FACTS againest MYTHS JUNE-JULY-2004
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- FACTS againest MYTHS JUNE-JULY-2004
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VIKAS ADHYAYAN KENDRA
June - July 2004
INFORMATION BULLETIN
Maximisation, Appropriation & Profit Repatriation:
Myths on MNC “Governance” & “Social Responsibility”
COMMENT
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he current era of corporate globalisation has provided MNCs with unbrideled economic power and dominance. Foreign
investment and the activities of MNCs has increased even more rapidly than global trade. The changing nature of global
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corporations however means that these figures underestimate the real extent of their global activities. An important factor
has been the rise of global “commodity” or “value” chains in many industries. While trade has always been a significant
feature, what is new is the ability of MNCs to control production over large distances without exercising ownership. A wide
variety of consumer goods, including garments, footwear, food plus fruit and vegetables, are characterised by value
chains where control of the chains resides with brand name producers like Nike, Reebok or large retailers like DMart. The
turnover in the global economy alone exceeds $1.41. per day, over 100 times than the volume of trade in goods and
services. This dominance is what provides the corporations their awesome power—the ability to move capital, finance
and expertise at will anywhere in the world in the face of increasingly hapless governments. Little wonder, questions
continue to be frequently raised on the ‘modus operand! of the MNCs and how to therefore control their business dealings
that often collide with societal wellbeing. The concern is equally over national organised capital interests that accumulate
their profits without any semblance of accountability towards society at large and making them accountable and transparent
to the people of India whilst advancing distributive socio-economic justice. These concerns have hence increasingly led
to public campaigns against these corporations. Such action is also seen as necessary in order to ensure that the South
shared in the gains from the growth of international corporate activity.
The first ever effort to challenge the activities of MNCs in India was against Coca-Cola in 1977 during the Janata Government.
Coca Cola had to eventually quit India. But it was the Bhopal gas holocaust in 1984, in which thousands of people perished,
that exposed the callous and inhuman face of MNCs. Union Carbide’s criminal misconduct in this holocaust raised a
number of issues viz., accountability and responsibility on the part of MNCs in general as well as Indian corporates. Since
then, there have been a number of campaigns in various parts of the country ranging from protests against food MNCs like
Macdonald's and Kentucky Fried Chicken to power projects like Enron and biotech giants like Monsanto including the
ongoing struggle in Kerala against Coca-Cola which re-entered India in 199p under the protection of the libralised economy.
This issue of MNCs has indeed been a long-standing subject of debate. A major concern was on how to regulate the
power and control these MNCs wield especially with regard to their malpractices. The roots of these efforts were in the
postwar international economic order aimed at establishing an institution that would democratise global trade rules. Thus,
the plan to set up the International Trade Organisation (ITO) at Havana-Cuba was established on par with the other two
global institutions, the World Bank and the IMF. The attempt however failed to materialise because the US refused to ratify
the Havana Charter. (See earlier issue of this publication for details on ITO).
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FACTS against MYTHS - June - July 2004
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FOR PRIVATE CIRCULATION ONLY
Subsequently, in the 60s during the era of national liberation
scrutiny. MNCs also avoid any serious discussion of critical
movements the MNCs were attacked as agents of imperialism
issues: their global market dominance, price fixing practices, wage
an accusation still valid going by what is presently taking place in
cuts and job losses in the South, huge commercial debt
Iraq. In 1972 when Chile’s President, Salvador Allende alerted
repayments, and bribes. The demand that they must be held
the UN to plans of the ITT (International Telephone &Telegraph)
responsible to anyone other than their own stockholders was
and the Kenneth Copper Corporation to overthrow his UNITA
anathema. Hence, from Day 1, the UN Centre UNCTC was
government, the first calls for international codes of conduct for
attacked by corporates and treated it as far more powerful than the
TNCs were made at the UN Conference on Trade and
Centre really was. The International Chamber of Commerce-a
Development (UNCTAD) in Santiago-Chile. Allende’s
high powered corporate lobby group—denounced anything this
assassination in a CIA-sponsored military coup in 1973 resulted
Center published if specific MNCs were named. When the late
in UN Codes emerging on the international policy agenda. The
US President Ronald Reagan came to powerthe UNCTC was
UN demanded a comprehensive international regulatory regime
attacked by the ultra conservative Heritage Foundation. The
as part of a broader push towards a socially just New International
“crimes” of the Centre included helping governments of the South
Economic Order (NIEO). The demand was part of a general
work out non-binding principles for foreign investment, and
climate of change, which saw governments of the South become
documenting the investment of foreign firms in South Africa then
more assertive in global economic negotiations in the wake of the
under the brutal Apartheid regime. (In actual fact, the Center did
OPEC hike in oil prices. In 1974 the UN Economic and Social
little more than suggest that MNCs were legitimate subject for
Council (ECOSOC) set up a UN Commission on Transnational
international consideration - not really earth-shattering matter. But
Corporations with the Centre on Transnational Corporations
the corporate propaganda was that the Centre was highly
(UNCTC), a research group based in New York with the following
threatening!)!
