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4/15/2005 12:09:00 AM

What's good for international business may not be good for the world's poor

Many economists contend that the activities of multinational corporations have benefited the world's under-developed economies and helped reduce global poverty. But researchers who compared current trends in international business with predictions made by socialist economists decades ago suggest that what's been good for multinational corporations may not have been good for many people living within the world's developing countries.

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Most developmental economists believe that conditions of the world's poor have improved in the past few decades as a result of modern global capitalism. Still, while the world's wealthy nations have become richer, over one billion people continue to live in extreme poverty. Perhaps, as Rice's Doug Schuler and other university researchers suggest, the predictions by socialist economists regarding capitalism's role in inequality and poverty may be truer than liberal economists care to admit.

"To some extent, multinational corporations have benefited people in developing countries," Schuler says, " but in other instances, international capitalism has failed to make much of a dent in reducing world poverty."

As part of a conference on multinational corporations and global poverty reduction, Schuler, an associate professor at Rice University's Jesse H. Jones Graduate School of Management, co-authored a study titled "Multinational Corporations Through the Uneven Development Lens" with Stefanie Lenway of the Carson School of Management at the University of Minnesota and Lorraine Eden of the Mays Business School at Texas A&M University.

Their paper examines recent trends in international business from the perspective of Marxist-Leninist ideology. While many theories of "uneven development" have been debunked, Schuler and his colleagues found that some of these older, largely discredited arguments regarding capitalism should not be completely discounted.

"The basis of uneven development is that international exchange is inherently unequal, and that international capitalism through foreign trade and investment tends to exploit the under-developed world," explains Schuler.

On the other hand, the liberal, more currently accepted position is that capitalism has raised the standard of living for many of the world's poor.

To assess whether the promises of capitalism have been realized or have failed, Schuler and his colleagues examined five phenomena involving international business, including strategic alliances and joint ventures, non-governmental organizations and anti-sweatshop campaigns, terrorism, poverty and knowledge competition.

They conclude that multinational corporations have generally improved the lot of poor people, but they also concur with some of the predictions made by socialist economists that free trade and capitalism can be destructive to developing countries.

"Multinational corporations that bring sophisticated products and efficient production to developing countries may not displace thousands of local workers as uneven developmentalists predicted," Schuler says, but those activities haven't necessarily reduced the number of poor people in those countries either.

  Industries requiring highly skilled labor seem to improve a country's economy by way of "knowledge competition" or "learning by doing." In essence, local skilled workers and managers hired for high-tech industries tend to learn so much about the product they manufacture, they eventually create the next generation of products.

"Although knowledge competition has been largely limited to specific Asian countries," explains Schuler, "it's still an aspect of global capitalism that's creating new places of knowledge and new bases of products, thereby improving the situation of not only workers, but of others as well."

However, adds Schuler, knowledge competition does not achieve the egalitarian structure advocated by socialist theorists because the nature of such industries favors educated workers over the uneducated.

Schuler and his co-authors also reviewed the current role of non-governmental organizations in response to claims by even developmentalists that a competitive global market will cause multinational corporations to locate their production facilities in countries with the lowest wages and least expensive working conditions.

"Multinational corporations generally provide better wages and working conditions than local companies in developing countries," Schuler says, "but NGOs have not been particularly effective in influencing companies' social practices."

He cites the fact that fewer companies have meaningfully complied to improving their labor or environmental conditions in developing countries, and that many environmental groups rely on the very corporations they monitor for their own funding.

In looking at the overall record of global capitalism, Schuler concludes that the liberal economists' perspective may be too rosy.

"To buy into the argument that open trade and private global enterprise ensures economic development is just as simplistic as believing that controlling a nation's economy will benefit that country's people," Schuler says.

A member of the Jones School faculty since 1992, Schuler teaches business and government relations, trade polity and politics, business ethics and globalization. His research in business-government relations and socially responsible management has appeared in a number of scholarly journals, including Business & Society, the Academy of Management Review, the Journal of Management, Business and Politics, the International Trade Journal and the Journal of Public Affairs.

Schuler received his undergraduate degree from the University of California, Berkeley, and his Ph.D. from the University of Minnesota.

To learn more about this research, contact Schuler at schuler@rice.edu or Debra Thomas at the Jones School at dthomas@rice.edu .

Research @Rice, 2005