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Direct Effects
of TNCs on Social Development Employment
Quantity
As large corporations continue to "downsize" and
as unemployment rates in many nations remain quite high,15 it is increasingly apparent that TNCs could play an important role
in social development as providers of jobs. Currently, however, transnational corporations
directly employ only 2 to 3 per cent of the world's workforce approximately 73
million jobs, 12 million of which are located in developing countries.16 Although TNCs employ only a small fraction of the world's
workforce, they are particularly important employers in some sectors and nations. For
example, transnational corporations account for one fifth of all paid employment in
non-agricultural sectors17 and are particularly important in manufacturing industries in
which technology is important.18 In the mid-1980s, 50 per cent of employed individuals in Ghana and
Tunisia were working in transnational corporations.19 TNCs engaged in manufacturing account for over 20 per cent of all
employment in developing countries such as Argentina, Indonesia, Malaysia and Sri Lanka.20
While transnational corporations directly employ
approximately 73 million people, this figure does not accurately portray their actual
impact on employment levels. On the one hand, it is important to note that direct
employment by transnational corporations will sometimes displace jobs from national firms,
although the extent of the effect of such a displacement will vary across industries and
countries.21 Furthermore, many TNCs have been reducing their aggregate totals
of employees as they become increasingly capital intensive and fire workers to minimize
costs.22 On the other hand, transnational corporations not only employ
individuals directly, but can also indirectly generate jobs by establishing backward and
forward linkages within a domestic economy. For example, TNCs indirectly produce
employment by purchasing goods and services from local suppliers and subcontractors as
well as by widening access to markets and providing resources that can be used in further
production within a host economy.23 It is estimated that the indirect employment TNCs generate is at
least equivalent to figures for direct employment.24
Therefore, transnational corporations are responsible for
the employment of a very small proportion of the world's workforce approximately 5
per cent. This figure is even less significant when compared to the assets such
enterprises control. That is, while TNC activity might account for 5 per cent of world
employment, transnational corporations control over 33 per cent of the globe's productive
assets.25
Quality
While transnational corporations directly and indirectly
employ approximately 5 per cent of the world's labour force, the quality of these jobs is
mixed. TNC employment practices in developing countries have received particular
criticism. Advocates for transnational corporations, however, note that TNCs at least
provide jobs to individuals who otherwise would have no source of income. Furthermore, in
both industrialized and developing countries transnational corporations almost always
provide higher wages, safer work conditions and better benefit packages than do local
firms.26 There are three reasons why TNCs often provide higher wages: (a)
they tend to be concentrated in higher-skill sectors within developed countries; (b) in
developing countries, there exist significant disparities between transnational
corporations and local firms with respect to technology, economies of scale and management
techniques; and (c) TNCs seek to deflect nationalist sentiment against foreign economic
entities.27
However, while transnational corporations usually offer
superior wages in absolute terms, they sometimes pay a lower wage relative to workers'
productivity.28 In other words, while employees of transnational corporations
might earn more money in absolute terms than employees in comparable local firms, they
simultaneously share less in the profits of their employing enterprise. Thus, while
advocates for TNCs argue that they pay higher wages than do local firms, it is important
to note simultaneously that they maintain a less equitable distribution of resources.
Officials in transnational corporations might respond that they are obligated only to pay
the prevailing wage for a particular skill category. However, a strong moral case can be
made that, under some circumstances, an appropriate and responsible wage level requires
not only an examination of absolute figures, but also wage/profit ratios. The extent to
which a firm might have a responsibility to adhere to higher standards than local firms
will be discussed in more detail later.29
Although transnational corporations generally treat their
workers better than do local firms, their actions are hardly beyond reproach. In fact,
their labour policies in developing countries with respect to subcontractors and export
processing zones are often inexcusable. Working primarily in light manufacturing
industries such as textiles, electronics, footwear and sporting goods, TNC employees in
developing countries often work very long hours under hazardous conditions and receive
little pay and no compensation for overtime. They possess low unionization rates, limited
job security and few opportunities for training or advancement.
Examples of such working conditions are abundant. A recent
fire at a Thailand toy factory killed 188 employees because management did not maintain
the sprinkler system and had locked the workers inside the plant.30 In Bangladesh and China, clothing companies such as Calvin Klein
and Liz Claiborne use subcontractors offering no worker rights and sometimes employing
bonded labourers.31 And in Indonesia, women sewing sneakers for Reebok work over 60
hours per week while earning only 80 dollars a month approximately the price of one
pair of shoes.32 While Reebok officials might note that they are at least paying
the legal minimum wage, a more accurate assessment of their wage scales requires an
examination of Reebok's wage/productivity levels compared to other local firms.33 Furthermore, it is important to compare Reebok's wages with those
of other similarly situated transnational corporations. In fact, while operating in the
same Indonesian environment, Gillette Company pays its workers three to four times the
legal minimum wage and provides its employees with American-style retirement and health
benefits.34
Transnational corporations often attempt to evade
responsibility for their treatment of employees overseas by asserting that only their
subcontractors establish and supervise working conditions. However, TNCs remain at the top
of these subcontracting pyramids, provide the majority of work orders such factories
receive and, therefore, possess significant influence over their operations. While
transnational corporations might not directly employ Thai toy makers or Indonesian sneaker
sewers, they benefit from the exploitation of workers, and their hands are hardly clean.
