What is the effect of human rights on corporate activity?

The impact of Multinational corporations (MNC) in the least developed countries (LDC)

Elaboration, 2015

15 Pages, Grade: 64.0



1.0 Introduction
1.1 Definition of key terms
1.1.1 Human rights
1.1.2 Multinational Corporation
1.1.3 Least developed countries

2.0 Theoretical framework
2.1. Hymer thesis
2.2 Marxism
2.3 Gramscian hegemony

3.0 Discussion
3.1 Tax dodging
3.2 Children`s rights
3.3 Pharmaceutical medical tests
3.4 Environmental exploitation
3.5 Meddling in domestic political affairs
3.6 Compromising health, safety and working conditions

4.0 Responses
4.1 Fairtrade
4.2 Anti sweatshops campaigns
4.3 Sanctions

5.0 Conclusion


1.0 Introduction

The relationship between the multinational corporations (MNCs) and the developing world can be equated to the horse-rider relationship. It is one that is exploitative with the MNCs using illicit and often controversial means to operate their covert businesses at times in cohort with the local compradors. The major problematic is the fact that MNCs incur no direct legal obligations under international human rights law. Consequently there is no enforcement mechanism under international law for them to adhere to human rights, it is the prerogative of the state Wouters (2013). This essay therefore seeks to elucidate the role and effects of the MNCs in parts of the global south. Initially the paper will address the theoretical framework and place this within the overall framework of MNCs operations. Furthermore the paper will highlight the controversies inherent in the operations of MNCs in the developing world by articulating how they would not have done the same business practices in the developed states. Why are there these major differences? These questions will be debunked in light of examples of major corporations’ activities such as Nike, copper extraction in the Zambian copper belt and the use of child labour in tea plantations in West Africa among others. The paper will conclude by analysing the various responses by different lobby groups to these shadowy business practices.

1.1 Definition of key terms

1.1.1 Human rights

These are inaliable rights inherent to an individual by virtue of them being human. They are clearly spelt out in the universal declaration of human rights as epitomising, without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status (UNDHR 1948). Human rights are meant to cushion the vulnerable in society from discrimination by those yielding power. Its significance in corporate activities relates to the institutional operations which respect the rights of children, ethnic minorities, women and poor people. However this is a fallacy since most businesses prioritise profits over people. Human rights are usually sacrificed for present economic gains.

1.1.2 Multinational Corporation

These are organisations or entities that own or control production of goods and services in one or more countries other than their country of origin Gilpin (1975). Some notable MNCs include but are not limited to BP shell, mobile network giant Apple, motoring company Toyota and seed manufacturing company Monsanto. MNCs have been criticised for selectively operating in countries that have poor human rights records and lax environmental standards. The foot-loose nature of MNCs also threatens the socio-economic fabric of nations in the developing countries. Capital also manipulates workers committees and nations against each other. It does so by advocating for wage concessions and tax deductions whilst reinvesting little if at all for the development of the region they are operating in. Their preference of maintaining offshore accounts also leads to growth with poverty. The fact that these corporations are essentially stateless adds to the complexities of the problem since they seemingly operate above board at times in cohort with local elites in the developing states. National legislation is often unable to create a stable regulatory environment in which MNCs can operate.

1.1.3 Least developed countries

These are a group of countries that have been classified by the United Nations as lagging behind with regards to gross national income, weak fragmented human assets as well as possessing high levels of economic vulnerability Bisson (1997). The World Trade Organisation states that there are 48 countries under this classification and some of them include Sudan, Yemen, Afghanistan, Rwanda and Cambodia. Most of the LDCs are impoverished and this is further compounded by the illicit activities of MNCs who manipulate weak institutional frameworks in these countries such as poor human rights records and lax implementation of policies.

2.0 Theoretical framework

The essay will make use of three theoretical frameworks interchangeably since they have overlapping elements and all propound the dependency and exploitative relation of capital to labour that is a common feature of transnational corporate activities in the developing world. The paper strongly supports the tenets embedded in the Hymer thesis, Marxist perspective as well as the hegemony theory propounded by Gramsci.

2.1. Hymer thesis

The thesis is premised on the basis that MNCs directly contribute to violations of human rights. Hymer (1979) postulates that there is a tendency of the system to produce poverty as well as wealth, underdevelopment as well as development. This system of international domination allegedly perpetuates a deterioration of human rights in both the civil-political and the socioeconomic spheres. This system is maintained by the Law of uneven development stipulating that as firms grow large size, mobility and monopolistic power they inevitably control and exploit the world. The masses in the LDCs pay the greatest cost to maintain the system whilst reaping the least benefits. The trickle-down effect advocated by the MNCs is a fallacy and inoder to perpetuate itself the system keeps the excluded two thirds of the population under control Meyer (1988). This theory best explains the nature and complexity of international business as well as the unequal relations that sustain it.

2.2 Marxism

The capitalist mode of production is by nature exploitative and is based on the exploitation of labour by capital . This is intricately linked to the dependency theory which stipulates that developed states in their attempt to maintain their grasp on power penetrate developing states through multinational corporations to integrate them into the capitalist system. This is done in order to appropriate natural resources and foster a culture of dependency. From a Marxists perspective the MNC's represent merely the latest expression of capitalist exploitation and imperialism.

