By Vexen Crabtree 2006
Modern large corporations can outmanouvre governments and therefore evade the law1. If one country tightens up quality control, industrial regulation or raises employee benefits, modern companies can easily move production abroad2. Governments are under pressure to not improve legislation.3. The heads of large companies have massive power over staff, employment, industry, national economies and the environment and yet are not elected nor publicly accountable for their actions (which are sometimes damaging to large numbers of people4). Supranational organisations like the UN and the EU provide a counterbalance. For example "the EU has taken on multinational giants like Microsoft, Samsung and Toshiba for unfair competition. The UK would not be able to do this alone"5. By encouraging governments to work in tandem, and because they are staffed by those on the pay roll of elected governments, such international politics can bring democracies back into power6,7.
“Nation-states, some argue, are too small to be able to influence global change, and too large to respond effectively to the pressures for increased flexibility and competitiveness, or as Giddens put it 'too small to solve the big problems, but also too large to solve the small ones'.”
We clearly need multinational governmental bodies to control multinational corporations. Not only will this bring capitalism back under the protective arms of democracy, but it will also solve the second problem identified by Held and Giddens: It will allow national governments to concentrate more on the small problems of national well-being.
Charles Lindblom's influential work Politics and Markets (1977) highlighted that business always has "far superior resources of wealth and organisation to conduct effective lobbying of government" compared to other lobbies.
But modern globalisation has led to the emergence of commercial companies that have transcended nationality and tipped the balance greatly in their own favor. Political theorist Andrew Heywood examines the impacts of globalization and the first item he lists is the 'major implications for nationalism' and 'obvious examples of this include the greater ease with which transnational corporations are able to relocate production and investment'. As a result of such changes we are living in a 'post-soverign' period, in which the market is ascendent to the state. Likewise markets and transnational have greater impacts on citizens than local government.10. From an economic point of view "the essence of globalization is the construction of a global capitalist economy, which is geared to the interests of transnational corporations and substantially reduces the power of the state, particularly its ability to transform the social structure"11. Prof. Alston states authoritively (2005) that international law's capacity to adequately regulate multinationals "lags considerably behind the social and economic realities of globalized production and trade"3.
“Lindblom concludes that business cannot be regarded simply as one pressure group or interest group along with others, such as trade unions, environmental groups, welfare lobbyists, and so on. They constitute a power a power than in many cases is equal to that of government. [...] What we call democracy is in fact a compromise between the power of the vote and the power of business, with government negotiating the interface between the two.”
“Existing domestic and international legal mechanisms are, to a considerable extent, unable to ensure that their enforcement of human rights obligations is effective when it comes to the activities of TNCs”
"Non-State Actors and Human Rights" by Philip Alston (2005)3
When a government restricts or regulates an industry - for example by banning factories from dumping poisonous metallic waste into rivers and harming vast portions of the natural world, those companies responsible can choose to obey the law by taking responsibility for their side-products. They can do this by cleaning up the waste or by upgrading or changing their procedures. Both of those cost companies. In the modern global world, many multinationals choose to move production abroad rather than comply. Production is normally moved to developing countries that want the revenue and taxes and are not particularly interested in the high-tech legislations against environmental damage. Often, new companies receive tax breaks for moving into countries; all this conspires against the government in question that wanted to protect the environment. In effect, the benefits of globalisation to the company (that it can move production abroad with ease) is a disadvantage to well-meaning governments. Multinational corporations therefore outmanouvre local governments. Colin Spencer discusses an example in food industry and concludes that only Europe-wide regulation can place control of industry back into the hands of legitimate legislative authorities.
“[In] 1990 the UK banned the use of the veal crate; no longer could calves a few days old be imprisoned in a create so small they could hardly move and be fed a liquid deficient in iron and fiber for those five months before slaughter. Instead the calves are exported out of the UK and imprisoned in the crates in other EC countries only to return as veal to the UK.”
David Beetham is Professor Emeritus of Politics at the University of Leeds and author of "Democracy: A Beginner's Guide". He points to globalisation as the most modern challenge to democracy, later on this page he also advises on how this can be curbed:
“This freedom of movement by multinationals tends to penalize governments which seek to maintain standards of social welfare, environmental regulation or tax regimes [...], many of the measures which governments have used in the past to develop a coherent industrial policy for their country are no longer possible.”
