The Space Between Laws:
The Problem of Corporate Crime in a Transnational
Context*
RAYMOND J. MICHALOWSKI, University of North Carolina at Charlotte
RONALD C. KRAMER, Western Michigan University
During the last two decades transnational
corporations (TNCs) have significantly expanded their operations in the Third
World. However, in many developing nations legal controls over injurious
corporate activities have not grown
commensurately. As a result, TNCs operating in developing host nations have
engaged legally in a variety of injurious actions that would have been
violations of criminal, regulatory, or civil law in their home countries. The
differences in the laws of home and host nations, and the ability of TNCs to
influence the legal climate in host countries, renders the laws derived at the
level of nation-states an unsatisfactory basis for determining the scope
of criminological research on TNCs. Attempts within the United Nations to
redefine the meaning of corporate crime by creating codes of conduct for
international business, and efforts by U.S. business interests to limit these
codes, are examined as a specific case in the current debate over what
constitutes corporate transgressions. Utilizing the concept of critical
reflexivity, we argue that the study of corporate transgression by TNCs can
legitimately embrace not only violations of law, but also violations of
international codes and other injurious actions that are analogous in severity
and source to violations of these codes.
Transnational corporations (TNCs) engage in a wide variety of socially-injurious actions (Barnet and Muller, 1974; Simon and Eitzen, 1986). These harmful corporate acts raise a number of important sociological questions. One central set of questions concerns the conceptualization of these corporate harms for purposes of criminological research. Some have argued that the concept of crime only refers to criminal convictions and violations of criminal law (Shapiro, 1983; Tappan, 1947). Others have proposed that the traditional definition of crime be expanded to include violations of civil and regulatory law, as well as violations of specific criminal statutes (Blum-West and Carter, 1983; Clinard and Yeager, 1980; Schrager and Short, 1978; Sutherland, 1940, 1949). Still others claim that state definitions are too restrictive and unduly influenced by corporate power, and therefore, should be abandoned in favor of broader social definitions of crime based on concepts such as human rights (Schwendinger and Schwendinger, 1970; Tift and Sullivan, 1980).
The
increasing global reach of modern transnational corporations aggravates the
difficulties of arriving at a satisfactory conception of corporate crime. TNCs
at times engage in practices which, while they would be illegal in their home
nations, are legal in a number of host nations. The ability of TNCs to have a
significant influence on the legal climate in host countries further renders
the particular laws of these nations
an inadequate basis for the
study of corporate crime.
The
purpose of this paper is to contribute to the resolution of this conceptual
dilemma. The first step, following Blum-West and Carter (1983), is to
separate the study of the organization and causation of socially-injurious
corporate actions from a consideration of the socio-political definition of
these acts. This distinction creates two "research domains" (Blum‑West
and Carter, 1983:552) or "paradigms" (Kramer, 1985:472). In the first
paradigm, the objective is to explain (and eventually control) the harmful
corporate actions of TNCs. Corporate crime researchers operating within this
paradigm need to develop their own behavioral definitions to delimit the
subject matter and identify cases for study. We will offer such a definition in this paper.
The
definitional paradigm is concerned with the socio-political construction
of legal definitions of corporate acts that cause social injury. The goal of
this paradigm is to understand the historical origins and development of laws
and political labels concerning harmful corporate behavior. This corporate
criminalization process has been studied almost exclusively at the level of the
nation state. However, we intend to show that the spread of TNCs requires that
we broaden this focus in two ways: by examining the social construction of
political labels in the international arena as exemplified by the development
of United Nations codes of conduct for TNCs, and by incorporating what we term analogous social injuries within the
scope of corporate crime research.
Over the last quarter century, foreign investment by TNCs has
expanded dramatically (United Nations, 1978:36). In the 20 years from 1960 to
1980, the revenues of TNCs grew tenfold-from 199 billion dollars to 2,155
billion dollars-with U.S. based corporations accounting for 50 percent
of this growth (Cavanaugh and Clairmonte, 1983:17). By 1983, the worldwide
profits of TNCs had reached a record high of 130 billion dollars (Multinational Monitor, 1984:11). This internationalization
of corporate activity necessitates an expansion of corporate crime research
beyond its dominant focus on offenses by corporations in their home countries.
While, on a dollar basis, foreign investment in developed nations
exceeds that in developing nations (Hamilton, 1983:3; United Nations, 1978:40;
U.S. Department of Commerce, 1984:8), it is transnational investments in developing nations that pose the
greatest likelihood of injurious corporate activity, and which raise the most
perplexing problems for the definition and study of corporate crime. There are
several reasons for this.
First, the most significant change in patterns of foreign investment
since the Second World War has been the increased location of TNC industrial
facilities in developing nations (United Nations, 1978:40-41). Three-fourths
of all U.S. companies with sales over 100 million dollars had manufacturing
facilities in other countries by 1975 (United Nations, 1978:222). By 1977,
developing nations had surpassed developed ones in dollar value as locations
for manufacturing by U.S. industries (U.S. Department of Commerce, 1981:159).
Reimportation of overseas assembly by U.S. companies increased five‑fold
between 1969 and 1983, and in the textiles and electronics industries more than
half of all current sales by U.S. corporations are now assembled abroad
(Grunwald and Flamm, 1985:12-13). As TNCs export their industrial
operations to developing nations, many
of the hazards of industrial production
and the associated possibilities for corporate crime are relocated from
developed to developing countries. Moreover, as the fatal poisoning of over
2,000 residents of Bhopal, India dramatized (Hazarka, 1984:1), the settlement
patterns, population density, and limited disaster preparedness of developing
nations means that, when problems do occur, the human and environmental costs
are likely to be greater than those resulting from similar incidents in
developed countries.
