Part 1 addressed the descriptive aspects of the relationship between transnational corporations and social development. The final section on corporate philanthropy indicated that a few corporations feel to some extent that they should help to advance positive social change. Part 2 will expand upon this normative discussion of transnational corporations and social development. Specifically, it will examine the normative environment in which TNCs operate, focusing upon the current balance between the rights and responsibilities of transnational corporations.

The collapse of the Soviet empire, the dismantling of social welfare programmes in some European nations and the concomitant predominance of a free-market ideology have transformed the context in which transnational corporations operate: these entities are currently witnessing an unprecedented expansion in their privileges and rights. Such an expansion has occurred both on the international level through trade agreements and investment treaties and on the national level through privatization efforts and weakened government regulation.

The recent Uruguay Round of the GATT (General Agreement on Tariffs and Trade) probably constitutes the most important international development related to transnational corporate rights. Comprised of over 20 separate and complex agreements, the GATT expands corporate privileges while limiting the regulatory power of governments. For example, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) enhances the power of transnational corporations to enforce patents, trademarks and copyrights; this agreement simultaneously impedes governmental efforts in developing countries to condition transnational corporate investment privileges upon corporate assistance with indigenous technological development. The Agreement on Trade-Related Investment Measures (TRIMs) also expands the rights of transnational corporations. This agreement prevents governments from requiring as a condition of market access that TNCs engage in a variety of socially responsible activities, including the hiring and training of nationals, the promotion of local equity participation, or the use of domestic content in the manufacturing process. Pursuant to this agreement, transnational corporations also may not be subject to minimum capital requirements or trade balancing regulations. Meanwhile, the Agreement on Sanitary and Photosanitary Measures might enhance the rights of transnational corporations to engage in certain activities that threaten the health and safety of individuals.¹²¹ Finally, the General Agreement on Trade in Services (GATS) limits governmental attempts to regulate TNC power through restrictions on repatriation of profits and capital in service sectors.

While the various agreements in the GATT often enhance the rights of transnational corporations, it is important to note that the relationship between the GATT, corporate privileges and governmental regulatory power is exceedingly complex. Furthermore, there do exist some exceptions to these agreements retaining the authority of governments to regulate TNC activity. For example, many of the agreements, including the Agreement on Trade-Related Investment Measures, grant temporary exemptions to governments in developing countries. The Agreement on Trade-Related Intellectual Property Rights contains clauses addressing the concerns of developing countries regarding issues of biodiversity and local agriculture. Furthermore, article XII of the General Agreement on Tariffs and Trade allows derogations to improve balance-of-payments difficulties and article XX contains a variety of general exceptions, including exemptions for environmental and safety purposes.

The proliferation of bilateral investment treaties (BITs) constitutes another important international development that has enhanced corporate rights. These agreements usually prescribe standards of treatment for transnational corporations, guaranteeing such entities "fair and equitable treatment" as well as "national treatment".¹²² BITs also often protect transnational corporations from nationalization or expropriation without just compensation and guarantee them the right to freely repatriate profits and capital. By the early 1990s, governments had created and signed 440 Bilateral Investment Treaties.¹²³

Developments at the national level have also expanded the power and rights of transnational corporations. First, privatization efforts in Latin America and Eastern Europe have provided the opportunity for TNCs to enlarge their scope of influence. Spurred by the failure of state-owned enterprises to deliver goods and services effectively, the number of global privatizations quintupled between 1985 and 1990.¹²⁴

Second, changes in national regulatory ideologies and structures have also benefited transnational corporations. Many governments have gradually been lifting national restrictions on TNC activity and removing the conditions they have traditionally placed upon transnational corporate investment privileges. Between 1982 and 1987, for example, half of all African nations instituted changes in their foreign investment code to attract more transnational corporate involvement in their economies; by the early 1990s, almost all the remaining countries in Africa, a region historically suspicious of foreign corporate activity, had followed suit.¹²⁵ These more liberalized investment codes replaced national regulations regarding local ownership restrictions, foreign exchange controls, limits on remittances of profits and TNC obligations to transfer technology to host countries.¹²⁶ Many of these nations did, however, retain some restrictions on transnational corporations, including measures to foster local industrial development, advance certain domestic sectors and promote exports.¹²⁷

