|MNCs and TNCs: Their Role and Socioeconomic Impact on Host Societies|
|Written by Khalid Rahman|
Policy Perspectives, Vlm 4, No.2
This paper attempts to gauge the role of MNCs in influencing the decision making at the world stage and to study how the globalization will affect the poor countries. The paper analyzes the strengths, tools and strategies of the MNCs for extending their influence on the global affairs and traces out how the MNCs impact the host societies. Some recommendations to address the situation follow at the end. – Author]
The World We Live In
The story highlights how an event can, in no time, affect people of faraway lands. This is the world today; it is fast and changing. People struggle against time to achieve their goals. This struggle often leaves little room for them to think and care for other people. And this process has been expedited by the effects of globalization.
Globalization and Its Significance
The Roles of Capital and the Market Economy in Globalization: The economy is the most significant motivating force behind globalization, although politics, technology, education, media, and culture also play their parts. The effect on human life is certain. Global institutions like the United Nations (UN), World Bank and International Monetary Fund (IMF) and individual countries and societies derive their strength from their economic power, which enables them to make or influence decision-making on the world stage. Behind the government, rich individuals or groups in the developed countries exert influence on decision-making, both within their own countries and at the global level, on issues ranging from politics, conflicts and wars to development in the social sectors, such as education and health services. Anderson and Cavanagh (2000) found that, of the top 200 business corporations of the world, 94 maintain “government relations” offices that are located on or within a few blocks of the lobbying capital of the world, Washington, DC’s K Street Corridor.
The Top 200 MNCs and World Capital Ownership: Who owns the capital of the world? According to Anderson and Cavanagh, among the largest 100 economies in the world, 51 are multinational corporations (MNCs), whereas only 49 are countries. The analysis is based on a comparison of the corporate sales of MNCs and the GDPs of the countries. The study further shows that, out of the 200 largest economies of the world, 144 are MNCs. The combined sales of the top 200 corporations are bigger than the combined economies of all the countries of the world, minus the largest 10. The income of MNCs is 18 times higher than the combined annual income of the 1.2 billion people of poor countries (24 percent of the total world population). The study has found that the growth of sales of top 200 corporations is faster than overall global economic activity. Between 1983 and 1999, their profits grew by 362 percent whereas their combined sales grew from 25 percent to 27.5 percent of the world GDP.
Most of these MNCs belong to the rich countries; therefore, it is natural that MNCs and their respective countries should safeguard their mutual economic, political, and cultural interests under the cloak of globalization. Economies are the catalysts of the globalization process, and they are represented by MNCs and transnational corporations (TNCs), which maintain the highest stakes and stand to gain the maximum benefits.
MNCs and TNCs: Emergence, Stakes and Strategy
Emergence: Trade between nations has existed since ancient times but its scope used to be limited. With the Industrial Revolution and the introduction of fast means of communication and transportation, transnational trade has expanded at great speed. Subsequently, the MNCs have emerged.
Collaboration with Media: In recent times, the emergence of media giants with increasing power and influence over human minds, and their collaboration with other MNCs, driven by mutual interest of the two, has profoundly intensified MNCs’ influence. The process has evolved and developed with modern ways and means that have added to its significance as well as its speed, scope and quantum.
Lobbying: Given their huge capital resources and production capacities, MNCs are able to dictate their own terms in economic dealings. For the sale of their enormous production, MNCs require access to large markets; tariff issues, access restrictions and similar “barriers to trade” are hurdles in this access. What MNCs need is a global system for the free flow of their goods. They therefore use their sheer economic weight to influence international trade rules. With their huge resources, they employ lobbyists with the highest expertise and influence at international trade organizations. In all, there are approximately 15,000 lobbyists based in Brussels, or roughly one for each staff member of the European Commission, the executive body that negotiates on the European Union’s behalf in the WTO. Some 70 percent of these lobbyists represent business interests. Their expenditures in Brussels alone are estimated to be between € 750 million and € 1 billion. Moreover, an estimated 17,000 lobbyists representing different MNCs are working in Washington, DC. The pharmaceutical industry alone spent US$ 1 billion on lobbying in the US in 2004. The rich North, influenced by such lobbying, makes decisions in favor of the MNCs, irrespective of the economic, social or cultural consequences for the poor of the world.
