Multinationals, Development and Democracy

Joining Geyelin in the conversation was Samuel Hayden, managing director of the Council. The Monitor here presents highlights from an edited transcript of the interview.

MULTINATIONAL MONITOR: Let's consider foreign investment and development. Brazil, perhaps more than any other country in Latin America, is closely associated with a large-scale U.S. multinational presence. Foreign corporations control 80 percent of the country's pharmaceutical sector, and almost 100 percent of its auto industry. Since the 1964 coup, U.S. investment has increased by over 500 percent. At the same time, while Brazil now has the second highest per capita GNP in South America, its Physical Quality of Life Index (PQLI), a measure designed by the Overseas Development Council to gauge the economic well-being of a population, is the second lowest in South America. How do you explain this divergence between growth and economic well-being?

HENRY GEYELIN: You know, when you look at Brazil, and you look at the population, you have to ask what part of it is totally outside the economy, and what part is in the economy. I think you will find that those segments of the society that are in the economy have prospered. It is certainly true that up in the northeast, and in the Amazon area, where there isn't even any contact between Indian tribes and civilization as we know it, that brings down the level of _ per capita GNP. But in Sao Paulo, you have got, I can't remember the figures, an increase of people in the middle class. There has been a spectacular growth and filtering down.

SAMUEL HAYDEN: The question in my mind is what's the starting point for this discussion? I don't know what you are driving at. You're driving at the link, I guess, between the multinationals and development strategies in Brazil. I think it's pretty clear that the multinationals are not making the strategy.

MONITOR: Our question is what is the relationship between the multinationals, the military governmentwhich certainly cannot be considered representative of the people-and the segment of the population that benefits most directly from their operations.

GEYELIN: The multinationals bring in the capacity for production, for the creation of wealth. And the amount of wealth that you create is then distributed according to wages, return on investment and expansion of the production facilities. And this process is going to go on for a long time. To just multiply wealth overnight is impossible.

MONITOR: l think the more important question is, though, does the creation of wealth for a select segment of the economy, and I think you will agree that at this point only a small segment of the population is able to consume most of the wealth produced in Brazil, involve an erosion of the economic well-being of a majority of the people?

GEYELIN: The rich grow richer and the poor grow poorer, is that what you're saying?

MONITOR: Well, let's look at the Brazilian "miracle, " that period of 10 percent annual GNP growth between 1967 and 1973. During the miracle, automobile production increased by 21 percent annually, and the production of luxury consumer goods rose by 25 percent a year. Multinationals enjoyed tremendous profits. G M 's rate of return in 1971, for example, was 31.5 percent. At the same time, Brazil was the only country in South America where the rate of improvement in the Physical Quality of Life Index was actually negative. Doesn't it seem clear that large profits and the health of multinationals, along with rapid GNP growth, in no way benefited Brazil's poor?

GEYELIN: What is the percentage of people that have come into the economy who were outside the economy? I haven't got the figures and you're throwing a lot of figures at me. I have seen a terrific increase, I think it was something like 12-15 percent per annum, of people who were outside the economy coming into the economy. From the lower middle class, to the middle class, to the upper middle class. There is an escalation of sucking in from the bottom going on all the time. Now that doesn't say also that the poor don't remain just as poor as before. But I don't know why you're talking here about multinationals. Multinationals are only in there at the sufferance of the Brazilian government and the Brazilian economy.

Marketing: A need for corporate responsibility?

MONITOR: Food processing has been an area where U.S. investment in Latin America has been accelerating over the last five years. Mexicans, for example, consume 14 billion bottles of soft drinks every year. Three-quarters of the market is controlled by foreign corporations, 42 percent by Coca Cola alone. In Brazil, Coke and Pepsi, through massive advertising, have displaced consumption of guarana, a natural fruit drink manufactured by local businessmen. How do you think massive advertising by corporations, to promote consumption of products like Coca-Cola, increases the well-being of Latin America's people?

