Having grown up the grandchild of a mining engineer, it’s hard to avoid discussing the topic of being in a mine, from the processes to the devastating effects that they have, there always ends up being some debate on how MNCs operate and the responsibilities that they have. Canadian mining MNCs have been particularly offensive in this sense, almost always being associated to some extent with environmental or humanitarian disasters in the host countries that they operate in. Placer Dome, the Canadian mining firm based out of Vancouver that my grandfather worked for, is no exception to such allegations. In 1996, the Marcopper Mine majority-owned by Placer Dome suffered a fracture in one of their drainage tunnels, causing massive environmental damage to the island of Marinduque. Originally, Placer Dome took responsibility and was willing to cooperate for the cleanup from the disaster, but quickly pulled out of the project via divesting from the Marcopper Mining Corporation. In 2001, citing an agreement made with Marcopper, Placer Dome saw their selling of Marcopper as ending their responsibility for the cleanup of the mine tailings.

This change of heart by the company is particularly concerning when examined through the lens of corporate social responsibility. In particular, the fact that a firm would openly consider their responsibility ended the moment they sell their subsidiary in the host country reflects the attitude of many firms at the time. This tact that MNCs during this time took shows how, despite the immense power that they held, there is very little incentive for them to consistently aid in global governance. Nevertheless, these actions by Placer Dome did create positive change in terms of strengthening the Philippine Mining Act to ensure greater protection for the environment and the groups in close proximity to mining operations. Overall, based on examples like this, I find that it is hard not to see MNCs as wanting to be a part of the governance framework only when it is convenient. This notion is especially prevalent with regards to MNCs in extractive industries, as Shell just recently called for the Canadian oil lobby to support the imposition of a carbon tax, yet conveniently did so after divesting from the Alberta tar sands.

Amazon’s original name was going to be Relentless, and they continue to quietly own that domain name. That is exactly what Amazon has been in since it announced its plan to build a second headquarters in 2017, relentless to lower costs to the firm. Amazon’s intentions were relatively clear from the start: start a bidding war to lower costs and maximize gains. This “search” for a second home saw many states and provinces putting together plans to provide tax exemptions and infrastructure projects that would benefit the online shipping giant. The politics of this search were highlighted by the fact that, in the end, Amazon decided to choose New York City and Arlington, Virginia. Despite splitting their new headquarters between cities, them being both along the Eastern seaboard shows that their decision was practically determined from the outset, using the bidding process simply maximize the firm’s tax breaks. These two areas already being centers for global markets, having large infrastructure development, and a being on the opposite coast from its original headquarters in Seattle likely contributing factors in Amazon’s decision. These incentives alone were likely enough for the firm, but the bidding from cities would reduce the likelihood of Amazon needing to fund any infrastructure improvements as part of the agreement to expand to the winning bids.

The power of MNCs to completely revamp a local economy has been widely recognized for some time now. This power is something that most states recognize and strive to obtain, yet in doing so they simply strengthen the bargaining position of MNCs, which is what has occurred on a lesser scale with US states and Canadian provinces vying for the prize of an Amazon headquarters. John Stopford’s 1999 Foreign Policy article, titled “Multinational Corporations”, discusses this notion in depth, noting that a multinational corporation will follow the social contract when they wish. This explains the nature of Amazon’s search process, as it provided a mirage of benevolence behind which their desire for subsidies and tax breaks were hidden. Additionally, Susan Strange in her article “Big Business and the State” also touches on themes relevant to the Amazon expansion, in that, once permitted access to a given market, they are the ones determining to what extent they will enter it. Thus, Amazon is using its market power in the United States to ensure they receive a plan that allows them to gain from the optics of a new headquarters, with all the jobs that it creates, without taking on any further burden from heavier taxation.

