Multinational Corporations (Transnational Corporations)

Multinational Corporations (MNCs) or Transnational Corporations (TNCs) are business companies that operate in more than one country. Multinational corporations are becoming a very active actor in international relations, particularly with regards to human rights. In this article, we shall discuss the role of multinational corporations (or transnational corporations) in international relations. We will also examine multinational corporations with regards to the international human rights.

What is the History of Multinational Corporations and Human Rights?

Historically, multinational corporations have been very international business, and in turn, have affected international relations. They have been heavily involved in operating in domestic and foreign markets, and with this, have been at the center of discussions of human rights, as well as economic development. Throughout much of the human rights movement, activists have spent time focusing on state human rights violations, since the state has been one of the biggest violators of human rights. However, in the past couple of decades, we have “witnessed a striking new phenomenon in strategies to protect human rights: a shift by global actors concerned about human rights from nearly exclusive attention on the abuses committed by governments to close scrutiny of the activities of business enterprises, in particular multinational corporations” (Ratner, 2001: 446).

There have been a host of complaints regarding the business practices of multinational corporations (transnational corporations) as it relates to human rights of individuals. In fact, it has been said that multinational corporations have committed horrific human rights violations, and yet, it has been very hard to hold such transnational corporations answerable (Nair, 2011: 241).

For example, there are a number of more high profile cases with regards to problematic business practices, whether it is the diamond trade (Ratner, 2001), environmental violations, or sweatshops.

Race to the Bottom

One of the other criticisms of multinational corporations has been the effect that it has on the human rights of a country. Corporations, working in countries with higher minimum wages and more government monitoring of human rights issues, may decide to take their operations abroad. Looking for a place to invest their capital, leaders of economically poorer states may try to attract their business. To do so, they may make promises that there will be less stringent regulations on the practices of the MNC. In addition, by moving to places with a larger labor force, supply for laborers will be high, and thus, demand will be lower, which will be reflected in the price paid to the laborers.

When one leader makes this promise, or if the conditions exist in one state, and other state, not wanting to lose out on the capital investment, will in turn lower their standards in order to attract the international capital investment through the MNCs. Thus, states will compete with one another as to who can provide a more conducive environment for the MNC to operate (and make a profit). Unfortunately, this is often at the expense of human rights and environmental rights, since the environments that have low regulations are also the ones that may not hold MNCs accountable for human rights abuses, or for actions that harm the environment.

Why have we seen such attention on human rights and Multinational corporations?

There are many reasons as to why we are seeing increased attention on multinational corporations (transnational corporations) as they related to human rights. One of the primary reasons to the attention on multinational corporations is that they are operating throughout the world, conducting billions of dollars of business, and, affecting millions across the globe (Monshipouri, Welch, & Kennedy, 2003).  And as Ratner (2001) explains,

“The creation of a new target for human rights advocates is a product of various forces encompassed in the term globalization: the dramatic rise in investment by multinational companies in the developing world; the sense that the economic might of some corporations has eroded the power of the state; the global telecommunications revolution, which has brought worldwide attention to the conditions of those living in less developed countries and has increased the capacity of NGOs to mobilize public opinion; the work of the World Trade Organization (WTO) and International Monetary Fund (IMF) in requiring states to be more hospitable to foreign investors; and the well-documented accounts of the activities of a handful of corporations” (447-448).

Related to this last point, Monshipouri, Welch, & Kennedy (2003) explains that countries are often reliant on multinational corporations for capital investment. And because of competition by other states, the multinational corporations have the ability to choose the most favorable terms for conducting business. This in turn affects states, since, having little option for receiving capital investment elsewhere, “governments in the South have had little or no alternative but to be receptive to the terms of the MNCs. The lack of leverage with the MNCs has meant, for example, that minimum wage has been set unrealistically low in developing countries so as to attack foreign investment” (966). And thus, many of the states either cannot, or do not enforce human rights with regards to the actions of multinational corporations (Börzel & Hönke, 2011). Much of this criticism extends not only to multinational corporations, but the entire neo-liberal economic system, which advocates free trade often at the expense of human rights and labor conditions (Monshipouri, Welch, & Kennedy, 2003: 967). In fact, Monshipouri, Welch, & Kennedy (2003) argue  that

“Perhaps the most troubling aspect of MNCs’  operations in the new global economy has to do with the inordinate amount of importance attached to the portfolio investment as compared to foreign direct investment (FDI). Critics claim that MNCs’  preference for portfolio investment has had devastating impacts on the economies of developing countries, especially during the 1997 Asian crisis. Importance attached to portfolio investment, which is liquid capital, flies by night and is largely driven by profit, often resulting in crony capitalism. This type of capitalism was shown to be associated with the involvement of the Salinas and Suharto families in the banking systems of Mexico and Indonesia respectively. Portfolio investment spurs purely speculative economic activities” (974).

Multinational Corporations and Corporate Responsibility

Despite the various human rights abuses that have been carried out by various multinational corporations, there is little in international human rights law that actually “regulates corporate activity” (Monshipouri, Welch, & Kennedy, 2003: 975).

And because of this, scholars have proposed a host of solutions that can better monitor the activities of multinational corporations, so that human rights are protected. In 1999, United Nations, under Kofi Annan, speaking at the World Economic Forum, called for a Global Compact regarding the actions of multinational corporations, which stipulates not only general assurances of protecting human rights, but also more specifically speaks about work conditions, the ability of free movement, eliminating child labor, as well as ensuring other human rights, which include but are not limited to the health and safety of workers (Monshipouri, Welch, & Kennedy, 2003: 979). In addition, many believe that multinational corporations should begin by adopting a code of conduct, which spells out the human rights protections that they were follow. However, merely having a code of conduct will not be enough to eliminate human rights abuses; many have argued for an international entity that will hold multinational accountable for violating human rights. This can (and should) include working within current international organizations, or creating entities outside international organizations such as the United Nations to ensure multinational corporations are complying with international human rights law; this monitoring system will serve a great purpose, as it can hold multinational corporations accountable for any violations of human rights (Monshipouri, Welch, & Kennedy, 2003). And as Monshipouri, Welch, & Kennedy (2003) explain, “Certainly a cosmopolitan body to adjudicate corporate wrongdoing will not spring up overnight, nor will it ever develop without finding a balance between corporate concerns and human rights concerns. Once the international community reaches a consensus on the need for such a system, the focus should turn to finding a balance between corporate and human rights concerns, and how to give the court the power it needs to hold corporations accountable” (984).

 

References

Börzel, T.A. & Hönke, J. (2011). From Compliance to Practice: Mining Companies and the Voluntary Principles on Security and Human Rights in the Democratic Republic of the Congo. SFB-Governance Working Paper Series 25, October 2011, pages 1-38.

Monshipouri, M., Welch, C.E., Kennedy, E.T. (2003). Multinational Corporations and the Ethics of Global Responsibility: Problems and Possibilities. Human Rights Quarterly, Vol. 25, No. 4, pages 965-989.

Nair, P.J. (2011). Environmental Degradation By MNCs and Human Rights Violations, in Human Rights in a Changing World, P. Sukumaran Nair (Ed.). Delhi, Chawla Offset Press.

Ratner, S.R. (2001). Corporations and Human Rights: A Theory of Legal Responsibility. The Yale Law Journal, Vol. 111, No. 443, pages 443-545.