Despite these disheartening examples, there does exist a
potential for TNCs to foster social development through employment as demonstrated
in the interesting case of foreign automotive companies in Brazil.35 When transnational automobile companies arrived in this South
American country, they not only imported technology and management techniques but also
unintentionally imported another resource that proved important to Brazil's social and
political development: foreign unions. The United Auto Workers (UAW) began to train their
Brazilian counterparts in organizing and bargaining techniques. In the late 1970s and
early 1980s as Brazil was experiencing labour unrest, foreign automotive companies were
the first to recognize the need to deal with Brazilian unions.36 When the Brazilian military government demanded that the Ford
Motor Company fire striking workers, the company refused and subsequently established the
country's first union-based, worker representation system; other auto subsidiaries soon
followed suit.37 By 1984, labour had established a political party, and some
observers were crediting the auto industry with playing an important role in Brazil's
political liberalization.38 While nobody asserts that automotive TNCs intentionally fostered
positive change in Brazil, this case study demonstrates that sometimes social development
can occur simply as an unintentional by-product of TNCs' profit-maximizing activities.
Unfortunately, however, the role that transnational corporations play in employment and
social development in developing countries almost always resembles the afore-mentioned
experiences of Indonesia or Thailand, not the experience of Brazil.
Consumer
Issues and Health Ramifications
Transnational corporations also affect social development
through their vast production of goods and services which often impact the health of
consumers. For example, their involvement in pharmaceuticals, insurance, information
technology, health care services, pesticides and agribusiness can affect consumer health.
This expansive and sophisticated global marketplace that TNCs fuel can sometimes provide
significant benefits. Transnational corporate research and development, for example, can
improve nutrition and health standards throughout the world. Transnational financial
corporations provide increasingly important investors such as pension funds and mutual
funds with an expanding menu of diversifiable investment opportunities. Finally, on a
lighter note, TNC advances in technology and distribution networks grant some Scandinavian
consumers access to exotic fruits even during their snowbound winters.
While the global marketplace is a boon to those who can
afford to shop from its shelves, most individuals are not so financially fortunate. "About
two-thirds of the people on earth cannot connect most of the glamorous products they see
on billboards and on televisions with their own lives of poverty and struggle."39 Furthermore, through their sophisticated marketing techniques,
TNCs can significantly influence consumer preferences, and they often promote products and
lifestyles incompatible with ecological sustainability and poverty reduction. "The
expanding cornucopia of globally distributed goods is largely irrelevant to the basic
needs of most people in the world."40 Products that could potentially improve health and nutrition
levels, such as pharmaceuticals, are often priced out of reach, especially in developing
countries.
Even when consumers in developing countries can afford the
pharmaceuticals that transnational corporations manufacture, ironically such drugs can be
harmful to their health. Transnational corporations often market and sell to developing
nations pharmaceuticals that have been banned in their home countries, although they are
aware that studies have demonstrated the adverse health effects of their products. For
example, US-based Sterling Winthrop uses a subsidiary to sell Dipyrone, a drug banned in
23 countries, to 20 developing countries under the brand name Conmel; the German Hoechst
Company sells this drug in Thailand.41 Problems also arise when TNCs sell outdated, poorly labelled or
mislabelled pharmaceuticals to developing countries. For example, when the Upjohn Drug
Company sells Kaopectate, a drug for adult diarrhoea, to developing countries, they print
warning labels only in English and, therefore, the product is sometimes used on infants
with harmful ramifications.42 A recent study found that two thirds of 241 pharmaceuticals
manufactured by US-based transnational corporations and sold to developing countries had
severe labelling deficiencies that failed to provide doctors with the information
necessary to prescribe the drug safely and effectively.43
Transnational corporations also adversely affect consumer
health and nutrition levels by selling to developing countries pesticides that have been
banned in their home nations. One quarter of all pesticides exported by TNCs from the
United States in the late 1980s, for example, were chemicals banned, regulated or
withdrawn in the United States.44 While sales of banned drugs exclusively harm consumers in
developing countries, sales of banned pesticides also harm consumers in industrialized
nations through a process called the "circle of poison". Transnational
corporations sell these pesticides to farmers in developing countries who use such
products to spray their fruits and vegetables before exporting their produce back to the
industrialized countries in which the banned pesticides originated. For example, the
US-based chemical company FMC Corporation sells the Marshal pesticide, which is banned in
the United States, to two dozen developing countries. Such countries use the pesticide on
