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Introduction: The
Prevalence of Transnational Corporations The
proliferation of transnational corporations (TNCs) constitutes one of the most important
economic, political and social phenomena of the last two decades. As these entities expand
their global reach, integrate national economies, rearrange the international division of
labour, consume environmental resources, manufacture homogenized products for a world
market, and deliver goods and services across increasingly irrelevant national borders,
they irrevocably and fundamentally transform the society in which we live.
During the past 25 years, the universe of transnational
corporations has diversified and expanded dramatically. While only 7,000 TNCs existed in
1970, there are now 37,000 parent transnational corporations with over 200,000 affiliates
worldwide.1 Furthermore, there exist hundreds of thousands of non-equity links
such as subcontracts, licensing agreements and strategic alliances between parent
companies and foreign entities.2
Spanning the globe across all major sectors of the
economy, transnational corporations are particularly prevalent in the petroleum refining,
electronics, chemical, pharmaceutical and automobile industries.3 Furthermore, 90 per cent of all TNCs are located in a few
industrialized nations4 with their foreign affiliates located in a relatively small number
of host countries.5 Despite the geographical concentration of parent companies and
their affiliates, however, a growing number of TNCs are chartered in developing countries.6
Transnational corporations have been expanding not only
numerically and geographically, but also financially. From 1980 to 1992, TNC sales
skyrocketed from 2.4 trillion dollars7 to 5.5 trillion dollars.8
Currently one third of all global trade is
composed merely of financial transactions within the same transnational corporation.9 TNCs affect 86 per cent of the world's land that is cultivated for
export crops, control over 60 per cent of aluminum mining and sell 90 per cent of the
world's agrochemical products.10 Some transnational corporations are more financially powerful than
national economies: annual sales of the Royal Dutch/Shell Group oil company are twice New
Zealand's gross domestic product (GDP); annual sales of the British tobacco company, BAT
Industries, are equivalent to the GDP of Hungary; the German electronics firm, Siemans AG,
has annual sales that exceed the combined GDP of Chile, Costa Rica and Ecuador; and the
annual sales of both General Motors and Mitsubishi are more than double the GDP of Hong
Kong or Israel.11
Transnational corporations possess particular influence
over global economic and social development through their role in foreign direct
investment (FDI). One of the most important forces for international trade, technology
transfer and economic growth, FDI from transnational corporations increased remarkably
during the 1980s from 910 billion to 1.7 trillion dollars.12 FDI outflows originate almost exclusively from a few large TNCs
headquartered in industrialized nations.13 However, developing countries now account for nearly one third of
FDI inflows a total of 70 billion dollars to developing countries in 1993.14
While the age of the transnational corporation has
certainly arrived, it is less clear whether the financial power of these entities is being
directed in a socially productive and equitable manner. This paper addresses this
important issue by examining the complex relationship between TNCs and social development.
In its annual Human Development Report, the United Nations Development Programme
(UNDP) has enumerated various indicators of social development, including infant mortality
rates, access to safe water, educational attainment, longevity rates, standards of living
and purchasing power. Transnational corporations have only moderate effects on many of
UNDP's indicators. This paper will primarily focus on the relationship between TNCs and
social development with respect to their effects on employment, consumer safety and
health, the environment and transfer of technology.
Part 1 of this paper discusses the direct and indirect
effects of TNC activity on social development. Part 2 analyses the current balance between
TNC rights and responsibilities. Finally, part 3 describes some governmental and
non-governmental efforts designed to foster TNC social responsibility.
1 .
Sauvant, 1994, p. 2.
2 .
United Nations Commission on Transnational Corporations, 1993c, p. 4, para. 2.
3 .
UNCTAD, 1994a, p. 26, para. 19.
4 .
Ibid., p. 15, para. 12. Of the 100 largest TNCs, 53 are located in Western Europe, 27 in
the United States and 14 in Japan (ibid., p. 18, para. 18).
5 .
While 46 per cent of foreign affiliates are located in industrialized countries, 42 per
cent are located in developing countries (United Nations Commission on Transnational
Corporations, 1993c, p. 12, para. 13).
6 .
Ibid., p. 4, para. 2.
7 .
All references to dollars are to US dollars.
8 .
United Nations Commission on Transnational Corporations, 1993a, p. 24, para. 39.
9 .
United Nations Commission on Transnational Corporations, 1993b, p. 8.
10 0. United Nations Commission on Transnational Corporations, 1991, p. 4.
11 1. Sales of afore-mentioned transnational corporations in 1993: Royal
Dutch/Shell Group: 96.2 billion dollars; BAT Industries: 48.2 billion dollars; Siemans AG:
50.4 billion dollars; General Motors: 133.6 billion dollars; Mitsubishi: 168.4 billion
dollars (CIFAR, 1993, Appendix A, Table 1). Annual GDP of afore-mentioned countries in
1991: New Zealand: 48.2 billion dollars; Hungary: 29 billion dollars; Chile: 31.3 billion
dollars; Costa Rica: 5.6 billion dollars; Ecuador: 11.6 billion dollars; Hong Kong: 67.6
billion dollars; Israel: 62 billion dollars (UNDP, 1994, pp. 180-181, 206).
12 2. United Nations Commission on Transnational Corporations, 1993a, p. 23, para.
38.
13 3. Only 1 per cent of parent transnational corporations account for one half of
global FDI stock in foreign affiliates and 95 per cent of outflow originated in developed
countries (United Nations Commission on Transnational Corporations, 1993c, p. 18, para.
21; UNCTAD, 1994a, p. 5, table 1).
14 4. UNCTAD, 1994a, p. 4, para. 2.
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