United Nations Businesses Will See Benefits On

							                            Contra Costa County Model United Nations 2010

                                        World Economic Forum

                          Topic A: Multinational Corporations & Development



Background of Topic

Companies of the modern age do business with each other in an environment that is drastically different
from that of their predecessors. International operations, once considered a costly and difficult
endeavor only to be undertaken by the largest of businesses, are now possible on levels and scales
previously unthinkable. Technological advancements, such as the internet, along with a global shift
towards trade liberalization mean that never before in history has business across national borders been
easier. As a result, international business has never been more commonplace.

As nations receive international investment and economic activity, their citizens see a portion of the
rewards. Foreign companies pay taxes and employ locals, which increase both, personal income and
government budgets. These benefits, both to national economies and personal well-being (life
expectancy, GNP, child mortality, etc.), fall into the category of development. Because international
business has become so prevalent within the global economy, development today is linked to the
globalization of business and the emergence of multinational corporations (MNCs). These multinational
corporations build production facilities in areas outside of their home country and are able to reach new
communities in the global marketplace. For example, Coca-Cola now sells its soft drinks in over 200
countries worldwide while 27 percent of Microsoft’s computer software revenue is earned outside of
the US.

These corporate giants have developed into important international actors in their own right—their
budgets, organization and influence on the world stage rival most nations. In 1992,
General Motors’ sales ($134 billion) were larger than the GDP—the gross domestic product—of all but
the 21 largest national economies, well ahead of Denmark ($124 billion), Norway ($113 billion) and
Saudi Arabia ($111 billion). The power and influence wielded by these companies has caused concerned
parties within the international community to raise questions regarding the responsibilities of MNCs
towards the development and well being of the countries in which they operate.

Critics of MNCs often cite several important concerns. They argue that multinational corporations
pollute in order to save money, damage social networks, establish “sweatshop” production (where
companies hire poor locals to work in dangerous factories for long hours at a low wage) and child labor,
and contribute to unequal distribution of wealth - all in ways that bypass the social concerns and legal
liabilities that domestic corporations would face.

Proponents of MNCs argue that corporations provide vital capital (wealth in the form of money or labor)
to international markets. This “foreign direct investment” (FDI) can be put toward expanding
infrastructure (the vital facilities and services of a community) and distributing wealth to impoverished
people in society. In 2000, FDI exceeded $1.1 trillion and this number continues to grow. Ultimately, the
question before the United Nations is not whether to stop the spread of MNCs or restrict the
globalization of business. Instead, the UN must reconsider the ways in which MNCs are managed in
order to limit the harmful consequences of their operations. The UN must also acknowledge the
potential for MNCs to assist development of both individuals’ quality of life and national economies, and
act accordingly.

The United Nations seeks to promote sustainable development, or development that meets the current
needs of a population without compromising the ability of future generations to meet their own needs.
The spread of MNCs has complicated this goal in several ways. For instance, the environmental impact
of multinational corporations has been hotly debated. As MNCs build new factories and use up more
resources, new strains on the environment emerge. Industrial waste from these factories may release
dangerous chemicals into water reservoirs and the atmosphere. Additionally, increasing levels of
economic activity are often associated with larger greenhouse emissions, yet there exists no
internationally consistent conclusion of addressing these environmental losses (in spite of the attention
given to the issue at this year’s Copenhagen Environment Conference.)

Another impediment to sustainable development is “urbanization,” or the recent trend towards
significant population growth within large cities and other urban centers. Many people move into cities
in order to find jobs with MNCs, which results in dense populations often living in unsanitary conditions.
Urbanization also entails greater use of automobiles and energy resources, both of which contribute to
pollution in the atmosphere. Deforestation (the destruction of forests) is another problem linked to
MNCs. When companies require lumber for factories, woodland areas and tropical forests are cut down.
In the Philippines, tropical deforestation is occurring at a rate of 3.5 percent per year; in Sierra Leone it
is 3 percent and in Thailand, 2.6 percent. For these nations, continued deforestation at these levels will
mean an end to all tropical forestland in about 30 years.

Critics of MNCs argue that these companies punish nations for creating new environmental laws, as
businesses will often gravitate towards areas where, all other things considered, doing business is
cheaper. MNCs look to make profits, and as a result they may build factories in countries that do not
require expensive pollution-control technology. This amounts to a “race to the bottom”—each nation
lowers its environmental protections more and more in order to attract corporations. Even if countries
do not intentionally lower environmental regulations, there is no doubt that many developing countries
avoid writing new or improved environmental laws for fear they would drive away investment.

Multinational corporations may also be a driving factor behind several social problems. In Indonesia,
American companies such as Nike, Reebok, and Levi Strauss have all been linked to unethical business
practices and widespread mistreatment of workers. In 1999, Cambodian workers at a garment factory
for the Gap clothing company earned $8 per week ($384 per year). At the same time, a single pair of
Gap shorts sold for up to $42, more than an individual worker may make in an entire month.