Many countries outside Africa, including Albania, Bulgaria, Saudi Arabia and Viet Nam, have also recently liberalized their investment codes.¹²⁸ Even India, a nation historically dedicated to import substitution strategies and cautious of foreign investment, recently liberalized its industrial licensing procedures, allowed partial convertibility of its currency and proclaimed a more limited role for the public sector.¹²⁹ Some other countries that have recently changed their investment policies include the following: the Philippines now allows 100 per cent foreign equity ownership in the major areas of its economy; Egypt has expanded permissible sectors for foreign investment; and Colombia has guaranteed national treatment to transnational corporations, raised the ceilings on profits that can be remitted and no longer requires governmental approval for most investment projects.¹³⁰  

As current economic and geopolitical conditions help to expand the rights of transnational corporations, they simultaneously minimize TNC responsibilities for advancing social development. Activities promoting such goals are often considered economically inefficient. Furthermore, advocates for TNCs argue that, as profit-maximizing entities, transnational corporations are not responsible for advancing social welfare; instead, they assert that such activities fall exclusively under governmental purview. Finally, corporate officials argue that they are responsible only to the company's shareholders. While in many countries these officials are correct that they are legally responsible only to shareholders, this assertion evades the issue of whether transnational corporations are morally responsible for advancing social goals.

However, these claims of transnational corporate advocates and officials are disingenuous for two reasons. First, while TNC proponents, on the one hand, argue that promoting social welfare is solely the responsibility of governments, on the other hand, they are simultaneously attempting to weaken the government regulations they hail as the protectors of the citizenry. For example, TNCs consciously undermine the ability of governments to promote the welfare of poorer and less powerful citizens and groups in society through their direct lobbying efforts for fewer national investment restrictions; less stringent international regulations; lower environmental, labour and consumer standards; and the abolition of unitary tax policies. Additionally, by playing governments off against one another in efforts to receive the most advantageous investment package, TNCs intentionally weaken the capacity of governments to promote social welfare.

Second, the claims of TNC proponents rest upon suspicious moral foundations. They argue in essence that, because weak governments are either unable or unwilling to promote the social well-being of their even weaker citizenry, TNCs therefore have free reign to engage in potentially harmful activities and have no responsibility to such individuals. This line of reasoning was evinced in a previous section on TNCs and consumer issues. As this section demonstrated, TNC officials assert that attempts to prevent them from selling to developing countries pesticides and pharmaceuticals banned in their home countries are imperialistic infringements upon the sovereignty of these nations. However, transnational corporate officials are often aware of the harmful effects of their products and know that many developing countries do not possess the governmental resources necessary to conduct tests on TNC products and that many consumers in such nations do not possess the information necessary to make truly informed choices. There clearly exist disparities in power and information; the crucial issue is whether TNCs are morally bound to refrain from exploiting such disparities or whether their profit-making nature simply frees them from moral obligation and social responsibility.

It is important to note that critics of current TNC attitudes do not argue that these entities should replace governments as the primary advocates for social development. Such critics recognize that the profit-maximizing and non-democratic nature of transnational corporations renders them incapable of performing the role that governments fulfil. Instead, these critics argue that corporate officials have a responsibility to minimize the socially harmful ramifications of their profit-maximizing activities and that they should consider an expanded definition of "stakeholder", beyond merely shareholders, when making their decisions.

As advocates of enhanced TNC social responsibility are not arguing that transnational corporations should replace governments, they are not arguing either that TNCs must necessarily adhere to higher standards than local firms. As corporations become increasingly mobile, it makes no sense that the geographical location of a company's headquarters alone should determine the standards by which it may compete with other firms.

Take, for example, a German chemical company competing with local producers in Thailand. If both firms have similar cost structures, access to technology and opportunities for profit making, they should be held to similar operating standards. Such a Thai firm that exploits workers, knowingly produces harmful products or destroys the environment should be subject to the same criticism that would be levied upon TNCs if these multinational enterprises engaged in such conduct.

