Multinationals used to bully poor countries. Maybe they should start again

INTERNATIONAL firms have done a lot to improve their reputations in the quarter-century since ITT was investigated by Congress for involvement in political subversion. But, having cleaned up their act, are they now heading for a fall? From Myanmar to Ecuador (see page 63), big companies, especially mining and oil firms, are being accused variously of raping the environment, uprooting local tribes, using child labour or colluding with noxious regimes.

In a way, this is a paradox. Many big companies take moral issues more seriously than ever. They have ethics committees, ethics officers and ethics codes. The trouble arises when they must take huge strategic decisions, such as whether to invest in mineral-rich countries that have cruel or venal governments. In these cases, multinationals are apt to argue that it is for the world's governments to identify unsavoury regimes. Their own duty is merely to obey the law.

This division of labour has much to commend it. Companies, unelected, have no obvious right to throw their weight around in politics, whether local or global. It would indeed be neat to leave it to the 'international community' to decide which regimes were beyond the pale for the purposes of trade or investment. But, of course, there is no prospect of governments doing this job well. America's Helms-Burton fiasco (see next article) is only the latest reminder that the world's rule here is realpolitik not economic, let alone moral, virtue.

Some companies go further. They say that, however bad governments may be at making moral decisions of this sort, firms are bound to be worse. It is not what they were designed for; it might even, given their duty to shareholders, be ultra vires. Again, they have a point. But sensitivity to shareholders seldom paralyses managers in other matters. Why so fastidious when morality is the issue?

To expect firms to behave well is easy; defining good behaviour is much harder. The allegation that multinationals are exploiting the third world is often misguided. Usually, the 'exploitation' consists of letting developing countries make use of what economists would call sources of comparative advantage - cheap labour, say, or a greater tolerance of pollution. That is how poor countries grow less poor. Often, too, people in the rich world who rail against the exploitation of the poor are mere protectionists in disguise, afraid that competition might steal their own jobs.

But not always. At certain points - but not, alas, clear ones - white shades into grey and then to black. Cheap labour may be all very well; but what of child labour, for instance? If a poor country chooses to let its children work at the age of 12, or eight (comparative advantage, you understand), should a multinational hire them? A poor country may be unfussy about the number of injuries in its factories, but is a western company right to relax its safety standards? And what of political rights? Are they to vary from one country to another?

They would be good if they knew how

It is impossible to conceive of a universal standard that would settle all dilemmas of this sort. It is almost as difficult to imagine governments using trade policy to enforce such a standard disinterestedly, or in such a way as to advance overall welfare in the developing countries. But these are not reasons for companies to ignore such questions. The opposite is true: where governments cannot or should not act, the burden shifts to the managers of international companies to exercise their responsibility as moral individuals.

What, then, is to be said about the merits of the cases currently in the headlines - the huge energy projects of Unocal and Total in Myanmar and of Royal Dutch/Shell in Nigeria? These firms have been accused of two kinds of sin: sins of commission and sins of omission. Their defence is stronger against the first charge, weaker on the second.

In the eyes of their critics, the sin these firms have committed is to have invested massively in countries with repressive regimes, so helping to keep them in power. In essence, the firms' reply is that less scrupulous firms would take their place if they quit, and that foreign investment is likelier in the long run to improve than worsen the lot of local people.

Well, maybe. But if they are to defend their presence on these grounds, all three firms could do more to improve local conditions. With hindsight, Shell did too little to use its influence as Nigeria's biggest oil producer to prevent last year's hanging, after a dubious trial, of nine political activists. And in Myanmar, Unocal and Total are said to be turning a blind eye to the use of forced labour by the Burmese army. It is true that if these companies pulled out of Myanmar, others might take their place. Even so, a threat from Unocal and Total - say, to delay the project unless the army stops its use of forced labour - might have some effect. Then again, it might not. But it would certainly be wrong not to have tried.

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