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Summaries of session 3
The role and impact of TNCs What is the impact and experience of TNCs in other study circles in the project? Take turns to read out to each other extracts from what other study circles have written. Discuss briefly what differences and similarities there are with your own experiences. The facilitator should record the main points of the discussion.
Why do TNCs roam the world? What are the factors that TNCs are looking for in different countries when they are deciding to invest? Make a list of the factors. Give examples where you can and add in from your readings during the week and the experiences you have just read from other study circles. The facilitator can add information from the course materials Why do TNCs roam the world?
The facilitator records the main points of the discussions, and hands out copies of 'Why do TNCs roam the world?' for study circle members to keep.
How are people and their organisations responding to the challenges of TNCs? Based on your own knowledge and experience, write up on flipchart paper the different ways that you can think of: Think about
For each of them, consider activities at the local, national and international levels.
The study circle evaluates the session, using the form provided.
Please prepare for the session by thoroughly reading the information sheet 'Why do TNCs roam the world?'. You should be ready to add in to the discussions from it.
A key concept is that TNCs are extremely adaptable and mobile, moving around the world to find the conditions that suit them, and being prepared to move again when those conditions change. This puts governments in an extremely difficult position, as they compete with each other to win investment and jobs.
What incentives does your government offer to attract investors? It is possible that your study circle members may not know very much about this. If you think this is the case, you may like to prepare for the session by finding out.
Another key area is to debate whether this global competition is good or not for the overall development of your country and its people, or indeed the world as a whole.
It is important to end with the discussion on 'What can we do about TNCs?' so as to avoid the study circle members leaving the session feeling overwhelmed by the power of TNCs and despondent. You can remind the study circle that this is just a beginning. We will study these issues in more depth later in the course.
Capitalist enterprises must compete to survive and make the best profits they can. When looking at where to invest, each TNC looks at the different advantages and disadvantages of each country. It makes its assessment according to the type of activity it has and its overall strategy.
What factors does a corporation look at when thinking about moving to a country?
Scott Thomas, the American who heads Reebok's operations in Indonesia, says "Cutting costs is part of our business. It's difficult for anybody to compete with China because wages there present a tremendous competitive factor."
Some industries such as garment-sewing or electronics assembly need many workers. So they produce where labour costs are low, usually because of union repression. Companies benefit from low wages, weak labour protection laws (for example health & safety laws), and the absence of social welfare schemes such as pensions. China and Indonesia are two countries offering very low labour costs.
Tan Chuan Cheng owns a factory in Indonesia employing 6 400 workers to make Reebok shoes. Reebok pays Tan US$10,20 for a pair of shoes which sells for more than US$60 in the USA. Wages account for about US$1,40 in each pair.
Tan told a US union researcher he would like to pay his workers more but he can't. "Even if all the Reebok producers got together and went to Reebok and said, 'Give me 13 dollars for these so we can pay workers more', it wouldn't work. I think they would say, 'We'll go to China and pay 8 dollars'. But I wouldn't even risk asking for fear of what might happen."
These TNC strategies make workers worldwide compete with each other for jobs in an international auction. Where higher wages or working conditions have been won in one country, workers come under pressure to give them back or the TNC threatens to move elsewhere. The threat is real. In this way workers are pulled into a "race to the bottom".
Competitive' wages in the world are now around US$10-20 per month. They can be as low as US$7-8 in the poorest countries.
1% of Nike's advertising budget would lift 10,000 Indonesian workers above the poverty line.
Winning a dominant position in a market is a very important strategy for some TNCs. For example, Japanese companies moved production to Britain so as to get inside the European Union's protected market.
Privatisation is another way of creating a new market for a TNC. Services that were previously run by government on behalf of the citizens, such as water and electricity supplies, are now run by private companies in many countries.
Some TNCs are interested in making sure that the supply of raw materials that they need is under their own control, rather than buying them on the open market.
Countries of the Third World are still major suppliers of raw materials, and this is one reason for some TNCs to be active in these countries.
"Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs (less-developed countries)? I've always thought the under-populated countries in Africa are vastly under-polluted, their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City." Lawrence Summers, former Chief Economist of the World Bank, in a confidential memorandum in 1992. For Summers, pollution equals good business. He is currently Deputy Secretary of the US Treasury under the Clinton administration.
Companies facing higher environmental standards or health and safety legislation in North America and Europe have transferred hazardous production processes to countries where standards are lower, especially in the Third World. Just 20 TNCs control 95 per cent of world trade in pesticides. One third of their exports to developing countries are pesticides which are banned in the country where they are manufactured. This puts workers and communities there at great risk.
All over the world, governments support the TNCs. Many appear to think there is no alternative.
Governments in industrialised countries such as the USA and the UK give massive support to their corporations to go transnational. They do this through their trade and aid programmes and they also use their power in the International Monetary Fund (IMF), the World Bank, the World Trade Organisation (WTO), and the Organisation for Economic Cooperation and Development (OECD) to put almost unresistable pressure on developing countries 'open up' to the TNCs.
The European Union and the US Government are pushing for a new international agreement called the MAI or Multilateral Agreement on Investment to be accepted by the OECD. Under the MAI, governments will not have the right to select the kind of investment they want, and companies do not have to respect the rights of citizens and workers, consider environmental impact, transfer technology or be open about their activities. It is likely that the MAI will be signed in 1998.
In developing countries, the high level of unemployment and the fear of losing foreign investment is probably the single most powerful weapon that TNCs use to achieve favourable investment conditions.
In country after country, governments compete with each other to offer the most attractive packages to foreign investors. They allow tax 'holidays' or low taxes. They allow corporations to send back most or all of their profits to their home-base rather than make them re-invest it in the host country. They limit the powers of unions and try to impose the kind of political and economic stability which is in the interests of the investors.