principles: to maximize the contribution of MNCs to development
and to provide technical assistance to the South on foreign
investment issues. Spurred by the experience of Chile a number
of initiatives by other countries had been launched to construct
global codes on MNCs. Legislations were enacted and
nationalisation of foreign companies reached a peak in the first half
of the 70s. Regional agreements such as the Andean Pact
imposed controls on incoming investors.’ The other attempts
include ILO’s Tripartite Declaration Concerning Multinational
Enterprises and Social Policy (1977), UNCTAD’s Code on
Restrictive Business Practices and on the Transfer of Technology,
and OECD’s Declaration on International Investment and
Multinational Enterprises (1976).
By the early 80s, however, the tide had started to turn against the
regulation of TNCs and the early 90s witnessed dramatic changes
viz., the globalisation of economic life. The neoliberal doctrine of
liberalisation, privatisation and de-regulation (sometimes followed
by re-regulation in the interests of TNCs) - known as the
Washington Consensus - gradually spread worldwide. Sectors
which had been closed to foreign capital had to open up once
again. At the same time most of the countries that had imposed
across-the-board restriction on foreign ownership abandoned
them by the 90s. Similarly, restrictions on profit repatriation and the
terms permitted in technology transfer agreements were relaxed.
In contrast to the 1970s, the attitude of governments in the South
shifted emphasis dramatically towards attracting, rather than
A common perception that underpinned these regulatory efforts
regulating, MNCs and foreign investment. These changes also
was that the interests of TNCs and those of host countries in the
impacted India. The deregulation and liberalization of the economy
South, most often than not, were antipodes to each other. Despite
prompted the MNCs to capitalise on such policies. Swiss MNCs
the corporate dictum ’What Was Good for General Motors Was
were the first to expand their products and production lines but
Good for the USA’, was no good for India or Argentina. General
they also increased their equity share in order to have a majority
Motors and TNCs generally have often been notorious in violating
share holding in the Indian subsidiaries.2 Many of these mega
existing regulations that the host nation stipulates. This is often the
companies have also involved in takeovers and mergers of
case in the domain of public health, environment and education.
existing Indian companies with serious implications for domestic
This also means that these firms have been allowed to get away
markets and national sovereignty.
easily whereas in their home countries public opinion and state
machinery would have ensured otherwise. Moreover, they have
repeatedly opposed any external international regulations and
increasingly advocated industry or corporate self-regulation (or
certification by private bodies) on the grounds that it is as effective
as external regulation, and a lot cheaper! Backing them, the US
government also opposed any such move especially against
American MNCs. The US position contended that outcomes of
international trade and investment generally need to be market-
driven with the reasoning that this would result in maximising welfare
Of the people in the South. Interventionist policies on the other hand
by governments, they held, would jeopardise this global welfare.
The geo-political changes also led to the weakening of the global
efforts to regulate MNCs. The UNCTC Code which was never
agreed upon in the first place, was virtually abandoned. In March
1991, the US Government asked all its foreign embassies to
lobby their host government to “quietly build a consensus against
further negotiations” on the UN Code. In 1'992, the Code was
officially abandoned and the UNCTC shut down. Working at this
Center through all this critical period was marred by various
attempts to sabotage its working with the main aim to paralyze the
UN’s work on social justice issues, just as the Heritage Foundation
wished.
Consequently, they challenged the very merit of an international
However, with this Code set to rest, only two major international
code of conduct for MNCs who fear any semblance of public
codes on MNCs, those of the OECD and the ILO survived from
FACTS against MYTHS - June - July 2004
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the 70s. The OECD Guidelines did not represent a genuine attempt
their own accord, for which the growing number of industry codes
to control MNCs, but were designed to deflect criticism of their
of conduct is cited as evidence. According to this view, society no
activities. They were voluntary in nature and had no enforcement
longer needs to insist on legally binding international regulation.
