Recent transformations in the global economy, the structure of corporate activity, geopolitical relations and prevailing economic ideologies have radically restructured the relationship between the transnational corporation, society and the state. Such trends have undermined the delicate balance of power between corporate management and labour as well as between corporations and governments. As union membership declines throughout the world and as governments prove increasingly incapable of effectively regulating corporate activity, TNCs reign supreme.

Responsibility for fostering social development and regulating corporate activity has traditionally fallen under governmental purview. However, changing economic conditions and the predominant free-market ideology have rendered governments less able to fulfil their responsibilities. In some Western countries such as Germany and Sweden, which have traditionally maintained a strong welfare state, governments have been forced to begin dismantling social programmes. In the former Soviet-bloc countries, struggling governments are hoping that privatization and a scaled-back public sector will solve the social and economic problems of these former communist nations. And in many developing countries, which have historically been most distrustful of foreign corporations, governments are now actively seeking FDI and repealing laws that attempted to ensure the promotion of social welfare through the domestic activities of TNCs.

Proponents of the free market assert that these changes are crucial to achieving social development. They hail transnational corporate activity as a powerful vehicle for providing developing countries with the resources and models necessary to foster indigenous enterprises and to abandon inefficient business practices. Such advocates note that transnational corporations advance social development 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.

It is unlikely, however, that such optimism is warranted. Advocates of enhanced corporate responsibility note that TNCs have been linked to interference in sovereign affairs, continued disparities in wealth, poor labour conditions, corruption, transfer pricing policies, and inadequate consumer and environmental protection. Furthermore, they argue that the increased leverage of transnational corporations has allowed them occasionally to play nations and communities off against one another in an effort to receive the most advantageous benefit package — a process that produces a "downward harmonization" of labour, consumer and environmental standards. Finally, they assert that the expanding capabilities of TNCs to transfer money, factories, capital and technology throughout the world render more difficult the reconciliation of the long-term public interest with short-term interests of private business enterprises.

This section analyses both sides to the debate. It argues generally that transnational corporations possess substantial potential for fostering social development but currently play only a moderate role in this process.
 

Employment

Quantity

As large corporations continue to "downsize" and as unemployment rates in many nations remain quite high,¹⁵ it is increasingly apparent that TNCs could play an important role in social development as providers of jobs. Currently, however, transnational corporations directly employ only 2 to 3 per cent of the world's workforce — approximately 73 million jobs, 12 million of which are located in developing countries.¹⁶ Although TNCs employ only a small fraction of the world's workforce, they are particularly important employers in some sectors and nations. For example, transnational corporations account for one fifth of all paid employment in non-agricultural sectors¹⁷ and are particularly important in manufacturing industries in which technology is important.¹⁸ In the mid-1980s, 50 per cent of employed individuals in Ghana and Tunisia were working in transnational corporations.¹⁹ TNCs engaged in manufacturing account for over 20 per cent of all employment in developing countries such as Argentina, Indonesia, Malaysia and Sri Lanka.²⁰

While transnational corporations directly employ approximately 73 million people, this figure does not accurately portray their actual impact on employment levels. On the one hand, it is important to note that direct employment by transnational corporations will sometimes displace jobs from national firms, although the extent of the effect of such a displacement will vary across industries and countries.²¹ Furthermore, many TNCs have been reducing their aggregate totals of employees as they become increasingly capital intensive and fire workers to minimize costs.²² On the other hand, transnational corporations not only employ individuals directly, but can also indirectly generate jobs by establishing backward and forward linkages within a domestic economy. For example, TNCs indirectly produce employment by purchasing goods and services from local suppliers and subcontractors as well as by widening access to markets and providing resources that can be used in further production within a host economy.²³ It is estimated that the indirect employment TNCs generate is at least equivalent to figures for direct employment.²⁴

Therefore, transnational corporations are responsible for the employment of a very small proportion of the world's workforce — approximately 5 per cent. This figure is even less significant when compared to the assets such enterprises control. That is, while TNC activity might account for 5 per cent of world employment, transnational corporations control over 33 per cent of the globe's productive assets.²⁵

