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Environmental
Resources Transnational corporations can
adversely affect social development in two ways through their consumption of environmental
resources. First, TNCs engaged in extracting industries such as mining and oil production
have been accused of plundering natural resources in developing countries. Many
transnational corporations first bought mineral-rich lands when developing countries were
economically too weak or poor to exploit these resources themselves.55 Long-term contracts permit transnational corporations to continue
to mine these resources without offering just compensation to developing countries.56 After extracting such resources at low cost, TNCs then process
them in developed countries before shipping them back to developing countries where they
are sold at inflated prices — a process that generates little benefit for the
developing country from which the resources were originally mined.57
Transnational corporations can also negatively impact
social development through their degradation of environmental resources. These entities
have been responsible for some tragic environmental disasters over the past 20 years, for
example, Union Carbide in Bhopal, India,58
Exxon's Valdez spill off Alaska,59 and Texaco in Ecuador.60
TNCs have been linked to a host of environmental problems.
They generate 50 per cent of greenhouse emissions, which are responsible for global
warming.61 They are also the primary producers and users of ozone-depleting
chlorofluorocarbons (CFCs).62 Furthermore, transnational corporations are significant polluters
of air, land, ground water, wetlands and the ocean.63 Finally, through their commercial logging and mining activities,
TNCs contribute to deforestation. In the mid-1980s, for example, foreign corporations
controlled 90 per cent of logging in Gabon and 77 per cent in the Congo.64 Such logging and mining activities possess negative externalities
such as rapid run-off of rain water leading to flooding and loss of topsoil; TNCs often do
not internalize these social costs and farmers are usually too poor to buy the land from
the forest owners to prevent the occurrence of such negative externalities.65
Although transnational corporations can certainly impede
social development through their environmental practices, the relationship between TNCs
and the environment is exceedingly complex. Critics do not maintain that transnational
corporations should abstain from consuming environmental resources, but rather that their
activities should promote sustainable growth and development. While TNCs
usually follow lower environmental standards in developing countries than in
industrialized nations, there is some evidence that their environmental practices in
developing countries are more responsible than local firms operating in such countries.66 However, critics assert that, because transnational firms possess
greater resources and better access to research and development, TNCs bear an enhanced
responsibility to promote environmentally sustainable practices.67 Under pressure from citizen organizations, some companies have
begun to follow more environmentally responsible policies. For example, Dow Chemical, a
once maligned polluter, has established quarterly meetings where environmentalists brief
senior management for one-and-a-half days each session. Managers' salaries are pegged to
environmental goals, and the company cut toxic releases 32 per cent between 1988 and 1991.
IBM has also implemented some laudable environmental practices including the rewarding of
employees for technical innovations that help it comply with environmental standards.
Finally, AT&T has won 18 environmental awards since 1990.68
However, while these three companies have begun to follow
more environmentally responsible policies, the majority continue to plunder the mineral
resources of developing countries and consume environmental resources in a destructive and
non-sustainable manner — practices which certainly hamper prospects for social
development. General Electric and DuPont are more typical of companies involved in
environmental issues, both possessing abominable records. DuPont, for example, was
responsible for 254 million pounds of toxic chemical releases in 1991 in the United States
alone, and has demonstrated little desire to improve its environmentally destructive
practices.69
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Indirect Effects
of TNCs on Social Development Economic Growth
Transnational corporations can potentially promote social
development through their activities that generate economic growth. One observer has
written:
" As per capita income increases, as levels of education increase and as the
growth in communications technology increases awareness of alternative lifestyles, there
are rising expectations with regard to matters such as housing, welfare, recreation, and
medicine. These public welfare functions have traditionally been considered the province
of public agencies... But as corporations are intimately involved with the growth of the
economy, they are perceived by many as the most effective levers for change."70
There exists some evidence that foreign direct investment
by TNCs and the foreign exchange that TNCs provide can improve the economic performance of
the countries in which they operate.71 "TNCs impact the process of economic growth by influencing
the amount and quality of new capital formation, transfer of hard and soft technology,
development of human resources, and the expansion of trade opportunities."72
Furthermore, as case studies of Taiwan, Province of China,
and South Korea demonstrate, economic growth can foster social development under some
conditions. In Taiwan, for example, miraculous economic growth has been correlated with
increased educational levels, improved health conditions, longer life spans, better
housing conditions, enhanced civil liberties and political liberalization.73
While in theory TNCs can promote social development by
fostering economic growth, in practice this relationship rarely exists for two reasons.