mechanisms. The ILO Declaration is narrower in scope, focussing
The other belief is that MNCs have gained such awesome power
on the social aspects of MNC activities. Like the OECD Guidelines,
that it is impossible to regulate them by externally defined rules
the Declaration is not binding and compliance is on a voluntary
anyway. Building on voluntary agreements with corporations is
basis. It is not a procedure for dispute settlement over compliance
thus regarded as more pragmatic than antagonising them by
with the Declaration. Therefore, like the OECD Guidelines, the
promulgating binding international regulations.3
impact of the Declaration has been relatively weak. The few other
30 or so international codes and guidelines, envisioned during the
70s, were adopted viz., the 1981 International Code of Marketing
of Breast-milk Substitutes; the 1985 UN Guidelines for Consumer
Protection; the 1985 FAO International Code of Conduct on the
Distribution and Use of Pesticides and the 1988 WHO Ethical
Criteria for Medicinal Drug Protection. Even these would have
been abandoned had global citizen networks not exerted constant
On a closer look, however, these codes are weak, limited in
number and voluntary by nature and differed from the international
code like the UNCTC. The focus on the corporate codes and their
impact have been on two main areas - social conditions and the
environment. They are part of a much wider debate on the impact
of globalisation on labour and environment, which is also reflected
in the call for social and environmental clauses in trade agreement
and with the WTO.
pressure;
In the interim years, in the wake of the collapse of the Socialist bloc
The failure on the part of the international community to effectively
check the mal-practises of MNCs paved the way for a “new”
focus on corporate behavior—with one final attempt by UNCTC
- to introduce international corporate regulation via the UN at the
1992 UNCED (UN Conference on Environment and Development)
Conference - the “Earth Summit' at Rio de Janeiro-Brazil. The
UNCTC drafted recommendations to be included in Agenda 21
(the Global Plan of Action) on environmental regulations of MNCs.
The height of the absurdity, however, was at the final preparations
for the Earth Summit with intense lobbying by a coalition of countries
of the North along with the corporate lobby to strike out the term
Transnational Corporations” as well as the recommendations on
the code of ethics for MNCs. UNCED in effect launched the
'Corporate Social Responsibility’ a much watered down code
and the changed role of MNCs was given free play in global
politics thereby UNCED abdicating its responsibility towards the
international community. The Earth Summit also marked a
“regulatory vacuum" at the UN level; a clear case of corporate
hijack of UNCED!
and the opening up China and Viet Nam as well as more liberal
policies in the South (particularly significant in India) meant
increased scope forthe operation of these powerful MNCs. Other
global players also entered into the geo-political arena, in
anticipation, and embraced the term “Governance” with the aim to
secure the 'peace dividend’. Gradually, “Governance” became
a political buzzword, and an obsession. The term was
subsequently re-introduced in international policy discourse by
the World Bank in its 1989 report examining the roots of the sub-
Saharan African economic crisis. This report queried why the
Bank’s SAP policies had failed the promised benefits. The Bank
chose this archaic term 'governance' rather than, for example,
'good government’ because the Bank is not allowed (according
to its founding principles) to intervene in national politics. Thus, its
definition of governance, a technocratic one, is 'the manner in
which power is exercised in the management of a county’s
economic and social resources forthe development. According
to the Bank it is bad governance on the part of recipients of WB
funds that explains why its policy prescriptions had failed, and the
While the trend in terms of both national and international policies
need to introduce 'good governance as a conditionally for future
was directed towards liberalisation and deregulation, the period
World Bank loans.4
also saw the trend towards voluntary corporate codes of conduct.
(See Box on pg.4). These began to be adopted in the late 1970s
particularly by US corporations, in response to the bad publicity
over their activities, not only due to the ITT scam but also from
revelations about bribery and questionable payments by many
prominent US firms. In 1972 a formulation on seif-regulation, the
International Chamber of Commerce Guidelines, was framed,
This represented the first wave of corporate codes, predominantly
concerned with issues of questionable payments and later on
environmental and labor issues. The second wave1 emerged in
the early 90s with Levi Strauss and other clothing manufacturers
and retailers adopted Codes of Conduct including European clothing
MNCs C & A, Otto Versand in Germany and the Pentlkand Group
in the UK, Nike and Reebok in sports goods, and British shopping
malls.
