In Defence of Multinationals

Multinational Corporations (MNC’s) often get a bad rap, and they are usually seen as a source of exploitation and oppression. This mindset goes back at least to Lenin. Following Marx, Lenin argued that capitalism is inherently imperialistic, and one country becomes enriched only by the impoverishment of another. The West is wealthy, he argued, because it bleeds dry the Third World.

A few quick facts dispel this theory, however. First, imperialism has been around for millennia. Consider the ancient Roman Empire. Second, those parts of the third world that have had the most contact with the West generally are much better off than those that have not had so much contact. Third, many of the poorest countries today had no contact with the West. Consider Afghanistan, Tibet, Nepal and Liberia. Fourth, many of the most advanced and richest nations never had colonies (Switzerland) or were themselves colonies (Australia, America, etc.)

Thus the idea that the Western world is somehow to blame for third world poverty is largely a myth. That is not to argue that the West is free of any wrongdoing. It has made its fair share of mistakes, and certainly is not above criticism on many fronts.

The same can be said about MNCs or transnationals. They have often abused their power and put greed and profit ahead of humanitarian concerns. But MNCs have also done a lot of good. Indeed, they have actually done much to combat poverty in the developing world. This is the theme of a new article by Allister Heath penned in the Spectator.

The piece was reprinted in today’s Australian (December 19, 2006). Entitled, “The gift of work is best of all,” he argues that MNCs, not do-gooder charities, bring festive cheer. He begins his article this way:

“Here’s a provocative thought for Christmas. Instead of buying your nearest and dearest one of those charity goat-for-Africa cards, it would make far more economic sense to buy them a few shares in a multinational corporation that is going to help boost the African economy. It may be deeply unfashionable to say so, but the much-demonised multinationals do far more for the poor than all the world’s charities put together.”

He argues that capitalism is the best means of dealing with poverty in the developing world. Charities certainly have a vital role to play, but the real solution to overcoming systemic poverty is to allow the free-market to take root.

“Charity workers should not take this personally. They are doing their best in appalling conditions and have saved or improved millions of lives. But however hard they work, and however many goats they provide, there is a limit to what they can do. The stark reality is that the remarkable alleviation of poverty witnessed in recent years in Asian countries such as India and China has nothing to do with handouts and everything to do with governments embracing the institutions of capitalism. The only way sub-Saharan Africa will be able to feed and clothe its people is if African politicians follow suit, and that is where multinationals, the foot soldiers of the market economy, come in.”

But for this to happen, we need to reject many of the myths about MNCs. We need to realise that much of what is being said about them just ain’t so.

“The widespread view, even among those who should know better, is that multinationals exploit workers in poor countries by paying them extremely low wages and keeping them in sweatshop conditions, then make a bundle by selling the goods they make at huge profit margins in the West. A related argument is that multinationals regularly violate the human rights of their poorest workers and perpetuate the disgrace that is child labour. But the truth, as is so often the case, is the opposite.”

Consider some of the facts: “As Jagdish Bhagwati, the eminent Columbia University economist and author of In Defence of Globalisation, argues, a raft of empirical studies has been conducted in Bangladesh, Mexico, Shanghai, Indonesia, Vietnam and elsewhere, and the findings are straightforward. Far from exploiting the rock-bottom wage rates generally paid in the poorest countries, multinationals tend to pay well above the going rate in the areas in which they are located. In the case of US multinationals, pay is 40 per cent to 100 per cent above local wages. No wonder locals queue up to get a job whenever a multinational opens its doors in a poor country: wages that may look miserable to us allow their recipients in Burma or Bangladesh to live in relative comfort.”

Heath also argues that working conditions tend to be better in factories owned and operated by MNCs than in their local competitors, and profit margins tend to be much less than is supposed. He cites Vietnam as a case in point.

“Workers fortunate enough to work for multinationals there enjoy a standard of living that is twice as high as that of the rest of the population. In a paper debunking the sweatshop myth, Paul Glewwe, a leading development economist, revealed that the average wage-earner in Vietnam earned US23c an hour, but workers in foreign-owned businesses fared far better, making an average of US42c an hour. When Glewwe conducted his work, 15 per cent of Vietnamese were classified as very poor and 37 per cent as poor. But nobody working for multinationals was classified as very poor and only about 8 per cent were poor, proving that working for a foreign company is the best way to escape poverty and deprivation. Foreign employers drive wealth creation, pushing up everybody’s wages.”

Women seem to also benefit from MNCs: “The presence of multinationals in Vietnam also disproportionately benefits women and the young, two groups that are usually marginalised in poor countries. Two-thirds of workers in foreign-owned businesses in Vietnam are women, and nearly two-thirds are in their 20s, confirming that globalisation is driving social change and female emancipation.”

All of this is not to suggest that MNCs are always paragons of virtue, and all is sweetness and light with globalisation and international commerce. But neither are MNCs the work of the devil, as so many leftist critics claim.

The mainstream media tends to be dominated by those on the Left, and often their anti-Americanism and anti-capitalism is so pronounced that an objective presentation of the facts is often hard to come by. Thus it is important that a proper debate be allowed to take place, with all voices being heard.

Heath may be giving one side of the story, but we have mainly been given just the other side of the story. Thus his arguments need to be heard and assessed. They may not convince all, and need not. But they help to bring some balance to what is often a very one-sided debate.,20867,20948144-7583,00.html

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One Reply to “In Defence of Multinationals”

  1. Very interesting article, Bill.
    I certainly agree that capitalism and foreign investment is the way to enrich poorer countries, as opposed to simply throwing aid at them. What I would like to see though, is a vast improvement in their Labour laws, perhaps with stronger Union representation.
    For mine, going from 23c per hour to 42c per hour is a bit like cutting one arm off instead of two – it may be an improvement, but it’s still a terrible situation. I remember when the “60 minutes” program went to Bangladesh to cover the plight of those who work for western corporations, they found that the working conditions were quite terrible and the employees still lived in shanty towns, despite a rise in their previous levels of income.
    Thanks again,
    James Brimblecombe

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