A global soul

Empires of Profit: commerce, conquest and corporate responsibility

Daniel Litvin <em>Texere, 339pp

Many corporate executives believe they are forces of good. They create jobs, provide goods the consumers want and generate profits for their shareholders. What could be better? Yet many of the corporations they work for have become targets of unremitting hostility. What could have gone wrong? Why have they become villains? And why are their companies assumed to be running sweatshops in the developing world, or polluting the planet?

The perplexed executives can begin to understand this resentment if they look at the tortured history of multinationals. This requires a long view, beyond re-examining the role of Freeport in Indo-nesia or Shell in Nigeria; even beyond Union Carbide in India, Union Miniere in Congo or United Fruit in Guatemala. It means going back much further, to when, for instance, in Moghul and Chinese courts strangers appeared bearing gifts and sought trade concessions.

The relentless logic of competition and the dictates of the market leave corporations no time for such reflection. But thousands of sensitive men and women work for companies, and they would gain from reading Empires of Profit. A former correspondent on the Economist and later an adviser to Rio Tinto, Daniel Litvin's probing history of multinationals and their impact overseas is refreshing precisely because of its balanced view.

The book shows how some companies became instruments of colonisation. The English East India Company and the British South Africa Company went overseas for precious commodities and ended up founding empires. The South Manchurian Railway Company of Japan ran a swathe of Chinese territory, and officials at United Fruit in Guatemala aided a coup. They did not set out to run these countries but, when opportunity presented itself, they didn't think twice. Litvin examines the backlash these companies generated: governments fought back through nationalisation - not only by taking over assets of intrusive companies such as Belgium's Union Miniere in Congo, but also of ingratiating companies such as Italy's ENI in Iran, and of formidable players such as Aramco in Saudi Arabia. Now the circle is complete, with News Corp stooping to conquer the markets of China and India. The final part of the book showcases resurgence in foreign investment, the new demands being placed on companies and how those companies are responding to such demands.

Today many companies have learnt to respect sovereignty, and some enter emerging markets with appropriate circumspection. But in noticing the decline in development aid from rich countries, many poor countries are becoming pragmatic, hoping that corporations will provide the capital to jump-start their economies. Smart nations have noticed how foreign direct investment in emerging markets has grown tenfold, from $20bn in the 1980s. A huge bulk of it went to east Asia, where, excluding China, the number of people earning less than a dollar a day dropped from 114 million to 54 million between 1987 and 1998. The Asian economic crisis may have significantly reduced incomes but, today, the Asian tigers (except Indonesia) have recovered from the slump that threatened to engulf them and their prospects for growth. If capital is scarce, it is because of the global economic decline, following the recent financial scandals and the bursting of the dotcom bubble.

Many believe the assertion that companies today are more powerful than governments. One oft-quoted fallacy is that 51 of the top 100 economies in the world are, in fact, companies. The correct figure is 29. Governments continue to remain powerful, although some companies, in certain cases, can exert authority to change a particular government's course of action. Since governments around the world face pressure to reduce taxes and eliminate bureaucracy in order to attract foreign investment, all of which are the goals of large corporations, it may appear that corporations are becoming more powerful. Organisations of civil society, including NGOs, are turning increasingly to companies to sort out the mess created by governments. Litvin observes that churches and reformers in the past expected companies to pursue agendas set by them. Civil society organisations today expect powerful multinationals to do the same.

But that could have unexpected consequences. Consider, for instance, oil companies operating in indigenous communities. While they must not interfere with their internal affairs, they are increasingly expected to provide services the state cannot or will not provide, such as schools and hospitals. Since the 1950s, Nigeria earned $290bn in oil exports, but 70 per cent of Nigerians live in poverty. Whose fault is it? Big oil? Or the Nigerian state? Should an oil company lobby the centre to allocate more resources to the regions that generate wealth? What about redistributing the wealth to other poor regions? Where is the line dividing such lobbying and, in the extreme case, encouraging secession, as Union Miniere did in Katanga in the 1960s?

These are complex questions with no quick or easy answers. Companies, however, are expected to act quickly. Inevitably they view things simply because, as Litvin points out, competitive pressures force them to act swiftly on important matters such as whether or not to invest in a particular country. But it takes years to understand a society, and even then, anthropological conclusions may be tentative.

How, then, are executives to act in a responsible manner? Should companies hire more public affairs specialists, or should they integrate such thinking into their business processes? Litvin's preference is for the latter. The advisers must not be brought in only when things go wrong. They should be in a position to help develop a strategy so that the company's response is ethical and legal. Litvin adds ruefully: "What has inevitably been lacking from companies' efforts is the sort of long-term, clear-sighted analytical approach which they typically would apply to, say, financial planning or analysis of economic trends."

His advice may sound obvious but is not always heeded: managers of modern multinationals must pay greater attention to the complexity of the underlying situation with which they are dealing. Two years ago, Marina Ottaway warned in Foreign Affairs that modern corporations shouldn't try to sort out the world's problems because it is beyond their core competence. Companies can indeed play a role in solving some problems by agreeing not to offer bribes and not to employ forced labour and avoiding being complicit. But beyond that, the primary responsibility of tackling what Litvin calls the "admittedly chronic problems" of child labour, corruption, poverty and inequality, is that of the governments.

Salil Tripathi, a former economics correspondent in Asia, is a writer based in London

This article first appeared in the 19 May 2003 issue of the New Statesman, The final bout