GEYELIN: Are you saying, in effect, that you should legislate against those people drinking what they want to drink? You know, if they drank it and threw up, they wouldn't drink it again, no matter how much advertising there was.

MONITOR: That's not the question we are asking. David Rockefeller, founder of the Council of the Americas, gave a speech in the early seventies about the need for multinationals to be good corporate citizens in the countries where they operate. Should corporations exercise a certain amount of restraint as to where they will market a product, or is it up to a Mexican peasant child to have all the information and to be aware that drinking a soft drink is not nearly as nutritious as drinking a local fruit drink?

GEYELIN: Oh, I see. You should go around and have somebody everywhere saying no, you can't buy Coca-Cola because the nutrition habits in your family are not good; your nutrition habits are good, so you can buy it. That's ridiculous.

MONITOR: Isn't that an exaggeration? We're talking about selective marketing in broad terms. You don't find corporations advertising cigarettes in a magazine read by young teenagers. lf a corporation has to make a decision to go out and create a demand for a product, is there a question of corporate responsibility involved in heavily marketing something like Coca-Cola in a low-income area, where it would seem unwise for the people to develop a pattern of heavy consumption? Is there a divergence in that situation between increasing sales for multinationals and the health and well-being of the population?

GEYELIN: Absolutely not. I mean, it's giving them the choices. You say Coca-Cola has no nutritional value, well neither does tequila. Yet, you talk about the fact that Coca-Cola may have cut down on the consumption of a good orange juice or something. It may have also cut down on the consumption of something less nutritional, like a guy going out and getting drunk everydayand I don't blame him-on tequila. How much does it cut into that market?

HAYDEN: Look, the operative thing is the definition of corporate responsibility. I think most companies would probably say that their working definition of corporate responsibility is, number one, legal and, number two, that the product they're putting out is safe. You are asking a pretty difficult question here. You are asking corporations to sacrifice themselves for some social development purpose.

Political development and the military government

MONITOR: Let's move from economic development to the question of political development and the growth of democratic structures. In 1968, Sal Marzullo, public affairs officer for the Council, prepared a pamphlet addressing this question. I'd like to read a passage from that pamphlet. "The military government is part of the historical tradition of Latin American development. The modern young officer group of Latin America has been increasingly trained in the U. S., and has returned to its country with many forward-looking ideas. Very often, and unfortunately, it is the military alone that can guarantee stability and provide sufficient time so that significant social changes can be made within the society:

This passage seems to suggest a view that democracy is somehow unworkable in Latin America. Does this passage accurately reflect the sentiments of U.S. business? Do U.S. corporations prefer to do business with authoritarian regimes rather than democratically elected and representative governments?

GEYELIN: The answer is certainly no, absolutely no. It doesn't make any difference from a corporate viewpoint whether it is an authoritarian government or a popularly-elected government as far as doing business. All that you need is economic and social stability. I've always had a thesis myself: Can the U.S. export its political system? Let's go back to the formation of our country. It all revolved around a thing called self-discipline. You must remember, everyone came over here because they wanted to break away from imposed discipline. They felt they had internal discipline, whether it was the Calvinists or fugitives from justice. And there was an innate self-discipline in this country. Now, taking that same basis, look at immigration to Latin America, and I pose this as a question. Where they lived under the caudillo system, under the church, all discipline was imposed from without and not maintained from within. If you start from two different bases of society how long can you expect to take the same moves at the same time within those societies to stabilize them?

MONITOR: You suggest that authoritarianism and military government are somehow embedded in the cultural tradition of Latin America.

GEYELIN: No, I didn't say that. I would tend to believe that a society which has never had to impose, selfdiscipline, where all discipline was imposed from without, was less capable of running itself than one in which there was individual self-discipline.