Entry in Host Countries: Having poor economic infrastructure and little capital, developing countries very easily agree to host MNCs. At times, their weak regulatory positions are subsequently exploited by MNCs.
Inducing Buyers and Capturing the Market: MNCs capture the market using a variety of strategies and tools, including social and market research, opinion building, developing interest groups, lobbying, sponsorship, etc. The media plays an important role in this campaign.
MNCs’ Impact on Host Societies
Weaknesses and Strengths of Host Societies
Their strengths lie in their traditional and strong social structures where the family system provides strong bonds of relationship, a caring environment, a family-based social security system, simple living, and inherited traditional or conventional knowledge and wisdom. The host societies are mainly agricultural economies where food security has not been a problem in ordinary circumstances.
The Positive Impact
Financial and Technological Resources and Expertise: MNCs provide immense resources and investments, technology, innovation and expertise to the host societies. A culture of research and development is encouraged and human resources are developed, at least within the organization. MNCs also contribute significantly to the national exchequer by paying taxes.
Good Business Practices: Good governance, organizational transparency, clear command structures, and performance-based evaluation and incentives programs for employees encourage the merit system. MNCs introduce a professional working environment and culture for local organizations to emulate, thereby promoting sound management and business education.
Infrastructure Improvement: Many MNCs help in improving the infrastructure and provision of basic needs in their specific areas of operation. They either do so directly or provide funds for this purpose to civil society organizations. This also improves business conditions within and in the vicinity of the areas where they are operating.
Pluralism: MNCs help boost cross-boundary interaction among people. Even education, particularly, business education, has taken on a global perspective. The global perspectives and opportunities for cross-cultural understanding increase the adaptability of students to alien environments. This leads to the mixing of cultures and practices and encourages pluralism as well as competition.
The Challenges posed by MNCs
Conflicts of Interest: MNCs are commercial organizations and their only interest is to gain maximum return on their invested capital, occupy market shares and ensure their long-term competitiveness. This leads to conflict of interests between the MNCs and host societies on issues like repatriation of profits, patents, and major operational decisions. Host countries would want MNCs to work in a manner that is harmonious with the social and political needs of their societies and communities, whereas the MNCs make their choices based purely on economic criteria. This conflict of interests leads to conflict within societies.
Increasing Materialism and Consumerism: MNCs promote a culture of conspicuous consumption, in which presentation and cosmetic changes matter the most. The product models change very fast and the older ones lose relevance in a short span of time. Consumerism has an overwhelming impact on societies. For example, departmental stores and shopping malls/plazas are mushrooming everywhere both as an outcome of and an impetus to further consumerism. Eating habits are also changing, with increasing consumption of processed, instant, fast and junk food, especially products of international brands. The emphasis is on instant access and quick relief. Many products also glamorize life in the fast lane, leading to increased consumption of faster communication products, cars, as well as stimulants such as cigarettes, and alcohol. As outward looks become central in the vision of success, a vibrant fashion industry is changing the dress and outlook of ordinary people. Spending priorities have changed.
Contrary to the conventional view, taking loans is now considered a status symbol. The availability of easy credit, consumer financing, credit cards and personal loans by the banks to the middle class is promoting a culture of people living beyond their means.
Simplicity is losing currency and people strive to live in luxury. This trend makes the disparity of resources among people, groups and even regions look wider. Previously, education was aimed at developing a balanced personality and ethical and social values and character building were emphasized. Now, however, materialism has taken over.
Healthcare Attitudes: Healthcare attitudes are changing and people expect better health services. The job is made easier by the new norm of “third party cashless payments,” where payment is made via credit cards or health insurance. The focus has now increased on preventive healthcare. Although it is good for those who can afford these facilities - and they are the targets of MNCs- yet it is extremely frustrating for those who cannot afford them. Hectic routines, targets and deadlines are resulting in stresses and pressures. A destructive lifestyle has led to a host of medical crises: sexual problems from over-performance at work, stress, mid-life crisis, ulcers, nervous disorders, hypertension, obesity, cardiac disease, diabetes, etc., are all lifestyle-related ailments that are on the rise.
Brain Drain: The term “brain drain” is commonly used for the situation when talent goes out to other countries. The MNCs are involved in another kind of brain drain. Their lucrative salaries attract talent that might have contributed to the host society to work for their ‘multinational’ interests without leaving the country.