However, a German firm competing with local firms in Thailand often will not experience similar operating variables. That is, its marginal costs of production might be lower, its access to technology better and, therefore, its profit-making opportunities greater. Under these circumstances, it is not unreasonable to expect the German firm to adhere to higher labour, consumer or environmental standards — particularly when it can still turn a sizeable profit despite following these more stringent standards; advocates for enhanced TNC responsibility do not argue that transnational corporations should adhere to higher standards if such actions would put them at a significant comparative disadvantage with local firms, preclude them from making profits or compel them to withdraw from the host country's market. Instead, they argue that, when competing with a Thai firm that is less efficient and/or has less access to technology, a socially responsible firm will sacrifice a few marks in profits, especially when such marks might only buy lunch in Berlin but when converted to bhat can sustain a Bangkok family for two weeks.

In fact, such arguments do not always go unheeded. While most transnational corporations deny that they are obliged to foster social development, some accept a duty to be "good corporate citizens". This less stringent standard prohibits transnational companies from affirmatively engaging in activities that produce harm: for example, breaking the law or knowingly distributing faulty consumer products. However, as "good corporate citizens", TNCs are obliged only to refrain from participating in harmful activities; they are not obliged to pursue socially beneficial policies. The distinction between a "good corporate citizen" and a "socially responsible corporation" is important. While the former refrains from knowingly breaking environmental laws or causing ecological disasters, the latter unilaterally implements policies designed to reduce toxic emissions and develops technologies to minimize environmental degradation. While the former pays its employees the minimum wage and complies with workplace safety laws, the latter ensures that wages rise with increases in productivity and guarantees safe working conditions even if government regulations or administrative policies do not require them to do so. In sum, while the former complies with its minimum legal requirements, the latter advocates social development even if such goals are not always in the corporation's best economic interest.

It is important to note, however, that some observers believe that socially responsible policies can sometimes actually advance the financial interests of transnational corporations and are, therefore, not always a drain on the company's budget. Such individuals argue that there exists a growing consumer awareness of corporate behaviour and that consumers are increasingly willing to consider the policies of a corporation when choosing a product brand. The growth of socially responsible investment funds constitutes further evidence of this trend.

Codes of Conduct

Transnational corporations engage in two primary forms of socially responsible activities: donating to philanthropic causes¹³¹ and implementing codes of conduct. Business associations and individual corporations are both involved in the establishment and implementation of such codes. Business association codes are self-regulatory efforts that a trade association attempts to impose upon all firms operating within an industry. Trade association codes are particularly prevalent in the environmental arena as the Conseil Européen des Féderations de l'Industrie Chimique, the American Chemical Manufactures Association and the Japanese Keidanren¹³² have all recently promulgated their own environmental standards.¹³³ The International Chamber of Commerce has even recently established its Business Charter for Sustainable Development.¹³⁴

A particularly interesting form of corporate codes derives from broader business organizations publicly dedicated to promoting social responsibility. For example, the Minnesota Center for Corporate Responsibility, founded in 1978, is a coalition of over 200 companies that has promulgated the "Minnesota Principles". This code of conduct mandates fairness, honesty, respect for human dignity and respect for the environment. Furthermore, it expands the notion of corporate stakeholders to include not only investors, but also customers, employees, suppliers, developing countries and communities. Business for Social Responsibility constitutes another US-based organization that has grown from 54 founding companies to more than 700 member and affiliated businesses since it was launched in June 1992. Although this organization has not formulated a code of conduct, it attempts to foster corporate social responsibility through seminars, support networks, coalition building and a data base that contains socially responsible alternatives for corporations to follow.

Individual corporations have also formulated codes of conduct for their own operations. A recent United Nations survey of 169 relevant firms found that 43 per cent had developed some form of international environmental policy.¹³⁵ Additionally, a few firms have refused to do business in countries with poor human rights records. For example, the Levi Strauss Company does not operate in the People's Republic of China or in Myanmar. Some transnational corporations have been credited with making a positive contribution to social change in South Africa. General Motors, for example, was particularly influential in drafting the Sullivan Principles which attempted to regulate US-based corporate activity in South Africa. Finally, individual firms have been particularly active in formulating codes of conduct for subcontractors in developing countries. Many transnational manufacturing corporations no longer own and operate the plants in which some components of their products are made. Instead, they subcontract out for such goods and then act as global distributors. This de-coupling of manufacturing and distribution has prompted TNCs to assert that they are not responsible for the work conditions or wage levels in factories that manufacture their products. In efforts to promote responsible labour practices, some companies such as NIKE, Levi Strauss, Sears and Reebok have established codes of conduct for their subcontractors.