Chile, U.S. business and human rights

MONITOR: Well, Chile, for over a hundred years, enjoyed a very noble democratic tradition. The collapse of Chilean democracy with the 1973 overthrow of Allende really spurred on the debate over human rights and foreign policy. According to President Carter, in a speech given in Brazil, "the American business community supports completely a commitment of our nation to basic human rights. " In contrast, Jack Carter, manager of Goodyear's $34 million operation in Chile, has publicly stated, �I don't think the [Goodyear] board spent more than five minutes talking about human rights when we made the decision to invest in Chile." /n 1978, the Council of' the Americas held 77 workshops, seminars and discussions on relations between the U.S. and Latin America. According to your Annual Report, only two of those 77 were devoted primarily to the question of human rights. Do U.S. corporations encourage or discourage human rights in the countries where they operate? Are they concerned about human rights?

GEYELIN: Sure, there's no question. We are just as concerned as anybody else. I just . . .

HAYDEN: Business implicitly believes that it contributes to human rights, and that its contribution is in the economic area-jobs, wages and salaries, technology transfer, etc. The human rights policy of the U.S. government only seems to concentrate on two parts of the definition of human rights--civil and political----and ignores the third part, economic.

MONITOR: How do you explain Jack Carter's statement? Has concern been translated into positively encouraging greater human rights?

GEYELIN: Now you are talking about implementation. A policy and its implementation are two different things.

HAYDEN: U.S. companies have some concerns about the way the government's human rights policy is being implemented. And that concern really relates to lost business opportunities. When the policy says Argentina is a gross violator of human rights, therefore certain types of goods are not going to be sold by the U.S. free enterprise system to Argentina, and then Argentina turns around and buys the same goods from the Soviet Union, is this what we want the policy to do? The net result is that it hasn't affected anything and that's just an example.¹

MONITOR: Can you comment on how, in the case of Chile, U.S. banks have contributed to the growth of human rights?

GEYELIN: You tell me how they have contributed to the violation of human rights.

MONITOR: Okay. In fact, I'll let a number of U.S. Congressmen speak for me. Since 1976, the U.S., to protest human rights violations, has cut off all military, and almost all economic assistance to Chile. At the same time, private bank loans to Chile have soared. In 1975, they totalled about $100 million. By 1976, they had increased by over 500 percent. Today, multinational private banks control 90 percent of Chile's foreign debt.

Last August, 35 Congressmen argued that bank lending has reduced the impact of U.S. foreign policy. Senator Kennedy agreed. On the Senate floor, talking about private lending, he said, "Massive funding such as this may be what enabled five Latin American governments, whose U.S. assistance has been reduced in response to human rights violations, to reject all U.S. aid and continue their anti-democratic practices. " How do you respond to charges such as those made by Senator Kennedy?

HAYDEN: I think the answer is only one basically: the companies are confused by the human rights policy. If the U.S. government flat out said: no loans to Chile, there wouldn't be any loans to Chile.

GEYELIN: But I think you will find that for the most part, the loans have gone to revitalizing the economy, and bringing back economic well-being, which consequently lowers dissension and diffuses the human rights issue.

MONITOR: You say bank loans have improved the human rights situation? I'd like to quote from a report by the United Nations Economic and Social Council, which concluded "it is the inflow of foreign capital that has to a great extent permitted the viability of an economic policy that has had severe repercussions on the living conditions of the vast majority of Chileans ... on their right to work, to food, to health, to housing and to education. " Today, for example, the average caloric intake of a Chilean is about 1550 calories, compared to 1750 in 1970.

GEYELIN: What was it in 1973?

MONITOR: 1800.

GEYELIN: And in 1974?

MONITOR: In 1975, it was 1600. What we are witnessing is the progressive erosion of the health of Chileans.

GEYELIN: No, what you will see now is a progressive improvement. I think you will find that the erosion was just during that god-awful period when inflation was so incredibly high. From 1978, you will see the curve is rising and rising rapidly. I'm interested in seeing the 1979 figures, they will be quite astounding.