Which leads us to another example when the EU tried to stop the dumping of large quantities of leather shoes on its shores:
“Ask Yue Yuen, the world's largest contract shoe manufacturer. The company produces more than 180m shoes a year from factories in China, Vietnam and Indonesia, most of them bound for America and Europe. So when the European Union imposed anti-dumping duties in October 2006 on leather shoes imported from China and Vietnam, the firm was quick to raise its production in Indonesia.”
The company simply switched production from country to another, thereby bypassing government rule. "Some historians trace the history of all globalised multinationals to the banking practices of the Knights Templar" a thousand years ago, and this ancient religious order of corporate warriors likewise evaded government control by moving assets and personnel between countries according to where the mood towards them was more amicable14.
Export Processing Zones is the name given to the commercial land where governments concede tax breaks to multinationals. The factories within EPZs are synonymous with what are popularly known as "sweatshops".
“The phrase "tax holiday" is oddly fitting. For the investors, free-trade zones are a sort of corporate Club Med, where the hotel pays for everything and the guests live free, and where integration with the local culture and economy is kept to a bare minimum. [...] Zero-risk globalization. Companies just ship in the pieces of cloth or computer parts - free of import tax - and the cheap, non-union workforce assembles it for them. Then the finished garments or electronics are shipped back out, with no export tax. [...] The Cavite Zone, for example, is under the sole jurisdiction of the Philippines' federal Department of Trade and Industry: the local people and municipal government have no right even to cross the threshold.”
Aside from tax breaks, another important factor alluded to above is with labour laws. Life-saving and society-stabilizing laws such as those on maximum working hours, minimum wages, employment rights and the like, can all be expensive for companies with large workforces. If a government is concerned about the social ill-effects of abusive work practices, it will legislate against such practices, for the good of the populace. But large companies can easily move their factories and warehouses abroad, therefore completely avoiding labour laws. By employing masses of part-time staff, contracting out large portions of their manufacturing and even contracting out the department that deals with their workforce, companies can completely separate themselves from all labour laws, especially by using foreign workforce services. Horrific labour abuses occur inside the export processing zones populated by factories making goods for the West's most popular brands.
“Labour groups agree that a living wage for an assembly-line worker in China would be approximately US87 cents an hour. In the United States and Germany, where multinationals have closed down hundreds of domestic textile factories to move to zone production, garment workers are paid an average of US$10 and $18.50 an hour, respectively. [...]. A 1998 study of brand-name manufacturing in the Chinese special economic zones found that Wal-Mart, Ralph Lauren, Ann Taylor, Espirit, Liz Claiborne, Kmart, Nike, Adidas, J.C. Penny and the Limited were only paying a fraction of that miserable 87 cents - some were paying as little as 13 cents an hour.”
If a country imposes minimum wages or other laws that we might take for granted (for example, the freedom to go to the bathroom at any time), the multinationals move these factories elsewhere. In short, multinational corporations and commercial interests can presently avoid all the socially conscious laws of modern society. Vast parts of the bodies of multinationals have become beyond the law, and there is little that any particular government can do about it. Increasing legislation does not work for the reasons shown and in addition scaring away an industry is often bad news at home. We have seen how governments can be under pressure to conform to the needs of multinationals and the examples above have concentrated on production industries such as textile manufacturing. Similar serious abuses exist in 'extraction' industries, as summarized by Wells and Elias (2005):
“Issues of corporate accountability need to be considered in the light of the changing nature of state power and influence in the international system and the rising power of multinational corporations, whose involvement in human rights violations has a long history. In particular, firms operating in primary sector extractive industries, because of their dependence on fixed geological factors, are more likely to collude with repressive regimes in setting up and protecting their production sites. United Fruit in Guatemala (1954) and ITT in Chile (1973) co-operated with the American government in the overthrow of the pro-labour rights governments of Arbenze (Guatemala) and Allende (Chile). Royal Dutch Shell co-operated closely with the Nigerian military government in suppressing local resistance to oil extraction policies and practices in Ogoniland. Shell made it possible, at company expense, for the military regime violently to suppress environmental campaigners.”
C. Wells and J. Elias (2005)17
The only historically effective method of controlling this corporations, such as Nike, Wal-mart and McDonalds, is for special interest groups to run long-term and aggressive campaigns against specific companies. They are all vulnerable to public relations attacks. When the television shows the nation images of dozens of boxes of Nike trainers emerging from a factory where skinny young girls work for most the day and are paid less than a living wage, the company's image suffers. Brand exposés by groups of concerned citizens effects these companies' income, unlike government legislation that most multinationals can avoid by moving production from one country to another.
