BY PIO SZAMEL

In the modern era of globalization, multinational corporations stand as powerful actors increasingly independent of their home countries. Indeed, at first blush the potential for multinationals to influence the world appears to be at an all-time high. Google is advocating the freedom of information worldwide while the movement for corporate social responsibility promises leadership on labor rights and environmental standards. Corporate influence has also reared its head in less altruistic ways: Chiquita Banana has been accused of running arms to paramilitaries in Colombia, while oil companies appear to fund genocide in the Sudan. But while their market heft gives multinational corporations serious influence, especially in the developing world, their actions are still heavily restricted and often even dictated by the circumstances of the regimes under which they operate.

Leaders in the Developing World?
The sheer size of multinational corporations gives them enormous market clout, especially in smaller and developing countries. At $376 billion, the annual revenue of the world’s largest private corporation, ExxonMobil, exceeds the GDP of all but 20 of the 181 countries in the International Monetary Fund. Large oil companies, banks, and car manufacturers dwarf many of the economies in which they operate. This means that when these companies want to do business, governments listen. “The more you are the monopoly provider of a type of investment, the more bargaining power you have relative to the government,” explained Sebastian Mallaby, a global business expert at the Council on Foreign Relations, in an interview with the HPR. Companies concerned about social responsibility can use this bargaining power to force governments to act in cases where pleas from western governments don’t accomplish much. Recent oil negotiations in Chad exemplify this power, according to Mallaby. “Chad has one consortium [willing] to develop its oil field, led by Exxon,” he explained, “and to get Exxon to go in they had to agree to this complex agreement negotiated by the World Bank as to how to spend the [oil] money and on transparency.” Effectively, ExxonMobil used the prospect of its investments to force the Chadian government to crack down on corruption more effectively than industrialized governments and NGOs could.

While Chad is an extreme case with a virtual monopoly supplier, corporate social responsibility campaigns have been successful in creating higher labor and environmental standards in more conventional cases as well. Beth Jenkins, Director of Policy Studies at the Corporate Social Responsibility Initiative at the Harvard Kennedy School of Government, cited the Vietnam Business Links Initiative as an example. The Initiative involved “many companies coming together collectively” to raise labor standards in shoe factories and inspired the Vietnamese government to adopt the same standards in training its labor inspectors. Jenkins praised this as “government learning from a pioneering self-regulating effort by business and then scaling it up to affect whole industries.” Banding together, companies can have influence where they wouldn’t individually ‐ toymakers in China, in Mrs. Jenkins’ example, “have had some successes” despite a government “hostile to social standards,” because their trade association represents 80 percent of the industry.

The Flip-side
But global corporations’ clout in the developing world can also wreak havoc. In Colombia, for example, the Chiquita banana company pled guilty last year to paying the AUC, a paramilitary terrorist group, to protect its banana-growing operations. A recent lawsuit filed by the families of those killed by the paramilitaries alleges that Chiquita went further, running arms to the paramilitaries and abetting their operations for fifteen years. Chiquita argues they were only trying to protect their employees in a dangerous situation. But Jonathan Reiter, the victims’ attorney, pointed out in an interview with the HPR that if the company were truly under duress, they wouldn’t have had to plead guilty in the criminal case. He argued that Chiquita (and its predecessor, United Fruit) have “dominated South America politically and economically” for over a hundred years ‐ “they have overthrown governments and massacred people,” Reiter said.

Multinationals have also sparked violence in the Sudan, where oil companies’ interest in the oil fields of the south of the country convinced the government to crack down to entice potential drilling. “Because the companies were willing to go in and develop the oil fields,” Mallaby said, “there was ethnic cleansing in the south because the government went in and tried to make things safe for drilling.” In the Sudan, as in the Chad case above, the government went to great lengths to attract global businesses, but with very different results.

Adapting to Reality
But oftentimes it is the companies that must adapt to circumstances on the ground, not vice versa. This is almost always the case in the developed world and when dealing with large powers. In Brazil and India, the pharmaceutical industry was forced to drop prices and license generics when the governments threatened to break patents. In China even Google was forced to censor their search engine or face banishment behind the Great Firewall ‐ China’s population of 1.3 billion meant that Google felt it could not afford to stay out of the market. And in Russia, it is the government that dictates the terms to the oil companies; the vast size of the countries’ oil and gas reserves means that “companies are climbing all over themselves to make the government happy,” Clifford Gaddy of the Brookings Institution told the HPR. This means taking measures to address social ills in the communities they work in, and also not upsetting political leaders in the Kremlin ‐ “investments in relational capital,” as Gaddy put it.

Even in the developing world, companies often end up trapped by circumstances ‐ “sucked in” by violence, as Mallaby put it, even when they mean no harm. He pointed to a case in the Congo where the government asked a mining company to lend it trucks, which later turned out to be used to transport troops for a massacre. And good deeds by many companies can often be undone by just a few miscreants: in the Sudan, efforts by Western companies to stay out of the country in condemnation of the Darfur genocide were wasted when Chinese companies came in and offered to do the same work.

The leadership potential of multinational corporations, then, is still very much controlled by the countries and situations under which they operate. With the right conditions, they can wield great influence, dictating terms, guiding governments, and sometimes even sparking violence. But multinational corporations more frequently find themselves outmatched against the powers of the industrialized world, so while their influence is great, they cannot yet claim the mantle of “leaders of the free world.”]]>http://hprsite.squarespace.com/the-power-big-business-042008/rss-comments-entry-1778995.xml