The Levi Strauss Company probably possesses the most admirable and responsible code of conduct for subcontractors. This code covers environmental, ethical, health and safety standards, and prohibits child labour, prison labour and discrimination. Furthermore, it requires that Levi Strauss subcontractors pay the minimum wage and employ their workers at most 60 hours per week with one day off.¹³⁶ Levi Strauss attempts to ensure compliance with this code through detailed subcontractor evaluation forms and periodic monitoring by corporate employees. The company has fired 35 of its 700 subcontractors for failing to comply with Levi Strauss guidelines.¹³⁷

Although firms continue to implement codes of conduct, there is some question as to whether these measures actually produce positive social effects. Advocates of such codes assert that they send a serious message from senior management to all employees and that they facilitate the efforts of those employees who do want to engage in socially responsible activities.¹³⁸ On the other hand, critics state that corporations establish these codes only to advance their own self-interest. These sceptics assert that companies maintain codes of conduct to produce a good public image which they then market to socially conscious consumers; to escape attention when they do cause harm; to distance themselves from employees who engage in practices against the code of conduct, thus diminishing corporate legal liability; and to shield themselves against litigation.¹³⁹ Furthermore, there is some evidence that companies are unwilling or unable to enforce their codes of conduct.¹⁴⁰ According to critics, therefore, such codes generate only marginal effects on employment, environmental or consumer practices, and, in fact, might obfuscate the true intentions and policies of transnational corporations.

While the actual consequences of corporate codes are difficult to ascertain with respect to specific firms, on a general level these instruments are most likely benign. Despite critics' claims, there is little evidence that transnational corporations have been able to use their codes of conduct to minimize their legal liability or generate a public image that is a complete fabrication. On the other hand, it should not be expected that these codes will magically transform a transnational corporation into a socially responsible actor. For example, although Reebok has established guidelines for its subcontractors, employees sewing Reebok shoes in Indonesia still make only the minimum $1.80 daily wage, and no Reebok subcontractor has ever lost an order for failing to comply with Reebok's code.¹⁴¹

Furthermore, some companies that do not have codes of conduct might be more responsible than corporations that have established such guidelines. For example, as mentioned above, the Gillette Company operates in the same Indonesian environment as Reebok. Although Gillette has not established a code of conduct, it pays its workers three to four times the legal minimum wage and also provides its employees American-style retirement and health benefits.¹⁴²

121 21. For a good discussion of the effect the GATT might have upon current safety and health regulations, see Public Citizen, 1994.

122 22. The principle of national treatment requires governments to treat domestic and foreign investors equally.

123 23. United Nations Transnational Corporations and Management Division, 1992, p. 77.

124 24. Ibid., p. 83.

125 25. UNCTAD, 1994c, p. 5, para. 3.

126 26. Ibid., p. 6, para. 6; p. 10, paras. 16-18.

127 27. Ibid., p. 6, para. 4.

128 28. United Nations Transnational Corporations and Management Division, 1992, p. 79.

129 29. Ibid., p. 82.

130 30. Ibid., pp. 337-339.

131 31. See the section on "Non-governmental/citizen organization efforts" in part 1 of this paper.

132 32. This is an association of various Japanese industries.

133 33. United Nations Transnational Corporations and Management Division, 1992, pp. 91-92.

134 34. Ibid.

135 35. Ibid., p. 92.

136 36. Although the Levi Strauss guidelines are most likely the best in the industry, they have still been subjected to criticism for their non-binding nature; for not prohibiting sexual harassment; for guaranteeing only a legal wage and not a "living wage"; for not prohibiting the forced transfer of workers from one country to another; and for not providing special benefits to employees who have worked for a long time to make Levi Strauss products.

137 37. Zuckoff, 1994a.

138 38. Pitt and Groskaufmans, 1990, pp. 1634-1635.

139 39. Ibid., pp. 1630-1633.

140 40. Ibid., p. 1604.

141 41. Zuckoff, 1994a.

142 42. Ibid.