MONITOR: Proposed direct foreign investment since the coup has totalled about $4 billion. Over 90 percent has gone into mining, where workers have faced more repression than in any other sector of the economy. Late in 1978, when workers at La Chuquicamata, a mine now owned by Anaconda, protested government policies by refusing to eat in company mess halls, 1600 of them were arrested and 72 exiled to the Andes. Why have corporations concentrated so heavily in investments in mining? What has been the impact of foreign investment on the labor situation in Chile?

GEYELIN: Let's go back to the beginning. The government said we can't run, the mines as well as you can,, we want to sell them back to you. Okay, it's a good business deal, I'll buy it back. And why did the government do it? Because they can't exploit the reserves as well as we can.

I don't know about the specific labor case you are talking about. I'm talking in the broad overall picture. I think you'll find that the government of Chile, and it is in no small part due to some of our council members' activities down there, including my own, removed the labor minister and brought another one in, and met almost all the demands put forth by the AIFLD² and the AFL-CIO. And for this to be done by an authoritarian government is quite amazing to me. They now have a step-by-step process for bringing back the labor movement as it is run in this country.

MONITOR: Yes. Today, for example, a labor union can elect to go on strike, but if the strike goes on for more than 30 days, management has the power to lock the workers out and hire replacements. If the strike extends for 60 days, workers are assumed to have dismissed themselves, and lose all social security benefits. Workers in "strategic industries "still don't enjoy the right to strike. Workers at La Chuquicamata, for example, cannot legally strike.

GEYELIN: You can't legally strike here on the MTA [the New York Metropolitan Transit Authority] or the police force. You've got injunctions by the government all the time saying they can't strike.

Nicaragua: Foreign investment and political change

MONITOR: Let's consider the case of Nicaragua. In the final year of the popular insurrection against Somoza, U.S. multinational banks made loans to the government on increasingly short terms at increasingly high interest rates. These loans in effect prolonged the death and economic destruction in Nicaragua. They allowed Somoza to buy additional weaponry, and, as has been shown by an Economic Commission for Latin America study, they allowed Somoza and his family to facilitate a great deal of capital flight out of the country . . .

GEYELIN: 1 think the mere fact that you are saying on shorter terms at higher spreads demonstrates that the banks realized the tenure of office was very short.

MONITOR: No, that's not the question. You've made the point that bank loans to an authoritarian government help to create wealth, help to increase stability, and contribute to the development of the country. In this case, it would seem that bank loans allowed Somoza to gain additional capital to continue his war effort. And now the responsibility of repaying those loans falls on the new government, which is representative of the people.³ How did that contribute to the political stability of Nicaragua, and don't you think a similar case can be made for bank loans to Chile?

GEYELIN: If I were you, I would go down and get an interview with a couple of banks, major lenders, and find out where those loans were going, before you jump that question.

MONITOR: For example, a Spanish bank, late in Somoza's reign, made a $190 million loan to finance the purchase of jeeps and trucks, hardly, I would say, wealth-producing assets. They were directly linked to the war effort, Somoza's battle against his own people. At the same time, the bank paid a commission of $28 million to members of Somoza's family and the government.

GEYELIN: Well, you better go and talk to the Spanish banks. I have no idea what the loans were made for; so I really can't answer that.

HAYDEN: You'll have to go talk to the U.S. banks as well. I literally don't know how the money was spent.

MONITOR: We are curious about the reaction of the U.S. business community to the downfall of Somoza. Despite the history of U.S. corporate involvement in Nicaragua, in a universally recognized situation where businessmen had to contribute to Somoza's personal enrichment, we now find the Council of the Americas having arranged a visit to the U.S. by three officials from the new government. What do You feel the American business community has learned from events in Nicaragua over the past year?

GEYELIN: I don't know that it's learned anything. It's had another proof of what you always know could happen. That's the reason why you take out insurance. I think the reaction of the U.S. business community has been very sophisticated and, I would say, enlightened, in an hour of disaster in Nicaragua. We said, okay, that's something which has come to pass, now what can we do to help insure the possibility, of creating a new viable investment climate.