Quality

While transnational corporations directly and indirectly employ approximately 5 per cent of the world's labour force, the quality of these jobs is mixed. TNC employment practices in developing countries have received particular criticism. Advocates for transnational corporations, however, note that TNCs at least provide jobs to individuals who otherwise would have no source of income. Furthermore, in both industrialized and developing countries transnational corporations almost always provide higher wages, safer work conditions and better benefit packages than do local firms.²⁶ There are three reasons why TNCs often provide higher wages: (a) they tend to be concentrated in higher-skill sectors within developed countries; (b) in developing countries, there exist significant disparities between transnational corporations and local firms with respect to technology, economies of scale and management techniques; and (c) TNCs seek to deflect nationalist sentiment against foreign economic entities.²⁷

However, while transnational corporations usually offer superior wages in absolute terms, they sometimes pay a lower wage relative to workers' productivity.²⁸ In other words, while employees of transnational corporations might earn more money in absolute terms than employees in comparable local firms, they simultaneously share less in the profits of their employing enterprise. Thus, while advocates for TNCs argue that they pay higher wages than do local firms, it is important to note simultaneously that they maintain a less equitable distribution of resources. Officials in transnational corporations might respond that they are obligated only to pay the prevailing wage for a particular skill category. However, a strong moral case can be made that, under some circumstances, an appropriate and responsible wage level requires not only an examination of absolute figures, but also wage/profit ratios. The extent to which a firm might have a responsibility to adhere to higher standards than local firms will be discussed in more detail later.²⁹

Although transnational corporations generally treat their workers better than do local firms, their actions are hardly beyond reproach. In fact, their labour policies in developing countries with respect to subcontractors and export processing zones are often inexcusable. Working primarily in light manufacturing industries such as textiles, electronics, footwear and sporting goods, TNC employees in developing countries often work very long hours under hazardous conditions and receive little pay and no compensation for overtime. They possess low unionization rates, limited job security and few opportunities for training or advancement.

Examples of such working conditions are abundant. A recent fire at a Thailand toy factory killed 188 employees because management did not maintain the sprinkler system and had locked the workers inside the plant.³⁰ In Bangladesh and China, clothing companies such as Calvin Klein and Liz Claiborne use subcontractors offering no worker rights and sometimes employing bonded labourers.³¹ And in Indonesia, women sewing sneakers for Reebok work over 60 hours per week while earning only 80 dollars a month — approximately the price of one pair of shoes.³² While Reebok officials might note that they are at least paying the legal minimum wage, a more accurate assessment of their wage scales requires an examination of Reebok's wage/productivity levels compared to other local firms.³³ Furthermore, it is important to compare Reebok's wages with those of other similarly situated transnational corporations. In fact, while operating in the same Indonesian environment, Gillette Company pays its workers three to four times the legal minimum wage and provides its employees with American-style retirement and health benefits.³⁴

Transnational corporations often attempt to evade responsibility for their treatment of employees overseas by asserting that only their subcontractors establish and supervise working conditions. However, TNCs remain at the top of these subcontracting pyramids, provide the majority of work orders such factories receive and, therefore, possess significant influence over their operations. While transnational corporations might not directly employ Thai toy makers or Indonesian sneaker sewers, they benefit from the exploitation of workers, and their hands are hardly clean.

Despite these disheartening examples, there does exist a potential for TNCs to foster social development through employment — as demonstrated in the interesting case of foreign automotive companies in Brazil.³⁵ When transnational automobile companies arrived in this South American country, they not only imported technology and management techniques but also unintentionally imported another resource that proved important to Brazil's social and political development: foreign unions. The United Auto Workers (UAW) began to train their Brazilian counterparts in organizing and bargaining techniques. In the late 1970s and early 1980s as Brazil was experiencing labour unrest, foreign automotive companies were the first to recognize the need to deal with Brazilian unions.³⁶ When the Brazilian military government demanded that the Ford Motor Company fire striking workers, the company refused and subsequently established the country's first union-based, worker representation system; other auto subsidiaries soon followed suit.³⁷ By 1984, labour had established a political party, and some observers were crediting the auto industry with playing an important role in Brazil's political liberalization.³⁸ While nobody asserts that automotive TNCs intentionally fostered positive change in Brazil, this case study demonstrates that sometimes social development can occur simply as an unintentional by-product of TNCs' profit-maximizing activities. Unfortunately, however, the role that transnational corporations play in employment and social development in developing countries almost always resembles the afore-mentioned experiences of Indonesia or Thailand, not the experience of Brazil.