Second,
the growth in consumer exports to the Third World, as well as the increased
local production of consumer goods by TNCs in developing nations, has generated
significant consumer safety issues. Differences in marketing practices of TNCs
in home versus host nations, variations in the provision of information by TNCs
regarding product hazards, and variations in cultural practices regarding
product usage has led to unnecessary injury, illness, and death for Third World
consumers of TNC products (Mattelart, 1983).
Finally,
in comparison to developed nations, developing nations frequently have fewer
legal controls over workplace, environmental, and consumer hazards of
industrial production (Braithwaite, 1984; Castleman, 1975; Dewar, 1978; Vieira,
1985). Therefore, the potential for corporations to behave in socially injurious
ways in developing nations is greater. For these reasons the growing
internationalization of business points to developing nations as a significant
emerging arena for injurious corporate activity.
In
recent years corporate injuries to workers, physical environments, and
consumers in developing nations have revealed significant problems with respect
to the control of corporate activity in these countries. We will explore each
of these arenas, with particular attention to injurious actions that arise in
the space between legal systems-actions which were prohibited in home
nations, but permissible in the host countries where they occurred.
According
to the International Labor Organization (1985:55), industrial workers in TNCs
in developing nations "suffer from more safety and health problems than
similar workers in the developed countries." While in some cases TNC
manufacturing operations provide better working conditions than locally-owned
factories (Blake, 1980; International Labor Organization, 1985:44), it is the
comparison between TNC operations in home and host countries, rather than
between TNCs and local conditions, that raises the most perplexing questions
for the study of injurious corporate activities.
In a
number of instances, occupational safety and other working conditions in TNC
operations have been found to fall below those mandated by law in more
developed countries. The exposure of workers in electronics assembly plants to
levels of carcinogens and other toxic materials beyond those allowed in the
United States, for instance, has been one of the consequences of the
exportation of this "clean" industry (LaDou, 1984). In the more
obviously "dirty" industries such as asbestos and chemical
production, foreign workers in U.S. subsidiaries have been knowingly exposed
to toxic levels that were illegal in the United States. In 1972 for instance,
Amatax, a Pennsylvania asbestos yarn mill, moved its entire production facility
to Mexico to take advantage of the fact that Mexico had no laws regulating
exposure of workers to asbestos fibers. Similarly, in 1974 Raybestos-Manhattan
acquired 47 percent of the stock in a Venezuelan asbestos plant in order to
take advantage of Venezuelan law which allows higher levels of airborne
asbestos fibers than does the Occupational Safety and Health Administration
(OSHA) in the United States (Castleman, 1979). In a similar case, Arasco, the only U.S. producer of arsenic, moved its entire operation to
Mexico when OSHA lowered the U.S. limit for exposure to airborne arsenic from
500 to 4 micrograms per cubic meter of air (Mattelart, 1983:102). In the
electronics industry, Third World workers in U.S. subsidiaries have been found
to suffer eye strain and eye failure due to constant peering into microscopes
without the benefit of rest breaks on company time required by law in the
United States (Fuentes and Ehrenreich, 1983:6).
Industrial
operations by some TNCs in developing host countries have used wage and
employment practices prohibited in their more developed home nations. In some
cases, work is contracted out to home workers at piece rates which require a
level of effort comparable to nineteenth-century garment sweatshops.
These contract workers enjoy no benefits in terms of holidays, health
insurance, sick leave or pensions-all of which are legally-protected
worker rights in more developed nations (Fernandez-Kelly, 1983:118).
Likewise, the practice of using extended "probationary" periods during
which workers (often women) are paid a lower wage rate and then "laid
off"' just prior to completing this period would be illegal under U.S.
labor law (Fuentes and Ehrenreich, 1983:9-10). As Fernandez-Kelly
(1983:114) found in the "maquiladoras" factories of the Mexican
border, a variation on this theme is to bring prospective workers in for a
"test" during which they spend a day or more sewing garments for no
pay in the hopes of possible employment. Ong (1983:431) suggested that
employers also deliberately keep workers on "temporary status" for
prolonged periods to minimize the risks of unionization. This strategy makes
it easy to fire workers who organize or join unions.
In some
instances TNCs have located and/or relocated high‑pollution industries in
less developed countries in order to escape the pollution control costs imposed
by environmental protection laws in their home nation. Blake and Walters
(1976:159) have suggested that TNCs "will be very sensitive to disparities
among various [national] pollution control standards which affect production
costs and competitiveness in international trade" as a means of expanding
or protecting profit margins. This sensitivity reflects the fact that pollution
control costs in the United States are higher than in most other countries
(Pearson and Pryor, 1978:170). Robert Strauss (1978:451), President Carter's
chief trade negotiator, warned in 1978 of a developing "pattern of flight"
as U.S. companies are drawn to developing nations with less costly pollution
control laws. Castleman (1978:3) similarly noted that "hazard export is
emerging as a driving force in new plant investment in many hazardous and
polluting industries." In some cases entire industries involving highly
toxic substances such as asbestos, arsenic, mercury, and benzidene dyes have
been exported to rapidly developing nations such as Korea, Mexico, Brazil,
India, and Ireland (Leonard and Duerksen, 1981:55). Even computer and electronics
assembly, once thought to be "clean" industries, often expose the
environments of developing nations to a wide range of toxic substances that
are more closely regulated in the United States (Cultural Survival, 1981;
Dollars and Sense, 1984:6).
There has been some disagreement over whether pollution control costs
actually play a significant role in location decisions (Flamm, 1985:77-78;
Randall, 1977:v). However, the debate over the relative importance of pollution
regulations for location decisions speaks only to the question of corporate
motivation, not the consequences of corporate behavior. Even if they are not
actively seeking "pollution havens," in many developing nations TNCs
remain legally free to expose the water, air, soil, and bodies of workers to
hazardous substances at rates higher than those allowed in their home countries
(Vieira, 1985).