There is no doubt that MNCs have an immense amount of power that they can use to get what they want. Stephen Brooks’ article contends that “the globalization of production is a historically unprecedented change in the international economy” (p. 16). The enhanced significance of MNCs in the global economy is a reality where Brooks states that if we look beyond the growth rates, “the globalization of production outstrips trade as an organizing feature of international economy” (p. 17). When reading Brooks’ chapter, I realized that he is right; a lot of the trade today is a by product of the “geographic dispersion of MNC production.” A product is not made in only one country, rather, the product transcends across an array of boundaries, from country to country. These examples demonstrate the large influence that MNCs have in the world because of their operations. MNCs have the ability to subcontract, that is, they no, longer contribute to every stage in production chain and source particular stages out for other enterprises to undertake. If firms split up the production process into a variety of specific stages, such as finance, R&D, parts production and distribution, with each of the stages carried out by affiliates; what we get is a web of connections between one affiliate in a country to an affiliate in another. What is created in the global arena then is an international-infra firm division of labour. This example shows that the activities of MNCs can re-create and create the global economy, whether that be intentionally or unintentionally. In addition, the characteristics of MNCs give them immense amounts of power. The fact that MNCs possess the technology and investment capital is what makes them attractive. In fact, developing states now face a cost if they choose to isolate from MNCs. These characteristics of MNCs have pushed states to create a more favourable investment climate for global firms. Viewed in this light, MNCs are not merely economic actors, but political and social actors as well. They have the power to influence the global economy through its globalized production chains through subcontracting and interfirm alliances (where firms collaborate to minimize the cost, difficulty, and complexity of research and development). They are political actors since they are able to (usually successfully) lobby governments to have governments on their side to implement business policies that are favourable to them. IMF and World Bank uphold policies that are largely to the benefit of MNCs. MNCs are also social actors, for their actions within countries can have social impacts on the citizens (i.e. pushing people off their land to create factories, and implementing poor working policies in factories). From this perspective then, MNCs are extremely powerful actors due to the fact they have a role to play in various aspects of world society. It would be a mistake to view these entities as merely economic actors; they too, are agents of global governance that are able to have their interests heard and make their interests more important than the interests of others.

I read an article a while back from the Huffington Post that posed the following question: “Are We the People the boss of giant multinational corporations, or are they the boss of us?” (Johnson, 2016). The CEO of Apple, Tim Cook was asked about the large amounts of profits that Apple had shifted into overseas tax havens due to a loophole in US tax law that allowed them to “defer paying taxes on those profits as long as the money technically stayed outside the country” (Johnson, 2016). He said a quote that really stood out to me:

“And when we bring it back, we will pay 35 percent federal tax and then a weighted average across the states that we’re in, which is about 5 percent, so think of it as 40 percent. We’ve said at 40 percent, we’re not going to bring it back until there’s a fair rate. There’s no debate about it.”

This quote is telling; it shows you just how much power MNCs really have. If an ordinary person were to do this and were caught, there would certainly be repercussions. It demonstrates that MNCs do not have to comply to the rules if it does not suit their interests. The power of MNCs cannot be underestimated. They are global actors who have global impacts and are entities that can significantly influence other actors to align with their interests. I am not saying that all MNCs are inherently bad and that we should only think of them as lousy people who do not care about human rights. Rather, as global citizens, we should be at least aware that MNCs can be both positive and negative actors in this world.

References

Johnson, D. (2017, August 25). CEO Of Giant Corporation Tells US Government He’s the Boss Of Them. The Huffington Post. Retrieved from https://www.huffpost.com/entry/ceo-of-giant-corporation_b_11686542

Brooks, S. (2007). “Understanding the Globalization of Production,” In Producing Security: Multinational Corporations, Globalization, and the Changing Calculus of Conflict. Princeton: Princeton University Press.

