The world’s view of multinationals

TAKE the bosses of the world's 1,000 largest companies, accounting for four-fifths of world industrial output, and 33 national leaders, including the president of the United States. Assemble them in a secluded Swiss ski resort, and then surround them with gun-toting police. Is it any wonder that the annual meeting of the World Economic Forum in Davos this week has become, to some, a sign that there is a global economic conspiracy perpetrated by the white men in dark suits who run the world's multinational corporations? Many people—and not just the folk with ponytails and placards who disrupted last December's meeting of the World Trade Organisation in Seattle—now think of multinationals as more powerful than nation states, and see them as bent on destroying livelihoods, the environment, left-wing political opposition and anything else that stands in the way of their profits.

None of this is new. Three decades ago, multinationals were already widely denounced as big, irresponsible, monopolistic monsters. But they then went through a period of being sneered at as yesterday's clumsy conglomerates, before being lauded in the 1990s (including by third-world leaders in Davos) as the bringers of foreign capital, technology and know-how. Yet now the hostility has returned. One explanation is the sheer speed at which multinationals have recently expanded abroad. This has made them the most visible aspect of globalisation, buying some local firms and driving others out of business. Even to rich, well-run countries, their sheer size can seem threatening. Thus the Irish sometimes fret about the fact that foreign firms account for almost half of their country's employment and two-thirds of its output; and Australians point nervously to the fact that the ten biggest industrial multinationals each has annual sales larger than their government's tax revenue.

Such clout needs to be used with care, if it is not to be seen as a threat to national sovereignty and democratic accountability. For example, countries may feel that their freedom to set taxes as they wish is threatened by the ability of multinationals to shift profits, or operations, from one country to another (see our survey of globalisation and tax in this issue). Every so often, too, a multinational does something stupid. Nike, Shell, Enron, Monsanto, McDonald's: each has recently made errors of judgment that united opposition at home and abroad. And multinationals face strong incentives to behave badly. Thus those in the natural-resource and mining business often cosy up to whichever regime is in power, however nasty, in order to protect their investment. Those making consumer goods frequently flit to whichever country offers the best deal on labour costs at the moment.

What most companies fear more than resentment abroad, though, is the protest at home. Typically, they still employ two-thirds of their workforce and produce more than two-thirds of their output in their home country which, in the case of 85% of multinationals, is one of the wealthy members of the OECD. Here, they have been the easy targets of non-governmental organisations (NGOs), which understand perfectly well the value to themselves, in prestige and membership, of running a campaign which succeeds in humbling a mighty corporation (see article). Paradoxically, NGOs have been able to harness both the discontent of those who believe globalisation destroys jobs, and the ill-focused unhappiness felt by the children of the prosperous baby-boom generation. Just as John Kenneth Galbraith warned their parents that the world would soon be run by huge, unaccountable corporations, so this new generation seizes on the similar fears expressed in books such as Naomi Klein's “No Logo” (see article).

Meaning well

To the well-meaning, honourable folk who generally run multinationals, all this is a travesty. They listen: even the World Economic Forum has invited representatives of 15 NGOs to put their case. They try: they set guidelines for dealing with environmental safety and sexual harassment in countries where no such words exist in the local tongue. Their corporate morality is a great deal better than that of the average government: most would kick out a chairman who behaved like Bill Clinton or Helmut Kohl. They are at least as accountable (to their shareholders and the law) and a good deal more transparent than the average NGO.

Individual firms are as capable of doing harm as is any other entity. But as a class the multinationals have a good story to tell. In the rich world, according to OECD research, foreign firms pay better than domestic ones and create new jobs faster. That is even more true in poorer countries: in Turkey, for example, wages paid by foreign firms are 124% above average and their workforces have been expanding by 11.5% a year, compared with 0.6% in local firms. Big foreign firms are also the principal conduit for new technologies, as is clear from the fact that 70% of all international royalties on technology involve payments between parent firms and their foreign affiliates. As for the environment, most research suggests that standards tend to converge upwards, not downwards.

In other words, the NGOs, also as a class, often get their way. The campaigners need big business as a tic-bird needs a wildebeest. By alighting on big companies, they can often force through changes that would be hard to achieve through the political process alone. They can claim a seat at international negotiations, even though they represent nobody but their members. They can even influence what happens in distant countries: it is easier to change things in Nigeria by boycotting Shell than by lobbying the Nigerian government.

More broadly, the balance of power is not what it seems. Big companies now come and go at lightning speed: one-third of the giants in America's Fortune 500 in 1980 had lost their independence by 1990 and another 40% were gone five years later. Globalisation is as much of a threat to lumbering giants as to smaller folk, and often a boon for the nippy little firms that create most of today's new employment and wealth. The merger waves that attract so much attention, and fear, more often reflect defensive efforts by the corporate establishment than the predatory acts of world-dominating devils.

Multinationals should continue to listen, to try to do no harm, to accept the responsibilities that go with size and wealth. Yet, in the main, they should be seen as a powerful force for good. They spread wealth, work, technologies that raise living standards and better ways of doing business. Perhaps if a few bosses took to the streets with placards, that message might more readily get across.