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Multinationals And The Subversion Of Sovereignty

United States

new internationalist
issue 246 - August 1993

and the subversion
of sovereignty
They’re back. The giant companies that control much of the world
economy have stepped out of the shadows and into the spotlight
as the main sponsors of ‘globalization’. Wayne Ellwood asks what
they’re up to and what can be done to curb their growing power.

The news came without warning, in the bleak half-light of a January morning. The workers at the Bendix company’s sprawling plant on the edge of London, Ontario were called into a brief morning meeting to hear a ‘special announcement’ from management.

The 200 workers – men and women mostly in their mid-40s and early 50s – joked nervously as they took their seats, knowing something unusual was about to happen. The announcement was perfunctory, the language dressed in the clinical logic of the market. Management spokesmen laid out the case. Bendix, part of a huge American-owned conglomerate which manufactures everything from oil filters to industrial solvents, was ‘restructuring’.

The plant would close, all workers would be laid off, the decision was final. Work from the London plant would be shifted to three other Bendix factories: Frankfort, Kentucky; Charlotte, North Carolina and Del Rio, Mexico. In the question period that followed, manage-ment denied there was anything ‘political’ in the announcement, nor was it a question of profits or quality. The reason was simply ‘too much capacity’. Something had to go.

Months later, in the tidy union office a mile or so from the plant, I spoke to some of the workers about the experience.

Alice, 38 years old, a 19-year employee of Bendix:
‘We made air-brake systems for trucks and transport trailers. I built the parts, put them together and looked after the robotics. They’d been putting in new technology here for ten years and we’d been losing employees slowly ever since. We had over 500 workers in the early 1980s. We were angry when they told us the plant would be closed. There were no good reasons; they were making money. It doesn’t hit home until it happens to you; you feel so powerless. Your world is suddenly upside down and there’s nothing you can do to stop it.’

Bob, 49 years old, a 19-year employee of Bendix:
‘I worked in the office as production planner, managing the inventory supply system. I gave the company my best years, my most productive years and now it’s like I’ve just come out of school looking for my first job. I’ve missed the boat, I realize that. These kind of jobs just aren’t there any more, not for people my age. Companies like Bendix don’t really have any feelings for their employees; in the end the buck is the bottom line. If they had their way management would have robots doing everything in the plant, but they forget that robots don’t buy anything.’

Al Seymour, 52 years old, Area Director, Canadian Auto Workers, London, Ontario:
‘I helped to organize this plant 25 years ago and I was the service rep during the closure. The company used to tell us this was the most productive in the system but quality didn’t mean anything in the final decision. We had decent wages, good benefits and a good pension plan; that was the problem as far as the company was concerned. The Free Trade Agreement (between Canada and the US) made it easy to shut down this plant. Why not go south where labour costs are cheaper? Companies like Bendix can close and they don’t have to justify the decision to anyone. They just can’t be allowed to disrupt people’s lives like they do when the decision is based only on maximizing profit. They sell their product here; they should have a responsibility to produce it here.’

These workers from the Bendix plant in southern Ontario are the human face of a revolutionary shift taking place in the world economy. And they are not alone. The last decade has seen corporate ‘restructuring’ and factory ‘downsizing’ throughout Britain, Canada, the US and most of Western Europe. In the process millions of workers have lost jobs. Unemployment rates once considered scandalous are now accepted with resignation.

Despite widespread recession and a trail of business failures, multinational corporations have strengthened their control of the world economy in recent years. According to the UN, these globe-spanning private companies now control 70 per cent of world trade. From jet aircraft and microprocessors to TVs and automobiles, multinationals are firmly in command. The top five companies in each major market typically account for between 35 and 70 per cent of all world sales. Names like Boeing, Du Pont, Philip Morris, ICI, General Electric, Toyota, Bridgestone, Northern Telecom and Nestlé are known from the shantytowns of São Paulo and Bangkok to the leafy suburbs of Sydney and Seattle.

The control these private business organizations have over investment, production and marketing means they can decide what jobs are located where; what working conditions and wages will prevail and what living standards are possible.

Critics charge that the ability of multinationals to manage production on a global scale and leap national borders in search of lower costs and higher profits now threatens democracy itself. Companies are less attached today than ever to their country of origin. And as their loyalty fades so does any ultimate responsibility for their actions.

‘Multinationals no longer have any territorial loyalty or connection,’ says Richard Barnet of the Institute for Policy Studies in Washington DC. A seasoned observer of corporate behaviour, Barnet believes that ‘the mobility of these companies undermines the power of national governments to deal with traditional economic and social issues’.

Barnet also worries about what he calls a global employment crisis. ‘All the pressure within the system,’ he argues, ‘is to increase the output per worker. But more and more jobs are being replaced by machines and incomes for the vast majority are going down.’ The key point, says colleague John Cavanagh, is that ‘it doesn’t add up globally. There are 38 million new people entering the job market yearly in the developing world, maybe 47 million worldwide. And the largest corporations overall are cutting jobs.’

