Ryan Pitylak

How Multinational Corporations Can Ethically

Engage In Developing Nations

 

Introduction

The number of people living in poverty in a developing nation can be drastically lowered through education.  Multinational corporations (MNCs) seek out educated populations to supply jobs at a substantially lower cost than are available in the United States.  To ensure that there is no exploitation of the people in the developing country: 1) MNCs must engage developing countries using constructive engagement to further social development; and 2) the government must ensure the protection of basic human rights for the employees in those counties through regulation; and 3) MNCs must be prepared to pay wages that are higher than the national poverty line when unemployment is low and the people are sufficiently educated. 

 

 

How to engage

Once the choice has been made that engaging with a developing country is beneficial to the stakeholders of a MNC, the company must determine how to enter that marketplace.  John Schermerhorn, Jr. defined ways to engage developing countries.  They are sanctioned nonengagement, principled nonengagement, constructive engagement, or unrestricted engagement. 

The strict practices of nonengagement do not allow for social development in a developing nation and therefore are not permissible options.  Sanctioned nonengagement is when the United States government or marketplace force companies not to do business in the host country.  Principled nonengagement occurs when companies choose not to do business in the country.  These nonengagement practices are chosen when the practices in the host country do not align with the core values in the United States. 

Sanctioned nonengagement by the government can hurt foreign relations between the two governments if it is not done carefully.  The United States government must negotiate with the host country before enacting sanctions.  If foreign relations are hurt, it may cause the foreign government to sell all of its United States bonds and therefore negatively impacts the United States economy.  This negatively impacts the United States economy because bond rates are tied to the financial cash flow of the nation and its economy.  The United States government can avoid losing financial support of the developing nation by demanding that these basic human rights are provided only for the employees and suppliers of MNCs.

Constructive engagement allows host countries to improve all of their human rights conditions over time and is therefore the proper way for the MNC to engage.  This has worked with the Sullivan Principles, which provided guidelines such as equal opportunity, respect for voluntary freedom, a living wage, and to provide a safe workplace, when dealing with Apartheid in South Africa.  For constructive engagement to work, standards must be set similar to the Sullivan Principles, and an independent auditing firm must ensure that progress towards these principles are being accomplished.  Immediate minimum standards of employee’s “basic human rights” must be enforced to ensure that these rights are not limited.

 

Government Regulation

Constructive engagement is not designed to guarantee that there are no violations of the employees’ “basic human rights”.  Constructive Development is designed to ensure that progress is made towards social development.  There must be exploitive labor practices that are made illegal.  I propose that the United States enacts regulation that would stop any MNC from having a supplier or employee in a developing nation that did not have its “basic human rights” protected.  Since a majority of MNCs will lean towards unrestricted engagement if there is no governmental regulation, regulation is necessary.

These “basic human rights” include the employees’ ability right to work no more than sixty hours per week.  This may seem high, but many poor people are willing to work this much to earn enough money to survive.  These “basic human rights” also include a reasonable number of sick days, holiday days, medical leave, unionization, and bathroom and lunch breaks.  Some rights that we see as basic, such as no children working, can not be a luxury embraced by the people in the developing nation if this income is needed for the family to survive.  This luxury should be encouraged however since higher level education lead to higher paying jobs.

Enforcing these “basic human rights” may appear as ethical imperialism, which is when a foreign country imposes its ethics onto the host country by force or coercion.  These human rights should not fall under the category of ethical imperialism because they must be respected regardless of where these employees are.  These rights have been universally adopted throughout recent civilized history.  These rights could be seen as rights that not all humans should be given.  This mode of reasoning is quite problematic considering that any government acknowledges the importance of human dignity, even if it isn’t currently being respected. 

Regulation is necessary because foreign governments have drastically lowered safety conditions and wages to make their countries attractive to MNCs.  They do this so that the employment costs are competitive with other developing nations that are using the same human rights deregulation practices.  This competition for lowering human rights is leading to a constant downward spiral of human rights in developing countries.  Any violations of the “basic human rights” must not be allowed for MNCs that do business in developing nations. 

