Big Business, Poor Peoples

How Transnational Corporations Damage the World’s Poor

By John Madeley

Zed Books Ltd

Copyright © 2008 John Madeley
All rights reserved.
ISBN: 978-1-84813-033-3

Contents

Preface to the Second Edition,
Preface,
Acknowledgements,
Introduction: the Corporate Spread,
1 Why Poor Countries ‘Want’ the Corporations,
2 The Agri-Corporations: from Production to Trade,
3 Agri-Commodities Take Their Toll,
4 Health: the Poor Take the Corporate Pill,
5 Water: the Corporate Tap,
6 Tourism: the Great Illusion,
7 Extracting Logs and Fish,
8 Mining the Poor,
9 Manufactured Goods: Poverty amid the Glitz,
10 Energy: No Force for the Poor,
11 The Corporate Persuaders,
12 Tackling the Power: Regulation, Bypass, Action,
Notes,
Index,

CHAPTER 1

Why Poor Countries ‘Want’ the Corporations

Globalization is not a serious concept. We have invented it to disseminate our politics of economic entry into other countries. (John Kenneth Galbraith)

If there is little or no net gain for most developing countries from the presence of TNCs, the question is why do their governments continue to attract them? The basic reason is poverty. Governments of developing countries are in a dilemma. Apprehensive about TNCs they may be, but they recognize nonetheless that a wounded person needs help. TNCs offer help to countries that have economic wounds such as severe unemployment, chronic shortage of foreign exchange and sizeable foreign debts. The corporations appear to be the engineers of wealth, with the money and skills to earn additional foreign exchange and create jobs. They seem to be an almost magical answer. The deeper problems they can bring may not be considered alongside more pressing economic needs.

The ‘magic’ is an illusion, but developing country governments will be persuaded by Western governments and international financial institutions that they have no option but to open their markets, embrace globalization and attract the corporations. It is made difficult for them not to ‘want’ to attract TNCs. Control of TNCs in developing countries is deliberately made lax, or even nonexistent. And governments may even turn a blind eye to the exploitation of their citizens by the TNCs they have courted. The corporations are powerful, have considerable knowledge and experience of producing goods and services, and are often in a position to mislead ministers and officials who make policy. Governments may even end up defending the very corporations that are exploiting their country.

In practice, the corporations are strong enough to write their own rules for their presence. According to Vandana Shiva, ‘governments have been dismembered by TNCs’. It is the corporations that run the show, with governments under their thumb. The Western government/ corporate ‘spin’ has been skilful. The prescription of globalization, liberalization and privatization is ‘presented with an air of inevitable and overwhelming conviction. Not since the heyday of free trade in the 19th century has economic theory elicited such widespread certainty.’ When such ‘widespread certainty’ abounds, and when such ‘spin’ sounds so convincing, developing countries want to be part of it.

Globalization

Economic globalization – the world as a single market, without barriers, as opposed to a world divided up into separate markets – has become one of the controversial issues of our time.

‘Globalization is not a policy choice, it is a fact’, US President Bill Clinton told the World Trade Organization ministerial meeting in May 1998, again putting a ‘spin’ on the concept which suggests that countries have no choice, all must have it. Liberalization and privatization took off in the 1980s with the advent of World Bank/IMF structural adjustment programmes, and have been further advanced by the World Trade Organization and the TNCs.

Free market economists believe that liberalization reforms, which are being adopted by more and more developing countries, are the key to improvements in a country’s economic prospects. TNCs support liberalization measures such as cutting import and export barriers to trade, and reducing the role of the state, as these measures give them a more powerful role in a country’s economy. But while TNCs both benefit from and promote liberalization and globalization, they also press for their interests to be protected. They have craftily engineered a form of globalization that is fuelled not just by liberalization but by protectionism when this is in the corporate interest.

Globalization has profound implications for developing countries, but it is the product of human decisions, not inevitable forces. Globalization locks developing countries into the global economy and makes it more difficult for them to pursue a genuinely independent economic course. It can affect the poor in fundamental ways such as raising the prices of basic foodstuffs and threatening to wipe out small scale family farms in favour of TNCs. But it may look to developing country governments as if there is no alternative. They may feel they have no option but to go along with it if they want aid or help with foreign debt relief, which is often made conditional on reforms that embrace the ‘free’ market.

The escalation of globalization in the 1990s and the 2000s has had a huge impact on the poor. Millions of people are now worse off than in 1980. Globalization has helped the traders, the TNCs, but not the economies of developing countries. Globalization is widening the gap between the rich (including TNCs) and the poor, leading to a more divided world. This has been admitted by the World Bank. An UNCTAD Trade and Development Report has pointed to mounting evidence ‘that rising inequalities are becoming more permanent features of the world economy’. Far from helping to integrate people, globalization and TNC activity are widening the divisions between them.