With the spread of MNCs’ operations in a society, the importance of foreign languages increases because these firms mostly operate among the classes equipped with foreign language skills and hire and promote the people from the same groups.
Promotion of Non-Issues: Importantly, poor people are not the target of MNCs. They target the middle classes, who have the buying powers, and trying to change their priorities in everyday life, spending and consumption. MNCs establish close linkages with intellectuals, legislators, media and some non-government organizations (NGOs) to highlight specific issues that suit their business interests.
Negative marketing: When introducing their products, MNCs exaggerate the qualities to the level of cheating and lying. Aggressive campaigns with false claims are launched. Local products are ridiculed. Children and youth are special targets, while women are treated as commodities to project the products, affecting the existing value framework of the societies.
Business Promotion through Charity: Some MNCs are involved in charitable and welfare work in the host societies as well. However, the amount given by them in charity is not comparable to their profits. Moreover, the charitable work revolves around activities that directly or indirectly result in various kinds of gains for the corporations. Charity is given where the economies best suit their corporate interests.
Violation of Human Rights: Exploitation of workers by large business corporations is a common phenomenon. Most workers are exposed to hazardous and inhuman conditions, overexertion and financial abuse. This happens despite the fact that many of the world’s largest business associations, including the International Chamber of Commerce, have endorsed the UN Secretary General’s “Global Compact,” a mechanism for self-regulation by business companies.
Stresses on the Family: MNCs affect the host society’s family fabric in many ways. The new cultures and lifestyles introduced by MNCs are proving harmful to the family fabric in host societies. Overspending and living beyond means eventually creates economic pressures and develops tensions and stresses within families. Various indicators also prove that women working with MNCs and other big corporations undergo extra stress when entering into marriages and bearing children. Parents have little time for their families, particularly children. One out of six women in the world opts out of natural birth, according to the World Health Organization (WHO). Earlier, this trend was specific to the developed countries but it now prevails in the least developed world too.
How to Move Forward?
MNCs have contributed a lot in the growth of developed countries and both have progressed side by side. This has been an evolutionary development and, therefore, there are now strong institutions, including legislating bodies, regulatory agencies, judicial system, and consumer societies, to check and maintain the balance from within. In the case of developing host societies, however, a rather uneven contest is taking place. This needs to be addressed through interventions at three levels:
Although it will not be easy, there is a need to chalk out a global strategy and comprehensive program for moving towards healthy competition and the 'balance of power' between MNCs and the developing host societies by removing the present inequalities. In such a scenario, businesses would be driven to create value not only for shareholders but also for the society and ecological environment that host them.
The Moral and Ethical Dimension
This requires the effective and harmonious functioning of all human institutions, like the market, the family, society and the government. These institutions are all closely interrelated; they do not operate in watertight compartments. None of them can work effectively on the basis of self-interest alone: the serving of self-interest may be essential for increasing efficiency, but social interest is also necessary to realize equity and efficiency. Self interest should therefore accompany social interest. From the market perspective, for example, poverty alleviation should be seen, not as an act of charity by the rich, but as a longer-term investment to bring the poor into the market, by improving their purchasing power.
The MNC-led globalization currently under way emphasizes economic integration and not justice. As Nelson Mandela admitted at the “Bridging the Divide” Conclave 2006, held by India Today, “It worries me that our world is becoming a global village only for the exchange of goods and information — not as a place of shelter, livelihood, security and dignity for all who live in it.” Justice requires that, as the production capacity, trade and exports of industrial counties rise, developing counties should experience similar increases — indeed, their growth should occur at a higher rate if poverty and unemployment are to be reduced. However, the capacities of developing countries cannot rise until the extra hurdles they face are removed. For this, they need human resource and infrastructure development and access to technology, which, in turn, demands international technical and financial assistance. In the long run, the rich countries will reap a good return through increased overall growth all over the world.
As the world moves towards becoming a universal village, it must maintain its cultural diversity, which is the beauty of life and an asset of all mankind. Any effort by a dominant group to impose a particular culture on the rest of the world will create problems globally. To be just and fruitful, globalization must always have a human face.
ActionAid International. 2006. Under the influence: Exposing undue corporate influence over policy making at the World Trade Organization. Johannesburg.
Anderson and Cavanagh. 2000. Top 200: The Rise of Corporate Global Power. Oakland, CA: Institute for Policy Studies.