In today’s geo-political situation public space has been hijacked
by the WB/IMF/WTO combine, de-linking themselves from all
political attachments to their nation-state ‘homes’. Nation-States
are being made less and less relevant in performing theirfunctions
and placing this responsibility on business and commerce. The
latter situation has led to undermining the principle of self
governance that most countries are founded upon. Abetting in
their design are major public relations and advertising corporations
with whom the rich elites in the North invest hundreds and billions
of tax deductible dollars. Togetherthey manufacture ideas, concepts
and theories or a cockamamie that frames and reframe global
agendas. Their managing of global discussions is evident in the
ways fast track legislation, global rights agreements like GATS,
war in Iraq, energy and health care policies, including Good
Governance, etc., are mass produced and disseminated
In their support for self-regulation MNCs present two beliefs. One
worldwide especially in the South. For instance, the Washington
is that corporations are becoming more and more responsible of
based Centre for Democracy and Governance distributed the
FACTS against MYTHS — June - July 2004
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MNCs, Corporates & "Good Governance"
The term governance is an old concept that became part of the political discourse in the 70s. It derives from the ancient Greek
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verb ‘kubeman’, meaning to take the helm and ‘steer1. Theorist, J.A. Rosenau defines the process of governance as that
‘whereby an organisation or society steers itself. In 1992 the MNC Cadbury’s in the UK introduced the notion of Corporate
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Governance in its publication, the Code of Best Practices. This Committee was “succeeded” by the Greenbury Committee in
1995 and the Hampel Report in 1998 both in the UK. Most of these recommendations were incorporated in the Combined Code
of the London Stock Exchange. Subsequently, several codes of Corporate Governance have been published in various
countries. Recent times have seen several more such initiatives designed to further strengthen Corporate Governance framework.
These include the enactment of the Sarbanes Oxley ACT, the proposed modification in the listing guidelines of New York Stock
Exchange and NASDAQ.
A major actor in promoting "Good Governance'1 was the Commission on Global Governance, which dates back to an initiative
of the former German Chancellor, Willy Brandt. In 1990 he was instrumental in getting together top world leaders at a meeting
(chaired by Julius Nyerere) to deal with the challenges of the next decade. In April 1991 at Stockholm these leaders (including
Vaclav Havel, Gro Harlem Bruntdland, Jimmy Carter, Robert McNamara and Maurice Strong) in there ‘Stockholm Initiative on
Global Security and Governance’ launched the idea of building a more effective system of global security and governance.
Soon other agencies like the ADB adopted the term as part of administrative reforms to check corruption among the conditions
they demanded in return for their loans. Obviously, the term “good governance" is an invention to describe the opposite of
“corruption". Indeed, the international organisations’ enthusiasm to highlight corruption was one way they undermined the
legitimacy of national governments and increased the legitimacy of their own interventions.5 The crusade for good governance
took on some of the functions of the “civilising mission” as in colonial times. Since then it has become fashionable to present policy
statements on “transparency”, “accountability", “social responsibility”, etc. Besides, the MNCs utilise their power to “inform” the
public on the need for adopting a “positive” outlook—of ‘dialogue’ and ‘partnership’ rather than what is considered by them as
the negative attitude, of responsibility.
In India, the first initiative in Corporate Governance was taken by the Cll, which released its code on Desirable Corporate
Governance in April 1998. Later, the Securities and Exchange Board of India (SEBI) appointed the Kumar Mangalam Birla
Committee in early 1999 to make recommendations on Corporate Governance practices. Subsequently, in early 2000, the SEBI
inserted a new clause, Clause 49, in the Listing Agreement making it mandatory for all listed companies in India to adhere to
certain principles of Corporate Governance, based on the recommendations of the above Committee. The Companies Act, as
amended in 2000, gave a major statutory fillip to improving Corporate Governance standards in all companies in India. In addition,
in recent times, the Naresh Chandra Committee and the Narayan Murthy Committee have come up with a detailed set of
recommendations on coporate governance.
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USAID Handbook on Legislative Strengthening, an attempt to make
FACT: The above has clearly shown how the earlier attempts of
the democratic institutions subservient to the interests of global
even a UN regulatory mechanism had failed. This raises the
corporates.
pertinent question, namely, can internationally negotiated legal
Clearly, corporate globalisation has become a serious challenge
for citizen groups worldwide. The task is to regulate sociallyresponsible or environmentally degradable practices of the MNCs
and to dispel their claims on “dialogue”, “Partnership”, “Good
Governance”; etc., which are masked attempts to manipulate
public debates; to silence or neutralise critics; and through
propaganda to create an image of socially-concerned business.
Expunging these phrases out of the development discourse is a
regulations direct the MNC and TNCs towards objectives other
than those that constitute their very ‘raison d'etre’, i.e., maximising
profife? (It may be worthwhile to note that many scholars have
commented that most international ‘laws' have no real binding
force since there is no enforcement mechanism and
implementation machinery!) Will it be possible to direct the activities
of these mega corporations towards mutual aid instead of towards
global domination and exploitation?
necessary first step. It is a long haul ahead, but nailing these mega
The answer is clear No! Otherwise, there would be need to admit
corporations for their criminal behaviour is too important and
that a simple legal instrument — even if it were signed by the
imminent a task to be left to the corporates themselves to self
entire world - could transform the very essence of globalisation
regulate.
MYTH: The establishment and strict enforcement of an
international Code of Conduct is an effective check against
the activities of multi-nationals and trans-national
corporations.