Over a decade later it has to be asked why, when the evidence was clear in the 1990s, institutions such as the World Bank – which has a mandate to combat poverty – are doing so little to combat a practice that is harming the poor.

It is clear that the poorest developing countries are not developing. According to the United Nations Development Programme’s Human Development Report 2003, ‘more than 50 nations grew poorer in the last decade’. ‘A new face of “apartheid” seems to be spreading across the globe’, says a UNICEF paper, ‘as millions of people live in wretched conditions side-by-side with those who enjoy unprecedented prosperity.’

Developing countries were growing at about 3 per cent between 1960 and 1980, but they grew at only about 1.5 per cent during 1980 and 2000 – this means that they are falling behind the developed countries, whose growth also slowed down from 3.2 per cent but only to about 2.2 per cent. During the last 20 years, African economies have been shrinking (at a rate of about 0.8 per cent per year, reversing an earlier growth rate of 1.6 per cent), while Latin America has been basically stagnant (growing at 0.3 per cent as opposed to 2.8 per cent earlier).

Awareness of the negative aspects of globalization is growing, particularly among people in poorer countries who have little or nothing to trade and who are victims not beneficiaries of the process. Concern over globalization has surfaced at World Trade Organization ministerial meetings. For example, ‘many of the developing country statements echoed the apprehension expressed by people’s organizations concerning the impact of liberalization and globalization’. Citizens and governments of developing countries are beginning to see economic globalization for what it is – a trap as brutal as it is subtle.

Privatization

The third element of the trio, alongside liberalization and globalization, is the privatization of state assets. This is again part of the structural adjustment process. Over the last 25 years, many developing countries have sold off most of their state-owned companies to large private companies such as TNCs.

While privatization may improve the efficiency of an enterprise that was formerly run by the state, it means that state assets are sold off, sometimes cheaply, to private, often foreign interests. Privatization effectively transfers some of the capital resources of a developing country to a TNC. For the corporations, privatization has therefore been good business, especially as they can often acquire state companies at knockdown prices. Under the Bahamas government privatization programme, for example, a local hotel that was sold to a hotel chain for US$8 million was considered by opposition politicians to be worth US$20 million.

Privatization has come in for strong criticism from people affected by it. In Sri Lanka, for example, disquiet among the labour force about the proposed privatization of public utilities led to strikes that severely affected industrial output. The process can be very damaging for services of considerable importance to the poor – especially healthcare, education and agricultural research. Services the state used to provide free of charge are in private hands – at a cost. In healthcare, many state budgets and services have been cut drastically. People on very low incomes, who are more prone to ill health, are particularly affected. In a number of countries, increased malnutrition and other diseases have appeared in the wake of healthcare privatization. In the 1990s in Zimbabwe, for example, diseases such as cholera and TB, which had virtually been eradicated in that country, began to reappear.

Education has also been affected; here too people have had to pay for services that previously were free. One example of the effects of this can be seen in the North Western Province of Zambia. Under a project funded by the UN’s International Fund for Agricultural Development, the province increased food output between 1985 and 1995 to become self-sufficient in maize. But the higher food output did not lower malnutrition rates. A project official said that ‘when people grow more food, they might sell it and use some of the money to send their children to school. They do not necessarily eat more.’

Privatization diminishes the capacity of the public sector to do agricultural research. Drought-tolerant varieties of staple crops such as beans, for example, rarely interest TNCs, which prefer to develop high-value crops. But the poor cannot afford such crops. If everything is left to the private sector, the market will fail to deliver the food that is needed by hungry people. While governments have shown that in most cases they cannot run large-scale economic enterprises, many have jumped from one unsuitable vehicle (‘running it themselves’) into another (‘let foreigners run it’). This, however, could be even worse. TNCs can effectively turn developing countries into satellites of Western countries, seriously undermining national sovereignty and democracy. Widespread privatization is a virtual abdication of government. TNCs are left to get on with their activities, with little control by the people’s elected representatives who make up governments.

A way of furthering privatization in Africa has been put forward by the London-based Institute of Economic Affairs. ‘There is a radical free-market solution to Africa’s problems,’ it says. The ‘solution’ is a revival of the charter company idea. These were companies such as the Imperial British East Africa Company that operated in colonial days. The way to do it today, it believes, would be:

to auction leases to govern African countries, giving the successful applicant the right to levy taxes in return for the provision of specifically stated services … because the sums involved would be large, bidders would be likely to be multinational companies or a consortium of companies … the various bids would have to be voted on by the population.

Such a proposal may seem bizarre, but the idea of the wholesale privatization of African countries would only be to develop what is now going on. Colonialism by companies, rather than countries, is already happening. TNCs would hardly be interested in the idea of taking over countries, however, because they now have power without ownership. Taking over a country would give them responsibilities.

