Multinational Corporations and Poverty Reduction:

1. Multinational Corporations and Poverty Reduction: An Overview Franklin Cudjoe IMANI Summer University Seminar Ashesi University August 15, 2007

2. Definition • MNCs have branches in many countries. HP, the computer maker, for instance, could maintain its marketing department in the USA, buy its components from Malaysia, assemble its products in China, and run its after-sale services from Europe.

3. Within Africa… • Unilever, Nestle, MTN, Barclays Bank,Standard Chartered Bank, NewMont, Diageo, SABMiller e.t.c • Globally, there are 63,000 of them at last count .

4. Nature of MNCs • Employ the best and brightest & pay better salaries. • Invest directly: E.G. Investment by mining sector in Ghana in 2003 was 56% of all FDI • some have -budgets the size of Africa’s GDP(c.USD600bn) • MTN alone makes close to USD300m annually in Ghana, which is almost one-sixth of -Ghana’s total revenue, donor support included.

5. Criticisms Target by anti-globalization protests: WTO protest placard once read “our resistance is as global as your oppression” • Sweatshops that pay slave wages and have poor working conditions • Pollute the environment • Take without giving back to society • Responsible for “deep poverty” of one billion people through globalisation.

6. Reality • They owe allegiance to shareholders. Shareholders are simply investors, not philanthropists. • But they give back to society in two ways; first through their products- products satisfy a need and there is an exchange of money for value. Secondly in order to be legitimate in society they give back through CSR policies: • They pay taxes and royalties. In Ghana mining companies pay royalties but only 9% get to the communities. Remaining hijacked by govt. and its agents. Even local chiefs partake in cheating.

7. Reality • Sweatshops may be offensive, but must be put in cultural context. • where population size matters, competition for labour is not stiff. Economists point to alternatives which are worse- scavenging through thrash, prostitution, crime or even starvation. • Besides people are not coerced to work in sweatshops. They do so because it is the only best option.

8. Reality • Claim of slave wages be checked against local incomes: Public Sector vrs Private Sector • In Honduras, site of the infamous Kathy Lee Gifford sweatshop scandal, the average apparel worker earns $13 a day, yet 44% of the country’s population lives on less than $2 per day. • In Cambodia, Nicaragua and Haiti, the average wage paid by a sweatshop firm is more than double the average in their respective economies. • -

9. Reality Externalities/ Pollution • Some MNCs own up to these through technology-driven initiatves to clean up. Those that fail, especially in the in developing world reflect a lack of institutional capacity to demand accountability. • Claim of ‘Deep-Poverty’ • It is true one-sixth of the world have been left behind living on less than 1 dollar a day, but globalization has done more to lift many out of poverty.

10. Proportion of people living on less than $1 a day (%)

11. Infant Mortality Rate, 1980 and 1998 (deaths per 1,000 live births) World Bank

12. Reasons Why Poverty Persist • The real reason for the “bottom billion” is often Governments stand in the way of wealth creation: • Developing countries have received US$ 2 trillion in aid in the past five decades and are yet to show for it. Aid has often politicized life in the developing world but it continues to be showered on developing countries. • The World Bank’s own 2000 report agreed that over half of their efforts in alleviating poverty through aid has failed.

13. Reasons Why Poverty Persist • G8 deal on Gleneagles- 80 pc of Ghana’s debts were forgiven. Two weeks later Ghana’s Parliament announced a US$25,000 car loan package for its members. • Loan was to enable them purchase “high-compact cars” to withstand our rugged roads. Any logic? Why not invest money in building good roads so you spend less on cars. • Clearly Politicians are interested in getting to their voters, no matter the terrain that leads there. • Corruption- the biggest mantra costs Africa USD149bn annually thus 25 pc of continent’s GDP.

14. Conclusion • MNCs involvement is crucial to poverty reduction for two reasons: • First, the reduction of poverty depends on the growth of business, especially small, domestic businesses. • For a local business to flourish it must have access to the world: to markets, credit, and technology, all facilitated by MNCs. • Second poverty reduction requires systemic change, and MNCs are the world’s most efficient and sustainable engines of change.

15. Conclusion • Wise governments must make policies that can woo the private sector to do as much spending on infrastructure as possible in order to protect their own treasuries. • Many governments do not understand that poverty reduction/alleviation has got to do with running clean and small governments • They ought to respect property rights, enforce contracts, respect the rule of law, decentralize power and resources and respect term limits imposed by constitutions.

16. Conclusion • They also need to relax business entry and exit rules to enable ordinary people create employment for themselves and others. • Government has no business creating employment- National Youth Employment Programmes are gimmicks for political advantage. • Without harnessing the support of the world’s great MNCs, the UN’s Millennium Development Goal to halve the number of people living on less than $1 a day by 2015 will be difficult to attain.