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Do transnational corporations (TNCs) reduce poverty?

Date
Time (GMT +01) 12:00 13:15

Speakers

  • William Day (Chair)

    CARE International

  • George Monbiot

    The Guardian

  • Rt Hon Earl Cairns CBE

    CDC Capital Partners

The meeting was chaired by William Day. He underlined the importance of understanding whether and in what circumstances TNCs contributed to poverty reduction. Was it a concern that they were so dominant in the world economy? Could they be regulated?

George Monbiot said that it was difficult to give an unequivocal answer to the question of whether TNCs reduced poverty. Formal figures could be misleading, for example by misrepresenting the cost of environmental clean-up as a contribution to GDP (e.g. Bhopal) or by failing to measure the loss of natural capital. Furthermore, the political influence of TNCs and their role in ventriloquising policy was hard to capture in numbers. It was also important to ask the question in a comparative way: compared to what could it be said that TNCs did or did not reduce poverty?

Given these limitations, his approach would be to proceed by anecdote and then pull out general principles. The anecdotes, or examples, came from West Papua, Brazil and Kenya, among others. In West Papua, the Freeport gold and copper mine had been developed with no benefit to local people, and had been accompanied by political oppression. In Brazil, the exploitation of forests had been associated with capital flight, the destruction of local livelihoods, ill health and ecological destruction. In Kenya, tourism had impoverished many poor people, who had lost control of natural resources (e.g. along the coast, or of dry season grazing for the Maasai). Internationally, the development of GM technologies had concentrated power in the food chain and made it more likely that people would go hungry. Of course, none of these examples was without any benefit whatsoever. For example, tourism did bring some benefits, and in Indonesia, private monopolies associated with the Suharto family had created some local employment. Similarly, campaigning around rain forest destruction had created a policy space in which local processing, conservation and monitoring of extraction had all flourished.

From these examples, George Monbiot was able to distil six principles to maximise the impact of TNCs on poverty reduction:

  1. democracy, good governance, and a structure of accountability for corporations;
  2. a fair and transparent taxation system;
  3. a commitment to employment of local people;
  4. a commitment to augment rather than replace the local economy;
  5. avoiding the alienation of locally-owned natural resources; and
  6. commitment to long-term investment, not short-term investment.

Finally, George Monbiot concluded that a stiff regulatory framework was needed. Voluntary guidelines of the kind promoted by the OECD were not enough. The WTO had power of enforcement of maximum standards for free trade - by the same token, an organisation was needed with similar powers to protect the poor from predatory pricing and ensure social standards were met.

Lord Cairns began by saying that he agreed with a great deal of what George Monbiot had said. His presentation  made the following points:

  1. Free trade is good for growth, though there is no certainty that the benefits of growth will be distributed equally. Free trade needs to be governed by rules, hence the importance of the WTO.
  2. TNCs do increase income: they introduce capital and technology, and also create structures for the efficient organisation of commerce. Technology transfer is a particularly important benefit.
  3. TNCs make a number of positive contributions. They bring pressure to great good administration; they provide infrastructure and services which are available to all; they help to identify and develop export potential; they increase the demand for and quality of local products; they provide tax revenue for governments; and they provide incentives to increase the quality of education.
  4. Whether these contributions benefit the poorest is another question. The risks are that TNCs: replace labour, especially unskilled, with capital; corner the market for skilled workers; create local monopolies; substitute imported goods for local; exploit lax environmental and labour laws; and create over-dependency on a dangerously limited range of products.

7. One response was a strong code of behaviour of the kind developed by the Commonwealth Business Council. This had six core principles:

  1. good corporate governance;
  2. codes of social behaviour;
  3. a commitment to training;
  4. sharing profitability with local staff;
  5. encouragement of local outsourcing/mentoring; and
  6. support for local community development.

8. Finally, Lord Cairns made the point that the CDC had found itself forced to withdraw from projects in the agricultural sector, largely because subsidies to agriculture in developed countries made such investments unprofitable.

9. A number of points were made in the discussion that followed. These included:

  1. Opposing views had been taken in the presentations about the desirability of a legally enforceable regulatory structure (Monbiot) versus a voluntary code of conduct (Cairns). A number of participants felt that regulation was probably more appropriate, but there was uncertainty as to how to achieve this. It had been observed that TNCs were reluctant to be regulated, were often able to ventriloquise country-level policy, and were difficult to hold to account (for example, on human rights). The question was then not whether to regulate TNCs, but how to do so. One answer to this was to encourage popular participation and protest as a way of forcing regulation - the example of GM foods was cited.
  2. On a related point, another approach was to demonstrate that there was a strong business case for good corporate governance and citizenship, for example using partnership approaches to reduce conflict, thereby producing more favourable outcomes for both communities and business.

Simon Maxwell
17 October 2001

Description

During this event William Day underlined the importance of understanding whether and in what circumstances TNCs contributed to poverty reduction. Was it a concern that they were so dominant in the world economy? Could they be regulated?