External debt

External debt has been a major issue affecting developing countries since the beginning of the 1980s, when international interest rates soared, owing to the tighter monetary policies of major Western countries.

Developing countries, having borrowed money in the 1970s at around a 10 per cent rate of interest – often for unwise, large-scale projects – found themselves in the 1980s having to repay at around 20 per cent. At the same time, commodity prices fell sharply and Western countries were continuing to protect their markets heavily against manufactured goods from developing countries. With aid stagnating, developing countries were having to find more foreign exchange, while receiving less. Balance of payments problems resulted and the door was open for the World Bank and the IMF to come forward with structural adjustment programmes.

Developing countries were offered help, provided they liberalized and privatized their economies, slashed social services, cut subsidies, generally reduced bureaucracy, and made their economies more welcoming to foreign investment. While some reforms were needed, it was the poor who paid the price. And it was TNCs who gained as they came in on the coat-tails of the adjustment programmes.

Foreign debt has emerged as one of the biggest single factors keeping people in poverty. Over 50 countries, mostly African, are carrying severe debt burdens and having to switch money away from essential services, such as healthcare and education, in order to make debt repayments.

The total external debt of developing countries rose from ‘US$9 billion in 1955 to US$572 billion in 1980 and to over US$2,000 billion in 1996’. The money is owed to Western governments, governmental aid agencies, the IMF, the World Bank and other banks. By 2005, the poorest 149 countries had debts of US$2,700 billion. During 2005, developing countries paid the rich world US$513 billion to service (interest and repayment of capital when due) these debts – nearly US$1.5 billion a day. The poorest 53 countries paid nearly US$43 billion to the rich world – US$118 million a day.

In 2005, development assistance from Western to developing countries totalled US$106.8 billion, according to the Organization for Economic Cooperation and Development. Against this the developing countries paid Western countries US$513 billion, almost five times as much. It raises the question: who is aiding whom?

When developing countries have to repay so much money, their options are restricted. Their need to earn more money for the repayments is a major reason why poor countries ‘want’ TNCs. The human cost of this debt burden is enormous, and so also would be the benefits of relief. The Human Development Report 1997 estimated that if severely indebted countries were relieved of their annual debt repayments they could use funds for investments ‘that in Africa alone would save the lives of about 21 million children by 2000 (seven million lives a year) and provide 90 million girls and women with access to basic education’.

With debt relief, developing countries have more of their own funds to invest, and less need of TNC investment. In 1996 the IMF and the World Bank launched a Heavily-Indebted Poor Countries Debt Initiative. But this is a very limited scheme and debt relief has since proceeded at a snail’s pace. Some donors appear to be including in their aid spending the money they have cancelled for debts.

There is enormous pressure on developing countries to jump on board the globalization bandwagon, Their right to determine their own development policy was affirmed by G8 leaders when they met in Scotland in July 2005. In practice, however, developing countries are put under enormous pressure to ‘conform’.

The aid connection

Developing countries want aid to promote economic and social development and reduce poverty. But if they accept aid, they accept TNCs, for the corporations are major beneficiaries of aid spending. Donor governments ‘tie’ most of their bilateral aid to the purchase of goods from companies in the donor country. A developing country may receive aid for a dam project, for example, on condition that companies of the donor country receive the contract to build it (see Chapter 10). Power stations, agriculture and the tourism sector have all attracted aid, which in turn has helped the corporations.

Over half the aid from Japan, one of the world’s largest donors, goes through its financial aid agency, the Overseas Economic Cooperation Fund, to the electric power and gas, and transportation sectors – in practice, to large-scale projects. The Japanese government makes no secret of the fact that the aid helps its own companies to win contracts abroad.

The United Nations Development Programme (UNDP), a technical aid agency, has encouraged developing countries to open up their borders to mining and tourism TNCs, among others. In the Philippines the UNDP helped to finance government efforts to attract foreign mining investors, even though this could deprive many of the country’s poorest people of their lands and livelihoods. Following public protests, the government imposed conditions on the corporations (see also Chapter 8).

The World Bank, the world’s largest multilateral aid agency, part-funded from donor government aid budgets, is using aid money to promote the interests of the TNCs. Many of the big dam projects that have boosted TNC profits but displaced millions of people are funded in part by foreign aid from the Bank and other donors. The World Bank has also funded large-scale agricultural, mining and tourism projects. It has helped TNCs by providing loans to help finance the setting up of privatization agencies in a number of African countries. Through its structural adjustment policies, the Bank is at the forefront of efforts to persuade countries to deregulate and liberalize their economies – removing controls, including those on TNCs.

(Continues…)Excerpted from Big Business, Poor Peoples by John Madeley. Copyright © 2008 John Madeley. Excerpted by permission of Zed Books Ltd.
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