First, it is unclear whether transnational corporations are actually responsible for
economic growth in host countries. In the two most notable cases of recent economic
transformation, South Korea and Taiwan, transnational corporations played a negligible
role.74 Furthermore, TNCs can actually hamper indigenous economic growth
by driving local entrepreneurs out of business, importing key goods and services,
remitting a majority of the profits to their home countries, and transferring fees and
royalties to parent companies located outside the host economy.75
Second, even if TNCs do improve a host country's economy,
the relationship between economic growth and social development is tenuous. Although the
global economy continues to grow annually, such growth is hardly curing problems of
poverty, unemployment, disparities in wealth, or other issues of social malaise. In Côte
d'Ivoire, for example, while TNCs might have helped to foster aggregate economic growth
from 1960 to 1975, they did little to promote social development: unemployment increased,
distribution of income widened and nationals increasingly lost control over the country's
industrial capacities.76 In sum, while transnational corporations can be the engines of
economic growth under some circumstances, the economic power of TNCs is rarely harnessed
to achieve the ends of social development.
Transfer
of Technology
Transnational corporations can also indirectly affect
social development through the transfer of technology to host countries. Transferred
technology can assume many forms including hardware such as machinery and equipment;
software such as blueprints; process and product design; and training in management,
marketing and quality control methods.77 Furthermore, such technology can be transferred through a variety
of methods including joint ventures, foreign direct investment, licensing agreements,
turnkey plants, technical assistance, subcontracting arrangements and non-equity
investments.78
TNC technology transfer can potentially provide host
countries with a number of benefits, including enhanced economic growth.79 "More advanced foreign technology transfer has acted as a
trigger mechanism for modern economic growth in some developing countries which are on a
lower level of economic and social development."80 Technology transfer can advance economic growth in a variety of
ways: facilitating the production of new goods with higher value-added content; increasing
exports; increasing output for a given level of input; and improving management
techniques.81 There also exists some evidence that transfers of technology can
help develop a particular host country industry. For example, the expansion of
foreign-owned TNC semiconductor plants off the coast of Singapore has spurred the
emergence of the domestic semiconductor industry within Singapore itself.82
TNC transfer of management skills can also potentially
advance human resource development — an important component of social development. "Through
its employment of indigenous professionals and managers, the multinational corporate
subsidiary transmits knowledge and experiences that are less available locally."83 Transnational corporations can also foster human resource
development through their research and development practices, particularly in developing
countries. Such practices can potentially increase the skill levels and technical
capabilities of employees in developing countries.
