Multinational Enterprises (MNE)

This paper takes the position that Multinational Enterprises (MNEs) do improve rather than exploit foreign labor’s working conditions on the ground that globalization has been adopted by more countries, and that this must be deemed to have s resulted to more benefits for the workers of these countries who wanted these MNEs to come in to their countries.

The increasing number of countries who want to join the WTO further proves that MNE could thrive to help the economies and working conditions of many. This paper will support with evidence the above thesis by leaning on the positive view of the coin that it is more plausible for multinationals in particular to do good rather than exploit the working condition of foreign countries.

When more countries adopt globalization (Editorial, 2000) as economic strategy by joining the WTO, MNEs are in effect encouraged to do more of their business across countries. To argue otherwise that globalization will discourage MNE is simply against theory and human experience. If WTO has the objective of less restricted economic ties among members, more trade investment liberalization is also expected.

This would be consistent with what  BIAC (2003) claimed that trade and investment liberalization foster economic growth, creates wealth and improves labor conditions, and will also end up in a better division of labor between countries based on comparative advantage.  Liberalization will in turn promote a focus on productivity improvement, management skills and facilitates integrated links to markets (BIAC, 2003) since globalization encourages the growth of foreign direct investment (Kumar N. and Pradhan J.P., 2002).

Countries that have more MNEs have resulted to more benefits for the workers of said countries.  The existence of MNE in different countries as evidenced by more foreign direct investments (Hansen H. and Rand J. ,2004) are also proofs of continuing trust of host governments for the  beneficial effects of MNEs in terms of more employment opportunities and better lifestyle of those working in MNEs than their local counterparts.

Given these two arguments and their corresponding proofs opposing persons of globalization have their criticism as discussed below.

It is being claimed by people who oppose globalization that multinational national enterprises exploit labor in poor countries.  Bhagwati (2005) mentioned the fact that anger has been aroused by the supposition that rich, deep-pocketed corporations pay  unjust or inadequate wages to their workers outside their home country and that these MNE are even branded as labor rights violators (Bhagwati, 2005).  The line argument of the critics is centered on the assertion that that if a certain branded product  sells for $200 in New York, the female worker or laborer abroad who sews it and for which the MNE paid  only 60 cents an hour, exploitation was already believed to be found.

A reasonable mind would readily see the flaw in the argument as there was no forcing on the part of the MNE to have the female laborer to do the work at 60 cents per hour.  It was a free market where a typical entrepreneur would like to produce a product at a lower cost.  If the business entity is not an MNE, would there be no exploitation also?  The critic’s argument simply appears faulty in the crucible of common sense.  Could it be that MNE which can move its goods across countries that solidifies the exploitation?  Said argument would be faulty as well since it must be made clear that the MNE still has to spend transportation cost, distribution cost and even tariff duties in bringing the goods from third world country to the United States.

To further prove the lack of merit of the claim that MNEs pay their workers only minimal  wages,  Bhagwati (2005) cited a recent study of the profits performance of more than two hundred  companies in the 1999 Fortune Global 500 list which a very minimal profit on foreign assets of only 8.3.  This means that the foreign companies may just be earning just same or a little above their cost of capital.

In countries where there are strong political and economic risks, the 8.3 % could should still be reduced by inflation factor and this could make it lower than the price of just simply making investment in the US treasury bills which ranges about 4 to 5%.  It is therefore very hard to see the evidence of exploitation if the it meant the huge profit despite against low labor costs in poor countries.

Another evidence cited on wage payments were on good empirical studies that have been conducted in Bangladesh, Mexico, Shanghai, Indonesia, Vietnam, and else where these studies revealed that that multinationals actually pay an average wage that is above the going rate in the area where these MNE are located.  It was also found that affiliates of some U.S. multinationals pay a higher rate over local wages that ranges from about forty to a hundred (Bhagwati ,2005).

In another cited Bhagwati, (2005) cited confirmatory result from that of the economist Paul Glewwe, using Vietnamese household data for 1997-98, Glewwe found that workers in foreign-owned enterprises generally make almost twice the salary of the average worker employed by a local Vietnamese company.

What comes out of the comparison made by critics on wages simply misread that needed to be compared.  Comparing the salary of a worker in the US with the counterpart worker in another of less economic status is simply faulty.  A better comparison is to be made by comparing the life style of an MNE worker than its counter part local worker since the advantage or disadvantage could only be felt in said place.  This was seems to be framework of Glewwe’ finding when the economist  pointed out that 1990s increases in Vietnam’s household income using per capita consumption expenditures as basis of measurement were above the  average increases for all Vietnamese households. (Bhagwati,2005)

There are also accusations that global corporations violate labor rights.  Bhagwati(2005) reported that case of where anti-globalization activists having sometimes made and announced lie as in the case of IKEA which was accused of exploitative child labor by its suppliers but was latter found by a German film which has documented that the abuse was simply create by activists.  (Bhagwati ,2005).  Added to the example of faking by activist was the claim “that the chocolate sold in rich countries relies on slave labor by children in the cocoa plantations of the Ivory Coast” where is found that the stories and charges  were false.

A more objective analysis of the claims and their arguments would reveal the weakness of these claims against MNE.  The lack of employment opportunities for poor countries has actually the government of these poor countries to open up their economies.  Opening up their economies allow their labor laws to be flexible enough to allow Men’s to complete in the global market (Samuelson and Nordhaus, 1992).

To conclude, there is basis to uphold the thesis of this paper as we have proven that the arguments claimed by those who oppose globalization are bereft of evidence or some of these evidences may have been manufactured to their own arguments.  Multinational enterprises do not impose their entry upon other poor countries as they are being invited to come into by the other countries act joining the WTO.  Such voluntary joining will carry the presumption that these MNE promotes employment generation and help in the economic growth of the countries opening up their economies rather exploit the working conditions of said countries.

References:

Adewumi (2006) The Impact of FDI on Growth in Developing Countries an African Experience, {www document} URL www.diva-portal.org/diva/getDocument?urn_nbn_se_hj_diva-711-1__fulltext.pdf, Accessed June 6, 2007

Bhagwati, J. (2005) Do Multinational Corporations Hurt Poor Countries?  {Www document}  URL, http://www.taemag.com/issues/articleid.18014/article_detail.asp, Accessed June 6, 2007

Business and Industry Advisory Committee to the OECD (BIAC), (2003) G8 Labor and Employment Ministers Conference “Growth and Employment: The Future of an Active Society in a Changing World” Statement of the Business and Industry Advisory Committee to the OECD (BIAC), Stuttgart, Germany, December 14-16, 2003, {www document} URL http://www.biac.org/statements/elsa/Final_2003_G8_Stuttgart_BIAC_Statement.pdf, Accessed June 6, 2007

Editorial (2000) Merged with Tide of Economic Globalization, People’s Daily Online, {www document} URL http://english.people.com.cn/english/200002/01/eng20000201A106.html, Accessed June 6, 2007

Hansen H. and Rand J. (2004) ‘‘on the casual link between FDI and growth in developing countries’’.  Discussion papers, Institute of Economics, University of Copehagen.  Denmark

Kumar N. and Pradhan J.P. (2002) ‘‘Foreign direct investment, externality and economic growth in developing countries: Some empirical explorations and implications for WTO negotiations on investment’’ Research and information system, New Delhi India.

Samuelson and Nordhaus (1992), Economics, McGraw-Hill, Inc, London, UK