Multinational Corporations

I am having some difficulty with these readings on multinational corporations. While I am, on the one hand, persuaded by the arguments presented by Wolf in favor of allowing market forces to determine investment and wages in developing countries, I am less convinced that the market is capable of bringing about the kinds of changes which are needed to safeguard shareholders, hold executives accountable, and protect the environment. Corporations need not be lambasted as destructive and undemocratic. Certainly cases exist where destructive methods are used, but it is not the case that they bring only ill-effects to those countries which attract their investment. The fact that these corporations provide new jobs at above average wages demonstrates this. Yet, while Wolf provides a theoretical justification for the multinational corporation as it currently exists, his rationale fails to adequately address remedying or protecting against the damage that such corporations have the potential to do.

The example that Stiglitz provides of the Union Carbide plant explosion in India is a helpful one. Here the issue is not whether or not Union Carbide belonged in India, was welcomed, or was benefiting its employers. Maybe their plant created a lot of great jobs, maybe their investment was good for the region, maybe they did many things right. Yet when an accident happened that resulted in the death of thousands of people, there was no effective way to hold executives responsible for the damage done. I am not suggesting that US citizens be routinely turned over for trial in other nations, yet there needs to be some way of ensuring corporate responsibility on an international scale. If a corporation wants to seek out a cheaper source of labor, they should be able to do so, but if their goal is to skirt around regulations (environmental, health etc) they should be prevented.

The biggest question is whether competition for foreign investment results in the kind of “race to the bottom” that Stiglitz is fearful of. Will developing nations gradually cut back on more and more regulations, offer subsidies and tax breaks as a means to entice foreign investment. Wolf denies that such a phenomenon will take place, but I am not entirely convinced that market forces alone will be able to prevent such a backwards movement in regulations. As of now, developing nations have great incentive to be lax in their regulation of multinational corporations. It would be foolish to assume that they will not act on those incentives and compete with other similarly situated states for corporations seeking to establish a new factory or plant.