Some governments build special zones called 'Export Processing Zones' (EPZs) or 'Free Trade Zones' with roads, buildings, services laid on at little or no rent. In many EPZs labour laws do not apply and there is anti-union repression. In some countries, the whole economy is made 'export-oriented' and the currency is devalued. This helps TNCs which produce for export by making their prices cheaper on the world market, but it hits the country's people with higher prices for imports. The IMF and World Bank make export-orientation a condition for their loans.
These are the main factors which TNCs take into account when deciding to invest in a particular country.
TNCs are extremely adaptable and mobile, opening and closing plants, moving around the world to find the conditions that suit them, and moving again when those conditions change. This puts governments in an extremely difficult position, as they compete with each other to win investment and jobs.
Unemployment is a growing phenomenon worldwide, and many people see foreign investment as a vital way of creating jobs.
About 73 million people in the world work for TNCs. But three-quarters of them are in the industrialised home countries of the corporations. In the Third World TNCs employ only a tiny portion of the workforce and the number is not growing, except in Export-Processing Zones and in a few countries like China.
TNCs do not create many jobs in relation to the capital they control. Between 1957 and 1987, the world's top 500 TNCs doubled their number of workers but their income went up eleven times in that period. Since then, however, the TNCs have been massively cutting jobs no matter if they are making big profits or small ones.
The operations of TNCs can also cause job losses. Smaller local companies may not be able to compete with them and go out of business. Rural families get pushed off the land when agribusiness takes it over to produce food crops for export. As a result, there is economic growth in the world today but it is often 'jobless growth'. Despite economic growth and huge profits, more and more people are unemployed.
Another aspect is the quality of the jobs that are created by TNCs. Working people need the security of a permanent job at a living wage. However the trend today is going towards increasing insecurity for workers. More and more jobs are becoming 'casual', with terms and conditions that put workers in a permanent state of insecurity. Sub-contracting is growing, and coupled with attacks on trade unions, this leaves workers in an ever more vulnerable position. Becoming 'globally-competitive' means joining in a 'race to the bottom'. So TNCs are not effective job providers, especially to meet the urgent challenge of mass unemployment.
Working women are hit the hardest!
The 'global factory' of TNCs is affecting workers throughout the world, but the effects are not the same on all workers. Overall, the worst working conditions are experienced by women in developing countries. Many TNCs see women as a flexible supply of labour who can be hired and fired to suit the company's needs. There has especially been a shift to exploiting women workers in Export-Processing Zones, where governments attract TNCs through special incentives.
Today, 70% of the world's poor are women and in almost every country women are working longer hours than men. About 40% of the world's workers are women and often they have entered the global production process as a result of 'restructuring'. As TNCs changed permanent, formal jobs into insecure, casual part-time, or homeworking jobs through subcontracting, they took on more and more women. This means that many women are facing irregular, non-permanent and unprotected work. TNCs also hire women rather than men because they can be paid less. They view women as more obedient and dextrous, or more nimble with their fingers than men. They use sexist stereotypes to exploit women
Privatisation is one of the main ways in which TNCs are expanding worldwide. When public services such as water supply, health services, or waste management are sold or contracted out, those who benefit are often large TNCs, particularly from the USA and Europe.
The range of services being sold or contracted out to TNCs is huge and growing. It includes healthcare, water, electricity, transport, construction, cleaning, catering, waste disposal, street cleaning, leisure, telecommunications, prisons, and government administration. In industrialised countries where a good standard of welfare service had been built up, services are getting worse. In developing countries public services are not getting off the ground.
Trade unions worldwide believe that privatisation enriches the private corporations at the expense of services and jobs.
The state sector can provide many permanent jobs with decent terms and conditions and union recognition. But jobs in privately owned service industries are usually casualised, part-time work or on short-term contracts. Trade unions find it very hard to organise workers in these jobs and to secure decent wages and working conditions.
In Britain, privatisation has gone very deep under the right-wing conservative governments. The British public sector trade unions are pointing out that:
The Public Services International is the international body (ITS) for trade unions in the public sector. The PSI is at the forefront of gathering and sharing information between trade unions about the TNCs that are involved in privatisation.
The PSI has been developing databases of information on the companies involved in water, waste, energy and health. It also has a network of research organisations around the world, including the PSPRU in London (see above) and the Public Sector Research Centre in Australia. They monitor the situation locally and contribute information to the PSI databases. Information on individual companies can be drawn out from the databases very quickly and sent to affiliated unions. It includes reports on how the companies are involved in corruption or fraud, plus directors' pay, as well as their labour practices and standards of service that they deliver.
In 1996, a PSI affiliate in Pakistan contacted the PSI. The Pakistan government had decided to sub-contract the management of electricity boards in the cities of Lahore and Gujranwala to a US company, the Wing Group. According to local newspapers, the decision was taken without even inviting bids from competing companies. The deal gave the Wing Group huge financial benefits. The union held mass demonstrations in protest.
The information which the PSI was able to send to the union in Lahore included details of a takeover of the Wing Group by another US company Western Resources, basic information on both companies, their activities in the USA, China, Turkey and elsewhere, and their dealings with unions. The PSI also gave information on the Government of Pakistan's Strategic Plan for restructuring the power sector, the involvement of the World Bank, and Japanese financing. The union used the information to back up its condemnation of the government's strategy. It said the government was endangering national sovereignty and allowing exploitation of the country's resources by foreign entrepreneurs
In the same year, the PSI also reported some good news from its affiliated union in Lithuania. The water and waste services in the second largest city in the country, Kaunas, are staying in public hands and not being privatised. Kaunas City has received the help of Stockholm Waters, which is wholly owned by the municipality of Stockholm city in Sweden.
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