Multinational Enterprises and the Prospects for Justice.

• Author: Spar, Debora

One of the defining features of the modern era is the spread of business enterprises across international borders. Markets once considered peripheral or exotic are now often viewed as integral to a firm's success; and a global corps of businesses has replaced the once-scattered legion of expatriate firms. As corporations increasingly define their markets to encompass wide swathes of the globe, cross-border flows of capital, technology, trade and currencies have skyrocketed. Indeed, cross-border activities of multinational firms are an integral piece--perhaps the integral piece--of globalization. They are also, in some quarters at least, highly controversial.

One of the controversies centers on the impact of global mobility According to some scholars, the corporate scramble for ever-wider markets has a dark side. In addition to creating economies of scale and enhancing efficiency, globalization may create a deleterious "race to the bottom," a downward spiral of rivalry that works to lower standards among all affected parties. As described by proponents of this view, the dynamic behind such races is straightforward and compelling. As corporations spread throughout the international economy, their constant search for competitive advantage drives down all those factors that the global players seek to minimize. Tax and labor rates are pushed down, and health and environmental regulation are kept to a bare minimum. In the process, crucial functions of governance effectively slip from the grasp of national governments, and corporations and capital markets reap what societies and workers lose. Since justice is hardly a central concern of the modern corporate enterprise, it presumably gets lost in the shuffle.

Does corporate expansion necessarily lead to such race-to-the-bottom behavior? Or are there situations in which multinational enterprises might actually contribute to the pursuit of international justice? Common wisdom would probably suggest that because corporations are motivated solely by the desire to maximize profits, it would be unrealistic to expect them to play any positive role in the pursuit of international justice. This paper seeks to unbundle such arguments and looks in greater detail at races to the bottom and their impact on affected nations. In particular, it seeks to examine when such races really do occur and when they do not; when corporate expansion is liable to drive global standards to rock-bottom lows; and when it can, paradoxically perhaps, actually enhance prospects for global governance and international justice.

As the articles in this volume attest, "justice" is difficult to define. It means different things to different people, and incorporates a range of normative goals and assumptions. Our treatment of the word here is specific and quite narrow. When we speak of justice, we are referring to the basic conditions of human livelihood, to the political and economic factors that expand the realm of human choice and possibility Our definition of justice, based on the United Nations' description of human development, is the process of enlarging people's choices, ensuring access to basic resources and providing citizens with education and the ability to live a healthy life.(1) One might argue that these factors are more directly linked to political concerns for justice: civil liberties, for example, only become plausible once the citizens of a particular state have reached a basic level of economic subsistence and political sophistication. In this article, however, such claims are neither made nor drawn upon. Rather, we confine our analysis to a much more limited, preliminary sphere. We try to examine whether multinational expansion always leads to race-to-the-bottom behavior, with all of its presumed ill effects, or whether, under some circumstances, multinationals can actually lead the charge toward higher global standards and greater concern for the lives and livelihoods of affected populations.

In a very preliminary way, this article proposes a series of hypotheses about the impact of corporate mobility on international standards and international governance. Specifically, we suggest that races to the bottom only occur when border controls are minimal and regulation and factor costs differ across national markets. Once these preconditions are met, races will most likely occur when products are relatively homogeneous, cross-border differentials are significant and both sunk costs and transaction costs are minimal. Likewise, we suggest that "governance from the top" will be facilitated by the strong presence of externalities within a particular issue area, by a cascading process that affects several states (racing that occurs in steps), by the presence of cross-cutting and powerful domestic coalitions and, occasionally, by incentives for self-governance among the racing firms.

Taken together, these hypotheses imply a more nuanced combination of races to the bottom and governance from the top. They describe globalization as a complex process with no determinate outcome and few clear winners. Sometimes, the integration of capital flows and corporate structures can indeed produce a deleterious spiral and an erosion of governance mechanisms. Yet sometimes it can also culminate in increased governance and more stringent international standards. The challenge for both scholars and policymakers is to separate these effects and probe their disparate causes.

GLOBAL RACES

In an influential 1994 Foreign Affairs article, Terry Collingsworth, J. William Goold and Pharis J. Harvey laid forth a bleak logic of globalization. According to the authors, the advent of the global economy has enabled multinational companies to escape from developed countries' labor standards and to depress working conditions and wages around the world. As corporations have ventured abroad, they have encouraged a fierce rivalry among the developing countries that seek to win their investment capital. In the process of wooing multinationals, countries "compete against each other to depress wages."(2) As a result:

First World components are assembled by Third World workers who often have no choice but to work under any conditions offered them. Multinational companies have turned back the clock, transferring production to countries with labor conditions that resemble those in the early period of America's own industrialization.(3) In other words, a race to the bottom occurs with global standards forced ever lower by the centripetal forces of multinational rivalry. In the process, human rights and justice suffer.

Similar arguments characterize much of the literature on globalization.(4) At the broadest level, scholars such as Philip Cerny, Susan Strange and Richard Falk have suggested that the expansion of new global actors, and particularly of global corporate actors, is serving to erode and transform the policymaking power of states. As Cerny writes:

[T]he capacity of industrial and financial sectors to whipsaw the state apparatus by pushing state agencies into a process of competitive deregulation or what economists call competition in laxity ... has both undermined the control span of the state from without and fragmented it from within.(5) Falk echoes these sentiments, suggesting that as a result, in part, of market forces and technology, "[t]erritorial sovereignty is being diminished on a spectrum of issues in such a serious manner as to subvert the capacity of states to control and protect the internal life of society."(6) In all three authors' work, there is a clear link between the globalization of firms and capital and the restriction of state power. This link is forged by the pressures that competing firms are able to exert on state policy: in other words, by a raceto-the-bottom effect.(7)

More specific arguments focus on the impact of globalization on labor, suggesting that, in a bid to attract multinational investment, countries may race to the regulatory bottom, lowering wages and abandoning any labor protection they might have offered in the past. In the process, international economic justice is almost certainly compromised, as labor demands give way to corporate rivalry.(8) In the environmental realm, numerous studies have likewise suggested that international competition for investment will compel governments to create "pollution havens," lowering their environmental regulations far below socially desirable levels.(9) These havens will, in turn, lure multinational firms, causing them to flee from more stringent environments. The result of this migration will be more lax standards around the world, increased environmental degradation and a massive migration of jobs and capital from the industrialized states.

Though "justice" is not an explicit theme in this work, the implications in its direction are clear: as corporations race around the world, they weaken the ability of governments to address social issues. Concerns about income distribution, for example, will be muted by a desire to retain multinational investment, and demands for unionization or free association will fall prey to corporate preferences for low wages and docile labor pools. As a result, society at large is bound to suffer and justice will take a back seat to profits. This is the basic logic that connects globalization with race-to-the-bottom effects.

Empirically evidence of races is more difficult to discern.(10) Indeed, most of the research done tends to dispute the race-to-the-bottom hypothesis, arguing that firms do not actually trawl around the global economy looking for lower labor standards or weaker environmental regimes.(11) Admittedly, finding empirical evidence of race-to-the-bottom effects is bound to be a difficult endeavor since so many variables and motives are involved. Firms choose locations for a wide variety of reasons: to expand markets, to be close to customers, to follow competitors and to reduce factor and...