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Transnational Corporations PDF Print E-mail

Transnational Corporations / TNCs -Intro
Corporate Social Responsibility  / CSR
CSR - The Critique
What is a TNC
Growth of TNCs
TNCs and Governments
TNCs and Gross National Income (GNI) - Comaparisons
A New Breed of TNCs - Internet Profits
TNCs and the UN
UN and TNCs - From Code of Conduct to Global Compact
Responsibility/Liability and Accountability
International Financial Institutions / IFIs
International Monetary System

Introduction

With over 53% of the world's largest economies today being Trans-national Corporations (TNCs) their impact and responsibilities are global and it is crucial that they be held accountable for the numerous violations which are being perpetrated on a daily basis in the name of maximising production and profits. In 2006 total sales of the top 200 transnational corporations were bigger than the combined GDP of 187 countries, more than thirty percent of world GDP, while they employ less than a third of the world population. TNCs on the other hand can also, if they so choose, become agents of positive and wide-ranging change.

For more detailed information on TNCs

As an NGO with an environmental mandate we look at the effect debt, unsustainable development and trade have on natural environments. A natural environment comprises communities, a human society with social, economic, health and educational systems. As people the world over depend on their environment for their very survival, it is in the interest of each individual to protect their home and to do this sustainably, also as stewards for future generations. But in order for the environment to sustain life, it needs unpolluted soils, water and air.

Unfortunately trade related activities are polluting environments the world over and posing a threat to the survival especially of indigenous peoples and communities and in consequence to their cultural systems.

Corporate Social Responsibility Introduction

A much-quoted definition of Corporate Social Responsibility (CSR), is ‘the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.’ (as defined by the World Business Council for Sustainable Development (WBCSD), - CSR: Meeting Changing Expectations, 1999.

The demand for corporations to behave more ethically resulted in the Corporate Social Responsibilty (CSR) movement (see, for example, Business in the Community). The concept of CSR has gained increasing importance over the past ten years. This rise in recognition mirrors the rising awareness of the exploitation of the global South, including its people, resources and environment, especially when environmental and social protection are placed second in importance to profits.

Industries such as tobacco, textiles, alcohol, gold, uranium, cotton, food, chemicals and of course oil, have had huge negative affects on the environment. Pollution affects waterways and fields, as do pesticides and fertilisers. While multinational companies reap profits from mining diamonds or precious metals, or from the export of fruit and vegetables, or from the mass production of export goods in sweatshops, local communities in the global South are used as badly paid labour and are left undeveloped, rarely seeing the income from their resources. The cost of clearing up pollution, or of the burden placed on health systems through deteriorating health, is usually borne by the public, rather than corporations.

CSR – The Critique

The WBCSD definition given above, in common with many others, understands CSR as the responsibility that corporations take upon themselvesfor the sake of behaving ethically and promoting a more friendly (and therefore profitable) image.

However, critics of this view hold that corporations will never act in a way that will harm their share price – and thus will never act to undermine their profits. Thus, they argue, it is necessary to impose restrictions at the policy level – and that governments, intergovernmental and global agencies must also all take responsibility for restricting the power of big business to act in ways that degrade the environment and abuse human rights.

Many businesses and multinational companies now have their own corporate social responsibility programmes or departments. While in some cases these have had a positive impact, there is a case that says that ‘corporate social responsibility’, when practiced by companies themselves, without policy change at the international level, is merely a new friendly image hiding the same old degradation and abuse. For a critique seeChristian Aid’s report: ‘Behind the mask. The real face of corporate social responsibility’.

The CSR movement has been responsible for helping to raise awareness of the problems caused by huge corporations when they fail to act ethically. However, the problems are still with us, and vast further reforms – from businesses and governments – are still necessary to protect our planet.

 

What is a Trans-national Corporation?

UNCTAD -  Description:

A transnational corporation (TNC) is generally regarded as an enterprise comprising entities in more than one country which operate under a system of decision-making that permits coherent policies and a common strategy. The entities are so linked, by ownership or otherwise, that one or more of them may be able to exercise a significant influence over the others and, in particular, to share knowledge, resources and responsibilities with the others.

A transnational (TNC), multinational (MNC) or multinational enterprise (MNE) is an international corporation that operates in more than one country with wholly or partially owned subsidiaries that report either to their regional base or headquarters in the TNCs country of origin.

Growth of Trans-national Corporations

TNCs growth through the Marshall Plan (1948-1951) after WWII and operating through the Economic Cooperation Administration (ECA) ruled that 60% of the funds were to be invested in industry. To this end (through the Technical Assistance Program) groups of European industrialists were invited to visit the USA and tour factories and related enterprises, to learn from them and apply what they had seen back home while hundreds of technicians and consultants from the US would assist them in this task.   Industrial growth during that time has been phenomenal and today TNCs yield such enormous financial, and indirectly, political power; that they represent more than 50% out of the world’s 100 top economies. Without responsibility and accountability TNCs could become monsters out of control as their strategies and aims move collectively in a similar direction (profit oriented) while they all require access to resources, labour, markets and profits. On the other hand, if the shareholders wanted this, they could become agents of change by redirecting policies that would take into consideration also environmental, social, sustainability as well as human rights implications thus redressing some of the damage many TNCs and business entreprises have inflicted upon this planet through past reckless behaviour.