Consumer Issues and Health Ramifications

Transnational corporations also affect social development through their vast production of goods and services which often impact the health of consumers. For example, their involvement in pharmaceuticals, insurance, information technology, health care services, pesticides and agribusiness can affect consumer health. This expansive and sophisticated global marketplace that TNCs fuel can sometimes provide significant benefits. Transnational corporate research and development, for example, can improve nutrition and health standards throughout the world. Transnational financial corporations provide increasingly important investors such as pension funds and mutual funds with an expanding menu of diversifiable investment opportunities. Finally, on a lighter note, TNC advances in technology and distribution networks grant some Scandinavian consumers access to exotic fruits even during their snowbound winters.

While the global marketplace is a boon to those who can afford to shop from its shelves, most individuals are not so financially fortunate. "About two-thirds of the people on earth cannot connect most of the glamorous products they see on billboards and on televisions with their own lives of poverty and struggle."³⁹ Furthermore, through their sophisticated marketing techniques, TNCs can significantly influence consumer preferences, and they often promote products and lifestyles incompatible with ecological sustainability and poverty reduction. "The expanding cornucopia of globally distributed goods is largely irrelevant to the basic needs of most people in the world."⁴⁰ Products that could potentially improve health and nutrition levels, such as pharmaceuticals, are often priced out of reach, especially in developing countries.

Even when consumers in developing countries can afford the pharmaceuticals that transnational corporations manufacture, ironically such drugs can be harmful to their health. Transnational corporations often market and sell to developing nations pharmaceuticals that have been banned in their home countries, although they are aware that studies have demonstrated the adverse health effects of their products. For example, US-based Sterling Winthrop uses a subsidiary to sell Dipyrone, a drug banned in 23 countries, to 20 developing countries under the brand name Conmel; the German Hoechst Company sells this drug in Thailand.⁴¹ Problems also arise when TNCs sell outdated, poorly labelled or mislabelled pharmaceuticals to developing countries. For example, when the Upjohn Drug Company sells Kaopectate, a drug for adult diarrhoea, to developing countries, they print warning labels only in English and, therefore, the product is sometimes used on infants — with harmful ramifications.⁴² A recent study found that two thirds of 241 pharmaceuticals manufactured by US-based transnational corporations and sold to developing countries had severe labelling deficiencies that failed to provide doctors with the information necessary to prescribe the drug safely and effectively.⁴³

Transnational corporations also adversely affect consumer health and nutrition levels by selling to developing countries pesticides that have been banned in their home nations. One quarter of all pesticides exported by TNCs from the United States in the late 1980s, for example, were chemicals banned, regulated or withdrawn in the United States.⁴⁴ While sales of banned drugs exclusively harm consumers in developing countries, sales of banned pesticides also harm consumers in industrialized nations through a process called the "circle of poison". Transnational corporations sell these pesticides to farmers in developing countries who use such products to spray their fruits and vegetables before exporting their produce back to the industrialized countries in which the banned pesticides originated. For example, the US-based chemical company FMC Corporation sells the Marshal pesticide, which is banned in the United States, to two dozen developing countries. Such countries use the pesticide on alfalfa and Thai rice and export these goods back to the United States.⁴⁵

Other toxic chemicals TNCs use in their production process also cause health problems. For example, transnational corporations manufacture most of the world's chlorine, which is used as a base for potentially harmful chemicals such as PCBs, DDT and dioxins; these chemicals can lead to birth defects as well as reproductive, developmental and neurological damage.⁴⁶ TNC involvement with the production and use of asbestos, volatile organic compounds and radioactive waste materials can also generate health problems.⁴⁷

Transnational corporations sometimes further lower health levels in developing countries by marketing and selling infant formula as a substitute for breast milk. In the 1980s, consumer groups organized a boycott of infant formula manufacturer Nestlé because of its marketing and distribution practices for this product.⁴⁸ Although this boycott successfully altered the behaviour of Nestlé, other companies continue to distribute infant formula in a negligent and harmful manner. For example, US-based American Home Products, whose Wyeth-Ayerst subsidy makes infant formula, markets this product in the Philippines as superior to breast milk. Poor hospitals take money from the company in exchange for promoting it to new mothers.⁴⁹

