MNES IN THE GLOBAL ECONOMY: MNE GPNS, …business.uni.edu/web/pages/academics/Syllabi/CourseMaterial/Mushkat...environmental preservation, and social responsibility. ... •reliance

MNES IN THE GLOBAL ECONOMYTOPIC 6: MNE GPNS,

ENVIRONMENTAL PRESERVATION, AND SOCIAL RESPONSIBILITY

OBJECTIVES

• To highlight negative side of MNE GPNS’ value creation

• To highlight key dimensions of environmental degradation

• To describe damage to earth’s atmosphere resulting from MNE and similar activities

• To describe environmental damage caused by waste generated by MNEs and similar entities

• To highlight MNE corporate social responsibility

NEGATIVE SIDE OF MNE GPNS’ VALUE CREATION

• Value created and captured by firms/MNEs (profits), shareholders (dividends), workers (salaries and wages), and local communities (economic development)

• At the same time MNE GPNs have capacity, intentionally or otherwise, to destroy value through negative external effects/externalities/spillovers

• Environment primary “victim”

KEY DIMENSIONS OF ENVIRONMENTAL DEGRADATION

• Three notable negative environmental external effects

• First, over-use of non-renewable and renewable resources (including fossil fuels, water resources, and clearance of forests)

• Second, over-burdening of natural environmental “sinks” (e.g., increasing concentration of greenhouse gases in earth’s atmosphere and heavy materials in soil)

KEY DIMENSIONS OF ENVIRONMENTAL DEGRADATION, CON’T

• Third, destruction of increasing numbers of ecosystems to create space for urban and industrial development

• Laws of thermodynamics apply, inputs not transformed into desired products emerge as unwanted products or wastes

• Applies to consumption (as well as supply and distribution) not merely production

• Has future/inter-generational implications

DAMAGE TO EARTH’S ATMOSPHERE

• Atmospheric damage most pernicious form of negative environmental external effects

• Refers to damage to gaseous membranes that sustain life on earth

• Atmospheric concentrations of carbon dioxide (CO2), methane, and nitrous oxide have increased dramatically

• For CO2, primarily due to fossil fuel use and land use change

DAMAGE TO EARTH’S ATMOSPHERE, CON’T

• For methane and nitrous oxide primarily due to agricultural activities

• CO2 main greenhouse gas and cause of climate change

• Positive correlation between level of economic activity and CO2

• Reliance on fossil fuels (coal and oil) for industrial production and transportation primary source

DAMAGE TO EARTH’S ATMOSPHERE, CON’T

• Domestic use also a factor

• Forest burning another influence

• US and China main culprits

• US more so in per capita terms

• Needs to be looked at from a consumption, as well as production, angle

DAMAGE TO EARTH’S ATMOSPHERE, CON’T

• Weather systems of earth disturbed

• Rise in temperature potentially disastrous for many parts of the world

• Drought in some areas

• Higher rainfall and increased frequency of flooding in other areas

• More frequent and stronger storms

• Rising sea levels by melting of polar ice drastically change shape of coastline

DAMAGE TO EARTH’S ATMOSPHERE, CON’T

• Food production/agricultural efficiency seriously affected

• Spread of diseases to areas too cold for them previously to survive

• Range of animals and plants adversely affected with most moving toward North and South Poles

DAMAGE TO EARTH’S ATMOSPHERE, CON’T

• Other forms of atmospheric damage occur, some visible and some invisible to naked eye

• Damage to earth’s ozone layer highly problematic

• Layer sustains life on earth by absorbing almost all ultra-violet radiation from sun

• Human life otherwise impossible

• Thinning, and even holes, in ozone layer identified

DAMAGE TO EARTH’S ATMOSPHERE, CON’T

• Ozone depletion causes several diseases in humans such as eye cataracts, pterygium (eye disorder), immune system disorders, and skin cancer

• …food crops shrivel up and become useless as food

• …imperfections in oxygen and water cycles needed to sustain life

• …skin diseases in animals• …disruption to entire aquatic food chain, as well

as mutation and death of fish

DAMAGE TO EARTH’S ATMOSPHERE, CON’T

• Emission of wide range of tiny particles of sulphur dioxide, nitrogen oxide, lead, copper, zinc and other products of combustion also source of atmospheric damage

• Particles remain in atmosphere as solid particulate matter (SPM), in dissolved state of rainfall, or in rivers and lakes

• Pose serious environmental and health problems

DAMAGE TO EARTH’S ATMOSPHERE, CON’T

• Health effects include

• …coughing, wheezing, and shortness of breath

• …aggravated asthma

• …lung damage (including decreased lung function and lifelong respiratory disease)

• …premature death in individuals with existing heart and lung conditions

• …preterm births (births of babies of less than 36 weeks gestational age)

DAMAGE TO EARTH’S ATMOSPHERE, CON’T

• Atmospheric pollution has localized sources but spreads widely

• Acid rain an example

• “Double exposure” problem because victims often also those who benefit least from economic globalization

ENVIRONMENTAL DAMAGE CAUSED BY WASTE

• Waste, material that is not prime product (i.e., has not further use)

