Sunday, March 11, 2007

Multinationals: Stealing from the Poor to Give to the Rich?

Latin-Americans always voice their disgust when multinationals come to invest in their country. Most of these people think that multinationals only come to rob their country of its natural resources leaving only devastation and poverty in their wake. This perception is based on past experience and in some ways they are justified in their complaints. Most of the multinationals that have come to our countries in the past have, indeed, only left behind further impoverishment and, in some cases, diseases.

My opinion, however, differs in that I believe that this initial misconduct has been due to the fact that there was not sufficient governmental regulation to encourage a fair process of negotiation. After a hundred years of experience, we can no longer continue to blame these companies. Now, the fault lies with our own governments, and if these are corrupt, then the fault lies with us.

At a time when the United States was coming into its world power status, at the beginning of last century, a lot of entrepreneurs embarked to conquer the world. In a similar fashion as our past conquerors, these entrepreneurs where looking for land and other factors of production. A very particular case is that of the United Fruit Company (UFC) in which they were looking for land to grow bananas. The UFC exploited many countries if for no other reason than, simply, because they could. Local governments also needed to industrialize and the UFC gave them the infrastructure in exchange for a proper environment for their business. In terms of control and coordination, the UFC exploited local workers offering them the minimum survival conditions. However, it wouldn’t be unreasonable to say that the UFC also gave aid and certain benefits to the local communities where it was placed (i.e. hospitals and schools) but the damage to the workers was far worse. This lack of control was in part due to the lack of power in the government. These governments didn’t have many options. They needed to modernize and didn’t have the money or the technology or the resources to do so. They were, thus, forced to sell themselves to the highest bidder.

Toward the end of the 90s, these conditions changed dramatically. By then, the majority of multinational companies were not only obeying the written laws of the land but also the over arching ethics codes and moral standards. For example, many investing companies from the United States were working within United States’ standards. Others were simply obeying some series of ethical agreements in order to avoid damaging their reputations. Moreover, there were multinationals that were pioneering change in the area of ethics and standards in the countries that they were operating in, making an effort to balance the conditions’ inequalities

In Latin-American countries this hasn’t been much different. Multinational companies that invest in Latin America must comply with very strict standards that prevent workers from the mistreatment that we saw in 1990. Even then, in many cases, we see the same results as we did in the past. Why does this keeps happening? Are the multinationals the problem or is it something else? A potential example is in Barrica in Chile where there is a group of people that are against the over-exploitive mining expeditions by the Barrick Company on the border of Chile and Argentina. The reason for their objection is that it is believed that the environmental effects are more important that the any economic rewards that the project would bring. If this project were to go forward it could in danger the glaciers in the area which could have devastating effects to the supply of water for various communities in Chile. There has been some governmental response in Chile, mandating that Barrick analyze the environmental effects, but the critics say that this is not sufficient. They do not mention, however, the potential positive effects that this project would create (an estimated 5,500 jobs.) Still, this reaction is understandable given the history of multinationals in the region. Unfortunately the problem is no longer the multinationals. They are entities that have the objective of maximizing profits for their shareholders. The real problem is that the government lacks presence or control in these situations. In this case, the Chilean government didn’t even think there was a problem. I realize that there may exist a group of experts that are able to analyze the environmental effects and decide on the best solution. For the rest of Latin America, this solution is more complicated.

Unfortunately our experience in Latin America has been tainted by corrupt governments and has usually ended up damaging the country. Many people, motivated by the effect of incredible inequality, believe that the cause of all of this is capitalism and imperialism on the part of United States. Capitalism isn’t really the monster that it is made out to be, per se, but what is bad is that the local government, which should be acting as a coordinator of the process, is only looking out for its own interests. In theory the government is the mediator between the capitalists and the established society. It is the government that has the manpower and the obligation to manage the assets of its nation. With this it serves as the system of checks and balances in interactions between multinational companies and the local businesses.

An example of this is Botswana, an interesting case that has received little coverage in Latin America. Botswana was poorer than Ecuador in the 70s. However, during the last three decades, Botswana has had an annual growth of 9%-10%. Poverty indexes have been decreasing drastically (only 30% below the poverty line) and the GDP per capita has increased over Ecuadorian levels (now in $11,000 PPP in comparison to Ecuador in $4,500 PPP purchasing power parity) This is all the result of excellent coordination, control and resource management done by their government. During the 70s, DeBeers, the largest diamond multinational exporter company in the world, invested in one of the mines in Botswana. In this case, however, in contrast to what happens in Latin America, the local government was able to negotiate the suitable contract and to manage the natural resources in a intelligent way. Botswana was able to eliminate the desperation that existed; they took the capital and invested it in a development plan. (DFI – Direct foreign investment). This kinas of measures bring long term development, but they can also destabilize the country in the short term. In the case of Botswana, its citizens were willing to be patient and to avoid the chaos that would destabilize the government.

Unfortunately, in our countries, this is different. Most of the chosen governments only focus on the short term (or at least that is what it seems). They think they are doing the people a favor when they try to redistribute wealth, nationalize corporations and close the doors on foreign investment. Our economies do not produce enough to maintain our growth pattern. If we want to isolate, we will never be free poverty. If we want to grow, however, we need to be open to foreign trade, generate foreign investment and use our resources to educate our people so that the generations to come have greater factors of production to work with. Our countries need the financing that only foreign investment can give us. It is crucial that a mechanism for wealth redistribution is explored (like the one working in Sweden, were there are over 70% in taxes depending on ones income), but also, it is important to generate wealth through new policies that encourage exports (like the case of South Korea and Singapore)

Unfortunately, we keep blaming the United Status, and their multinationals, for our own problems. The problem is internal. The history of Latin American politics has been deeply scarred by corruption. Our society is infested by corrupt people and the fact that we welcome it does not make it any better. Everyone, from people we know from school to co-workers, everyone practices corruption and we brag about it. That is the main root of our problem. If we had a government branch that was in charge of controlling corruption (even in high executive positions), we might have a chance. However, we need the institutions that support the greater benefit of the majority; we can’t expect that this is going to be achieved with some profits that help a few.

We need a president that is truly connected to his country. We need a president that will attempt to solve the problem of poverty by creating social programs and by developing the nation’s financial assets through open economic policies (most likely capitalist ones). We need a consensus that allows the government to do its job and that has the patience to allow these policies to run their course and bring benefits in the long term.

Co-Authors: Maria Teresa Burbano & Marcelo Burbano