It has been argued that government intervention into business is negative because the free market should control itself.  This argument is invalid if you look at the conclusion that people’s “basic human rights” are not being respected.  The beneficiaries of this exploitation are the MNC, the host country’s government, or the consumers of the MNCs.  It is morally unfair to use people only as means.  If you are providing jobs that are not exploitive, then you are not using these people only as means.  People have argued that creating laws to enforce ethics promotes a sort of relativism whereby the MNCs will only look to laws to supply their ethical guidance.  This argument is not strong enough to justify the negative impacts of unrestricted engagement.  It remains that government regulation is necessary to avoid exploitation of employees of MNCs in developing nations.

Government regulation and constructive engagement are two ways to ensure that employee’s “basic human rights” are protected.  Once these standards and wage considerations have been made, MNCs can feel ethically confident in their decision to enter the marketplaces of developing nations.

 

Proper wages

Government regulation and constructive engagement are not enough to ensure that MNCs have met their ethnical obligations.  MNCs must also be committed to paying wages that are well above the poverty line for educated employees if unemployment is low.

Providing skilled labor jobs has a positive side effect of helping to end poverty in a developing nation.  This is a justification for entering the marketplace by a MNC.  Poverty is decreased because the availability of higher paying jobs will increase the wage of the lower paying jobs.  This happens because there will be less people available for these lower paying jobs.  If less people are available for lower paying jobs, wages will have to increase.  The result would be higher wages for everyone in the society. 

Many ethical debates have occurred over the wages paid to employees in developing nations.  The solution to this complex problem is to pay people according to their education and skill level, and the unemployment level.  Someone who is educated and trained must receive a wage that is well above the poverty line if unemployment is below ten percent. 

It is not the ethical responsibility of a MNC to pay wages at the level of home based standards, which are wages equal to what an employee would earn in the host country.  This is not necessary because there needs to be incentives for seeking employees in developing nations.  It is also not the ethical responsibility of the MNC to hire people at a wage that is higher than the average wage of that region.  The wage must be at least equal to the minimum wage set by local laws.  To ensure that there is no exploitation, people need to be paid a wage that is fair based on current unemployment rates and that person’s education and training. 

A well known argument is that raising the minimum wage will have a negative impact on the economy.  The negative impact they argue will occur is that with higher wages, hiring will be less attractive, and unemployment will rise.  However, historical evidence in the Unites States shows that minimum wage increases do not have negative impacts on the economy if done slowly.

MNCs must be committed to paying wages that are above the poverty line if unemployment is low.  Developing nations rely on the world economy to survive when they shift their focus from agricultural production to industrial production.  In Jamaica, during the years of 1977-2000, less than 5% of all foreign investment actual remained within the country.  This startling fact makes it obvious that these developing countries become increasingly dependent on producing for the world economy.  The trend for workers in developing countries is to move away from agricultural independence and to move towards industrial based companies, including MNCs.  MNCs have recently been pulling out of Jamaica because of cheaper labor that can be found in South America because of NAFTA. 

The practice of leaving to find cheaper labor can have negative impacts greater than if the MNC had never entered that country.  When MNCs pull out of a country, they leave behind more unemployed than when they went into that country.  This negative impact occurs because the old agricultural industries are sometimes permanently depressed when people stop attending to these agricultural industries for a period of time.  If MNCs are committed to paying educated people wages that are well above the poverty line when unemployment lowers, then they have met one their ethical obligations for doing business in a developing nation.

 

 

The highly educated and trained

Education is a contingency for paying employees a wage that is well above the poverty line.  If people in a developing nation do not take the energy and time to become educated, then they can not blame the MNC if they are not being paid a living wage.  It is the responsibility of a developing nation to offer enough education opportunities to its people so that the society can provide skilled labor for the world market. 

MNCs will utilize educated people in developing nations because they are available at a substantially lower cost than is available in the United States.  The level of education necessary to attract higher paying jobs that will uplift a society out of poverty is between ten and twenty years of school.  Highly educated and trained people can be defined as people, who attend the university, are provided job training and experience, and become fluent in English speaking and conversation skills. 