Bobb, Dilip. 2006, September 18. “Body of Evidence.” India Today.
Datta, Damayanti. 2006, July 31. “Birth Controlled.” India Today.
Gell-Redman, Micah and Kang, Caren. 2006. ‘Plenty of “Unfinished Business”.’ The Current, Volume 10, Number 1, Fall 2006. Cornell Institute of Public Affairs
ICI Pakistan. 2006. Official website (www.ici.com.pk/files/ici_financial.html) Viewed November 24, 2006.
Kondap, N. M. 2006, October 22. “Changing Paradigms.” Business India.
Mandela, Nelson. 2006, March 27. “Human Will is the Key.” India Today.
Purie, Aroon. 2006, September 18. India Today.
Shehzad, Irfan. 2006, October 30. “Merger Trends in Banking.” Dawn.
Shell, 2005. Official website. (www.shell.com/static/pk-en/downloads/ about_shell/ financial_reports_2005) Viewed November 24, 2006.
Singh, V. B. 1979. Multinational Corporations and India. New Delhi: Sterling Publishers.
The Network for Consumer Protection. 1999. Milking Profits – How Nestlé puts profits ahead of infant health. Islamabad.
The World Revolution. 2006. www.worldrevolution.org [Official website]. “The State of the World – Brief Introduction to Global Issues.” (http://www.worldrevolution.org/projects/globalissuesoverview/overview2/BriefOverview.htm). Viewed November 22, 2006.
UNCTAD. 2002. Multinational Corporations in Least Developed Countries. (http://www.globalpolicy.org/reform/2002/modelun.pdf) Viewed Nov-ember 22, 2006.
UNDP. 2006. “Overview.” Asia-Pacific Human Development Report 2006 – Trade on Human Terms. New York.
Yechury, Sitaram. 2006, March 27. “Bring Poor into the Market.” India Today.
The following entry was found in his diary: “Dear God, I promise I will never waste my food no matter how bad it can taste and how full I may be. I pray that He will protect this little boy, guide and deliver him away from his misery. I pray that we will be more sensitive towards the world around us and not be blinded by our own selfish nature and interests. I hope this picture will always serve as a reminder to us that how fortunate we are and that we must never ever take things for granted.”
These organizations cannot be called democratic. The UN gives five countries permanent seats with veto power in the Security Council, among whom the US enjoys the greatest influence, mainly due to its larger contribution to the UN. At the IMF, voting power is determined by the capital subscription to the Fund; the basis for decision-making is therefore, not One Member, One Vote, but One Dollar, One Vote. The WTO mechanism is different from many other world bodies, with each country having an equal voting right. Nevertheless, due to their much larger human, intellectual and financial resources and political influence, the rich countries exert a greater influence in decision making.
According to Sarah Anderson and John Cavanagh (2000), the US dominates the top 200 corporations, accounting for 82, i.e. 41 percent of the total. Japan is second, with 41 corporations, Germany comes in third, with 20, followed by France and UK, which account for 17 and 11 corporations, respectively.
The EU and US have, respectively, 43 and 25 officials working in Geneva who focus entirely on WTO issues. By contrast, 80 million people are completely unrepresented at the WTO as their countries cannot afford to maintain representatives in Geneva. In the recently concluded Hong Kong Ministerial, the EU had a delegation of over 800 people while the US had more than 350 delegates. (ActionAid, op. cit.)
It was proved decades ago that there is a phenomenon of MNCs producing unlicensed items, overproducing licensed items, and violating the import and export regulations of the countries where they operate. (See Singh, 1979, p. 95.)
The new investments by the MNCs are usually targeted towards the most lucrative business fields. As Pakistan’s banking sector is posting profits, foreign banks are now turning to buy Pakistani banks. Making the biggest ever investment by any foreign bank in Pakistan, $413 million, Standard Chartered has acquired controlling stakes with 80.86 percent shares in Union Bank, a domestic private financial intuition. The amount is $24 million higher than the $389 million that the Aga Khan Fund for Economic Development paid for Habib Bank, a much bigger financial institution, a few years ago. Other European and American banks are also reportedly interested in buying Pakistan-based banks and financial institutions. (Shehzad, 2006.)