TNCs have also been seen as devouring everything on their path, be this needed resources or other companies that could pose a perceived threat.  They have also used their power to influence political outcomes, by requesting tax-breaks, infrastructures or going into countries tha had lax labour, social (health, insurance) or environmental regulations.

While some TNCs would specialize in one sector (food, chemical, pharmaceutical), over time, through mergers and policies, some became engaged in more than one industrial sector, diversified, or associated themselves with one or more TNCs, making the picture ever more complex. An example from General Electrics (2009) website. From jet-engines to power generation, financial services to water processing, and medical media imaging to media content, GE people worldwide are dedicated to turning imaginative ideas into leading products and services that help solve the world’s toughest problems.

Trans-national Corporations and Government

While companies enjoy the fruits of their profits, governments are all too often lumbered with the effects many of these products have produced, be this illness induced through effects of smoking, drinking, asbestos, chemicals and fertiliser/pesticide use or pollution of most of the world's water (in French), just to name a few. Lax regulation by governments and intensive lobbying by TNCs have resulted that today in many countries 80% of the water is polluted by pesticides, fertilisers and herbicides with consequential effects and a populations health. Instead of governments imposing an extra tax on TNCs, the population gets taxed for the additional purification of their water or have to pay a higher price for their water as another TNC needs to purify this before it can be consumed safely by their customers. In both instances TNCs get away with bigger profits while citizen pay for what should be an unpolluted and healthy resource and a human right: safe, clean, drinkable water (1)

With 53 of the world’s biggest TNCs being part of the 100 world’s top economies, the inter-linked interests and strategies are clearly visible. In such a context it is difficult not only to differentiate between accountable parties but also of what information was given to governments on which later decisions where based and/or regulatory rules, standards and laws came into being. While industry has argued that extra protection from hazardous chemicals will cost too much, the income of BASF rose 50 percent to a huge US$3.7 billion. With those profits, BASF can afford to maintain a close relationship with many politicians. When questioned by Greenpeace BASF admitted that with regards to lobbying in 2005 over 235 politicians received money from BASF in Germany alone.

The Global Business Coalition (GBC) and TNCs sit on the stakeholder task forces, (e.g. Renewables) while the climate change issue is channelling money into corporate research, nuclear energy and where carbon-trading issues are being debated and many TNCs had a lobbying presence at the Scotland G8 Summit in 2005. These examples show how intertwined governments and TNCs have become. In this respect NGOs are concerned about the eroding power of national governments and state sovereignity in key areas of decision-making. This is especially relevant as governments have ratified numerous instruments relating to human, social, economic, cultural, labour, health and indigenous rights which has not been the case with regards to TNCs or business enterprises.

However, there are calls to also hold the country accountable in which the headquarters of that particular TNC reside. Ultimately it is up to governments to legislate in such a way that corporate behaviour and responsibilities are clearly defined and accountability can be established.

Trans-national Corporations (TNCs) and Gross National Income (GNI) -  Comparisons

Foreign assets and world-wide sales of top 30 TNCs compared to GNI of selected Third World countries - a  listing based on  UNCTAD's 2005 World Investment Report  and the World Bank's 2006 World Development Report

Of the top 10 TNCs in the world:  7  oil & gas, 1 car, 1 Financial Services and 1 Retail.  List of top 188

2008 UNCTAD World Investment Report lists the top 25 non-financial TNCs from the developed countries and the 25 top non-financial TNCs from developing nations.

The full list of the top TNCs in the world. 

A New Breed of TNCs - Internet Profits through Globalisation

A new breed of trans-boundary companies are reaching out into a globalised market-place, thanks to the technological advances of the internet. While not really TNCs, these companies were born in a different age and it is not yet possible to foresee if or how they will diversify. A company like Amazon started out in 1995 by selling books. Today it is present in 220 countries and in 2007 its net profits were US$ 476 million, a huge increase from the US$ 35 million just 4 years earlier.

Facebook born in 2003 could be worth US$ 10 billion very soon, considering that Microsoft is interested in buying a 5% stake in it for between US 300-US$ 500 million. Created in 1999, eBay's revenue for 2008 was US$2.2billion. Another internet business success is Google. Created in 1998, its profits for 2007 were US$ 4.2 billion. Google's net profit for its 3rdQ in 2008 was US$ 1.35 billion, with a turnover of US$ 5.54 billion in that same quarter. These are just some examples out of many, but considering that Nicaragua's Gross National Income (GNI) is around US$ 4.5 billion, this gives us a comparative idea of the amounts that are being mentioned here.