In addition to the problem of pollutants produced by TNCs operating
in host countries, hazardous waste produced in
developed countries has begun to
find its way into developing nations.
Some TNCs have sought to avoid the costs of mandated controls on hazardous waste storage in their home nation by
transporting wastes to countries which
have few or no legal controls
on hazardous waste disposal (Centre on Transnational Corporations, 1985:59-60).
In these cases, the TNCs involved are
clearly acting to circumvent laws in their home nations rather than
simply being passive beneficiaries of the difference in laws between home and
host nations.
According
to the U.N. Centre on Transnational Corporations (1985:58) "the one issue
that has generated the greatest emotion and controversy in the 1980s regarding
transnational corporations . . . is the exportation of products deemed to be
harmful to health and the environment." Several cases in recent years
have dramatized the kinds of hazards consumers in developing nations face when
TNCs circumvent product regulations in their home nations.
The
export of children's sleepwear treated with the carcinogenic flame retardant
Tris, after the sale of such sleepwear was banned in the United States, was one
of the first cases of knowingly exported consumer hazards to receive
widespread attention (New York Times, 1978:26).
In the late 1970s, A.A. Robbins Company arranged (with the help of United
States Agency for International Development) for the distribution of the Dalkon
Shield intrauterine device in a number of developing countries. This overseas
market was sought after Robbins already knew that the Shield was responsible
for 20,000 cases of serious uterine infection, that it had resulted in several
thousand hysterectomies among its users in the United States, and that the
product would soon be banned at home (Dowie and Johnston, 1976; Mintz, 1985).
In another case, Parke-Davis, a U.S. pharmaceutical company, successfully
promoted the drug chloramphenicol on a non-prescription basis in 39
nations but provided no information concerning its dangerous and sometimes
fatal side effects‑even though the drug was banned in the United States
and Japan (Mattelart, 1983:100-101).
In
addition to the hazards posed by consumer goods, it is estimated that annually
375,000 people in the developing world are poisoned-10,000 of them fatally-through
the misuse of industrial and agricultural chemicals exported from developed
nations. There is evidence that much of this poisoning results from the failure
of TNCs to provide adequate information on the hazards of their chemical
exports, and from their active attempts to find markets for chemicals banned at
home (Bull, 1982; Weir and Schapiro, 1981). In one such instance, paraquat was
successfully promoted for use as a marijuana defoliant in Latin America after
it was banned for that purpose in the United States (del Olmo, 1986).
Most of
the injurious corporate actions described above were not prosecutable as crimes
or regulatory violations in the nations where they occurred. Yet to omit them
from the study of corporate crime on this basis does little to help us
understand either the organization and causation of injurious actions by TNCs,
or the definitional process by which these actions have been rendered legal in
host nations. Moreover, as we argue in the next section, the ability of TNCs to
influence regulatory climates in host nations may play a crucial role in
keeping injurious actions by TNCs from being defined and prosecuted as crimes.
TNCs and Regulatory Climates
TNCs
can influence the regulatory climates of developing host nations in indirect
and direct ways. The logic of development in the free-market world
necessitates that developing nations create hospitable environments for foreign
investment. Simply by holding the economic keys to development, TNCs
indirectly limit the political willingness of developing nations to establish
strict controls over potential or actual corporate harms. At times, TNCs have
also exerted pressure in more direct ways to forestall legislation contrary to
their interests, and in some cases to subvert political movements or leaders
deemed inhospitable to these interests. We now examine this relationship
between TNCs and regulatory climates in closer detail, with a particular focus
on labor policies.
Indirect Influences
Free-market
nations that have followed a capitalist model of development based on foreign
investment find their potentials for economic growth closely linked to their
ability to attract TNCs. Domestic elites in developing nations frequently find
that general economic improvement and political stability in their countries,
as well as their own economic and political success, depend upon creating
hospitable environments for investment by foreign TNCs. The deepening need for
inflows of foreign investment in developing nations, and the pressures this
places on domestic policy, have been extensively examined by a number of
dependency theorists. The specific regulatory adaptations that have been made
to attract TNCs have been examined in less detail. However, there is some
evidence that the existence of a profitable double-standard which allows
TNCs in host countries to do what they are prohibited from doing in their home
nations is related to the desire of host nations to attract foreign investment
by creating regulatory climates hospitable to the interests of TNCs.
Controls
over the rights of workers to organize for improved wage and working conditions
is a good example of how TNCs become the passive beneficiaries of policies
designed to attract them. Labor costs represent one of the most significant
factors in the location of manufacturing plants (Burns, 1984). For instance,
assembly line workers in the United States often earn per hour what assembly
workers in developing nations earn per day (Fuentes and Ehrenreich, 1983:5).
The desire to take advantage of significant differentials in national wage
rates has been the primary stimulus for the location of TNC production
facilities in developing nations (Grunwald and Flamm, 1985:3-9). Leaders
in some developing nations have used limitations on worker rights as a strategy
to convince foreign companies that, if they do invest, they will enjoy
continued benefits from lower labor costs. The belief that this will attract
foreign investment has received a degree of confirmation from investment practices
of TNCs. For instance, investment in Thailand by the U.S. semiconductor
industry did not reach significant levels until 1977, the year following the
installment of a military junta that ended a period of democratic government
characterized by strikes and other movements for increased popular control over
the economy. Similarly, foreign direct investment in semiconductor assembly in
the Philippines entered a period of significant growth beginning in 1972, the
year Marcos declared martial law (Grunwald and Flamm, 1985:77). In 1982, Marcos
continued his efforts to create a profitable climate for these TNCs by issuing
a decree banning all strikes in the semiconductor industry as being against the
"national interest" (O'Connor and Wong, 1983).