FACTS against MYTHS - June - July 2004
(read: capitalism) - or the system of production relations that is
co-substantial to it and of which the MNCs are the present bearers.
After all, as pointed out above, what may be good for General
Motors may not be good for India or Argentina. Economic
development could best be promoted, not by a policy of absolute
openness to foreign capital, but by regulation, which would ensure
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During its stint in India Enron - since closed down and declared bankrupt with the US federal court indicting it with securities
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and bank fraud on July 8,2004 in the US - it had violated environmental norms. To construct a thermal power plant in
Maharashtra State it displaced thousands of fisherfolk and farmers. Effluents had been blamed for the decline in agricultural I
and fisheries productivity in the region. The plant is now shut, since the State government could not afford the exorbitant tariffs n
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charged by Enron. Those displaced have yet to be compensated and with Enron's bankruptcy and indicted with criminal
charges their rights are unlikely to be addressed.
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Food MNCs like Nestle have been violating WHO Code by indulging in unethical marketing strategies affecting the health
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of thousands of infants and chances of survival by persuading mothers to shift to infant formula food from breast-fed milk. In
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India, the Breastfeeding Promotion Network of India had reported that Nestle used various tactics since 1995 to delay
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cross-examination of alleged violations of the labeling requirments of the Indian law on marketing of breast-milk substitutes.
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At first the company refused to receive the summons. Instead it sent a lawyer to observe the proceedings secretly. When
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the Court realized that Nestle’s lawyer was in attendance it seized the opportunity to serve the summons through him.
Between August 1997 and September 2000 Nestle successfully adjourned 143 proposed court hearings. In 1999, the i
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Czech Republic heavily fined Nestle for violating national consumer protection legislation because it claimed that its
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complementary food was 'ideal food’ for infants from 4 months of age. In another incident 4-month old bottle-fed baby died.
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Where clean drinking water is unavailable, a bottle-fed baby is 25 times more likely to die of diarrhoea and 4 times more
likely to die of acute respiratory infections than an optimally breast fed baby.*6 In the same year, the UK Advertising i
Standards Authority asked Nestle to revise its claim that 'Naturally they (Nestle employees) do not provide free supplies to
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hospitals for use with healthy infants’ because of evidence to the contrary. The MNC was also told that another of its claim i
went ‘too fart, namely, ’ Even before the WHO International Code of Marketing of Breast Milk Substitutes was introduced in
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Excesses by MNCs: A Glimpse
1981, Nestle marketed infant formula ethically and responsibly, and has done so every since'.
The mega soft-drinks TNC, Coca-Cola, had set up a monster bottling plant amidst an Adivasi and Dalit village of Plachimada
in Kerela. In the High Court of Kerela Coca Cola has been charged with overexploiting groundwater and thereby depriving
the locals with drinking water. It has also been indicted with polluting the groundwater, and of passing off their toxic sludge
(high in cadmium and other metals) as fertilizer to farmers. Besides this, in 2000, a lawsuit was filed against Coca-Cola, on
behalf of African-American employees for $156m. for systematically discriminating them on the basis of employment,
paying them lower salaries than whites for the same work, passing them over for promotions and workplace harassment.
Black employees are clustered at the bottom of the pay scale averaging $ 26,000 a year less than the white workers7;
In 1994, Siemens was accused of dumping in India cancer-cure machine banned in the West. It had offered these
machines at scrap-rate prices so as to get rid of the large stocks of sub-standard equipment which it cannot get markets for
in its own continent;
In 1996, Boehringer Mannheim-India Ltd., was involved in a controversy as its drug, Comsat Forte, was found to be
contaminated which led to the death of two people and seriously affected several others;
Hoechst India has been accused of its involvement in transfer pricing by importing a drug intermediate from its German
Company, Hoechst AG, 7 times more than the international competitive prices. The MNC, also involved in biotechnology,
has been found of taking biological/genetic resources from India and making commercial use of these resources,
including by obtaining patents;
In 1996, Bayer (India) was accused of ‘modifying’ production processes and claiming price control exemption on the
grounds that the new processes are being developed through indigenous R&D;
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In 1999 the Government of Peru in South America leveled criminal charges against the German agro-chemical MNC,
Bayer, in the poisoning of 42 children died after they consumed a school breakfast contaminated with the organophosphate
pesticide methyparathgion. Of the 42 children, 24 children died and the remaining are suffering long-term health ill effects.