Corporations use the word ‘globalization’ to describe the transformation in the world economy. The theory is simple and seductive: all barriers and regulations that might impede the free flow of capital or restrict the operations of the marketplace should be dismantled. Investors should be allowed to put their money where they like; manufacturers to sell their goods where prices are highest; and labour to move to where wages are highest.

According to this view Western nations have grown fat and lazy. To compete with the dynamic, efficient economies of Asia we’ve got to cut costs. There may be pain in the short run but at the end of the day natural comparative advantages will allow all countries to emerge as winners.

An integral part of this ‘globalization’ thesis is the push by powerful corporations for ‘free trade’. Governments pledge their allegiance to it. Business claims it as the natural order of economic life. And naysayers are dismissed as petty ‘protectionists’ fighting old battles, unwilling to aid the spread of prosperity.

We can witness this lobby in full feeding frenzy at the General Agreement on Tariffs and Trade. GATT is the international organization which hammers out the rules on world trade for its 108 member countries which control 90 per cent of all international trade. We can see it close to victory as the North American Free Trade Agreement (NAFTA) – a trilateral deal between Canada, the US and Mexico – edges closer to final approval. And we can glimpse part of the globalists’ future plans in Washington’s ‘Enterprise for the Americas Initiative’, an ambitious effort to create one vast market from Tierra del Fuego to the high Arctic.

Unfortunately, the theory doesn’t square with real life – as the workers at the Canadian Bendix plant would be the first to agree. As soon as corporations are free to move across borders and labour isn’t, the theory falls apart. Critics like renegade World Bank economist Herman Daly are quick to point out that when both capital and goods are mobile internationally then capital ‘will follow absolute advantage to the low-cost country rather than reallocate itself according to comparative advantage within its home country’. 1

Bendix officials didn’t mention wage rates or other costs as reasons for closing the Canadian plant but it seems likely. A good portion of the London plant’s work was simply re-assigned to the southern US and to Mexico. The company has been making ABS braking systems on the outskirts of Charlotte, North Carolina since 1977.

I decided to travel there to see what Bendix and other multinationals find so attractive about the area. It didn’t take long to discover the answer.

‘Right to work’
North Carolina ranks first in the southern US for new jobs and new investment and there is one main reason: cheap labour. The state is one of 20 ‘right-to-work’ states in the US, as pure an example of semantic subterfuge as you’re likely to find. The legislation renders trade unions virtually powerless. It means that workers at unionized plants are not obliged to pay union dues or even abide by union decisions. The upshot is that they are constantly fighting to keep membership above the 50 per cent level to avoid management filing for de-certification.

On a sultry morning in early May I met James Lawrence, a respected leader in Charlotte’s Afro-American community. Lawrence was a labour organizer for the United Food and Commercial Workers for nearly 40 years. His work took him all over Mississippi, Alabama, Georgia and the Carolinas. When I asked him about the ‘right-to-work’ law he shook his head: ‘They sold us a bill of goods on that one; “vote for it and you got the right to work”. Who doesn’t want the right to work? Only later we found out what we were voting for – the right to work for less.’

Luxury cars on sale in Lusaka, Zambia: multinationals are lobbying for unrestricted foreign investment rights.

And North Carolinians do work for less. The average wage at the Charlotte Bendix plant is around $10 an hour compared to $15 an hour at the Canadian plant. At five per cent of the labour force the state has the lowest unionization rate in the US. The national US rate is 16 per cent and in Canada almost 38 per cent. Nearly a third of North Carolina’s workers make less than $12,000 a year, below the poverty line for a family of four.

Despite the flurry of investment, labour veterans like James Lawrence believe living standards are actually getting worse. ‘I’d sit down ten years ago and negotiate a contract for $12 an hour. Before I retired I’d sit down with the same company and negotiate for $8 an hour with none of the benefits like health care and pension we had before. I tell you it breaks your heart.’

It’s this downward spiral that worries people like economist Steve Beckman. I spoke to him at the Washington offices of the United Auto Workers, the union which represents the workers at the Bendix plant in Charlotte. What you end up with, he explained, is a ‘whipsaw effect’ – companies playing off one plant against another and one country against another to see who will offer the lowest labour costs and the best give-away package.

‘In 1981 Mexican auto workers earned a third of the wages of auto workers here in the US,’ says Beckman. ‘They currently earn between a tenth and a twentieth of US wages. That’s an incentive for multinationals which wasn’t there before when wages in the auto sector more or less reflected productivity. They don’t anymore and that creates competition which is impossible for us to deal with.’

American and Canadian corporations now routinely use the threat of moving to Mexico as a bargaining chip. And the same trend is visible elsewhere. In Europe more and more companies are looking east, hoping to jump borders into Hungary and the Czech Republic where wages are often a tenth of German or French levels. General Motors recently opened a $690 million assembly plant in eastern Germany where employees work longer hours with fewer benefits at 40 per cent of the wages of their colleagues in the western part of the country.

