How Self-Regulated Chinese Businesses May Point the Way Forward
By Dipan Patel
According to Stiglitz, the phenomenon of globalization broadly describes changes in the realms of “the international flow of ideas and knowledge, the sharing of cultures, global civil society, and the global environmental movement” (Stiglitz 4). Perhaps beginning before European explorers set sail across the world in a fervor to discover and colonize the unknown expanses of the world that was around them, the effects of increasing interaction between cultures and the perpetual improvements in communication and transportation technology have affected every facet of the known world. As historical evidence points out, there have been actors that have greatly benefited from these affects and others who have been not nearly as fortunate. As the dimensions of globalization are nearly as extensive as the mind can imagine, the focus of this short analysis will be on one particularly powerful set of entities that have and still do profoundly affect the quality of life of those on this planet: multinational corporations (MNCs).
One does not need to possess special insight to realize the sheer importance of MNCs to every human on this planet. Any newscast worth its airtime will dedicate a segment to covering the day’s events that bolstered, shuddered, or somehow changed the outlook for many of the world’s MNCs that sell over $11 trillion in goods and services each year. That same newscast might well show that all too familiar image of protesters marching behind their anti-MNC banners and slogans, often at the world’s most important economic conferences. Critics of multinational corporations present a variety of charges against the operations of MNCs. From the poorest of the dalit class in India to the wealthy urban activist in the United States, the accusations that seem to reverberate most are that MNCs “violate labor rights, ruin the environment, prop up corrupt and repressive regimes, and undermine global cultural diversity” (Santoro 94). As there is a wealth of data that can sustain claims that fall under the four aforementioned broad types of MNC caused problems, one must ask if there is anything that MNCs are doing to counter the charges brought against them and what potential policy changes can be enacted to improve the competitive environment for MNCs while keeping them in check.
MNCs are lauded by advocates of international economic integration as providers of critical resources that would be otherwise unattainable to developing world. To argue that MNCs have not brought “much needed capital, jobs, and technology” (94) to LDCs is to be in utter denial of the monumental economic changes that have taken place in Latin American, China, and India over the past fifty years. Critics argue that one of the burdens that developing nations have to bear with the delivery and usage of these resources is pollution. However, a closer look into the issue may reveal the contrary. Though China has relatively poor environmental protection policies, the nation has not become an international landfill at the courtesy of MNCs. In a study carried out by Christmann and Taylor, which surveyed 118 Chinese businesses that were either entirely locally owned, MNCs, or jointly owned, the researchers discovered that instead of taking advantage of weak regulations, MNCs often “self-regulated” (94). Their study also asserts that MNCs and their suppliers “were more likely than local firms to comply with local regulations and adopt internationally recognized environmental management standards such as ISO 14000” (94). Though self-regulation is helpful, it can only take place after companies have already established themselves abroad.
The policies that affect the decisions MNCs make before planning foreign operations must be more thoroughly examined since these directly affect the international business framework within which MNCs operate. For example, Christmann and Taylor find that “the evidence is mixed regarding the extent to which MNCs consider local environmental laws when deciding where to locate manufacturing plants” (94). The lack of incentives for firms to carefully consider such laws in their planning process is a failure on the part of many actors. Environmental activists however, can direct “the glare of publicity” on MNCs that pursue environmentally harmful operations. Careful planning and cooperation with local, state, and/or national governments is a small price to pay when compared to the cost of “tarnishing their brand names or global reputations” (95). As one can imagine the skepticism with which developing nations receive MNCs, one must also consider what LDCs lose in their reluctance.
India’s pharmaceutical industry serves as an example of one such industry that could very much benefit from MNC involvement, though the relatively unappealing Indian business environment for pharmaceuticals may be keeping India from realizing potential gains. Faced with “ownership restriction, price controls, and weak intellectual property protection,” firms can easily take their production facilities elsewhere, but from the perspective of the Indian government, what potential gains are forgone when it does not limit the production of cheap generic versions of drugs that would otherwise be subject to protection by patents? Feinberg and Majumdar, through studies that examine the research and development activities of MNCs in developing nations, have found that technological spillover brought about by MNCs is highly likely to occur and highly beneficial to firms in developing nations (95). They also note that though spillover can occur in nations with strong intellectual property rights – through employees in the same industry speaking to each other and switching jobs – in India, spillovers are isolated to the MNC-to-MNC level rather than reaching local Indian firms. Thus, Feinberg and Majumdar believe that government policies may have decreased the very incentives that could entice firms to developing cutting edge technology in India (95). As India’s issue with pharmaceuticals illustrates a scenario that is “all to familiar” (95) in LDCs, one must consider what governments can do to help create a more MNC-conducive environment.
Stiglitz, in his Making Globalization Work, provides a number of strategies that could greatly benefit both LDCs and MNCs. Most of his suggestions focus on the creation of international operating standards that can keep MNCs in check and provide incentives for them to behave responsibly. In addition to generally pushing for greatly corporate social responsibility, Stiglitz suggests that an international competition authority that could enforce “global competition law” (Stiglitz 203) could greatly improve currently conditions, so as to emulate the multiple oversights present in the United States and EU. This way, nations could establish a clearer relationship with MNCs while having an authority to plead to when scrutiny or prosecution is necessary. In a related proposal, Stiglitz suggests making “it easier for compensation to be obtained when damage has been done” to avoid Union Carbide-like situations. As is evident, inter-governmental cooperation will be key factor that will determine how the relationship between LDCs and MNCs will form over the next several decades as emerging markets become increasingly important.
Photo courtesy of Robert Scoble