The Multinational Monitor



Multinations and Third World Development

A noted authority on the activities of the multinationals argues that global corporations act to promote social and economic inequalities in the underdeveloped countries where they operate.

By Richard Barnet

Increasingly, global resource systems are being managed by multinational corporations. The mining, melting, refining, and mixing of animal, vegetable, mineral and human resources into products for sale is an integrated operation on a planetary scale. Viewed from space, the Global Factory suggests a human organism. The brain is housed in steel and glass slabs located in or near a few crowded cities: New York, London, Frankfurt, Zurich, and Tokyo.' The blood is capital, and it is pumped through the system by global banks assisted by a few governments. The financial centers, New York, London, Frankfurt, Tokyo and their fictional extensions in such tax havens as Panama and the Bahamas function as the heart. The hands are steadily moving to the outer rim of civilization. More and more goods are now made in the poor countries of the southern periphery under direction from the headquarters in the north, and most are destined to be consumed in the industrial countries.

Global corporations exploit their superior bargaining power in weak, disorganized societies to carry out a series of activities which can offer exceptionally high profits for the worldwide enterprise but which often promote economic and social backwardness, in poor countries. The manipulation of transfer prices (administered prices for transactions between foreign subsidiaries and the headquarters of a multinational corporation) rob the countries of foreign exchange and reasonable earnings from exports. The technology transferred by multinationals, which is usually designed for the home market in a developed society, is inappropriate to the needs of poor countries. It often displaces jobs and is overpriced. The products manufactured in poor countries are beyond the reach of a majority of the people who lack the money to buy them. Such products - automobiles, household appliances, expensive packaged foods - are consumed by local elites in enclaves of affluence or they are exported. The export-led model of development of which the multinational corporation has been the principal engine has meant crippling debt and increasing dependence upon the rich countries, their private banks and the international lending agencies which they control. Because of their superior control over capital, technology, and marketing, global corporations can dominate local economies and preempt the power to plan for the society.

The development model that emerges by default when the global corporation assumes control of the commanding heights of the economy is a highly inequitable one. The gap between the rich and poor increases and the bottom 20 percent of the society appears to be worse off in terms of having its basic needs met than before the development process began. Multinational corporations exert political influence in favor of rightist regimes which are committed to social and economic relationships that preserve inequalities. The political power of multinational corporations is firmly committed against redistributive experiments as in Salvador Allende's Chile or in Michael Manley's Jamaica. This power is now exercised principally through banks and international lending agencies. The huge debt owed by Third World countries to public and private banks provides effective leverage to discourage redistributive strategies that, from the viewpoint of the multinationals, threaten financial or political stability.

Multinationals thus bring their own model of development with them. This model conflicts with a strategy to meet the basic needs of the poor majority. A basic needs strategy involves shifting resources to people without money, to clean the water in rural areas where it is a necessity of life but not a commodity. Such investments are not in the economic interest of multinational corporations. From the point of view of the corporation, the priority public investments are roads, harbors, subsidies for high technology, and other expenditures to develop the infrastructure to support profitable, private investment. Money should be spent on the productive enclaves of the society and not wasted on the rest. Spending money on those who do not produce, according to most economic theory, is a recipe for ruinous inflation.

The multinational corporations are of course interested in Third World markets, but even for relatively low-cost items, the market is limited. The corporations have no interest in producing goods suitable for the consumption or use of the poorest 60 percent of the population. They are not in the business of producing low-cost housing, cheap and nutritious food, or village medical care. J-he technology they transfer to Third World economies, such as nuclear power plants, computers and gas-guzzling harvesters-tends to -be inappropriate. Like any other profit-making institution, the multinational operates .under a narrow set of goals-profit maximization, long-term stability, and growth. Its purpose is obviously not productive to meet the basic needs for which there is no immediate, high-profit market.

The process of industrialization in the Third World is taking place almost automatically. The pace differs greatly from country to country, but the basic social effects are much the same. The subsistence economy in which money was rarely used-small peasants bartered their cotton for a little wheat, or some rice for the rare luxury of a pair of shoes from the village cobbler-is being sucked into the international money market. By the magic of modern fertilizer, miserable grazing land suddenly becomes valuable. The high-technology agriculture of the "Green Revolution" has driven hundreds of thousands of peasants off the land. When agribusiness moves in, their labor is no longer needed.

The industrialization of the Third World via the multinational has destroyed jobs in the countryside without creating anything approaching equivalent opportunities inside the factory. The pressures on the corporations are to extend the useful life of capital-intensive technology developed in their home countries and to keep their Third World payrolls down.

In an industrializing world in which the principle activity is getting and spending, more and more people are thus becoming irrelevant to the productive process, either as producers or consumers. More than a billion people cannot find enough work at wages adequate to provide food for their families. Every sign suggests that the number will increase dramatically. It is the monumental social problem of the planet, the cause of mass starvation, repression, and crime, petty and cosmic.

Richard Barnet, a founder of the Institute for Policy Studies, is co-author, with Ronald Muller, of Global Reach: The Power of the Multinational Corporations. His latest book, The Lean Years: Politics in the Age of Scarcity, will be published by Simon and Schuster in May.

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