ocial responsibility

Standards and regulations are another kind of business cost, and MNCs are always looking for lower costs. So there is an advantage to locating in countries with few regulations. Some poor countries are prey to corruption and bribery which means their few regulations are ineffective. India, for example, has excellent environmental protection laws, on paper. In practice, the inspectors are so badly paid it only costs a matter of dollars to get them to look the other way. This opens the way for a slippage of standards below the levels considered acceptable in the MNCs home country.

One of the most scandalous cases was in the 1980s where the US chemical business Union Carbide tolerated very poor safety standards at a factory in Bhopal, India.. The result was an explosion which released clouds of toxic gas and killed thousands. Many more thousands are still alive and very ill because of this. What was particularly irresponsible was the long years it took to force Union Carbide to accept responsibility and pay compensation. This whole area is a large and important are which it is impossible to cover completely. It is, for example, one important reason why some western pressure groups are so hostile to MNCs

Government control

It is quite difficult for some governments to exercise effective control over MNCs because they are so large and powerful. One MNC may be the dominant force in the local economy. Even large and wealthy countries such as the UK can’t always control MNCs effectively. They have a wide repertoire of tricks to minimise government control, especially taxes.

One favourite trick (technically illegal) is transfer pricing. MNCs often buy and sell between different national offices of the same business, because each is a separate profit centre. For example, the Paris office makes the product, and the Berlin office sells it. So the Paris office has to sell to the Berlin office. There is then the question of at what price the sale takes place. Officially, the selling price must be the market price on the day, but some markets don’t have prices every day, and governments have a difficulty in proving what is going on.

If, for example, German company taxes are higher than French company taxes, then the Berlin office will pay too much for the product and make a loss. The Paris office makes a very large profit and pays tax on this profit at the lower rate. When different governments have completely different tax systems, with thousands of detailed rules of how tax is paid, and deductions for this, and allowances for that, the opportunities for MNCs to employ a few clever tax accountants and ‘cook the books’ are enormous.