Although in theory transnational corporations can foster
social development in developing countries by transferring management skills as well as
research and development (R&D) capacities, in practice their record in this field is
mixed. First, governments in developing countries have historically criticized TNCs for
not employing enough nationals in management positions and, therefore, transferring only
minimal management skills. Second, while large transnational corporations spend billions
of dollars on research and development annually, they conduct only a small fraction of
such R&D outside industrialized countries.84 Third, when transnational corporations do conduct R&D in
developing countries, they often merely adapt existing technology to local conditions
— a process that generates little impact on deeper indigenous research and innovation
capabilities (know-why).85
Finally, TNC transfer of technology policies in developing
countries have received criticism on numerous other grounds. For example, there is some
evidence that the technology transnational corporations transfer is too costly for
developing countries, does not create local linkages, is protected too exclusively through
patents, is often capital intensive and therefore inappropriate for labour-intensive
developing countries, and produces goods for affluent classes while failing to meet local
needs.86
Transnational
Corporations and Taxes
Transnational corporations can also indirectly foster
social development through their provision of taxes to the state, because governments
often use these revenues to finance social welfare programmes. Such taxes can be
substantial. For example, in 1989, foreign affiliates of US-based transnational
corporations provided 15.5 per cent of government revenues in Guatemala, 12.2 per cent in
Peru, and 4.6 per cent in Mexico.87 In 1992, Phillip Morris paid 4.5 billion dollars in taxes to the
United States government alone, including billions more in employee and excise taxes.88
While transnational corporations do pay substantial taxes
under some circumstances, they engage in a variety of practices that intentionally deprive
governments of tax revenues they are due. The ability of transnational corporations to
move funds and goods rapidly between countries allows them to manipulate intracompany
payments and avoid taxes — a process known as transfer pricing. For example, a German
company manufacturing in France where tax rates are high sells its product at below-market
values to a subsidiary in Puerto Rico where taxes are low. From Puerto Rico, the company
sells to wholesalers or retailers, claiming a loss in France and huge profits in Puerto
Rico where it pays minimal taxes. Countries have attempted to combat transfer pricing
tactics through unitary taxation policies under which a government calculates a company's
taxes on the basis of its global profits instead of on the basis of profits it declares
within the country's borders.89 However, companies have successfully lobbied against unitary
taxation policies in most jurisdictions.
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Transnational
Corporations and Economic and Social Equality With the income of the richest one fifth of the world's population
averaging 50 times that of the poorest one fifth,90 disparities in wealth characterize most countries. In many nations
the gap between poor and rich is widening.91 Although transnational corporations may not be responsible for the
conditions which originally precipitated such inequities, their activities with respect to
foreign direct investment, consumer issues and employment often exacerbate the situation.
While TNCs certainly produce benefits for some people of the world, the bulk of the
population is left out of the system that these enterprises help to perpetuate. As two
analysts have recently written regarding the form of "globalization"
transnational corporations are creating:
" The inhabitants of a penthouse apartment on the Upper East Side of Manhattan are
drawn by taste, style, habit, and outlook into a closer relationship with similarly
situated citizens of Brussels, Rio, or Tokyo, and further and further away from poorer,
less mobile residents who may live a block or two away." 92
Transnational corporations can exacerbate existing
disparities between the poor and rich, for example, through their activities affecting
consumers. With over four fifths of the globe's purchasing power concentrated in countries
possessing only one quarter of the world's population,93 transnational corporations structure their marketing and
distribution systems to provide goods and services only to economically prosperous
locations. Approximately two thirds of individuals in the world are unable to enjoy any of
the consumer benefits transnational corporations can provide.94 Lawyers in Frankfurt and Hong Kong will always present better
profit-making opportunities than will sharecropping farmers in India or Mali.
Commercial banks sometimes exemplify the ways in which TNC
consumer-related activities can reinforce existing inequities in developing countries.
First, such financial institutions usually conduct transactions only with the government
and the élite, refusing to extend credit to those citizens who need it most; second,
their loans have historically resulted in huge debts which developing countries have
financed at the expense of social programmes; and, third, commercial banks have often
served as conduits for legal and illegal capital flight.95
Furthermore, transnational corporations can perpetuate an
inequitable social and economic system through their employment practices. As a United
Nations report recently summarized:
" The emerging pattern of integrated international production may indeed be
accentuating disparities between certain core activities and jobs that are dispersed
throughout a firm's international production system...[creating] a growing periphery of jobs, many
of which are less stable and less highly remunerated than those at the core." 96
For example, while the Japanese might manufacture computer
components in Thailand, they refuse to export jobs in the crucial value-added stage of the
process, i.e. the manufacture of the computer chip; while NIKE employs Indonesian women to
sew shoes together, the company does not introduce these employees to the value-added
process in which NIKE infuses its patented technology (the "Pump") into the
product. Thus, as companies integrate their production strategies, they reinforce regional
disparities in skills and income — a process some advocates of developing countries
have termed economic "recolonization" .97
55 5. de George, op. cit., p. 75.