The need for higher education is apparent from the example of the people in Sri Lanka.  The unemployment rate in 2002 was 8.8%, and simultaneously the number of people living in poverty was 22.7%.  This low unemployment rate and high poverty rates occur in conjunction with each other because less than 3.4% of the population who enter the school system are going into universities.  With more people entering the Universities, such as 23% in America, overall wages for all people will rise when educated people enter the job market.

There needs to be an emphasis by the government to build more universities to ensure that more people can join the universities.  This is important because in Sri Lanka it is virtually impossible for most locals, especially the poor, to attend a university in their lifetime.  To ensure employment after leaving the university, the university should ensure that students will become fluent in English, have substantial training in their desired occupation, and have real world work experience.  The level of education in the schools must be high enough so that MNCs will be enticed to bring their jobs to that country.

The main evidence to support the need for higher education comes from the examples of Europe and other Westernized countries where higher education has been widely available for a long time.  These countries, on average, live in lower levels of poverty and are able to perform highly skilled jobs that pay a higher wage.  The availability of statistics that supports these claims are extensive.  Countries that have a more educated society lead the path in technology.  They will find creative ways to create jobs themselves and to encourage foreigners to use them for the supply of higher wage jobs.  In America, the number of households under the poverty level was 10% in 2003.  The unemployment rate was 6% in 2003.  Total enrollment into the education system was 70 million in 2003 with 16 million entering universities, or roughly 23%.  This strongly supports the thesis that higher education leads to a society with lower poverty levels.

 

Conclusion

It is the ethical obligation of MNCs to pay educated employees wages that are well above the poverty time.  To fulfill all of their ethical obligations, MNCs must also engage using constructive engagement and embrace government regulation that will protect employees “basic human rights”.  These obligations must be considered by a MNC before deciding to enter a developing country.  It is the responsibility of MNCs to consider developing countries for their labor supply, because if executed properly, it will create more stockholder value.  While performing the responsibility of the MNCs to make money for its stockholders, these ethical obligations can’t be overlooked simply to make a higher profit.


 

Resources

  • Bulletin of Labour Force Statistics of Sri Lanka; Third Quarter 2004; ISSN 1391-3050
  • Colombo Consumers’ Price Index for March 2005; http://www.stastics.gov.lk/price/ccpi_text.htm
  • The Department of Census and Statistics Announces the Official Poverty Line for Sri Lanka; ISSN 1391-4693
  • Household Income and Expenditure Survey; 2002; ISSN: 1391-3867
  • Employment and Unemployment in Sri Lanka – Trends, Issues and Options; Department of Census and Statistics in Sri Lanka
  • Bureau of Western Hemisphere Affairs;
    February 2005; Background Note: Jamaica; http://www.state.gov/r/pa/ei/bgn/2032.htm
  • Denis G. Arnold, ‘Human Rights and the Multinational Corporation; Human Rights and Global Labor Practices', in Ethical Theory and Business, Seventh Edition (2004), p. 558
  • John R. Schermerhorn, Jr., ‘Terms of Global Business Engagement in Ethically Challenging Environments: Applications to Burma’, in Ethical Theory and Business, Seventh Edition (2004), p.570
  • Ian Maitland, ‘The Great Non-Debate Over International Sweatshops’, in Ethical Theory and Business, Seventh Edition (2004), p.579
  • US Census Bureau; 2003 Poverty Statistics; http://pubdb3.census.gov/macro/032004/pov/new04_100_01.htm
  • US Department of Labor, Bureau of Labor Statistics; http://www.rescueamericanjobs.org/articles/pdfs/usa_1964-2003_unemployment.pdf
  • National Center for Education Statistics; http://nces.ed.gov//programs/digest/d03/tables/dt003.asp

 

 

Copyright (c) 2006 Ryan Pitylak All rights reserved.
Austin, Texas (TX).