Multinational corporations operate in conditions that are in their favour and it is certainly helping that these days, countries are willing to change their policies in order to attract the FDI of MNCs. Countries that are desperate to develop their countries are keen to have MNCs operate in their territories. In the present, there is intensified competition among states for world market shares to the point where states are bargaining with MNCs to locate their operations within their territory in hopes that as this will bring them access to technology and investment capital. MNCs can foster technological innovation within the host country and provide training to the population. With enhanced competitiveness of global markets, the name of the game for many developing countries is to attract the attention of MNCs. However, MNCs are known to exploitative, where the common belief is that MNCs are willing to do anything to maintain their profits margins. Some countries are determined to attract MNCs no matter the negative effects it may have on its citizens. Bennett’s (2002) article argues that MNCs have a social responsibility to help keep conflict at bay and to improve the lives of citizens of the host country, not to exacerbate conflict. Good corporate governance, both at home and abroad and advancing community good will are crucial elements of international security. Conflict minerals are a large part of the supply chains of MNCs where MNCs use elements such as tin, tungsten, silver, and gold for consumer electronics and jewelry. I do agree with Bennett that MNCs have a responsibility to promote good corporate governance, however, I am a little bit skeptical that this will happen. It is certainly the case that MNCs are moving towards the direction of claiming that they are practicing good corporate responsibility. In fact, if you go the websites of fast fashion giants such as FOREVER 21 and H&M they have a separate section where they state e ways in which they have ethical sourcing of their products. Forever 21 claims that they have a highly trained vendor compliance team, which promotes and enforces lawful and ethical operations at their third-party factory sites and lists a number of charitable causes in whey have donated to including Japan’s disaster relief, and The American Red Cross. H&M on the other hand, are carrying out a fair living wage strategy and have put a huge emphasis on sustainability. But could this just be all rhetoric and a way for these MNCs to put forth a good image for themselves so that consumers do not boycott them? Some people say that states themselves are responsible for making sure that human rights are upheld and that business and human rights diverge. But, I believe that business and human rights can converge where MNCs can take action to ensure the well-being of citizens inside the country in which they operate. The only part is, are MNCs willing to take on this role? After all, it is their decision whether to take action, no one is forcing them.

The Global Compact, established in early 2000, encourages businesses worldwide to adopt sustainable and socially responsible practices with the ten principles based on 4 categories: human rights, labour, environment and anti-corruption.  MCNs are aware of the fact that countries want them to come do business within their country due to reasons described earlier. Aware of this, MNCs can use this as a tool to do whatever they want because they know that these countries need them. So, it seems that it is all up to the consciences of MNCs to do the right thing. If MNCs were to align their strategies and operations in a more responsible manner, it could enhance the lives of the citizens within their operations and enhance the environment in which they work. MNCs are known to engage in environment polluting acts and deforestation but if they were to change their ways, these problems could be rectified. The damages may not be reversed, but it would help inform future decisions made by MNCs. MNCs can engage in partnerships with the government, with local NGOs, and local civil society where they can utilize their business skills and financial leverage to promote regional stability (Bennett, 2002). Sometimes, MNCs can create conflict where they operate due to the grievances that arise from the people who may feel like they are being left out or treated unfairly and pit groups against each other (i.e. elites versus the working class). MNCs can implement social investment programs, champion economic inclusiveness and abide by economic and social rights. What MNCs fail to consider is the social aspect of it all—the question of ‘what are the social impacts of business operations’ is left unanswered.  MNCs have the ability to provide stability to local communities and address the concerns of those individuals who are neglected and excluded from the benefits of their operations. Consultation with the locals and activities that incorporate social and environmental policies on human rights is a step in the right direction. The global compact is certainly a move in the right direction, however, it is not legally binding. It is voluntary and there is no monitoring system in place. These are the reasons that make me question the true impact and effectiveness of the global compact. To say that the global compact is robust and effective is incorrect. MNCs signing onto this global compact may not be a normative shift, but merely, it is a way for them to maintain their image. MNCs have an immense role to play in positively influencing what happens in the world, but the question is, will they do it? Or will they do it under the guise of making themselves look good?

References

Bennett, J. (2002). Multinational corporations, social responsibility and conflict. Journal of International Affairs, 55(2), 393-410.

    According to John Dunning’s OLI theory, flawed property laws that are ineffective to protect undiffused property rights encourage MNCs to internalize their production. The MNCs can also internalize the market though the establishment of foreign subsidiaries (e.g. R&D centres) that may exploit the use of firm-specific proprietary knowledge and invent new sources of knowledge. However, I argue that the weak intellectual property (IP) protection in China discourages MNCs from investing in China, despite its attractive low labour costs.