MONITOR: To put the question in a more general context, isn't business inextricably tied up with politics, particularly in a country where a small oligarchy controls the government?

GEYELIN: I think business is a totally apolitical animal. Corporations aren't in the business to remove or establish governments. They are only interested in markets and investment climates. What you do is go to your government, and say "that's a son of a bitch there, what are you going to do about him? Are we keeping him in or out?"

MONITOR: But in a country like Nicaragua, how can making a payment to the ruling family, or doing business with a family-owned firm, be removed from giving it the economic wherewithal to maintain its hold over the country?

GEYELIN: That is a by-product of it. I grant you, in following the steps down, it results that way in particular instances, as it did with Trujillo in the Dominican Republic. But you can take it to the other extreme. I guess what we could do is send in the marines, take over the government, and set up a new one like we think it should be run. You are going back to marine morality.

HAYDEN: Look, in Chile, if the U.S. government, thinks that the bank loans are really propping up a corrupt regime, that human rights are suffering, the U.S. government, which follows the human rights very carefully, should say this can't happen any more. It's the legal side. Diplomatic relations often determine what U.S. corporations do.

MONITOR:' Do corporations have any responsibility of their own, as corporate citizens, to consider questions of human rights and political authoritarianism in the countries where they operate, given that their operations per se have an impact on the political and human rights situation in that country?

HAYDEN: I think I know what you are saying. Morality truly begins at home, and it begins with individuals. And if individuals happen to be corporations, and if their operations tend to augment certain negative factors, shouldn't they back out, shouldn't they make the decision consciously themselves as ethical people? I think the answer is probably yes, they would do it. But you know, you've got to put it in context. You take a look at a company like General Motors. A company that has millions of dollars invested in a country, and has had it there for years and years, cannot make the decision to just turn around and walk away.

MONITOR: Well, that leads us back to an earlier question. When a company invests in a country like Chile or Argentina, and the government introduces policies based on repression, based on the need to defuse the political forces at work before its rise to power, and the company gets itself into a situation where it can't pull out, doesn't it necessarily align itself with the economic elite and the government?

HAYDEN: Not necessarily, not necessarily.

MONITOR: What does it do then?

GEYELIN: It's doing its own thing.

HAYDEN: It's doing its business. Look, you asked what did U.S. companies learn from Nicaragua. They are learning, and this is my own interpretation, they are learning very slowly how to do political risk analysis. Their decisions are almost always made on economic terms. We've got shareholders and investors we are responsible to. We have to make the company grow. And how do we make it grow? We look for economic opportunities. It's economic survival.

GEYELIN: That's something I'd like to come back to-the question of political risk. I think the long term political stability, instead of the short term (what's going to happen in the elections tomorrow); is going to be a more major concern. If we can come up with the proper analysis, and we are working on a matrix concept now ...

MONITOR: But once a business is in a country with an authoritarian government, doesn't that company have a stake in maintaining the stability of that government?

GEYELIN: If I'm a lending officer at Chase Manhattan Bank, and I've got that much in deposits there, and I've got a spread of this much, and I've got to make this much money out of it, and it looks perfectly legal, and the government says it's okay, I'm going to make my money out of it. Companies are not political animals. They do their thing best and set a good example. When they are overseas, they become good corporate citizens.

FOOTNOTES:

1     According to the U.S. Department of! Commerce, Argentina imported only $II million in goods from the Soviet Union in 1978, while it exported nearly S400 million. One official commented that "the Soviets have nothing to sell to Argentina."

2    The American Institute for Free Labor Development was established in 1962 to promote a "democratic trade union movement in Latin America and the Caribbean." Critics have accused the organization of supporting CIA destabilization efforts in the region.

3    According to the United Nations, while foreign loans totalling $600 million fell due on the Nicaraguan government in 1979, the country's central bank held reserves of only $3.5 million.