6:29 AM Feb 14, 1995


Geneva 14 Feb (Chakravarthi Raghavan) -- As prevailing ideologies shift and transnational corporations extend their global reach, the international community must ensure that the extraordinary economic and political power of these entities is harnessed to the goals of social development, according to the head of the UN Institute for Social Development (UNRISD), Dharam Ghai.

In a preface to UNRISD occasional paper for the World Summit for Social Development (Transnational Corporations: Impediments or Catalysts of Social Development) Ghai says that while there has been a substantial shift in thinking and policy in many developing countries towards TNCs, there still exists substantial disagreement regarding the extent to which TNC activity promotes positive social development.

Proponents of TNCs, he notes, argue that these entities advance social goals by providing jobs, paying taxes used for social programmes, building an industrial base, earning foreign exchange, transferring technology, raising living standards and contributing to charitable causes.

However, advocates of enhanced corporate responsibility stress that TNCs have been linked to interference in sovereign affairs, continued disparities in wealth, poor workplace conditions, corruption, transfer pricing policies and a "downward harmonization" of labour, consumer and environmental standards.

The author of the study, Eric Kolodner says that the era of the TNCs has clearly arrived and, as national governments increasingly lose power to these global economic entities and as the free-market ideology becomes even more predominant, the TNCs remain some of the most powerful economic, social and political agents in the world.

"The expanding array of global opportunities for TNCs to transfer money, capital and technology around the world," Kolodner says, "renders more difficult the reconciliation of long-term public interest with short-term TNC interests. Furthermore, the increased leverage of TNCs has allowed them occasionally to play nations and communities off against one another in an effort to receive the most advantageous benefit package, a dynamic that generates a 'downward harmonization' of labour, consumer and environmental standards."

Though TNCs could potentially play an important role in social development, their current impact on the process is moderate at best.

Worldwide TNCs account directly for 2-3 percent of the world's work force or 73 million jobs of which about 12 million are in developing countries. They are however important employers in some sectors and nations -- accounting for nearly one-fifth of all paid employment in non-agricultural sectors and particularly important in industries where technology is important.^

While TNCs provide jobs, the quality of the jobs is often low and they have demonstrated little proclivity towards protecting job security.

The indirect employment generated by TNC activity is estimated to be equivalent to the direct employment.

But while TNC activity accounts for overall five percent of the world's work force, they control over 33 percent of the world's productive assets.

TNCs also usually offer in absolute terms wages superior to that by local firms, but they maintain a "less equitable distribution of resources". TNC labour policies in developing countries, particularly with respect to sub-contractors and export processing zones are "often inexcusable", the author finds. Working primarily in textiles, electronics, footwear and sporting goods industries, TNC employees in developing countries work very long hours under hazardous conditions and receive little pay and no compensation for overtime. The enterprises have low unionization rates, limited job security and few opportunities for training or advancement, the study finds

Referring to the arguments about consumer benefits as a result of TNC activities, the study points that while the global market place is a boon to those who could afford to shop from its shelves, most individuals are not so financially fortunate and about two-thirds of the world's population cannot connect most of the glamorous products seen by them on billboards and TV with their own lives of poverty and struggle.

The TNCs through their sophisticated marketing techniques also significantly influence consumer preferences, and often promote products and life-styles incompatible with ecological sustainability.

Even when consumers in Third World can afford pharmaceuticals that TNCs manufacture, often the TNCs market and sell pharmaceuticals banned in their home countries, though they are aware of the studies demonstrating the adverse health effects of their products.

According to a recent study in the US, two-thirds of the 241 pharmaceuticals manufactured by US-based TNCs and sold to developing countries had severe labelling deficiencies that failed to provide doctors with information necessary to prescribe the drugs safety and effectively.

And one-quarter of all pesticides exported by TNCs from the US in the late 1980s were all banned, regulated or withdrawn.

TNCs often argue that concern about adverse effects of their consumer products is misplaced and individuals buying their goods are merely exercising "free market choices" and that attempts to prevent TNCs from selling to developing countries pesticides and pharmaceuticals banned in their home countries is "an imperialistic infringement on the sovereignty of these nations".

But many developing countries allowing such sales don't have the government resources to conduct tests on health ramifications of the TNC products and many consumers don't possess information needed to make a truly informed choice, the study comments.

"The TNCs invectives against enhanced regulations actually stem not from their concern for individual autonomy or national sovereignty, but rather from a desire to maximize profits. Worldwide sales of infant formula, for example, total eight billion dollars a year. American companies alone sell annually to developing countries $20 billion worth of cigarettes, $4 billion worth of pharmaceuticals and $750 million worth of pesticides banned in the US.