Another strategy used in developing nations to attract foreign
investment at the expense of labor rights protected by law in developed nations
is the creation of economic free zones (EFZs).
In some cases these zones are little more than labor camps "where trade unions,
strikes and freedom of movement are severely limited, if not forbidden"
(Fuentes and Eherenrich, 1983:5). For example, advertisements for Caribbean
Assemblies, a set of EFZs in Haiti and the Dominican Republic, promise foreign
companies a "large, urbanized, low-cost labour pool" and
"strict anti‑strike and labour regulation laws" (Mattelart,
1983:106). A promotional document by the South Korea government offers this
description of its EFZ:
The zone has the characteristics
of a reserved territory in which the application of laws or relevant
regulations
is partially or totally suppressed or attenuated .... It is an industrial
territory in which a series of fiscal and legal privileges are offered to firms
of foreign capital (Medawar, 1979:62).
Promotional materials such as
these make it abundantly clear that
limitations on the rights of workers are part of the bait that EFZs offer to foreign companies in some developing
nations.
Lim (1983:14) has argued that locating TNC
industrial facilities in developing countries is beneficial to workers in nations where
unemployment and poverty are widespread, even if the rights of these workers
are minimal. This perspective is manifest in the June 6, 1980 issue of Fortune magazine which asks, "Even
though the people working on Castle and Cooke's banana plantations in Central
America earn far less than the U.S. minimum wage, would they be better off if the company decided to move
elsewhere?" However, the economic conditions that TNCs
"improve" cannot be analyzed in isolation from the economic
domination by foreign business interests that characterizes the history of many
developing host nations. Moreover, while the factory work provided by TNCs may
improve the incomes of some workers, the dependent development it represents
generally results in a distorted economy, a split labor market, and
exploitation of women who are the primary laborers in these factories (Amin,
1974; Frank, 1975; Nash, 1979; Wallerstein, 1979).
Direct Influences
In
addition to benefiting indirectly from restrictive labor climates, TNCs have at
times actively used their economic power in developing nations to limit the
rights of workers to organize into unions to protect and promote their
interests. In some case, TNCs have used the threat of the runaway shop to
discipline workers. For instance, when the Malaysian government indicated in
1983 that it might permit the formation of a union for electronics workers,
U.S. electronics firms in Malaysia indicated that, should this happen, they
would consider moving their plants elsewhere. Subsequently, the Malaysian
government shelved its plans for the union. In a similar case, Control Data
Corporation closed a Korean production facility in response to attempts by
workers to unionize (O'Connor and Wong, 1983). Such threats or actual incidents
of capital flight can have a chilling effect on both labor activism and governmental
support for labor rights in nations dependent on foreign investment.
Besides
attempts to influence specific policies, some TNCs have used their economic and
political power to alter the flow of broader political developments in host
nations. In some cases, TNCs have contributed to the elimination of progressive
or socialist governments in favor of conservative ones. Activities of this sort
are often based on clandestine contacts between TNCs and governments in home
or host nations. As a result, relatively little is known about their scope or
frequency. However, cases such as ITT's contributions to the overthrow of
Allende in Chile, the participation of United Fruit, International Railways of
Central America, and Electric Bond and Share in bringing about the downfall of
the progressive leader, Jacobs Arbenz, in Guatemala in 1954, and the more recent
financial support provided by some U.S. corporations to the Nicaraguan contras
in their efforts to overthrow the socialist government there, indicate that
TNCs are not above using their power to alter the flow of political events in
developing nations (Bonner, 1983; Jensen, 1973; Kenworthy, 1973; LaFeber, 1984;
Langley, 1985:142‑43).
Overall,
the combined effects of economic pressures to create a favorable climate for
foreign investment, and support by transnational corporate capital for
governments or political parties hospitable to their interests, can create a
set of structural/legal conditions which allow TNCs in host countries to do
what would be illegal in their country of origin. We are not suggesting that
all TNCs have taken full advantage of these favorable structural/legal
climates, or that all actively engage in efforts to create these climates. We
are suggesting that researchers must always be sensitive to the political
influences of TNCs on the political climates and legal frameworks of host
countries. Accordingly, the laws governing corporate behavior in these nations
are a poor starting place for setting the scope of inquiry into corporate
offenses a transnational context. In the following sections, we consider an
alternative definitional framework for research on injurious actions by TNCs:
the U.N. codes of corporate conduct.
The
U.N. Code as International Politics
Multinational business is now international
politics. Multinational companies are increasingly being
forced to operate in a framework not just
determined by the laws of supply and demand . . . but also by a
proliferating set of intergovernmental arrangements specifically
targeted at them (Robinson, 1983:3).
Recognizing that the political power of TNC's is truly transnational
and hegemonic, and that independent national action is limited, many developing
countries have come to believe that the only way they can confront and control
TNCs is through the creation of international standards. The two most far-reaching
attempts to establish worldwide standards for TNCs have been undertaken by the
United Nations with the Draft Codes of Conduct on Transnational Corporations
and the Guidelines for Consumer Protection. The development of these codes is a
unique and highly relevant empirical case for a theoretical examination of the
political definition of harmful corporate actions.
The definitional process
that created the U.N. codes supports Robinson's (1983) assertion that
multinational business is now international politics. The code development
process has brought into sharp focus the fundamental differences of
perspectives and interests between developed and developing nations, and
between free-market and centrally planned economies. Charles
Lindblom (1977:ix) succinctly characterized these differences when he wrote:
'Aside from the
difference between despotic and libertarian government, the greatest
distinction between one government and another is in the degree to which market
replaces government or government replaces market." The formation of the
draft codes for consumer protection and transnational corporate behavior at the
United Nations represents an attempt to replace markets with politics. That is,
through the political mechanisms of the United Nations, non-aligned and
less developed nations are seeking to implement a set of rules governing the
market relations between TNCs, and the citizens and governments of the nations
in which they operate. This process assumes the primacy of politics over
markets, and in this way, transnational business has indeed become
international politics.
