May 2005

Kavaljit Singh
Public Interest Research Center
New Delhi
India

(Most comments are in response to paper by Sarah Anderson, some are in reference to overall objectives of E-Forum while others are general comments in terms of analysis and strategizing our campaigns on TNCs.)

Sarah Anderson has done an excellent job in terms of presenting a macro overview on the rise of corporate power in recent years as well as providing a critical analysis of several governmental and citizens’ efforts to regulate the activities of transnational corporations (TNCs) at the international level. By presenting such complex global issues in simple and non-technical language, she has made these issues understandable to a wider audience.

The introduction of the paper is concise and to-the-point. Though she has not mentioned the dominant phenomenon behind the rise of corporate power in recent years ? mergers and acquisitions (M&A). M&As which simply represent change of ownership of existing companies and no new addition to productive assets or capital stock. To a large extent, the growing concentration of the capital at the global scale has been facilitated by M&As. A look at the top global 500 TNCs list over the past few years reveals that several well-known corporations have either acquired by bigger firms or merged into a new entity. Many corporations, for instance, Mizhuo Group (Japan) and Citigroup secured top positions in the global banking sector thanks to M&As. These developments have severe implications for the global economy as well as national policy-making which, however, are beyond the scope of my comments here.

Though her paper deals only with foreign direct investment (FDI), which is generally considered the best component of foreign investment, it would have been better if the author had distinguished the various categories of foreign investment (such as FDI and portfolio investment) in the Introduction. Not only in conceptual terms, FDI and portfolio investment are different but they also require different kinds of policy responses and citizens’ actions to regulate.

Here I would like to raise an issue before the members of E-Forum: What about discussion on portfolio investment? We cannot overlook this issue which predominantly contributed to the financial crises in the 1990s (from Mexico to Southeast Asia to Russia to Turkey). I could see currency transaction tax (CTT) listed in E-Forum topics but CTT is just one policy instrument (that too market-friendly) in regulating portfolio and short-term speculative financial flows. My suggestion to E-Forum organizers: Please initiate a full discussion on this important topic.

In the section II, Sarah has delineated several governmental responses in the past (e.g., ILO, OECD Guidelines for Multinational Enterprises, etc.) to regulate the behavior and activities of TNCs. I agree with her that such efforts have failed to yield desire results due to various inherent weaknesses and operational difficulties. In operation for several years, codes of conduct (initiated by governments at international levels as well as corporations) remain weak and ineffective because they are voluntary, non-binding agreements. Moreover, corporate codes are limited to a few sectors, particularly those where brand names play a decisive role such as garments, footwear, toys, sport goods, consumer goods and retailing businesses. But the major sectors of economy remain outside the purview of corporate codes. Further, codes are not universally binding on all operations of the company including contractors, subsidiaries, suppliers and agents. Furthermore, many codes do not entail the right to organize, form unions and collective bargaining. Without such basic rights, codes remain ineffective.

The mushrooming of voluntary codes in an era of increasingly deregulated business and trade raises doubts about their efficacy. The voluntary codes of conduct can never be a substitute for state regulations. Nor can they substitute labor and community rights. At best, voluntary codes can complement state regulations and provide space for raising environmental, health, labor and other issues.

If the recent experience is any guide, the struggle for implementation of voluntary codes could be a frustrating, time-consuming exercise. It dissipates the enthusiasm for launching struggle for regulatory controls on TNCs. This was evident in the case of the decade-long campaign on the national code and law for promoting breast-feeding and restricting the marketing of baby food by the TNCs in India (for details, see Kavaljit Singh and Jed Greer, TNCs and India: A Citizen’s Guide to Transnational Corporations, Public Interest Research Group, New Delhi, 1996). Therefore, voluntary codes require serious rethinking on the part of those who consider these as a cure-all to problems posed by TNCs. The recent corporate scandals (from Worldcom to Enron to Parmalat) underline the important role of strong regulatory measures. One cannot ignore the fact that all these corporations were signatories to several international codes besides some of them (for instance, Enron) had developed their own codes.

