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Playing For Keeps

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BRANDT REPORT [image, unknown] What about the multinationals?

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Playing for keeps
According to the Brandt Report, multinational corporations are 'major actors' in the global economy-controlling between a quarter and a third of world production. Jonathan Ratner reviews the past performance of these international giants and asks whether weaker Third World governments can ever control multinationals for their own development needs.

ALL major world issues receive a little ink in The Brandt Report — a document development economist Dudley Seers calls a ‘Petit Larousse of human problems’. Multinational corporations (MNCs), like aid, trade and military spending, get their due. And the description is not all glowing. Disputes over technology transfer and restrictive business practices remain tough hurdles. But in general, the Report cautiously endorses MNCs as members of good standing in the ‘program for survival.’

The South is cast as a new frontier with fewer of the ‘special economic difficulties and social and political constraints operating in the North.’ Multinationals can not only help settle the frontier, they can also help alleviate the problems of world poverty along the way.

That sounds good on paper. But in fact multinationals have shown time and again that they are unable to contribute to a dynamic, balanced development. There are few incentives for Western-based companies to do anything but cater to Third World elites.

In Mali or Manitoba, profits and growth are the main goals. Of course there are spin-off benefits for the host country. But in the Third World especially this ‘development’ rarely effects more than a select few.

Brazil with its vast economic potential is typical. For 17 years of military rule the generals have maintained an open door to foreign investment. And they’ve been more than willing to crack down on trade union activism to coax foreign capital over the threshold.

From 1967 to 1973, the production of luxury consumer goods increased 25 per cent yearly while major corporations like General Motors enjoyed rates of return near 30 per cent.

Yet according to the US-based Overseas Development Council, Brazil was the only country in Latin America where the average quality of life actually declined over that period. Between 1970 and 1974, the production of basic food staples like rice and beans dropped by 20 per cent.

Over the past decade multinationals have tried to shift the production of consumer durables like electronic components and clothing to the South. The Brandt Report sees this shift to ‘export diversification’ as a sign of progress for the Third World. In fact, it has brought new poverty to Third World countries — in the midst of new wealth. And has reduced the odds for the development of integrated, dynamic economies.

More than half of all Third World governments — left, right and centre — have courted these export industries by setting up ‘free trade zones’. Across East Asia and more recently in the Caribbean, governments are offering multinational manufacturers attractive incentives: tax holidays, duty-free export privileges and above all, low-wage labour without the right to strike.

In an ominous way, this new international division of labour harks back to industrialization policies of the 1950s and 1960s. Then, during the ‘import substitution’ phase, a multinational relied on the host country only for some materials used in production and for a partial market to sell the goods.

The new multinational strategy offers even less. ‘Export platforms’ provide a handful of jobs and little else. ‘Skill transfer’ — often the main justification for free trade zones — is negligible in such simple, repetitive production processes. The US-based Tandy Corporation, for instance, brags that it can train an average Korean electronics worker in an hour.

With Third World governments competing for their attention, multinationals have the upper hand. A cheaper factory site is never more than a plane-ride away. And companies have physically shifted entire production facilities to new countries where the pot is sweeter.

In recent years, MNCs have lost all interest in setting up shop in the poorest Third World countries. Few natural resources, a population too poor to buy their products and lack of a good support system (transport, communications, etc.) make them unattractive investment areas.

Yet these poorest countries are the most vulnerable to multinational power. By and large, they continue to rely heavily on just a few major exports — coffee, cotton, tea or peanuts. In recent years multinationals have concentrated on controlling the downstream processing and marketing of these exports.

The degree of market concentration in some sectors is astounding. The giant British Unilever accounts for approximately 60 per cent of the world trade in edible fats and oils. Three operations control 70 per cent of the world banana trade. Five control a similar proportion of Cocoa marketing.

We need to know much more about these conglomerates, whose secretive practices make it almost impossible for developing countries to mount any opposition.

Consider the Minnesota-based Cargill Corporation. Cargill is the second-largest food conglomerate in the world. Yet as a family-owned company, it need only disclose a few details of its operations to the US govemment.

One Cargill subsidiary, Tradex Inc., trades in commodities ranging from grain and oilseeds to fertilizers and minerals. It owns dozens of processing plants and controls networks of warehouses, rail cars and shipping lines. Based in Switzerland and registered in Panama, Tradex has found it easy to keep the curious at bay.

A new UN Conference on Trade and Development study of world marketing in fibres and textiles tells a sad story for cotton — a major export of 17 of the 30 poorest developing countries. A ‘numerically small complex of multi-commodity traders’ control the whole cotton market, says the study. It concludes that poor cotton-growing countries will have no control over the price they receive for their crop unless the power of the multinational traders is broken.

Enough of the naysaying. What are the altematives?

Third World people can gain ground only by forcing changes on multinational corporations. Developing countries must co-operate to create alternative economic institutions and to become a market force in their own right. They also need to present a common front and devise common standards for negotiating with foreign firms — and stick to them.

Yet, in reality, producers of a wide range of commodities, from copper to cocoa, remain divided on even the most basic programs to stabilize prices — let alone efforts to increase their marketing clout with the multinationals.

In addition the forces opposed to such action are strong — as the downfalls of Chile’s Salvador Allende and Jamaica’s Michael Manley suggest. Still, for the poor of the South, such action may be the only true ‘program for survival’.

Jonathan Ratner is a contributing editor with Multinational Monitor.

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New Internationalist issue 104 magazine cover This article is from the October 1981 issue of New Internationalist.
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