Corporations are able to provide low wages and poor working conditions because of the leverage they
hold over national governments. Governmental authorities in developing countries may have corrupt
ties to the business sector; corporations can request special privileges because they offer “kickbacks,” or
bribes, to officials. Additionally, there are often no other employment opportunities in a country. As a
result, people must work in potentially harmful environments if they are to receive any wage at all.

Those who cite the problems created by MNCs often overlook the fact that conditions might be far
worse if there were no foreign investment at all. According to Paul Krugman, a noted economist, “The
raw fact is that every successful example of economic development this past century…has taken place
via globalization…To claim that *workers+ have been impoverished by globalization…you have to forget
that those workers were even poorer before the new exporting jobs became available.”

Foreign businesses can help improve the lives of people by introducing innovative new products, sound
business practices, jobs for local residents and much-needed investment. According to the United
Nations Conference on Trade and Development (UNCTAD), FDI has been one of the most influential
channels for technology transfer to developing countries, which in turn aids in development.

The expansion of multinational corporations into the developing world provides both benefits and
pitfalls. Ultimately, states must be more responsible in the face of globalization. Without certain basic
conditions already present, such as fair and universal laws, political stability and free trade, a nation is
less likely to benefit from globalization—and more likely to be harmed.


Past Actions

Today’s complex economic system began in a small resort town in northeastern United States. After
World War II, countries like the US were concerned about reconstructing the economies destroyed by
military conflict. In 1944, international representatives met in Bretton Woods, New Hampshire to
debate global finance. They created the International Monetary Fund (IMF) and the World Bank to
handle currency issues and provide support to impoverished areas. Three years later, the General
Agreement on Tariffs and Trade (GATT) was signed in Geneva, Switzerland. This agreement provided a
forum for international trade talks and would introduce open markets worldwide. In 1995, GATT was
redesigned and became the World Trade Organization (WTO). The WTO’s primary responsibility is to
negotiate trade disputes between nations. It also monitors international trade resolutions and
agreements.

However, critics of the WTO say that it does not properly address the harms of MNCs worldwide.
They argue that through closed negotiations (many times, the public and media are not allowed to
attend WTO debates) and the control of a small number of wealthy nations that have close ties to
corporations—such as the United States and the United Kingdom—the organization allows MNCs to
engage in practices that are harmful for the developing world.

The UN has been extremely eager to help the developing world manage globalization. In the beginning
of 1999, UN Secretary-General Kofi Annan proposed the Global Compact. This initiative “challenges
business leaders to promote and apply within their corporate domains nine principles in the field of
human rights, labor standards, and the environment.” The goal of the program is to encourage
businesses to behave responsibly. Although the Compact is voluntary, hundreds of businesses
representing virtually all sectors of industry have joined. However, many nations feel that this is still not
enough.

In early 2000, UNDP set up the Bureau for Resources and Strategic Partnerships to help “attract human
and financial assistance and use it effectively.” This body coordinates partnerships between many
different organizations, including NGOs and corporations, to further development goals. The “Guidelines
for working with the Business Sector” and “Policy Statement on Working with the Business Sector” also
lay out the conditions under which UNDP involves itself with private business.
Of course, many corporations insist that guidelines can only be voluntary—by setting up strict rules for
MNC behavior, the international community may run the risk of discouraging the cooperation of MNCs
altogether. At the meeting of the 34th World Congress of the International Chamber of Commerce,
businesses emphasized the need for a “voluntary commitment to well defined principles.”

The extent to which MNCs operate has only grown stronger in recent years, and, barring some isolated
instances of protectionism as a response to the 2008/2009 economic crisis, international business has
never been more commonplace. A majority of United Nations member states are also members of the
World Trade Organization, and as such have made some form of a commitment towards the WTO’s
mandate of global free trade. This follows a near-consensus among economists who agree that the
benefits to global wellbeing following the success of trade liberalization initiatives would be substantial.

Anti-corporate activists have also gained momentum in recent months, with the force of the recent
economic crisis as well as the inconclusive Copenhagen environmental conference reigniting beliefs that
corporate greed and multinational business practices have stunted social progress and thrown the
world’s economic system into calamity. Sweeping economic reform is occurring in many of the world’s
financial centers, and global attention remains focused on what place the regulation of multinational
corporations will take in the upcoming years of recovery and beyond.

The United Nations has recently focused on how best to nurture and maximize the capacity for
Multinational Corporations to achieve positive development globally. These efforts have centered on
the four basic pillars of development: production, empowerment, equity and sustainability. MNCs are a
net good towards the advancement of production and the increase in equity of a nation, whereas the
market forces that have driven MNCs in the past are often credited as having a drain on the
environmental sustainability and general stability of a region. These drawbacks remain a strong factor in
UN considerations of how best to formulate the framework that will govern the operations of
multinational corporations.


Issues to Consider

1. How has your company worked with the countries that it operates in to assist in development?
2. What labor and environmental issues do governments have with MNCs and how can those be
addressed?
3. To what extent is your company being regulated in business activities and investments?
4. What are the social responsibilities of the corporate sector? To what extent should companies help
out in issues that are beyond its core business functions?
5. How can companies convince countries and international organizations of its benefits in operating in
developing countries?