Finally, transnational corporations adversely affect consumer health by marketing and selling tobacco products. Cigarettes cause three million deaths each year, and tobacco companies have been accused of adding nicotine to their products to ensure that consumers remain addicted to this drug.⁵⁰ Furthermore, tobacco giant, Phillip Morris, has been accused of covering up studies demonstrating the health hazards in smoking and of marketing to children through their "Joe Camel" campaign which employs a cartoon character appealing to kids.⁵¹ As industrialized countries increasingly offer warnings and enact restrictions on smoking, TNCs have begun actively marketing their tobacco products to the developing world. Tobacco companies assert that advertising merely persuades smokers to switch brands, and does not influence their choice to smoke in the first place. However, in the year after South Korea opened its market to American cigarette brands, smoking among teenagers increased from 18 per cent to 30 per cent.⁵²

Transnational corporations assert that concern over the adverse effects of their consumer products is misplaced. They argue that individuals who buy TNC goods are merely exercising their free market choices and that efforts to limit such choices infringe on individual autonomy. Furthermore, they assert that attempts to prevent TNCs from selling to developing countries pesticides and pharmaceuticals banned in their home countries constitute an imperialistic infringement on the sovereignty of these nations; each government should be able freely to determine the consumer standards under which its citizenry will live.⁵³ However, transnational corporations are aware that many developing countries do not have the governmental resources necessary to conduct tests on the health ramifications of TNC products and that many consumers in such nations do not possess the information necessary to make truly informed choices. TNCs' invectives against enhanced regulation actually stem not from their concern for individual autonomy or national sovereignty, but rather from a desire to maximize profits. The worldwide sales of infant formula total 8 billion dollars a year; American companies alone sell 20 billion dollars worth of cigarettes abroad and 4 billion dollars worth of pharmaceuticals to developing countries each year; finally, American companies sell annually to developing countries 750 million dollars worth of pesticides banned in the United States.⁵⁴

15 5. For example, all countries in sub-Saharan Africa have had double-digit unemployment rates since the 1970s. In 1993, unemployment in India and Pakistan reached approximately 15 per cent, in urban Latin America 8 per cent, and in the European Community (EC) 11 per cent (UNCTAD, 1994b, pp. 4-5, paras. 3-4).

16 6. Ibid., p. 5, para. 6.

17 7. Ibid.

18 8. United Nations Transnational Corporations and Management Division, 1992, p. 184.

19 9. UNCTAD, 1994c, p. 39, para. 70.

20 0. UNCTAD, 1994b, p. 29, para. 31.

21 1. Alschuler, 1988, pp. 50-56.

22 2. UNCTAD, 1994a, p. 26, para. 20.

23 3. United Nations Transnational Corporations and Management Division, 1992, p. 51.

24 4. Ibid., p. 186.

25 5. United Nations Commission on Transnational Corporations, 1993c, p. 22, para. 24.

26 6. Samuels, 1990, p. 37; UNCTAD, 1994b, p. 32, para. 42.

27 7. UNCTAD, 1994b, p. 32, para. 43.

28 8. Alschuler, op. cit., pp. 50-56.

29 9. See the section on "The Responsibilities of Transnational Corporations" in part 2 of this paper.

30 0. Zuckoff, 1994b.

31 1. Zuckoff, 1994a.

32 2. Ibid.

33 3. Unfortunately, such information is not available.

34 4. Zuckoff, 1994a.

35 5. This paragraph relies on a case study published in Samuels (op.cit., pp. 52-55).

36 6. Ibid., p. 52.

37 7. Ibid., pp. 53-54.

38 8. Ibid., p. 54.

39 9. Barnet and Cavanagh, 1994, p. 183.

40 0. Ibid.

41 1. Zuckoff, 1994c; de George, 1993, p. 61.

42 2. Zuckoff, 1994b.

43 3. Zuckoff, 1994c.

44 4. Greenpeace, 1993, p. 9.

45 5. Ibid, p. 7.

46 6. Ibid., p. 9.

47 7. UNCTAD, 1993, pp. 102, 135.

48 8. For a more detailed discussion of the boycott, see the section on "Non-Governmental/Citizen Organization Efforts" in part 3 of this paper.

49 9. Zuckoff, 1994c.

50 0. Barnet and Cavanagh, op. cit, pp. 184-207.

51 1. Ibid.

52 2. Zuckoff, 1994d.

53 3. Zuckoff, 1994c.

54 4. Ibid.