     China has the most MNC R&D centres in the world than in any other locations. By 2012, more than 1,600 R&D centres were founded in China. There are many benefits that came along with this phenomenon. First of all, these centres result in knowledge spillover that strengthens the productivity of local Chinese manufacturers over time. Secondly, it expands the Chinese consumer market by developing new goods and services for local need. MNC R&D centres also provide relatively well-paying jobs for local citizens. Hence, these R&D centres are both important to the MNCs and China.

     However, there are many shortcomings too. For example, institutional IP protection is significantly lacking in China. Thus, MNCs in China face the risk of competitors (local and foreign MNCs) expropriating their core technologies at mere or even no legal consequences. As a result, weak IP protection in China erodes the capability for MNCs to internalize their proprietary knowledge, hence discourages MNCs from investing in China. Also, MNCs will need to resort to other more expensive routines and systems to safeguard their core knowledge, leading to even higher factor costs.

     The Chinese government did try to strengthen IP protection in the country. For example, it passed the Foreign Trade Law in 2004, which “empowers the investigation of IP violations and specifies penalties, including fines, confiscations, and suspension of trading privileges”. However, its legal institution is still not on par with the standards in developed economies, with enforcement and regulations being lax oftentimes.

     With that being said, the low labour and land costs in China no longer attract MNCs that much when the costs of weak IP protection are so high. In fact, China’s weak IP protection represents a locational disadvantage for foreign direct investment.

Source: Holmes, R. M., et al. “The Effects of Location and MNC Attributes on MNCs’ Establishment of Foreign R&D Centers: Evidence from China.” Long Range Planning, vol. 49, no. 5, 2016, pp. 594-613.

Corporate social responsibility (CSR) was shown in class to be a burgeoning field of ethics for MNCs to adapt to with varying effects. However, I want to highlight a new field of CSR concerning financial MNCs that have begun to transition them into a new era of responsibility.

Socially responsible investing (SRI)  is a result of financial firms choosing new approaches to how portfolios manage portfolios. They encourage strong practices that promote things like environmental sustainability, diversity and inclusion, and human rights. Traditionally, these exclude social “bads” such as firearm companies, tobacco companies, and fast food manufacturers to choose other stocks and bonds that have a gentler impact socially. This can be viewed as a new form of how corporations are looking to take responsibility for their firms investment procedures, as they understand their role in promoting problematic, or unsustainable business practices.

For such wealth management firms such as Wealthsimple,  they prominently use SRI in order to advertise their firm as different from others. They highlight the differences in a typical portfolio compared to their SRI portfolio, even stating that over a quarter of Wealthsimple clients have chosen an SRI portfolio. They tout the sheer number of funds invested in SRI around the world, which they label at $22 trillion but the number could be quite higher (Wealthsimple, 2019). For new investment firms, SRI is seen as a new way forward, breaking apart from the mould of older investment firms that both evasive in their ability to accept responsibility in the past.

While some see SRI as a new means for the firm to exercise responsibility, they really represent the individualization of investing but in a new way. Firms in the past through devolution and deregulation were able to move risk toward the individual as the hollowing out of the state occurred, removing responsibility from the state. The rise of SRI instead can be seen as the devolution of responsibility from the firm to the consumer, where it’s the consumer’s choice to make socially inclusive decisions (O’Rand and Shuey, 2007). For that reason, the actions of firms to offer SRI is a good step toward responsibility for their investment practices, but it shouldn’t be on the consumer to make those decisions; firms are still dodging the bullet.

While CSR is a new arena for the corporation, true responsibility will occur when the firm, not the consumer, takes the agency to move toward more sustainable business practices.

References

O’Rand, A. M., & Shuey, K. M. (2007). Gender and the devolution of pension risks in the US.Current Sociology, 55(2), 287-304. doi:10.1177/0011392107073315

Wealthsimple: Socially Responsible Investing. (n.d.). Retrieved from https://www.wealthsimple.com/en-ca/feature/socially-responsible-investing/