Historical Background
The
politicalization of international business, and the origins of the U.N. codes,
have their roots in the "multinational debate" of the 1960s that
reached its climax in the confrontation between developing and industrialized
nations in the early 1970s (Robinson, 1983). The developing nations, many of
them recently enfranchised, made claims concerning the harmful practices of
TNCs and called for a New Economic Order and some form of binding control over
TNCs. Throughout the 1970s, the United Nations led the crusade for a
comprehensive, legally binding international code of conduct for TNCs.
Within the United Nations, this crusade was led by the developing countries grouped
together as the so-called Group of 77-international trade unions, and
some small, developed nations, such as the Scandinavian states (Hamilton,
1983).
The
U.N. code of conduct on TNCs has its direct roots in a 1972 decision of the
United Nations Economic and Social Council (ECOSOC) to establish a group of
"eminent persons" to make recommendations for international action on
TNCs (Robinson, 1983). Their report, "The Impact of Multinational
Corporations on Development and International Relations," was published
in May, 1974, and it provided the rationale for the subsequent development of
the code. In December, 1974, ECOSOC created a Commission and Centre on
Transnational Corporations. The Commission
was charged with the job of drawing up a set of recommendations which could become the basis for a Code of Conduct dealing with TNCs.
The Commission on Transnational Corporations met annually from 1975 into the 1980s. However, the economic downturn associated with the 1974
oil crisis and the
corresponding increased need of the developing nations for foreign investment
tempered the Commission's work (Robinson, 1983).
The multinational issue was no longer a debate-it had become
a negotiation. The principal forum for the negotiations was the
"Intergovernmental Working Group on a Code of Conduct" which first met in January, 1977, and its reports to the Commission on
Transnational Corporations.
As the Intergovernmental Working Group
began its task, several other international groups issued guidelines for TNCs.
In 1976, the Organization for Economic Cooperation and Development (OECD)
established its Guidelines for
Multinational Enterprises, and, one year later, the International Labor
Organization (ILO) approved the Declaration
of Principles Concerning Multinational Enterprises and Social Policy. In 1980, the United Nations Conference on
Trade and Development (UNCTAD) promulgated the Set of Multilaterally Agreed Equitable Principles and Rules for the
Control of Restrictive Business Practices, and the World Health
Organization's (WHO) International Code of Marketing of Breast Milk Substitutes
was passed by the General Assembly in May of 1981.
The
ILO, UNCTAD and WHO guidelines are all sectoral codes for international
business within the United Nations. They were developed to deal with specific
problems that may arise from TNC activity and must be understood in the context
of the more general negotiations occurring within the United Nations
concerning TNCs. The OECD guidelines were a preemptive Western strike at the
general UN codes. As Robinson (1983:7) points
out:
. . .
the guidelines are a calculated compromise by Western governments between, on
the one hand, the need to sensitize firms to their social, economic, and
political responsibilities and, on the other, the need to make the rest of the
world aware, and in particular the LDCs negotiating a UN code of conduct for
transnational corporations, that the West is not prepared to see excessive
constraints imposed on their major creators of wealth.
Despite the passage of these other
international guidelines, the U.N. code of conduct remains in draft form. The
Intergovernmental Working Group concluded its work on the code in May, 1982 at
its seventeenth session. However, at this time the code has not yet been
adopted by the General Assembly. On the other hand, the Consumer Code
promulgated by the Economic and Social Council, was approved by the General
Assembly in November, 1984.
Key Actors and Issues in the Definitional Process
The primary impulse behind the U.N.
codes was the desire of the developing countries the Group of 77‑to
establish a "New Economic Order" and some mechanism for legal control
over TNCs. Their manifesto for a U.N. code, produced in 1976, included a 21-point
list of grievances and criticisms concerning the behavior of TNCs (Robinson,
1983). Their position, to use Lindblom's (1977:ix) terms, was that
international politics must replace markets. The economic crisis of the mid-1970s mellowed the ideological
tenor of the Group of 77 and they increasingly came to realize that to have any
chance of success they would need to compromise with the developed countries.
The major issue on which they compromised was the binding character of the
code. They acknowledged that any code of conduct must be voluntary and not
legally binding at this point in time.
The major ally of the developing
countries was the international trade union movement centered in Western
Europe. In fact, the unions and the TNCs were key interest group participants
in the political struggle to shape the U.N. codes. As Robinson (1983:195)
points out,
. . .
there is no doubt that the war of influence that has engaged the trade unions
and multinational business since the start of the TNC debate in the 1960s, has
an often determining impact on the treasures being drawn up in . . . the UN and
its specialized agencies.
The trade unions favor
increased regulation of big business and are supportive of attempts to increase
public control of the international economy. In addition, the European unions
generally bring to the debate over the codes an overt anti-capitalist
ideology which broadens the framework of discussion. Furthermore, Robinson
(1983) points out that the trade unions have a streamlined and interlocking
organization that allows them to significantly influence international policy.
The
industrialized or developed countries, including the United States, West
Germany, and the United Kingdom, have generally taken a much more conservative
stance toward the whole idea of a code of conduct for TNCs. As the home
countries of the majority of TNCs, these states have a much more positive
assessment of TNC behavior. They have been concerned with making the codes
voluntary arrangements that provide stable conditions for international
investment. They have argued that the code of conduct must include a statement
about the general treatment of TNCs by the countries in which they operate.
They have also been concerned about the issues of nationalization and
compensation.