In the new global economy that the multinationals envisage ‘competitiveness’ becomes a race to the bottom. As capital is given free rein the definition of what constitutes fair trade and what constitutes a brake on the ‘invisible hand’ of the marketplace widens dangerously.

Corporations at GATT and elsewhere talk about the need to ‘harmonize’ standards to produce a ‘level playing field’ and bring down the barriers to free trade. From the corporate perspective these ‘barriers’ are all-embracing. National health insurance, worker safety laws, environmental standards, agricultural marketing boards: all can be challenged as ‘subsidies’ and thrown onto the bargaining table in the name of reducing costs. The pressure to harmonize is all one way. Down.

Take food standards for instance. Currently, if national standards are more stringent than international standards they are presumed not to comply with the GATT. The problem is that GATT uses standards set by a UN Food and Agricultural Organization committee which is weighted down with representatives from the agrochemical and food industries. The FAO currently allows levels of DDT and other banned agrochemicals 50 times higher than those permitted in the US. In addition the agency’s food-labelling guidelines are toothless, both vague and voluntary.

As American writer Walter Russell Mead observes, the multinationals’ new globalism ‘is about more than sending First World factories into the Third World; it’s also about importing Third World economic pressures and social conditions into the West’.2

Nonetheless, non-governmental organizations (NGOs) and public-interest groups in the South are deeply worried about the growing power of multinational corporations. Martin Khor, Director of the Third World Network, an umbrella group representing several dozen NGOs, believes the current ‘Uruguay Round’ GATT talks will lead to ‘further dislocation and loss of sovereignty’ for nations of the South. He is probably right. In return for access to northern markets, developing nations are about to make significant concessions to multinationals. The corporations want a deregulated global market in three areas: investment capital (no restrictions on foreign investment); services (things like banking, insurance, engineering, transport); and in another key area with the obscure name of ‘intellectual property rights.’

Patent pirates
These ‘rights’ amount to tighter control by multinationals over patent, copyright and trademark laws. Western companies are concerned their profits are being siphoned off by poor countries that refuse to rein in ‘patent pirates’. But they’re about to set that right. If proposed changes sail through, US multinationals alone could take $40 to $60 billion a year from the pockets of Third World consumers, according to the Washington-based International Trade Commission. Countries like India for example would be forced to abandon their own patent laws which have allowed local pharmaceutical companies to supply the Indian market with cheap generic drugs. Granting full 20-year patent protection to foreign multinationals would screen out cheaper domestic competition and destroy a system which supplies low-cost basic drugs to hard-pressed Indian consumers.

Tearing down barriers to foreign investment will open Third World economies further to outside control. But a bigger danger lurks in the world of finance capital, which already operates outside national or international regulations. Currency traders and corporate bond dealers hold the upper hand. High-speed computer technology combined with billions of dollars in free-floating currencies has created an integrated but anarchic global financial market. Finance Ministers from Delhi to Canberra tremble as Wall Street bond-rating agencies announce their verdicts. Twenty-five-year-old kids at keyboards control the fate of nations. Governments ratchet up interest rates which simultaneously attracts speculators and discourages productive investment. And social programmes are cut to please money-managers in Tokyo, London and New York who have a constitutional antipathy to budget deficits.

This unregulated mobility of finance capital and investment capital is a concern which both national governments and the international community will have to face head on. Without restraints on the freedom of investors the short-term interests of profit will always overwhelm the long-term interests of economic security and environmental protection. And a ‘globalized’ economy has to be about more than just productivity and competitiveness; it also has to concern the health, safety and economic life of all our communities.

But it is in the spread of consumerism that multinationals have been most successful. In our age of instant communications corporate marketing messages blanket the globe. The dream of consumption without limits has seized the imagination of rich and poor alike. There is no corner of the earth so remote that it has escaped the notion that our identity is bound up in what we consume. In the words of The Economist: ‘CNN matters more than ITT’.3

Yet it may be this homogenization process itself which spawns the strongest resistance to globalization. Consumerism, though undeniably powerful, has not eradicated the fundamental values of community – language, culture, family and faith. For most multinationals these most basic human concerns are insignificant. For people they are among the most important ways we seek identity and meaning.

In the end only a small portion of the world’s population can hope to own a Sony VCR, eat corn flakes or wear a Rolex wristwatch. There is a widening gap between those few who can obtain the dream and the vast majority who will fall short. It’s these legions of the marginalized and the poor who will ultimately challenge the multinationals’ global vision.

1 An Ecological-Economic Assessment of Deregulation of International Commerce Under GATT, Herman Daly and Robert Goodland, World Bank Environment Department, Washington, DC, 25 September 1992.
2 ‘Bushism Found’, Harpers Magazine, September, 1992.
3 ‘Multinationals Back in Fashion’, The Economist, 27 March, 1993.

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