Editorial

Corporate Mandates

This special issue of Multinational Monitor is the concluding part of our effort, begun with the July/August issue, to examine options for corporate reform.

Almost all of the proposals put forward in articles and interviews in these two issues share an impulse to restrain the corporate behemoth. They draw lines around the territory upon which it is permitted to trod. They try to prevent it from growing too large. They threaten to punish or even eliminate it in cases of wrongdoing. They empower particular groups to wrestle with it on more level terrain.

There is another approach which should be considered in addition to these controls. That is to command corporations to perform socially desirable acts.

Such rules are already in place in certain limited circumstances. In the United States, the Community Reinvestment Act effectively imposes a duty on banks to service all communities in their area of operations, not just the rich. Some localities have linked construction permits to requirements that developers build low- and middle-income housing. Utilities in some states are blocked from electricity or gas cutoffs to the poor during winter.

But there is much more that could be done in this area:

• In the area of services, universal access requirements could be extended. For example, Members of Congress have in recent years proposed, but failed to enact, requirements that banks provide "lifeline" financial services to the poor -- giving them checking accounts and other basic services, without high minimum balance requirements or excessive fees. Community Reinvestment Act-type requirements could be imposed on insurers. Internet service providers as an industry could be required to provide service to those too poor to afford it.
• Companies in certain sectors could be mandated to reinvest a portion of their profits in research and development (R&D), or R&D in particular areas. Consumer and health groups have floated the idea of requiring pharmaceutical companies to invest in medicines for diseases afflicting poor countries and for which there is no market demand. Auto companies could be required to invest in R&D on efficiency; energy companies could be required to invest in renewable energy research. Former Labor Secretary Robert Reich has similarly suggested that employers should perhaps be required to invest in retraining of workers.
• Many of the acts for which the government now provides tax incentives could simply be mandated of larger companies, or businesses in certain sectors of the economy. These range from construction of low-income rental housing to hiring individuals formerly on welfare, from providing access to persons with disabilities to donating computers to schools.

There are potential downsides to this approach. In some cases, it may appear more desirable simply to tax business and take action in the public sector. For example, having oil companies invest in renewable energy may be both inefficient and counterproductive, because of the industry's interest in squelching competitor technologies and the importance of developing technologies that decentralize power generation. In this example, it may make better sense to tax energy companies and invest the funds in a government-run R&D program, or to disburse the monies to independent researchers or small companies.

Still, in many instances, big business either controls unique resources or has effective responsibility for certain kinds of service provision, and it may make sense simply to instruct large corporations to fulfill certain performance demands.

In the developing world, "performance requirements" are an old and familiar tool of public policy, if one now out of favor. With mixed results, developing countries once routinely required foreign investors to hire a certain portion of locals for management positions, to transfer technology to the country, or to use a certain percentage of local inputs.

Foreign investors perceived these requirements as an unwanted burden. Although countries have removed most or all of the old performance requirements -- either because International Monetary Fund and World Bank conditionalities so required, or simply because propaganda from the dominant cult of foreign investment has convinced them that it is in their self-interest to do so -- the requirements remain an annoyance, or at least a bad memory, for multinationals.

The response from these business interests has been to develop international economic rules that would forbid such performance requirements. The investment agreement of the North American Free Trade Agreement specifically bars certain types of performance requirements. This is echoed in the draft text of the Free Trade Area of the Americas (a proposed NAFTA-like agreement for every country in North, Central and South America and the Caribbean, except for Cuba), as it was in the now-abandoned Multilateral Agreement on Investment. In addition to blocking the performance requirements once imposed to assist with development, these investment protections may impede new and creative demands of business.

The trade agreement restrictions on performance mandates are themselves a strong argument for further exploration in this area. Corporations dislike these requirements so much because, in many ways, an affirmative command is more limiting of their freedom than a negative one.