56 6. Ibid., p. 74.
57 7. Ibid.
58 8. In December 1984, one of the world's worst industrial disasters
occurred in a Union Carbide plant in Bhopal, India. Poisonous gas leaked from a
negligently maintained chemical factory killing 3,000 and injuring over 200,000. See
Reinhold (1985), Lueck (1985) and Everest (1985).
59 9. An Exxon ship called the Valdez crashed off the coast of Alaska, spilling
thousands of gallons of oil into the ocean and killing large amounts of marine life. The
company untruthfully maintained that the oil spill had caused only minor damage and that
the oil spill had been satisfactorily neutralized (de George, op. cit., p. 5).
60 0. For years, Texaco has been pumping oil from the Ecuadorian rain forest.
Recently a class action suit against the company has been filed in the United States on
behalf of 300,000 indigenous people in Ecuador seeking compensation for the environmental
destruction Texaco's activities have visited upon their lands. See The
Multinational Monitor, 1993.
61 1. UNCTAD, 1993, p. 101.
62 2. E.I. DuPont de Nemours & Co. accounts for one quarter of all CFCs (United
Nations Transnational Corporations and Management Division, 1992, p. 226).
63 3. UNCTAD, 1993, p. 141.
64 4. United Nations Transnational Corporations and Management Division, 1992, p.
228.
65 5. de George, op. cit., p. 67.
66 6. United Nations Transnational Corporations and Management Division, 1992, pp.
233-234.
67 7. Ibid., p. 226.
68 8. Rice, 1993, p. 122.
69 9. Ibid.
70 0. Samuels, op. cit., p. 18.
71 1. United Nations Commission on Transnational Corportions, 1993a, p. 7,
paras. 6-7; UNCTAD, 1994c, p. 42, para. 79.
72 2. United Nations Transnational Corporations and Management Division, 1992, p.
245.
73 3. Chan and Clark, 1992, pp. 42-44; Tien, 1992, p. 15; Economic Intelligence
Unit, 1993/94, p. 9.
74 4. See, for example, Chan and Clark (op. cit., pp. 42-44), Tien (op.cit.), and
Cheng and Haggard (1992).
75 5. UNCTAD, 1994c, p. 42, para. 79.
76 6. Alschuler, op. cit., p. 97.
77 7. United Nations Commission on Transnational Corporations, 1992, pp. 5-6, para.
8.
78 8. Tolentino, 1993, p. 121.
79 9. As described above, of course, the relationship between economic growth and
social development is ambiguous.
80 0. Tolentino, op. cit., p. 121.
81 1. United Nations Commission on Transnational Corporations, 1992, p. 6, para.
10.
82 2. Tolentino, op. cit., p. 142.
83 3. DiConti, 1992, p. 107.
84 4. United Nations Commission on Transnational Corporations, 1992, p. 7, para.
14, and p. 10, para. 20. Large scale R&D rarely occurs in developing countries (United
Nations Transnational Corporations and Management Division, 1992, p. 167).
85 5. United Nations Commission on Transnational Corporations, 1992, p. 14, para.
37.
86 6. Lall, 1993, p. 13.
87 7. United Nations Transnational Corporations and Management Division, 1992, p.
115.
88 8. Rosenblatt, 1994.
89 9. Barrett, 1994.
90 0. Leger Sivard, 1991, p. 5.
91 1. Barnet and Cavanagh, op. cit., p. 179.
92 2. Ibid., p. 22.
93 3. Barnet and Cavanagh, op. cit., p. 192.
94 4. Ibid., p. 183.
95 5. de George, op. cit., p. 68.
96 6. UNCTAD, 1994b, p. 40, para. 60.
97 7. Chakravarthi, 1990.
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