The pesticide was heavily marketed under the brand name Folidol to farmers all over Peru. Bayer had packed the
pesticide in small plastic bags labeled in Spanish and displaying a picture of vegetables. The labels failed to give any usable
safety regulations, such as pictures, and little indication of the danger of the product.8
FACTS against MYTHS - June - July 2004
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that FDI was channeled into the areas where it could make a
statistics available on the consumption pattern of people), had also
particular contribution. Foreign investors were also duty-bound to
indicated that during the first two years of economic reforms, the
promote local development through joint ventures, local purchasing
share of consumption of the bottom 30 percent of population has
and indigenisation policies. The role of the international codes of
declined considerably. For the middle 40 percent, there was a
conduct proposed during this period was largely to improve the
decline in the rural areas and near stagnation in the urban areas.
bargaining power of the South in their efforts to get a greater share
However, there is an increase in consumption levels only of the
of the benefits from the MNCs.
top 30 percent of the population and the bulk of this attributed to the
rise of the.top TO percent. This evidence clearly demonstrates that
Obviously, no “Code of Conduct’ will refute the historically proven
thesis that capitalism (Globalisation is its euphemism), in its growth,
generated poverty and under-development. In this light, even the
the living condition of the poor has worsened while that of the rich
have improved.
most perfect code will never force MNCs to channel their direct
In 1996 a study by PIRG-Delhi on Swiss MNCs showed that
investments toward those branches that contribute to the economic
foreign investments, per se, cannot help India solve its basic
progress of the South unless they were highly profitable branches.
problems of unemployment, poverty, illiteracy, environmental
From the political standpoint, the Code would not offer any protection
that the country receiving the foreign investments could not give
itself. If a country in the South with a firmly established, independent
government, which defends national interests, needs that Code, it
could pass it self, without any need for it to be negotiated
internationally. These would actually be binding laws of the particular
country and not a Code!
degradation, poor sanitation and social infrastructure. On the
contrary it established that the main motivation of Swiss firms to
invest in India was to capture the Indian markets and establish
monopoly over products and sectors, by taking advantage of
cheap and abundant labour with lax environmental and labour
laws and regulations. It showed that Nestle-India was found violating
India’s codes of conduct and other regulations in baby food and
related businesses. Another Swiss mega firm, Sandoz-India and
However, the relevant point is that in the absence of a national
Hindustan Ciba-Geigy have been found laying off workers on a
regulatory mechanism MNCs will exploit this loophole and escape
massive scale and undertaking sub-contracting systems of
Scot-free! This is presently the experience in India with the Coca-
production. Thus, far from helping the South improve their
Cola and PEPSI. Both these MNCs have flouted even international
economies, TNCs only intensify their underdevelopment.
regulatory norms in manufacturing these beverages! Enron is
the other MNC, which has since gone bankrupt in the US and is
now facing criminal charges of fraud. Apart from flagrantly violating
regulatory standards overthe Dabhol Power Project in the State
of Maharasta Enron is now (with the backing of the US government)
MYTH: Since free trade and political freedoms are
inextricably inter-linked with the introduction of the first
inevitably results in the second, MNCs are recognised
ambassadors of democracy.
trying to escape by penalising India for damages to the tune of
FACT: Market economies flourish in some of the world’s most
S5.65 b. to strengthen its expropriation claims.
autocratic and tyrannical regimes and MNCs have shown no
So, the central issue is in the measures that a given country
wishes and is able to take at a given moment - in the political
orientation and the nature of its all-round development goals - and
thus, for the adoption of fundamental measures to meet the interests
of its people. Only on these bases would it be possible to obtain
interest in, and have even less effect on, changing political systems,
preferring the maintenance of the status quo. Singapore, Malaysia,
Indonesia, Pakistan, and Russia, Colombia: all have thriving market
systems where MNCs are dominant actors. But these States
cannot be considered among the world's functioning democracies.
something in the practical field in relation to the so-called Code of
According to the American political scientist, Benjamin Barber:
Conduct for MNCs.
“Capitalism requires consumers with access to markets and stable
MYTH: Investments by MNCs leads to the development of
the people and country.
political climate in order to succeed; such conditions may or may
not be fostered by democracy.Barber concludes: “Capitalists
may be democrats but capitalism does not need or entail
FACT: This is more of a rare (isolated) exception than the rule!
democracy”. Finally, corporate power and democracy cannot
Since the 90s and the policy of liberalisation there has been
co-exist! One of the true tests of democracy is the power availed
significant rise in FDIs. Yet, government data reveals that the
by Corporations over Governments vis-a-vis the power and rights
incidence of poverty and the percentage of population below the
of ordinary citizens. In people's experience of fighting corporations,
poverty line have not reduced. These figures have risen even
it has already become clear that Governments - more and more
sharply. By December 1992, the percentage of people below the
- do not matter much. In their campaigns against corporations,
poverty line in rural areas rose to 41.72 percent from 33.7 per
people are being forced to pressurise the company directly, or
cent in 1989-90. In the country as a whole, the percentage rose
through their financiers, share hold or consumers.