Of
course, the TNCs themselves are significantly involved in trying to shape the
U.N. codes. At the beginning of the definitional process, the TNCs appeared to be
resigned to the prospect of international codes of conduct and their strategy
was to try to shape codes that they could at least live with. More recently
though, big business and its lobbies (the International Chamber of Commerce in
particular) have stepped up the attack on the fundamental principles that lay
behind the codes. The TNCs are more forcefully asserting the primacy of markets
over politics in the debates on the code. The election of Ronald Reagan in 1980
may provide a partial explanation for the aggressive stance of the TNCs. The
Reagan administration has been quite vociferous in its condemnation of the
codes and its support of markets over politics. As Caplan and Malcomson
(1986:108) note, ". . . it is clear that the international business community,
alone and in partnership with the Reagan Administration, is engaged in an
active and effective assault on U.N. initiatives that are perceived as threats
to corporate profits."
Speaking
before the American Enterprise Institute in December, 1983, Jeane Kirkpatrick,
then U.S. Ambassador to the United Nations, stated that the "proliferation
of activities aimed at the regulation of international business (is] a very big
problem" (Kirkpatrick, 1983). These regulatory efforts, she said, arise
not from hazards posed by TNCs, but from "ideological distortions,"
such as the view of poor nations that they are victims of exploitation by TNCs.
She went on to say that such regulation would result in "global
paternalism" by the United Nations, a view similar to that expressed by
the Reagan Administration in its opposition to the Infant Formula Code
(Kirkpatrick, 1983). Echoing Kirkpatrick's concern, Murray Weidenbaum (1983:1),
former chairman of President Reagan's Council of Economic Advisors, has accused
the United Nations of trying to become a "global nanny," and warned
that "the United Nations is in a growth phase in its attempts to control
private enterprise" (1984:13).
Advertising Age, the
trade paper of the advertising industry, worried that the consumer codes could
limit the free choice of consumers in Third World countries as well as the
freedom of merchants to promote their wares in the way they deem most effective
(1984:58). Chemical Week, the trade
organ of the U.S. chemical industry, expressed a similar concern (1981.:15). In
perhaps the most strident attack on the U.N. activities, the Heritage Foundation warned that “a new wave of extremist, anti-free enterprise
consumer organizations" is using "distortions to undermine the
multinational corporations and the
private sector approach to
development." This threat to free enterprise
results, they say, from the fact that:
Various
consumer, union and church organizations have been banding together and
refining and sharing their techniques .... They are developing international
networks that allow them to draw attention to targeted issues . . . forcing
multinational firms to pay closer attention to their corporate activities
(Heritage Foundation, 1983).
Out of the sharp political and ideological conflicts
within the United Nations, and despite the opposition of the international
business community, a Draft Code of
Conduct on Transnational Corporations has been produced. This code, along with
the consumer code, constitutes a set of international norms for the conduct of
transnational business-a new set of political definitions concerning the
behavior of TNCs. While space does not permit a full description of the code of
conduct, the outline in Table 1 highlights the major areas and topics covered
by the code. The specific standards formulated under the topic headings in the
draft code have one key notion running through them-accountability. As Robinson (1983:224) notes:
By accountability is meant the accountability of business to new constituencies-to governments, to the general public, and, above all, to the workforce. And being accountable to such new constituencies, the multinational company is forced into a new context of political and social responsibility.
Caplan
and Malcomson (1986) offer another perspective on the code when they observe
that it modestly seeks to universalize much of what we in the United States
have already achieved in imperfect form-consumer protection, safeguards
against exposure to hazardous products, control over national resources,
corporate accountability, and economic sovereignty.
Table 1 Activities of Transnational Corporations
Covered by U.N. (Draft) Code of Conduct
__________________________________________________________________________________________
A. General and Political
1.Respect for national sovereignty and observance of domestic
laws, regulations and administrative practices
2. Adherence to economic goals and
development objectives, policies and priorities
3. Adherence to socio-cultural
objectives and values
4. Respect for human rights and
fundamental freedom
5. Non-interference in internal
political affairs
6. Non-interference in
intergovernmental relations
7. Abstention from corrupt practices
B.
Economic, Financial and Social
1. Ownership and control
2. Balance of payments and financing
3. Transfer pricing
4. Taxation
5. Competition and restrictive business
practices
6. Transfer of technology
7. Consumer protection
8. Environmental protection
__________________________________________________________________________________________
Source: CTC Reporter, 1982:3‑4, 23‑24
It is
important not to overestimate the significance of the codes. The code of
conduct on TNCs has not yet been adopted by the General Assembly. Neither code
is legally binding or enforceable. The code of conduct also sets standards for
the treatment of TNCs by the countries in which they operate. Some observers
believe that the impact of the codes has already been eviscerated by the
international business community (Caplan and Malcomson, 1986). Another observer
,warns that the codes may actually benefit TNCs by securing a stable
international business framework and, by placing them on an equal footing with
government, legitimize their activities in the eyes of their critics (Hamilton,
1983).
Whatever
the truth of these observations, the real significance of the U.N. codes is
that they create transnational standards for evaluating the behavior of TNCs. A
worldwide set of general principles has emerged out of the political
definitional process within the uniquely distinctive setting of the United
Nations. Just as broader conceptions of human rights and corporate crime
emerged in the United States through class struggle and the political
mobilization
of a wide range of interest groups (Coleman, 1983), the United Nations has
provided a global arena for political struggles between developing and
developed nations and between the trade union movement and the international
business community over the dominance of politics or markets, and the
appropriateness of specific actions by TNCs. Finally, even though we have noted
the hegemonic process of legal definition in developing nations, the legitimacy
of transnational standards in conjunction with the political power of the
United Nations may allow the U.N. codes to serve as model legislation to be
enacted within specific developing nations.
