Global Policy Forum

By S. Prakash Sethi

There was relief in corporate America when the U.S. Congress finally granted permanent normal trade relations to China. Of course, China's most-favoured-nation status was never in any doubt; the United States has extended China's MFN status every year despite Tiananmen Square and other incidences of human-rights violations. What was at stake was finally ending the spectacle of China being excoriated yearly for its human-rights abuses, and the leaders of U.S. businesses trooping to Washington to advocate their support for China.

But large multinationals are mistaken if they now hope to escape future public scrutiny. Lacking effective means of changing the behaviour of repressive regimes, human-rights groups and concerned citizens of the West will focus more attention on the conduct of multinationals in developing countries. Multinationals have justified increased international trade and the globalization of economic activity on the grounds that they lead to economic growth and prosperity and contribute to the fostering of democratic institutions. Such assertions are made almost as truisms.

Yet they are actually untenable claims. America's trade with China has risen six-fold in the last 10 years and now stands at $85 billion. In the same period, U.S. investments there grew to $56 billion from $32 billion. Yet one would be hard-pressed to find commensurate gains in democratic institutions or the enhancement of human rights in China. The irony is that in their home countries, multinationals depend on democratic systems of governance, the rule of law and open societies to protect their interests and enable them to thrive. At the same time, they make enormous gains in countries where authoritarian and nondemocratic regimes deliver on the promise of disciplined labour, low wages and lax controls on environmental protection and human rights. Thus, they seek to protect the gains of their exploitation in developing countries under the umbrella of their home country's democratic institutions.

In the interest of honesty, we must of course face the fact that corporations operate abroad first and foremost to make money. All else is secondary. We should not expect them to justify their conduct on an ideal of supporting democratic institutions. In the real world, their influence on local governments is minimal. Moreover, multinationals are unlikely to exercise whatever influence they might actually have if this adversely affects the efficiency and profitability of their normal business operations.

What we should expect from the multinationals, however, is accountability for their conduct in their own operations and the operations of their local suppliers and strategic partners. They must demonstrate that they are not abusing their bargaining leverage against their workers. They must ensure that workers live and work under safe and healthy operating conditions, are not forced to work excessive overtime hours, and are paid wages that, at a minimum, meet local labour laws. Workers should not be treated as if they were appendages to machines and disposable humans. As leaders of First World enterprises, multinational corporations should help workers enhance their skills, via investments in human capital.

They do all this and more in their own countries. How can they do less under conditions that cry for human decency and fairness, and still call themselves socially responsible? Indeed, failing here, they risk producing a large cadre of workers who will not become loyal consumers. More, they must be prepared to face the wrath of "consumers of conscience" and suffer the consequences of a loss of public trust, resulting in more government regulations, public antipathy and the withdrawal of support from important constituencies, including shareholders.

Globalization has contributed enormously to the production of wealth. But this is distributed in favour of those who control capital, against those who contribute labour, especially in developing countries. According to the World Bank the disparity between rich and poor countries has grown 10 times wider during the last 30 years. We cannot help but accept the fact that developing countries need industries that employ masses of unskilled and low-skilled workers. And, yes, low wages are a necessary ingredient for creating more employment and income growth. But these industries don't need to operate under sweatshop conditions with people in virtual human bondage. If this is all we have to offer as an example of the Western way of doing business, we have no business priding ourselves for human dignity and democratic capitalism.

The writer is University Distinguished Professor at the Zicklin School of Business, Baruch College, City University of New York. He chairs a commission that audits an international company's compliance with its code of conduct.

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