As for technology transfer, in theory TNCs could foster social development in the South by transferring management skills as well as R & D capacities. But in practice their record is mixed.

While large TNCs spend billions in R & D annually, they conduct only a small fraction of this outside the industrial world and, even when they conduct R & D in the developing countries they often merely adapt existing technology to local conditions -- "a process that generates little impact on deeper indigenous research and innovation capabilities".

Referring to the widening, worldwide and within nations, rich-poor gap, the study points that while TNCs may not responsible for the original conditions that precipitate such inequities, their activities with respect to FDI, consumer issues and employment often exacerbate the situations.

TNCs structure their marketing and distribution systems to provide goods and services to economically prosperous locations and about two-thirds of individuals in the world are unable to enjoy any of the consumer benefits that TNCs can provide.

"Lawyers in Frankfurt and Hong Kong will always present better profit making opportunities than will share-cropping farmers in India or Mali".

While TNCs can sometimes advance components of social development, there is no evidence that they feel obligated to provide such benefits. Wherever TNC activities did further social developments, "these were merely unintentional byproducts of TNCs' profit-maximising activities", the study comments.

The primary methods by which TNCs do intentionally undertake commitments to social development and integration is through corporate-sponsored foundations and charities.

In the US, in 1993 direct corporate giving totalled six billion dollars and corporate foundations disbursed over $1.5 billion. Such corporate charity focuses on important areas related to social development and integration including education, health, culture and community development.

But while TNCs conduct some of their charitable activities internationally, it is the host countries of TNCs that are the primary beneficiaries of corporate philanthropy, the study finds.

In 1992, for example, international grants and gifts compromised only 22% of charitable programmes of IBM, the largest US donor (disbursing $141.5 millions). Only 19% of Exxon's total charities (of $73 million), only 13% of Mobil's and one percent of AT & T's and four percent of General Electric's went to international charity.

"Furthermore, most of this international corporate charity is directed towards industrialized countries. Developing countries receive very little".

Even more, corporate charity has been declining, they constitute only a minimal portion of their earnings (in 1992 American corporate giving constituted only 1.61% of their pre-tax incomes) and the cost of this philanthropy (which is tax deductible) to TNCs is also reduced.

While TNCs could potentially play an important role in social development, their current impact on this process is moderate at best, the study says. While they provide jobs, the quality of such jobs is often low and TNCs have demonstrated little proclivity towards protecting job security.

While TNCs produce important consumer goods, their marketing and distribution tactics sometimes produce harmful health ramifications.

They are at the forefront of developing technology for environment protection, and yet TNCs have "historically followed ecologically irresponsible practices and have plundered natural resources of developing countries.

The taxes they pay can be used to fund social programmes, but they also constantly use their powers to lobby against taxes and engage in manipulative transfer pricing policies designed to avoid paying governments the revenues due.

And, "while TNCs might foster economic growth, it is often less clear whether this alleged economic growth produces socially beneficial results."

"Finally, TNCs can sometimes perpetuate disparities in standards of living. instead of creating a global village, they are weaving webs of production, consumption and finance that offer benefits to only a small minority of the world's inhabitants. Most people are marginalised and excluded or hurt by these webs of activities"

With the exception of corporate philanthropy and a few self-imposed codes of conduct, TNCs "rarely consider themselves obligated to advance social goals" and their officials often advance disingenuous and morally suspect arguments against corporate and social responsibility.

"In fact, recent developments in bilateral investment treaties, multilateral trade agreements, privatization efforts, weakened national regulations and the predominance of the free-market ideology reinforce this perspective by minimizing TNC responsibilities while expanding their rights," the study finds.

Because of the current environment in which TNCs operate, as well as their profit maximising nature, it is important that both governments and citizen organizations continue to pressure TNCs into advancing socially responsible goals.

And since the GATT limits the regulatory power of sub-national and national governments and since TNCs are increasingly able to play communities and nations off against one another, international government regulation is crucial, the study concludes.

An international code of conduct for TNCs could be beneficial. But the real burden for fostering corporate social responsibility lies with citizen organizations who must continue to pressure both governments and TNCs to institute more socially responsible policies.

Available and effective tactics include consumer boycotts, codes of conduct, shareholder resolutions and socially responsible investment practices and "such efforts are crucial if the power of TNCs is to be harnessed towards achieving positive social change."