In the UNCTAD 2003 ranking of the top 100 MNCs and TNCs, three are related to media, including News Corporation, Thomason Corporation and Berterlsmann. These and other media giants have a large variety of products and services, including films, television production, television networks, satellite television, newspapers and magazines, book publishing, sports, website, educational materials, etc. The process is not limited to international media giants — the local media organizations are also developing in the same fashion.
The world today is faced with a complex situation of poverty and income disparity. The richest 1 percent of the world’s people earn as much income as the bottom 57 percent (2.7 billion people). The combined wealth of the world’s richest 300 individuals is equal to the total annual income of 45 percent of the world’s population. (The World Revolution, 2006.)
Three billion of the world’s people (one-half) live in “poverty” (i.e. on less than $2 per day). Among these, 1.3 billion live in “absolute” or “extreme” poverty (i.e. on less than $1 per day). Some 800 million people lack access to basic healthcare. About 17 million people, including 11 million children, die every year from easily preventable diseases or malnutrition. In addition, 800 million people are hungry or malnourished; nearly 160 million children are malnourished worldwide, and 11 million people die every year from hunger and malnutrition. Approximately 2.4 billion people lack access to proper sanitation; 1.1 billion do not have safe drinking water. By 2025, at least 3.5 billion people or nearly two-thirds of the world’s population will face water scarcity. More than 2.2 million people, mostly children, die each year from water related diseases. Some 275 million children never attend or complete primary school education; 870 million of the world’s adults are illiterate. (The World Revolution, op. cit.)
A simple example in the case of Pakistan is that of petrol pumps, which used to be filthy and inhospitable places but are now not only clean and aesthetically laid out, but also offer many facilities for travelers.
During July 2005-March 2006, Pakistani banks provided credit amounting to Rs. 23.2 billion for automobiles and Rs. 21.5 billion for personal loans and issued credit cards worth Rs. 10.2 billion. In total, consumer finance increased to over Rs. 67 billion in this period, registering a growth of 27 percent over the corresponding period of the same year. (Finance Division, 2006, p. 90)
See, for example, a report titled Milking Profits, which is based on a disclosure by a former employee of an MNC in Pakistan of the unfair tactics the company uses to increase its sales of formula milk and earn profits, compromising infants’ health. The tactics include interfering in government efforts to regulate the industry, bribing doctors with perks and persuasions such as money for signboards and free lunches as well as cost free supplies and samples. (The Network for Consumer Protection, 1999)
In India, for example, the fitness equipment industry has been growing at a robust 50 percent annually, while the retail industry for nutraceuticals — everything like multivitamins, diet supplements, sugar substitutes, and low fat food — is worth Rs 30,000 crore and growing. (Bobb, 2006, p. 52)
Basant, as it is now celebrated in Pakistan, especially Lahore, is one such example. MNCs, in collaboration with media organizations, five-star hotels, and the film, entertainment and airline industries, invite diplomats, ministers and other important dignitaries to celebrate the event in new style. Billions of rupees are spent in just one night in a massive exercise of public relations. Coca Cola is among the companies that have taken special interest in investing in the Basant festival. Starting from 2000, it has remained the official sponsor of the event under an agreement with the Parks and Horticulture Society, Lahore. During Basant 2003, Coca Cola organized a musical program at Race Course Ground, Lahore, which was attended by more than 45,000 people. (Coca-Cola Advertisement Supplement, Jang,August 22, 2003.)
For instance, Shell Pakistan earned a profit of over Rs. 2.46 billion in 2004-5, of which it spent a meager Rs. 20 million (0.84 percent) on donations. Similarly, ICI Pakistan, out of total profits of Rs. 2.28 billion in 2004-5 made charitable contributions of only Rs. 14.9 million or 0.65 percent. (Shell, 2006 and ICI Pakistan, 2006.)
In the US, Caesarian rates have hit an all-time high at 29.1 percent. In the UK, one in five births is a surgical procedure compared to less than 3 percent in the 1950s; in Brazil, a joke goes, the only way you don’t get a Caesarian in Rio De Janeiro is if your doctor gets stuck in traffic. (Datta, 2006, p. 68.)
Former UN Secretary General Kofi Annan emphasized in one of his speeches: “The UN once dealt with only governments. By now we know that peace and prosperity cannot be achieved without partnerships involving governments, international organizations, the business community and civil society. In today’s world we depend on each other.” (Gell-Redman, Micah and Kang, Caren, 2006)