Multinationals and Poverty Reduction

By Franklin Cudjoe

franklin CudjoeIn this presentation, Editor of and Executive Director of IMANI Ghana Franklin Cudjoe takes on sections of the academic establishment by demanding a radical review of the popular perspective on Multinational Corporations (MNCs), large firms that operate in multiple countries at the same time and spread their business activities across several geographical frontiers.

An MNC such as 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 .

Popular MNCs in Africa include Shell, Diageo, Nestle, Unilever, and Barclays Bank. These and others have become poster-boys for anti-globalisation movements whose rhetoric have grown increasingly hostile in recent years. MNCs have been painted as thieving, bullying, monsters whose only contribution to life on the planet is to exploit the inhabitants of the developing world and hoard their profits for the sole benefit of those who own and run them.

Rarely do you hear the other side, such as the fact that in Ghana , for instance, MTN, a typical MNC, generates revenue that contributes close to one-sixth of Ghana ’s total economic output, $20 million of which the company directly invests in water delivery to benefit the poor of Ghana . Or the fact Diageo ensures adequate access to water for as many as 1 million deprived African citizens. You are also unlikely, thanks to a lack of sufficient Media coverage, to be aware of Nestlé’s rural development programs in Brazil and India , or of Microsoft’s massive distribution of healthcare resources to many countries in Africa . This concept of corporations showing their concern for social issues in their business environments is known as Corporate Social Responsibility, and MNCs are noted forerunners in its use as a means of civil engagement between business operators and the wider population.

But even disregarding the philanthropy issue, isn’t the fact that MNCs are huge reflected in their success at serving consumers, of all social profiles, who need and are willing to buy their products, and isn’t their huge revenues reflected in their larger tax bills? When they are accused of undervaluing the staff who work for them in developing countries, what is not mentioned is that these same employees often earn as much as 10 times what they will have made working for a local firm in a comparable or even more tedious capacity.

Were we even to grant the premise, shown above to be highly dubious, that MNCs in Africa exists for the purpose of exploitation, doesn’t that lead us directly to the question of what kind of society Africa is that allows such unchecked exploitation? What then has become of the role of government to implement regulations to ensure that MNCs abide by the rules? The argument that MNCs will then simply migrate to other countries does not bear out on scrutiny. How will Ashanti Gold move its operations to Benin to escape firm regulation? And at worst don’t organizations like ECOWAS exist to ensure uniform, fair and firm regulation? The question, clearly, therefore leads to the issue of the ‘’institutional environment’’ within which MNCs operate, and this is clearly borne out by noting that very often local companies are not absolved of the same sins we accuse MNCs of committing.

If the point really is that MNCs take advantage of poor countries to abuse the hospitality of these societies, and we make this statement by reference to the assumption that MNCs behave better in wealthier countries, then perhaps it bears reflecting on the differences in environment between rich and poor countries with regards to how all companies – MNCs as well as locals – behave in each respective region. If the results of that reflection is that in poor societies cronyism and the lack of enforceable standards allows local companies to evade taxes (which by the way MNCs tend to be rather prompt in their payments), disregard laws against pollution, renege on their contractual obligations to their staff and refuse to pay social security contributions, then the proper analysis will be that what is called for is not the demonisation of MNCs but rather improvements in the ‘institutional environments’ of developing countries.

At any rate, Mr. Cudjoe argues that the whirlwinds of globalization and the new demands of consumers, in both the developed and developing world, make MNCs crucial to that effort of enhancing the institutional capacity of developing countries and also the ability of economic actors to respond to the new level of institutional effectiveness.
The broad conclusions to draw from Mr. Cudjoe’s lectures are thus likely to be the following:

    • MNC participation in developing economies is crucial because, firstly, 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.
    • Secondly, poverty reduction requires systemic change, and MNCs are the world’s most efficient and sustainable engines of change.
    • 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. 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 Employmet Programmes are usually gimmicks for political advantage.

Without harnessing the support of the world’s great MNCs, the UN’s Millenium Development Goal to halve the number of people living on less than $1 a day by 2015 will be difficult to attain.

Please see Mr. Cudjoe’s power point presentation here.