“Is it possible for governments to reassert any control over these forces of economic globalisation? The only way for them to do so is through co-operation in international organisations and treaty bodies, through which it might be possible to bring some measure of regulation to international business and finance [...]. In fact, many of the problems now facing governments can only be addressed at the international level.”
Europe and the United Nations has shown the world a new method of corporate control: Mass government co-operation. The European Economic Community, European Union and the United Nations have all taken up the banner where local governments find themselves unable to control abusive companies. The EU "accounts for between a third and a fifth of the world economy"18. Such legislative scope can truly restrict the abusive practices of companies across large portions of the producing world.
“It is a truth almost universally acknowledged: in global economics, the EU acting together is more effective than the sum of its parts. [...] By helping establish commonly agreed rules (in this example, for the world economy, but it could be done for other things), the EU wields an influence it could not otherwise hope for”
Professor of Law Martin Loughlin explains that globalisation undermines the ability of governments to rule, provide community cohesion and regulate the economy. It is clear that inter-governmental accords, even if they place restrictions on governments, are required in order to keep government a viable unit of governance.
“The success of the modern State over the last two hundred years has been based mainly on its ability to foster a distinctive cultural identity of its citizens. Yet it is precisely these claims which are now being undermined by such forces as "global capitalism, [...] and global media and culture" [Axtmann, 1996]. For example, many of the social democratic theories of justice, such as that of Rawls, are devised on the assumption that states are able to assume control over their economies. [...] The State must acknowledge that, to be effective, it must be prepared to work with other powerful agencies [...] in tandem with a range of supra-national governmental bodies. The State, in short, is obliged to share power. [...] By permitting power to be restricted, the sovereign enhances his authority and thereby increases the likelihood of his edicts being obeyed.”
"Sword and Scales: An Examination of the Relationship Between Law and Politics" by Martin Loughlin (2000)7
Loughlin notes that this basic realization is generally called "third way" politics: see Anthony Giddens, The Third Way: The Renewal of Social Democracy (Cambridge: Polity Press, 1998).
Unfortunately such international law is most effective in developed countries but it is in underdeveloped countries that big business does the most harm, unhassled by the poorer and cash-hungry local governments. The Euro-bloc is echoed in African by the struggling African Union (AU), where the continental Union attempts to curb the worst abuses of international industry:
“The African Union was also born out of the realization that in the context of a globalizing world individual states do not have the capacity to survive, at least economically, on their own. The African Union is also an effort to pool together the energies and resources of African people to with-stand and deflect the predatory and exploitative nature of current global trade and financial practices.”
"The African Union: Pan-Africanism, Peacebuilding and Development" by Timothy Murithi (2005)19
The EU is a model of employment law; companies cannot arbitrarily fire people, nor can employees slur their companies without the other side taking them to court. Such orderly and civil life is facilitated by co-operation amongst many governments. On one hand government power has been superseded as areas of law-making are relegated to higher bodies. But on the other hand governments have more power as government legislation through international bodies can be promoted to continental effectiveness, binding companies and workforces that would have otherwise evaded control.”
“There are many examples where the European Commission has worked to eliminate anti-competitive practices, an area where the UK on its own would not have been able to make the same impact. One such example was when in February 2008 the European Commission fined Microsoft €899 million for failing to comply with sanctions imposed on it for anti-competitive behaviour. An investigation in 2004 had concluded that Microsoft was guilty of freezing out its rivals in products like media players while at the same time linking its internet browser to its Windows operating system.”
Department for Business and Innovation Skills (2010)
One hundred years ago, Max Weber foresaw the consequences that unrestrained capitalism could have on democracy if governments did not find ways to effectively curb the profit-seeking that can lead to lawful inhumanity:
“The opportunities for democracy and individualism would look very bad today were we to rely upon the lawful effects of material interests for their development. [...] In the American 'benevolent feudalism' [...] everywhere the house is ready-made for a new servitude. [It] will make the masses 'docile'. Then man will move into the house of servitude. [...] In the face of all this, those who constantly fear that in the world of the future too much democracy and individualism may exist and too little authority, aristocracy, esteem for office, or such like, may calm down. [...]
