Criticism of MNC activities in developing countries

The Multinational Enterprise has become ubiquitous in the new neo-liberal world order of the early twenty first century.  However, all too often, these enterprises’ activities have lacked prudence and foresight in terms of the consequences for the local populations.  Moreover, the loopholes of international business law allow these companies to go scot-free and evade accountability toward the citizens of the countries in which they operate on.  The activities of Multinational Enterprises in developing countries can either be beneficial or disadvantageous to the country.  Recent evidence suggests that there are more cases of the latte than the former.  This essay tries to find out how far true the criticisms directed at multinational enterprises (MNEs) as a result of their activities in lesser developed parts of the world.  This is done by citing examples from particular developing nations.

The primary criticism leveled against MNEs is their lack of responsibility toward the local and broader communities in which they operate.  While they can accurately evaluate the values of tangible assets, more often than not the measure of intangible consequences of the company’s operations are not accounted. For example, let us take a company that out-sources manufacturing of cosmetics to a developing country.  Countries such as Taiwan,Thailand,Singapore,Bolivia,Venezuela and Chileare typical examples.  In a typical scenario, the manufacturing and packaging of the company’s products involves chemical processes, the residues of which are purged into a nearby river stream or sea.  The discharged residual matter is highly toxic and hence harmful for the aquatic life in the waters.  This leads to the diminishing in numbers of many species. Those that survive this hazard and land in fishing nets are consumed by human beings (Rodriguez, et. al., 2006).  So, now the citizenry of the area surrounding the company’s processing unit get affected.  The affectation could be of varying degrees and can manifest slowly over a long period of time.  These are all costs alright, but not for the concerned MNE.  These “externalities” are not accounted for by them (Verbeke, et. al, 2007). For example, emerging economies such asIndiaandChina, alongside middle or low-income economies with growth potential have attracted foreign institutional investors.  These economies “typically have less sophisticated market supporting institutions and fewer locational advantages based on created assets, such as infrastructure and human capital. Therefore both policymakers and managers are interested in knowing how MNEs may contribute to the economic development of these economies. However, these circumstances change with the evolution of the global economy, and thus require a continuous reassessment” (Doukas, 2006).

Findings of several research studies conducted in the last few decades present a rather bleak picture of MNE activity in the developing world.  In countries that have transitioned form centrally planned economies to free market economies in the last thirty years (thereby encouraging MNE entry), the overall effect on the large majority of the local population is very discouraging.  When the United Nations designed Human Development Index (HDI) parameters were measured for these countries, the results were quite dismal.  For example,

“Major HDI studies by Aitken and Harrison (1999) on Venezuela 1976-89, and Kathuria (2000) on India 1975-89 show negative results. Other studies such as Haddad and Harrison (1993) on Morocco 1985-89 and Kugler (2001) on Columbia 1974-98 find insignificant effects. For transition economies, the evidence is less clear. Liu (2002) in China and Sinani and Meyer (2004) in Estonia find positive effects, whereas other studies find negative effects in Bulgaria,Romania (Konings, 2001) and the Czech Republic (Djankov and Hoekman, 2000). Hence the overall evidence does not support the proposition of positive human development scores for the local population”. (Rodriguez, 2006)

MNEs are also criticized for exploiting the cheap labour offered by host nations.  A highly publicized recent case is the operations of sportswear maker Nike in countries such a Indonesia and Philippines.  Documentary filmmakers have recorded the inhuman working conditions offered to laborers in Nike plants in these countries.  Moreover, these workers were never offered medical insurance or prescribed minimum wages. As a consequence of this negative publicity, many consumers in the West have refused to consume products that were manufactured through exploitation of labour in developing nations.  While the condition in manufacturing hubs of Taiwan, Thailand and Chinaare not as harsh as in Indonesia and Philippines, they only barely adhere to international human rights standards (Baram, 2004).

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