The Search for Alternative
Frameworks
The
evolution of U.N. codes for the conduct of TNCs returns us to our central
problematic-that the laws of nation-states represent theoretically
inappropriate frameworks for the study of injurious actions by TNCs. The need
for criminological researchers to derive behavioral standards independent of
law is not a new concern for criminologists. Nearly a half-century ago
Thorsten Sellin (1938:104-5) argued that criminologists should not limit
their investigations to "categories set up by the criminal law,"
because these categories "do not arise intrinsically from the nature of
the subject matter," but instead, reflect the "character and
interests of those groups in the population which influence legislation."
In recent years some criminologists have responded to this challenge by
employing various concepts of "human rights" in constructing
alternative definitions of crime (Schwendinger and Schwendinger 1970; Tift and
Sullivan, 1980). These "human rights" definitions of crime, in turn,
have generated their own set of criticisms.
The
central critique of "human rights" definitions of crime has been that
researchers who utilize them simply substitute their personal moral concerns
for those contained in law. Shapiro (1983:307) argues that corporate crime
research that extends beyond the boundaries of what is illegal is inevitably
flawed because it is suffused with the "moral agenda" of the observer.
A more trenchant criticism is offered by John Braithwaite (1985:18) who
suggests that:
Those
who choose to study violations of "politically defined human rights,"
or some other imaginative definition of deviance, will deserve to be
ignored for indulging their personal moralities in a social science that has no
relevance for those who do not share that morality.
The typical rejoinder to criticisms of this type is that relying upon law to define the boundaries of criminological inquiry is no less suffused with moral choice than is choosing definitions based on concepts of human rights. For instance, Schwendinger and Schwendinger (1970:142) argue that:
No
scholar involved in the controversy about the definitions of crime has been
able to avoid direct or indirect use of moral standards in the solution to this
problem .... In light of this, the claim that moral judgments have no place in
the formulation of the definitions of crime is without foundation.
While the observation that law
contains no less a moral and political agenda than any other definition of
transgression may be correct, it provides no particular guidance regarding why
we should choose one particular framework for defining the parameters of study
over another. We suggest that the first step beyond this set of mutual
accusations is to distinguish between
the positivist concept of lack of bias and critical theory's concept
of reflexivity. Within a positivist conception of social science bias is a preference for
one set of social outcomes over another. This should be avoided in favor of a value-free science in
which the researcher holds no brief with respect to the world in view.
The
presumed attainability of a science without bias arises from the
attempt in positivist epistemology to separate the powers of human reason from
the inevitability of human commitment to the social world. This separation of
reason from commitment, according to Habermas (1974:264), produces the goal of
unbiased inquiry through which reason is applied to developing the technical
means of control over environments and people, but from which the application
of that same reason to inquiry regarding the purposes of that control is excluded.
Within this framework, social scientists who reveal preferences for some social
agendas over others are suspected of allowing ideology to distort science,
that is, commitment is thought to compromise reason.
The
positivist commitment to a world
developed through technical application of scientific rationality, by contrast,
is interpreted not as commitment but as reason:
Efficiency
and economy, which are the definitions of this [positivist] rationality cannot,
in turn, be themselves
conceived as values, and yet, within the framework of positivism's
understanding of itself, they can only be justified as though they were values
(Habermas, 1974:269).
The search for a social science
devoid of bias is a misdirected and futile endeavor. As Karl Heilbroner
(1974:23) observes:
The
position of the social researcher differs sharply from that of the observer of
the natural world. The
latter . . . is not morally imbedded in the field he scrutinizes. By contrast
the social investigator s inextricably bound up with the objects of his
scrutiny . . . bringing with him feelings of animus or defensiveness to the
phenomenon he observes.
In
contrast to positivist notions of unbiased science, critical reflexivity is a
mode of analysis that recognizes the existence of moral preferences in
ourselves and others, and demands of us that we analyze the nature and
construction of those preferences so that they contribute to rather than
detract from our ability to achieve the purposeful understanding we seek and
the type of social world to which we are committed. Rather than following the
path outlined by a positivist model of inquiry presumably shorn of moral
commitments, the study of injurious actions by TNCs should be guided, we
suggest, by principles of critical reflexivity. This perspective provides a
theoretically-grounded way to expand the scope of study beyond the limits
of the law, and to incorporate a positive commitment to the reduction of social
injuries by corporate actors within the framework of research concerns.
Critical
reflexivity according to Habermas (1973:15) develops when we examine what he
terms taken for granted "validity claims" and
"redeem or dismiss them on the basis of arguments." Because of their
taken for granted nature, however, validity claims are only
revealed through discourses where "participants, themes and contributions
are not restricted except with reference to the goal of testing the validity claims
in question," and where "no force except that of the better argument
is exercised" (Habermas, 1973:108).
Law is
a socially and historically legitimated authority system. The
validity claims implicit in laws‑including the assumption that law is
the final arbiter of transgressive-action have been established not through
the type of discourses described above, but through the historical interplay of
a variety of economic and political forces. If law is used to define the scope
of corporate crime studies, the possibilities for a critical understanding of
transgressive actions is negated by the consequently unanalyzed history of
power relations imbedded in law. Moreover, alternative discourses which
perceive the validity claims of established laws as problematic are omitted
from our inquiry, further narrowing our ability to analyze the transgressive
actions of TNCs from a critically reflexive standpoint.
With
respect to the study of corporate crime, critical reflexivity does not mean
seeking out some set of definitions that are free of moral implications. We are
never without preferences with respect to outcomes in the social world.