Now let me raise the pertinent question: What is the right forum to regulate the activities of TNCs? I fully endorse the view expressed by Sarah that nation-states should remain primarily responsible for regulating corporations. My own view is that international efforts (either through establishing International Court for Corporate Crimes or through UN) cannot and should not substitute the national regulatory and legal space.

Often there is tendency within some NGO circles to undermine the role of national space and bring every issue at the international level. But national space is very important and it would not wither away under the influence of globalization. On its own, transnational capital lacks the necessary power and ability to mould the world economy in its favor. Rather, it strives for the support of nation-states and inter-state institutions to shape the contemporary world economy. In the global capitalism context, nation-states provide the framework within which all markets operate. The notion of ‘free market’ is a myth as all markets are governed by regulations. Though the nature and degree of regulation may vary from market to market. Even the much-claimed self-regulation model would be illegitimate if it is not backed by the government decree. In fact, it is impossible to conceive contemporary neoliberal globalization without laws, and laws do not exist outside the realm of nation-states. Even the global rules on trade enforced by international institutions (for instance, WTO) are not independent of nation-states.

I also do believe that there is nothing per se wrong in internationalizing the domestic issues but every issue cannot be resolved at the international level through International Criminal Court (ICC) or other UN bodies. Take the case of ICC. The scope of ICC is very limited and is not intended to replace the domestic legal redress system. Can ICC resolve over 2 million criminal legal cases filed in Indian courts? The answer is No. The ICC does not have the mandate and capacity to do so. There are several limitations on the operations of ICC. For instance, it can only investigate criminal cases if the country (which has signed and ratified the treaty) invites ICC to investigate or the chief prosecutor of ICC or the Security Council of the UN initiate investigation.

In the same vein, corporate regulatory issues need to be primarily addressed at the national levels. At the same time, I am not discounting the scope of launching regional and international framework on regulating the behavior of TNCs but these should not be seen as a substitute to national regulatory measures. At best, regional and international efforts could provide the overall framework and guiding principles on regulating global corporations. The national governments should retain the right and power to regulate global corporations operating in their territories. In addition, the regional and international efforts should enhance (not restrict as under the proposed WTO investment agreement) the policy space and powers to regulate TNCs and foreign investment in order to meet national developmental objectives.

At the international level, to launch strong corporate regulatory framework under the auspices of UN may not be an easy task. More than anything, it requires the political support of national governments who are the members of this international body. The UN secretariat, on its own, cannot chart out a global corporate regulatory agenda. It needs the political backing of its member-countries. In the present international political climate, it would not be easier for UN to even carry out the research and information sharing activities on regulatory issues given the closure of UNCTC some years ago.

At the domestic level, the political climate in many developing countries has drastically changed in the past two decades. The neoliberal virus has stuck almost every political process including the ranks of the left. There is a strong lobby in many developing countries (for instance, India) consisting of big business, upper middle classes and media which supports the entry of foreign capital and demands fewer regulatory mechanisms. Our governments often succumb to pressures exerted by such powerful domestic lobbies. Some developing countries like India are also witnessing the emergence of “third world transnational corporations” which are expanding their businesses in other countries. These developments make the task of regulating corporations more difficult both at the national and international levels. However, the task may be difficult but not impossible provided our efforts are backed by strong domestic political mobilization.

I am of the view that the task of regulating transnational corporations could begin at the national level and later on could be extended to the regional and international arena. My reasoning for regional mechanisms in its various capacities (from information sharing to coordinating regulatory regimes) is essentially three fold: firstly, FDI flows are generally regional in distribution; secondly, regional mechanisms can potentially serve as a link between the national and international efforts; and thirdly, perhaps more importantly, the political feasibility of accomplishing regional mechanisms is far greater than international ones in the present times.

To sum up, the struggle against global corporations cannot be fought exclusively but should be a part of wider political process of democratizing our economy, society and politics. Put simply, politics matters.

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