2.3 Gramscian hegemony

Neo-Gramscianism perceives state sovereignty as subjugated to a global economic system marked by the emergence of a transnational financial system and a corresponding transnational system of production. The major players in these systems, multinational corporations and international financial institutions such as the World Bank and International Monetary Fund (IMF), have evolved into a "transnational historic bloc" that exercises global hegemony Cohen et al (1989). The maintence of this hegemony ensures the LDCs play second fiddle in determining the transnational business practices by the MNCs. MNCs do not adhere to the human right ideals and they prioritise profits as espoused by the Marxist and Hymer perspectives.

3.0 Discussion

The preceding arguments will allay the hypocrisy and double standards of MNCs mainly relating to the use of methods they would not otherwise have used in their countries of origin. Notable throughout this discussion will be the exploitative, extractive tendency of these corporations with limited attention to corporate social responsibility and human rights .

3.1 Tax dodging

Big multinational corporations have contributed to the uneven patterns of development that keep millions of the impoverished people in developing countries under those clutches of socio-economic oppression. They do this through illicit financial activities such as under declaring profits or complete tax avoidance. The Action Aid (2013) report states that since 2007 when Associated British Foods took over the Illovo sugar group, which owns Zambian Sugar, Zambian Sugar has generated profits of $123 million but has paid virtually no corporate tax in Zambia. The report argues that as a result of Associated British Foods/Illovo’s tax avoidance, Zambian public services have lost millions. Tax is a vital component of government revenue especially in the developing world where sources of income are limited and it is the money that is used to manage and sustain public resources such as salaries for the civil service, provision of social services such as water and electricity. The manipulation of the taxation system has also been done through various ways such as transfer pricing. This is a process whereby companies that are part of the same multinational group trade with each other with the aim of shifting earnings from a high tax jurisdiction to a low-tax one. MNCs employ unethical business practices in the LDCs and this is manifest in the operations of major mining corporations such as Glencore in Zambia. It was implicated in selling copper to Switzerland at below market prices. According to Action Aid (2011) report the artificial inflation of costs combined with undervaluing of the copper exports enabled the company to report overall losses and therefore pay little or no corporation taxes in Zambia. The adverse effects of these activities are borne by the poorest in the community who endure deprivation of economic, social and cultural rights. These rights include but are not limited to the right to education, right to adequate standard of living, right to housing and right to health. The figures show the extent of the hypocrisy of the MNCs since in Zambia 2 out 3 children are living in endemic poverty. Around 45% of children are malnourished and the country has lost on average 27 million due to tax evasion Action Aid (ibid). This money could have helped alleviate hunger and poverty in the country if it had been ploughed back into the communities through the mining corporations` social corporate responsibility.

3.2 Children`s rights

The UN Guiding Principles on businesses calls for the respect of human rights of “individuals belonging to specific groups or populations that require particular attention,” including children. The Convention on the Rights of the Child (1989) article 32 urges States Parties to recognize the right of the child to be protected from economic exploitation and from performing any work that is likely to be hazardous or to interfere with the child's education or to be harmful to the child's health or physical, mental, spiritual, moral or social development. However the major problem is that there is no consensus with regards to the definition of a child with countries having varying ages of majority and also it can be argued that the provisions of the CRC provisions are weighted in favour of a modern, western sense of the individual Burr (2002). This has been manipulated by the giant corporations operating in parts of the global south where there are high levels of impoverishment. This means children are more prone to be out of school and are easy prey to be lured by the prospects of earning an income and escaping the poverty situation. Appelbaum (2008) postulates that many of Nike`s sweatshops can be found in Indonesia, China and Vietnam because these countries have no protective labour laws. When workers demand additional rights and benefits in these countries, the Nike factories close and move to a different location that would enable them to continue operating at a low cost Bohm and Batta (2008). This footloose tendency of Nike is unethical since it epitomises the disregard of workers’ rights leading to unemployment and loss of livelihoods when the corporation willy-willingly chooses to close shop at any time and relocate to another place they can exploit. In most of the sweatshops Nike was accused of inhumane treatment of workers most of whom were children paying wages below the minimum wages, disallowing toilet breaks and emphasising efficiency. It is important to note that the MNC preys on developing countries because of weak institutional frameworks that typically protect children as found in more developed countries and the corporations would not have employed the same tactics in the developed states. The disregard of human rights is a clear violation of major international conventions but the MNC has no direct obligation to abide by these laws and it is the duty of the state to ensure that within its borders MNCs are operating ethically.


Excerpt out of 15 pages


What is the effect of human rights on corporate activity?
The impact of Multinational corporations (MNC) in the least developed countries (LDC)
University of Sussex  (Global Studies)
Human rights in international relations
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ISBN (eBook)
ISBN (Book)
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524 KB
what, multinational
Quote paper
Tafadzwa Chivanga (Author), 2015, What is the effect of human rights on corporate activity?, Munich, GRIN Verlag, https://www.grin.com/document/355095


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