from 34.3 percent to 40.69 percent - that is, an increase of 6,4
percent or nearly 60 m. people below the poverty line. According
MYTH: A ‘sine quo non’ to economic growth quality control
is intrinsic to business practices of MNCs.
to the estimates provided by the Planning Commission’s Mid
term Appraisal, the living conditions of the people have deteriorated
FACT: Most Often this is not the case in countries of the South!
much more in the post reform period. Similarly, the statistics
For instance., in 1993, the Maharastra Food and Drug
provided by the National Sample Survey of 48th round (the only
Administration (FDA) had ordered the closure of the corporation,
FACTS against MYTHS - June - July 2004
6
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Guide to Corporate Terms
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i MNCs and TNCs: The two terms are often used interchangeably with tension between the multinational and the natransnational I
i view of the global corporation. Transnationals’ (TNCs) is more precise, but ‘Multinationals’ is in more common usage. The UN
i defines these companies as ‘associations which possess and control means of production or services outside the country in i
■ which they were established;. Although they may operate in dozens of countries; hiring workers and managers of all nationalities, i
i most are firmly controlled from their national base. An MNC takes on many national identities, maintaining relatively autonomous i
i production and sales facilities in individual countries, establishing local roots and presenting itself in each locality; as a good local i
i citizen; Its globalised operations are linked to one another but are deeply integrated into the individual local economies, in which i
i they operate; and they do function to some extent as local citizens. Transnationals involves the integration of a firm’s global i
i operations around vertically integrated supplier networks. For example, when Otis Elevators set about to create an advanced i
i elevator system; it contracted out the design of the motor drives to Japan, the door system to France, the electronics to Germany, i
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i and small-geared components to Spain; System integration was handled from the US.
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Corporatespeak
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Public Regulation. This refers to rules set by the parliament and by government authorities. The rules they set usually include
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measures for monitoring and enforcement; Corporations should comply with such regulations by, for instance, devising internal
■
i guidelines arid auditing procedures and allowing public verification of their compliance.
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i Self-Regulation
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Under self-regulation, corporations or business associations set their own rules - codes of conduct, corporate guidelines or
i mission statements, for example - and pledge to abide by them. Following the 'sustainable development’ trend, for instance, i
i many companies have committed themselves to using cleaner technology, environmental reporting and certification. Many
i ‘sustainable development business codes, however, omit key UN - agreed standards and lack effective enforcement mechanisms. i
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i ‘Regulations’ may not be the most appropriate term for arrangements in which the party to be regulated sets its own standards and ■
whose
effectiveness
in
protecting
public
interests
depends
entirely
on
its
own
sense
of
moral
obligation!
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i ‘Self-regulation’ is certainly a misnomer when it refers to corporations’ own non-legally binding codes drawn up to avoid i
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i mandatory regulation or to defuse public pressure.
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“While not generally recognised as such, ‘self-regulation’ is really an oxymoron (contradiction in terms). Potential polluters cannot
i make 'laws’ (ie. Regulate) and order ‘sanctions! (ie. authorise penalties and fines) that are against self - interest. Further state ■
i regulation presumes that there is a political process that defines a level of pollution and regulations are issued to disperse this i
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i standard
over the generators of pollution. No individual ‘self-regulator’ can determine the publicly approved level of
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i pollution orequitably
allocate itself the correct amount of pollution ”
i
I Co- regulation and self- regulation must be backed up by industry - independent measures if the public interest is to be effectively i
I protected. These include clear guidelines on how to ensure compliance, external third - party verification of internal audits, public i
reporting and public participation.
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Expunging Corporate Phrases* (from out vocabularies)
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I “Corporate responsibility” - an irrelevant term. A corporation should either do what it is chartered to do or be dissolved. It is i
I not chartered to “bastardize the democratic process, shape public debate, manipulate our language and values, or pit communities i
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I against one another.”
i “Corporate accountability” - Elected officials are, theoretically, accountable to the people who elect them - but to whom are i
i corporations accountable? Corporations are chartered by states, which represent the sovereign people; technically, they are i
i accountable to “we, the people.” “We should not have to fight a revolution to dissolve a corporation that has exceeded its authority i
i and caused massive harm”. We fought that revolution in 1776. But we have forgotten who we are, and it may take another
i revolution to restore our rights.
i
i “Corporate citizen” - A corporation is a legal fiction with neither the responsibilities nor the rights of a citizen.
■
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i “Corporate America” - America represents a lot of things, and while there was always a gap between ideals and reality, the i
■
i ideals hold. Americans are a sovereign people governed by the Constitution. America is the people, riot corporations.
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Source*: Corporate Globalisation of our Minds by W. Ballentine,TNCs in Asian Societies", April 1996.