It is utterly ridiculous to see any connection between the high capitalism of today - as it is now being imported into Russia and as it exists in America - with democracy or with freedom in any sense of these words. [...] The question is: how are freedom and democracy in the long run at all possible under the domination highly developed capitalism? Freedom and democracy are only possible where the resolute will of a nation not to allow itself to be ruled like sheep is permanently alive.”
Another brief excerpt from Naomi Klein highlights the fact that in step with Weber's warning, we are seeing a renewed sense of urgency about the need to curb runaway industry and commerce, in particular with a rise in the number of books documenting the dangers to democracy and government rule.
“Corporations have grown so big they have superseded government. That unlike governments, they are accountable only to their shareholders; [we] lack the mechanisms to make them answer to a broader public. There have been several exhaustive books chronicling the ascendancy of what has come to be called 'corporate rule'.”
Supra-national bodies must come together more to bring unruly industries to account. Some call this socialism in action, others call it the defence of human rights. If companies continue to dance around government rules then it is both democracy and human rights that suffer: Democracy is broken is governments cannot make effective legislation. Now, in the face of multinationals and modern technology, only institutions than span countries are capable of re-vitalizing governmental power over harmful run-away industries.
We elect our governments: we need to either come together into larger, more organised units and elect governments that are multinational, or we need our governments themselves to come together. The EU is potentially one such imminent consolidation of democracy. The new, bigger institutions are staffed by employees of elected government. On the other hand the powerful managers within multinationals, whose decisions affect thousands of workers, national economies, the environment and more, are not elected. New, larger governmental institutions need to exist that can regulate business more widely, and therefore empower democracy.
Corporate Social Responsibility (CSR) has become a popular buzzword among businesspeople. Many companies are supporting schemes that are trying to help people on the ground. An accountancy firm in 1996, KPMG, started out allowing its staff to work 2 hours a month doing community work, during work hours. "After a while it came to be seen as a business benefit. The programme has expanded to half a day a month and now adds up to 40,000 donated hours a year", reports The Economist, which ran an article on such schemes and provides us with some more examples:
“In the lobby at the London headquarters of Marks & Spencer, one of Britain's leading retailers, the words scroll relentlessly across a giant electronic ticker. [...] The company will help to give 15,000 children in Uganda a better education; it is saving 55,000 tonnes of CO2 in a year; it has recycled 48m clothes hangers; it is tripling sales of organic food; it aims to convert over 20m garments into Fairtrade cotton.
Beyond the corporate world, CSR is providing fertile ground for think-tanks and consultancies. Governments are taking an ever keener interest: in Britain for example, the 2006 Companies Act introduced a requirement for public companies to report on social and environmental matters. And the United Nations promotes corporate responsibility around the world through a New York-based group called the Global Compact. [... It] spans everything from volunteering in the local community to looking after employees properly, from helping the poor to saving the planet." [...] A survey carried out by the Economist Intelligence Unit... shows corporate responsibility rising sharply in global executives' priorities.”
The same newspaper wrote in 2007 that "if you believe what they say about themselves, big companies have never been better citizens"22. The causes of such good-guy-badge behaviour are multiple and varied. Companies are having to work harder to protect their reputations. Scandals, undermined trust in big business, pressure groups ran by activists and concerned citizens, have all meant that companies are being watched more than ever. The main organisational force has been globalisation; companies are followed from country to country by activists that are internationally organised. No longer are sweatshops hidden from Western eyes. Increased news coverage of corporate misbehaviour, the rise of internet reporting (in particular user content) and the watchful eyes of bodies such as the EU and United Nations departments.
Current edition: 2006 Mar 10
Last Modified: 2017 Jan 25
Parent page: Democracy: Its Foundations and Modern Challenges
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The Economist. Published by The Economist Group, Ltd. A weekly newspaper in magazine format, famed for its accuracy, wide scope and intelligent content. See vexen.co.uk/references.html#Economist for some commentary on this source..
Alston, Philip. Professor of Law at New York University and Director of its Center for Human Rights and Global Justice. Editor of the European Journal of International Law since 1997.
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(2005) The African Union: Pan-Africanism, Peacebuilding and Development. Hardback book. Published by Ashgate Publishing Limited, Aldershot, UK. T. Murithi is Programme Officer, Programme in Peacekeeping and Preventative Diplomacy. United Nations Institute for Training and Research, Switzerland.
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