• Distinction needed between “waste” (valueless or useless material) and valuable/useful equivalent

• Enormous amount of waste generated

• Hazardous wastes particularly problematic, have five characteristics

ENVIRONMENTAL DAMAGE CAUSED BY WASTE, CON’T

• First, ignitability (is combustible or creates fires)

• Second, corrosivity (corrodes metals)

• Third, reactivity (causes explosions when mixed with water)

• Fourth, toxiticity (toxic if absorbed/ingested and pollutes ground water)

• Fifth, radioactivity (emits particles of ionizing radiation)

ENVIRONMENTAL DAMAGE CAUSED BY WASTE, CON’T

• E-waste (computer-related) now biggest and fastest growing source

• Consumer, rather than merely producer, generated waste pervasive

• Classified as municipal waste (MSW)

• Feature of “throwaway consumer society”

• Primary sources organic (e.g., food scraps), containers, packing, and non-durable goods

ENVIRONMENTAL DAMAGE CAUSED BY WASTE, CON’T

• Efforts to recreate value from waste• Dumping waste in landfill sites problematic (air

and water pollution)• Burning waste in incinerators (other than to

generate energy) also problematic (air pollution)• Consequently, emphasis on recovery and

recycling of waste at all stages of supply-production-distribution-consumption

• National recycling strategies but MNEs play crucial role in technology development and commercialization

ENVIRONMENTAL DAMAGE CAUSED BY WASTE, CON’T

• Challenge dealt with locally but increasing internationalization, including relocation of waste on international or global scale

• Reflects wide geographic differentials in nature and stringency of environmental regulations

• “Pollution havens” sought (akin to tax havens and union-free labor havens)

• MNEs involved, although extent overstated

ENVIRONMENTAL DAMAGE CAUSED BY WASTE, CON’T

• International trade in waste, mostly hazardous

• Dangerous materials moving around the world in container ships

• Primarily between developed countries but China, with its strong appetite for industrial materials, heavily involved

MNE CORPORATE SOCIAL RESPONSIBILTY

• This raises issue of MNE corporate social (including environmental) responsibility (CSR)

• “Business of business is business” approach (BBB)

• Purpose of business to maximize value to shareholders/stockholders, ultimate owners of the firm

• Anglo-Saxon philosophy of shareholder capitalism

MNE CORPORATE SOCIAL RESPONSIBILITY, CON’T

• Elsewhere, broader concept of stakeholder capitalism with focus on interests of stakeholders such as consumers, distributors, labor, suppliers, and even community-as-a-whole

• Overall, four patterns observed

• First, inactive CSR, consistent with BBB approach

MNE CORPORATE SOCIAL RESPONSIBILTY, CON’T

• Reactive CSR, to minimize mistakes through socio-environmental monitoring

• Active CSR, ethical approach, socio-environmental well-being explicitly incorporated into corporate goals

• Proactive CSR, “discursive ethics” approach, external stakeholders engaged throughout (including start of) issue’s life cycle

MNE CORPORATE SOCIAL RESPONSIBILITY, CON’T

• Related to question of social upgrading in MNE GPNS highlighted earlier

• MNE code of conduct key vehicle for social upgrading

• Assessed in terms of two criteria

• First, specificity (number of issues covered, depth of coverage, relationship to international standards and guidelines, and measurability)

MNE CORPORATE SOCIAL RESPONSIBILITY, CON’T

• Second, compliance/implementation (effectiveness of monitoring, remedies available, and corrective action taken)

• Four types of codes of conduct

• First, devised by individual MNEs or groups of MNEs (e.g., Walmart)

• Second, drawn by coalitions of interest groups in specific industries (e.g., clothing)

MNE CORPORATE SOCIAL RESPONSIBILITY, CON’T

• Third, formulated by MNEs in association with some of their stakeholders (e.g., UK Ethical Trading Initiative, alliance of firms and labor unions)

• Fourth, established by international non-governmental organizations/NGOs (e.g., UN Global Compact)

• Codes of conduct useful but deemed insufficient because of partial coverage, inadequate compliance/implementation, and voluntary nature

LAYERS OF THE ATMOSPHERE

ENVIRONMENTAL KUZNETS CURVE

STAKEHOLDERS OF A LARGE MNE

BENEFITS AND DISADVANTAGES OF COMPETING GOVERNANCE SYSTEMS

DIFFERENT CORPORATE SOCIAL RESPONSIBILITY STANCES

STAKEHOLDER MAPPING – THE POWER/INTEREST MATRIX

MNE CORPORATE SOCIAL RESPONSIBILITY – SAMPLE ACCOMPLISHMENTS

MNE CORPORATE SOCIAL RESPONSIBILITY – EXAMPLES OF ETHICAL MISCONDUCT

TEXAS INSTRUMENTS’ ETHICAL GUIDELINES

TABLE OF CONTENTS OF GOOGLE’S CODE OF

CONDUCT

SOME QUESTIONS OF MNE

CORPORATE SOCIAL RESPONSIBILITY