Do MNEs contribute to, or reduce, inequality?

Four scholars, with different backgrounds and perspectives, expressed their views about the effects of multinational enterprises (MNEs) on inequality during a panel at the 44th AIB (UKI) and 6th Reading Conference.

In his initial intervention, chair Rajneesh Narula (University of Reading) underlined that globalisation has been great for MNEs, but the same may not be true in respect to the populations of the host countries. In his view, the International Business (IB) community may have overplayed the benefits of foreign investment, while overlooking the tendency of MNEs to engage in regulatory capture and to exploit weaknesses in cross border regulations.

For Jonathan Doh (Villanova School of Business), MNEs undoubtedly contribute to inequality because their demand is concentrated in higher skilled labour, thus reinforcing wage disparities among workers, particularly in developing countries. He acknowledged that rising inequality is not without consequences, but was pessimist about the prospects of a private solution to minimize its deleterious impacts, calling, therefore, for a government intervention as the only feasible and possibly effective remedy to this problem.

Snehal Awate (Indian School of Business) offered a more positive view, affirming that MNEs promote development, equality and sustained growth, although these positive effects are conditional on the characteristics of domestic market and the occurrence of spillovers to local firms. She exemplified her viewpoint with the Bangalore successful story, where MNEs were responsible for 45% of new urban jobs and 6% of incremental GDP growth.

Elisa Giuliani (University of Pisa) claimed that stories like Bangalore’s would not be reason to omit numerous cases in which large MNEs were involved in human rights retrogressions in invested countries, such as perpetuation of child labour, violation of indigenous rights and neglect of work conditions. She exclaimed against what she calls a “faulty dominant rhetoric” of viewing human rights abuses as the cost to be paid for a “greatest good for a greater number”. For her, substantial changes in this state of things will depend on companies shifting their concerns from corporate social responsibility (CSR) to simply endeavouring to doing no harm to host countries’ populations, given that governments in developing countries are usually too weak to insure social justice.

Khalid Nadvi (University of Manchester), approached the theme through the lens of the global value chains (GVCs). In his view, joining GVCs may be a vehicle to poverty reduction, although its effects on inequality has not been properly investigated by the academia. He went on asking if we should be concerned about rising inequality. His answer was “yes”, but he refined it by arguing that from a developmental perspective it is better to be in a GVC than out.

If any sort of consensus has emerged, we can say that the panellists seemed to agree that multinationals indeed contribute to inequality, at least within countries, but if a higher level of inequality is the price of reducing extreme poverty, it is worth to pay for it. However, inequality matters, and we are indeed seeing its consequences, as shown by the increasing political polarisation in the developed world.

André Pineli

PhD candidate in International Business and Strategy at Henley Business School

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