alfalfa and Thai rice and export these goods back to the United States.45
Other toxic chemicals TNCs use in their production process
also cause health problems. For example, transnational corporations manufacture most of
the world's chlorine, which is used as a base for potentially harmful chemicals such as
PCBs, DDT and dioxins; these chemicals can lead to birth defects as well as reproductive,
developmental and neurological damage.46 TNC involvement with the production and use of asbestos, volatile
organic compounds and radioactive waste materials can also generate health problems.47
Transnational corporations sometimes further lower health
levels in developing countries by marketing and selling infant formula as a substitute for
breast milk. In the 1980s, consumer groups organized a boycott of infant formula
manufacturer Nestlé because of its marketing and distribution practices for this product.48
Although this boycott successfully altered the behaviour of Nestlé, other companies
continue to distribute infant formula in a negligent and harmful manner. For example,
US-based American Home Products, whose Wyeth-Ayerst subsidy makes infant formula, markets
this product in the Philippines as superior to breast milk. Poor hospitals take money from
the company in exchange for promoting it to new mothers.49
Finally, transnational corporations adversely affect
consumer health by marketing and selling tobacco products. Cigarettes cause three million
deaths each year, and tobacco companies have been accused of adding nicotine to their
products to ensure that consumers remain addicted to this drug.50 Furthermore, tobacco giant, Phillip Morris, has been accused of
covering up studies demonstrating the health hazards in smoking and of marketing to
children through their "Joe Camel" campaign which employs a cartoon character
appealing to kids.51 As industrialized countries increasingly offer warnings and enact
restrictions on smoking, TNCs have begun actively marketing their tobacco products to the
developing world. Tobacco companies assert that advertising merely persuades smokers to
switch brands, and does not influence their choice to smoke in the first place. However,
in the year after South Korea opened its market to American cigarette brands, smoking
among teenagers increased from 18 per cent to 30 per cent.52
Transnational corporations assert that concern over the
adverse effects of their consumer products is misplaced. They argue that individuals who
buy TNC goods are merely exercising their free market choices and that efforts to limit
such choices infringe on individual autonomy. Furthermore, they assert that attempts to
prevent TNCs from selling to developing countries pesticides and pharmaceuticals banned in
their home countries constitute an imperialistic infringement on the sovereignty of these
nations; each government should be able freely to determine the consumer standards under
which its citizenry will live.53 However, transnational corporations are aware that many developing
countries do not have the governmental resources necessary to conduct tests on the health
ramifications of TNC products and that many consumers in such nations do not possess the
information necessary to make truly informed choices. TNCs' invectives against enhanced
regulation actually stem not from their concern for individual autonomy or national
sovereignty, but rather from a desire to maximize profits. The worldwide sales of infant
formula total 8 billion dollars a year; American companies alone sell 20 billion dollars
worth of cigarettes abroad and 4 billion dollars worth of pharmaceuticals to developing
countries each year; finally, American companies sell annually to developing countries 750
million dollars worth of pesticides banned in the United States.54
15 5. For example, all countries in sub-Saharan Africa have had double-digit
unemployment rates since the 1970s. In 1993, unemployment in India and Pakistan reached
approximately 15 per cent, in urban Latin America 8 per cent, and in the European
Community (EC) 11 per cent (UNCTAD, 1994b, pp. 4-5, paras. 3-4).
16 6. Ibid., p. 5, para. 6.
17 7. Ibid.
18 8. United Nations Transnational Corporations and Management Division, 1992, p.
184.
19 9. UNCTAD, 1994c, p. 39, para. 70.
20 0. UNCTAD, 1994b, p. 29, para. 31.
21 1. Alschuler, 1988, pp. 50-56.
22 2. UNCTAD, 1994a, p. 26, para. 20.
23 3. United Nations Transnational Corporations and Management Division, 1992, p.
51.
24 4. Ibid., p. 186.
25 5. United Nations Commission on Transnational Corporations, 1993c, p. 22,
para. 24.
26 6. Samuels, 1990, p. 37; UNCTAD, 1994b, p. 32, para. 42.
27 7. UNCTAD, 1994b, p. 32, para. 43.
28 8. Alschuler, op. cit., pp. 50-56.
29 9. See the section on "The Responsibilities of Transnational Corporations" in
part 2 of this paper.
30 0. Zuckoff, 1994b.
31 1. Zuckoff, 1994a.
32 2. Ibid.
33 3. Unfortunately, such information is not available.
34 4. Zuckoff, 1994a.
35 5. This paragraph relies on a case study published in Samuels (op.cit., pp.
52-55).
36 6. Ibid., p. 52.
37 7. Ibid., pp. 53-54.
38 8. Ibid., p. 54.
39 9. Barnet and Cavanagh, 1994, p. 183.
40 0. Ibid.
41 1. Zuckoff, 1994c; de George, 1993, p. 61.
42 2. Zuckoff, 1994b.
43 3. Zuckoff, 1994c.
44 4. Greenpeace, 1993, p. 9.
45 5. Ibid, p. 7.
46 6. Ibid., p. 9.
47 7. UNCTAD, 1993, pp. 102, 135.
48 8. For a more detailed discussion of the boycott, see the section on "Non-Governmental/Citizen
Organization Efforts" in part 3 of this paper.
49 9. Zuckoff, 1994c.
50 0. Barnet and Cavanagh, op. cit, pp. 184-207.
51 1. Ibid.
52 2. Zuckoff, 1994d.
53 3. Zuckoff, 1994c.
54 4. Ibid.
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