However, we can begin to develop critical reflexivity by using and entering
into less restricted discourses which question rather than accept those
validity claims that either the law or other conceptions of human rights treat
non-problematic. The evolving U.N. codes for the conduct of TNCs
represent this type of expanded discourse, and offer a broader framework for
the study of injurious actions by TNCs than does limiting our inquiry to the
laws of nation states.
Conclusion: Toward a Definition
of Corporate Transgressions
Where
injurious actions by TNCs violate existing national laws there is little conceptual
difficulty in placing them within the purview of corporate crime studies.
However, only by roving beyond national laws can we begin to study
transgressions that arise in the space between national legal systems. The
study of injurious actions by corporations that operate at the level of the
world system requires a conception of transgression developed through discourse
at the same level, and which is capable of adapting to changing forms of
injurious corporate action. With this in mind we offer the following expanded
framework for the study of corporate wrongdoing:
Corporate transgressions by TNCs encompass any
action in pursuit of corporate goals which violates national laws, or
international standards such as codes of conduct for TNCs developed within the
U.N., or which results in social injury analogous in severity and source to
that caused by corporate violations of law or international standards.
We have
substituted the term corporate transgressions
for the more common phrase corporate crime
for two reasons. First, the term transgressions avoids the semantic and
theoretical problems that arise when corporate actions that are not
specifically adjudicable under law are defined as crime. Second, the concept of transgression
retains a sense of fundamental wrongfulness similar to that associated
with "crime." This references our
commitment to the reduction of avoidable, injurious actions committed
against people by organizations in the pursuit of capital accumulation. We
prefer the concept of corporate transgression to that of "corporate
deviance," which can encompass any action that offends any organized
constituency, whether it be consumers or stockholders (Ermann and Lundman,
1982:16‑19). The term corporate transgressions is less relativistic and
better conveys, we feel, the severity of harm that can arise from the actions
of TNCs.
The
general principles outlined in the U.N. codes, as well as the specific
provisions under each, provide a conceptual framework which allows us to expand
the scope of inquiry without the epistemological hazards of definitions
derived from personal conceptions of human rights. The U.N. codes represent the
current stage of political struggle to refine the concept of human rights, and
rights of national sovereignty, vis-à-vis
large, transnational, corporate institutions. As such they are the
appropriate reference point for understanding what constitutes transgressions
by these institutions.
In
addition, definitions of corporate transgressions evolved at a world level through
a process in which all members of the world community participate represents a
type of expanded discourse. This expanded discourse offers greater
possibilities for the development of critical reflexivity where injuries by
TNCs are concerned than do the laws of individual nations. The U.N. codes are
not products of Habermas' ideal form of discourse conducted in the absence of
all force except the better argument. However, they represent concepts of
transgression
negotiated in a context freer of the political
pressures and limitation on viewpoints that surround the more hegemonic
processes of national legislation. The discourse surrounding the U.N. codes
incorporates a broader range of voices, some of which are silent within
individual nation states. Representatives of the non-aligned developing
nations, the developed free-market states, and the developed and
developing planned economy states have each had opportunities to articulate their conceptions of corporate
transgression, and to negotiate for
provisions consistent with their views (U.N. Chronicle, July, 1983:103).
This interplay of perspectives provides a climate wherein the normally hidden
validity claims of legal systems in different nations are revealed for critical
assessment.
We
recognize that truly equal input into the deviance defining process is
not easily or likely to be achieved in any political context, including the
United Nations. However, the political process surrounding the development of
the U.N. consumer and corporate codes brings together into a single
communicative forum a wider range of participants and perspectives than
national debates. Consequently, a broader range of validity claims regarding
the control of corporate activities is revealed for examination than in
national forums. For those whose interest is the definitional process
underlying concepts of corporate deviance, the opportunity to examine the
conflicting validity claims that arise within the context of international
debate regarding the behavior of TNCs is invaluable.
The
inclusion of injuries that are demonstrably analogous in severity and source to
those which violate national laws or international standards even if they
do not violate these laws or standards advances both the behavioral and
the definitional research domains in the study of injurious corporate actions.
Corporate crime studies regarding the organization and causation of injurious
corporate actions are primarily concerned with explaining and eventually
controlling these injurious actions. As shown by cases such as Nestles'
marketing of breast milk substitutes (Chetley, 1979), or the current spread of
genetic engineering beyond the reach of existing national laws (Schneider,
1986a, 1986b), new forms of injurious corporate actions can emerge more
swiftly than laws or standards aimed at controlling them. Excluding analogous
forms of corporate injuries because they have not been politically defined as
transgressive confounds the behavioral paradigm with inappropriate definitional
criteria. It places the behavioral paradigm under the authority of political
processes. Inclusion of analogous corporate injuries advances the behavioral
paradigm within corporate crime studies in another way. It makes it possible
to compare the organization and causation of injurious actions that are
defined as transgressive with those that are not. Comparisons of this type will
improve our understanding of the relationship between causation and control of
corporate behavior.
Inclusion
of analogous forms of corporate injury is essential for any real development
within the definitional research domain. A necessary component of any mature
inquiry into the application of meaning to corporate behavior is comparative
analyses of the processes whereby some corporate injuries are selected for
control while others are defined as acceptable or necessary consequences of
economic practices. Excluding injurious activities from definitional studies
because they have not been politically defined as transgressive closes off this
crucial area of inquiry. The study of injurious actions by TNCs can make
substantial contributions to the definitional paradigm in corporate crime
studies-but only if our conceptualizations do not prohibit us from
examining the processes by which some forms of corporate injury are defined as
transgressive at either the national or international level and others are not.
In general, we suggest that researchers interested in the study of corporate
crime by TNCs maintain a clear distinction between behavioral and definitional
research domains, recognize the limitations of legal criteria for setting the
scope of study, and expand existing frameworks to include both violations of
international standards of corporate conduct and all other analogous forms of
corporate transgression.