Trans-national Corporations and the UN

Are transnational corporations (TNCs) and foreign direct investment beneficial or harmful to societies around the world? Since the birth of the United Nations more than 60 years ago, these questions have been major issues of interest and involvement for UN institutions. What have been the key ideas generated by the UN about TNCs and their relations with nation-states? How have these ideas evolved and what has been their impact? This book examines the history of UN engagement with TNCs, including the creation of the UN Commission and Centre on Transnational Corporations in 1974, the failed efforts of these bodies to craft a code of conduct to temper the revealed abuses of TNCs, and, with the advent of globalization in the 1980s, the evolution of a more cooperative relationship between TNCs and developing countries, resulting in the 1999 Global Compact.

The UN and Transnational Corporations - From Code of Conduct to Global Compact

Tagi Sagafi-nejad in collaboration with John H. Dunning

Foreword by Howard V. Perlmutter

In 2005 the UN appointed Dr John Ruggie as the Special Representative and to of the Secretary General on human rights and transnational corporations and other business enterprises. For his mandate to the Human Rights Council

and his 2008 Report This approach of holding governments accountable is to be welcomed, though this would certainly not be sufficient, especially with regards to states and regimes that have not ratified any or few human rights (and related) instruments, eg China. However, this is changing and in this case it is US TNCs that are opposing new rights for Chinese workers when China recently drafted a new law to empower unions and end labour abuse.

Responsibility/Liability and Accountability

Regulation of TNCs is becoming increasingly more difficult and so, the TNC with the highest share of ownership is seen as the one responsible.

TNCs are loyal to market forces, not to countries as profit is their business. answer.com describes the process well: When one market is saturated, the multinational can rapidly develop others, since foreign investment cuts transport costs, and makes possible a rapid response to local markets. It also eases tariff barriers—the UK has been an attractive location for many Japanese manufacturers, for example, because it is within the European Union, but has opted out of the EU's social charter. Transnationals can compare costs at different locations, and can switch activities to different areas as appropriate.

TNCs are probably the major force affecting world-wide shifts in economic activity, since the largest have a turnover greater than the GNP of many less developed nations. Although a developing nation may benefit from the construction of a plant for a TNC in terms of jobs and markets, it has been argued that the price is a loss of local control.

Yeung (Transactions of the Institute of British Geographers 23) has argued that most TNCs are, in fact, not so transnational: most board seats are held by home-nationals 50% of the assets and employment of IBM, Du Pont, and General Electric remain in the United States, and 66% of all sales of UK, Japanese, German, and Canadian TNCs are in the home country.

On Oct 10, 2006 BBC Channel 4 News carried out an investigation trying to track how garments get from Bangladesh's to supermarket giant Tesco. Tesco prides itself for having an ethical policy. Indeed they even audit the factories that supply them.

But the BBC has secretly filmed inside four factories belonging to two established Tesco suppliers and have discovered that child workers there making Tesco's own label 'Florence and Fred' clothing. Tesco did not even know that two of these four factories were manufacturing their clothes. They have therefore never visited these two factories and hence ethically audited them.

Both suppliers and Tesco have denied all the allegations and there is no suggestion that Tesco ever knew about any child workers. In fact, the supermarket said it abhors child labour and said it's at the front of industry efforts to stamp it out. But the report raises serious questions about Tesco's ability to enforce the ethical standards it claims to hold.(30)

In this case it’s about child labour, and though children are at risk, their lives are not. But this illustrates the chains involved in globalised trade and how tracing responsibilities will be a legal issue, unless this can be regulated.

A Buddhist Critique of Transnational Corporations

International Financial Institutions

Transnational Corporations almost as International Finance Institutions

Because of tax-implications, some TNCs created a holding company that ‘holds’ the companies as seen from the perspective of a financial product and maintains a purely financial relationship with these. Such a holding company would then be considered an international financial institution. From General Electric’s GE Money (2009) website: For both consumers and commercial clients, GE Money offers smart, flexible products to do it all – whether it's personal funding for your home, car and retail purchases, or financing to operate and grow a business, or affordable financing options to offer your customers. GE Money has the solution that makes sense for you.

Instead of borrowing from banks TNCs can borrow from their own financial institution that will charge interest rates that return to the company enhancing the balance sheet. However, when TNCs borrow from ‘themselves’, itshould be understood that one way of getting cash is by selling ‘debt’ in the form of bonds and this was seen especially with General Motors. In the end, when the going got tough, the bondholder is offered $1 for the $10 invested and ultimately, in this case, the holder of bonds lost 90% of the capital they had invested.

International Monetary Systems

International Monetary Systems are sets of internationally agreed rules, conventions and practices that facilitate international trade, cross border investment and generally the reallocation of capital between nation states. The systems can grow organically as the collective result of numerous individual agreements between international economic actors spread over several decades. Alternatively, they can arise from a single architectural vision as happened at Bretton Woods in 1944.
 

Contents

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