Paris, Tuesday, October 10, 2000 Transnationals' Critics Miss the Point Thinking Ahead/ Commentary
By Reginald Dale International Herald Tribune
WASHINGTON - Transnational corporations have always made great scapegoats. Those with a grudge against international capitalism denounce them for exploiting Third World countries and grinding down workers at home like modern-day robber barons. Charges of exploitation look weaker now that virtually every government in the world is struggling to attract the investment, jobs and technology that only transnational corporations can deliver. But that development has only exacerbated complaints that jobs are being jeopardized in the richer nations.
Such allegations are made in a report submitted last month by Kate Bronfenbrenner of Cornell University to the U.S. Trade Deficit Review Commission. The report castigates American bosses for fomenting insecurity among workers by threatening to move operations abroad, or close factories altogether, whenever labor unions seek to gain a foothold.
The report paints the familiar caricature of U.S. corporations migrating around the globe ''in search of lower and lower labor costs and higher and higher profit margins.'' Similar accusations are frequently leveled by union-inspired student activists railing against Third World sweatshops.
Transnational corporations are no saints. They put their own interests, or, in the case of U.S. companies, those of their shareholders, first. But they should at least be criticized on the right grounds. As another report this month shows, there is little evidence to support these well-worn complaints against them.
The World Investment Report 2000, published by the United Nations Conference on Trade and Development, confirms that transnational corporations are playing an ever bigger role in the world economy. ''International production now spans - in different degrees - virtually all countries, sectors, industries and economic activities,'' it says.
More and more countries realize that foreign investment is vital to prosperity and are changing their policies and regulations to attract it. Living and working conditions are likely to be worst where foreign investment is lowest.
The pattern is nothing like the one that the critics depict. Karl Sauvant, chief author of the Unctad report, noted in Washington last week that 80 percent of foreign investment in manufacturing goes to industrial countries. The remainder that goes to developing countries is rarely dictated by labor costs.
The main determinants of investment are the size and growth potential of local markets and such factors as ease of transport and communication. Far from looking for countries with low labor and environmental standards, transnational corporations favor those where the rules of the game are clear. Uncertainty, as for example in Russia, deters them.
In a few industries, such as shoes and textiles, individual plants have sometimes been moved to where labor costs are lowest. But there is no systematic international conspiracy. American opponents of transnational corporations often ignore, or conveniently forget, that much more foreign investment flowed into the United States in the 1990s than flowed out.
The criticisms sit uneasily with the lowest U.S. unemployment in 30 years. In fact, as the Federal Reserve has pointed out, the possibility that capital may move overseas has helped to keep employment high by holding wage increases and inflation down.
What's more, the Cornell University report concedes in a roundabout way that threats to move abroad - though effective in limiting union penetration - are almost always bluffs. Such threats have recently been implemented only in 3 percent of cases, a much lower rate than in the mid-1990s.
But that does not make the robber baron analogy totally invalid. The Unctad report draws an intriguing historical parallel between the reshaping of U.S. business in the late 19th century and what is happening at global level today.
Just over 100 years ago in the United States, a wave of mergers and acquisitions helped give birth to a national market and production system, setting the stage for the dominant role of big business in the 20th century. Today's explosion of international mergers and acquisitions may mark the emergence of a global market and truly worldwide production.
As Mr. Sauvant sees it, just as the birth of big business led to the development of national antitrust law in the United States, so worldwide competition policies are likely to emerge gradually in the years ahead. He is probably right.
E-mail address: thinkahead at iht.com