18th September 2002] that they can be held liable in U.S. courts for aiding and abetting human rights violations committed by others abroad.” A number of multinationals have been accused for gross human rights violations around the world, as briefly discussed in various sections on this site, and as that L.A. Times provides an example of.

It is possible therefore, that with the drive for real democracy and accountability at all levels of society that the interests and influences of big multinationals and others that are currently regarded by many as having a negative impact may perhaps be checked appropriately, though history has shown that this is no easy task. The above example from the L.A. Times is just one small step.