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(£■FACTS against MYTHS - June - July 2004
German Remedies, at Andheri (E) in Mumbai, for 15 days from
recorded as an FDI but there is no increase in the capital stock.
October 25 to November 8 for failing to observe Good
The same applies to mergers and acquisitions or buy-outs.
Manufacturing Practice and maintain the quality, purity and strength
of its drugs: It also filed a FIR with the police for violation of the
Drugs and Cosmetics Rules and sought action against concerned
officials of the MNC. Moreover, apart from its own drugs, the firm
Sectors, which were restricted by governments due to a strong
tendency towards monopoly like telecommunications, energy,
public utilities, etc., have since been deregulated. Thanks to
economic globalisation, TNCs freely appropriate monopoly profits
used to manufacture drugs of other German drug MNCs like
from these ventures. As a result, there is a boom on TNC
Schering, Beecham Wulfinf, Koll and Boehringer.
investments within these oligopolistic markets.
Among the specific offences that German Remedies has been
References
charged with are extending the shelflife of ingredients going into
the manufacture of drugs, and also the life of the finished products
1.
Voluntary Approaches to Corporate Responsibilities, NGLS
2.
Swiss TNCs In India, Madhyam Books, Delhi, 1996
3.
Codes in Context: TNC Regulation in an Era of Dialogues &
4.
Richter, J. Holding Corporations Accountable, Zed Books,
5.
London, 2001
Corruption, Governance and Globalisation, The Comer House,
6.
Dorset, December 2003
Baby Food Manufacturer Accused of Violating WHO Code,
Development Dossier, NGLS UNRISD, Geneva, 2002
beyond the original limit. Discrepancies were also found in the
records about rejected and destroyed drugs Denphylin and
Complamina injections; recorded as having been sent to the
Partnerships, The Corner House, #26, Dorset, February 2002
company’s Patalganga factory but were found instead near the
scrap of the Andheri factory in Mumbai.
MYTH: Foreign investments are an important means for the
poor countries to in overcome poverty. After all, it is the
lack of capital, which is behind their underdevelopment.
TWN Features, Third World Network, Goa
7.
Ranjith, K.R. Holy Water from the West, Alter Media, Thrissur,
8.
2004
Bayer Found Responsible for Poisoning of Children in Peru,
FACT: Governments, with the prodding of multilateral institutions
beg TNCs to set up shops in their countries. Some even makes
Third World Features, Third World Network, Goa
the attraction of foreign investments the cornerstone of their
9.
development programme. According to the Times of India (2/10/
1996) the present Finance Minister, in 1996, in conversation with
Singh, K. The Reality of Foreign Investments: German
Investments in India, (1991-96), Madhyam Books, Nev/ Delhi,
1997
foreign ministers had remarked, “You came to India and stayed
for 200 years. Now come prepared to invest and stay for another
Other References
200 years, and there will be huge rewards”. However, while
investments by TNCs appear as inflows, they represent future
- Clairmonte, F & Cavanagh, J. Merchants of Drink: Transnational
claims on the country’s foreign exchange. In the end, the super
Control of World Beverages, Third World Network, Penang, 1988
profits, which generate and repatriate far outweigh all the capital
- TNCs & Global Conglomerates, IBON Facts & Figures, Nos.7 & 8,
Manila, 1997
they infused.
- Savary, J. French Multinational, Frances Pinter (Publishers),
TNCs also result in a significant amount to trade deficit as they
London,1984
insist on importing parts and raw materials from their subsidiaries
- The Rise of Corporate Propaganda, The New Internationalist, #314,
from another country. As a result, the percentage of value-added
London, 1999
- Mokhiber, R. Shaming Corporate Criminals and Other Multinational
of foreign affiliates to world GDP is merely 5-6 percent. Further, not
Wrongdoers: Lessons from the USA, South/North Conference: New
all FDIs, which enter the country, translate to additional capital or
Alliance for Dignity in Labour, Pisa-Italy, 1995
- Behind the Big Broad Smile of Uncle McDonald’s, Change, Hong
infrastructure as what is commonly assumed. A growing proportion
Kong Christian Industrial Committee, Hong Kong, April 2001
of FDI merely embodies changes in ownership such as when a
- Corporate Crime, The Ecologi,st-Asia, #4, Mumbai, 2003
government privatizes a TNG. When a TNG buys the asset, it is
G3SO
G8SO
G®SO
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Facts against Myths is a bi-monthly bulletin of factual
information on a number of development myths and
fallacies, etc, including information against alien
development models, paradigms and false
concepts on caste, creed and gender
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Produced and Published by:
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Email: vak@bom3.vsnl.net.in
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