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Research news - Multinational enterprises as contributors to and reducers of inequality

Henley Business School, Greenlands. Wikimedia Commons, Andrew Smith.

How are multinational enterprises (MNEs) influencing social and economic inequality? This topic was addressed in a plenary debate at the Academy of International Business (AIB) conference held at the Henley Business School, University of Reading, UK, on April 7th, 2017.

The debate chaired by Professor Rajneesh Narula of the Henley Business School started by provoking the question whether MNEs contribute to, or reduce inequality.

Professor Jonathan Doh of the Villanova School of Business pointed out that MNEs’ foreign direct investments invariably contribute to wage and wealth inequality, particularly in developing countries. Even though MNEs can take steps to minimise the detrimental impact of inequality, issues such as free riding and wage bargaining prevail. Inequality increasing corporate behaviour is linked to problems in governance and enforcement of regulations, as well as the demand of higher skilled jobs resulting in further aggravation of income inequality.

Assistant Professor Snehal Awate of the Indian School of Business brought up the example of India and Bangalore, in particular, to point out how MNEs can promote development and sustainable growth. Both unintentional and intentional economic and knowledge flows to local firms can lead to regional development and wealth equality. She pointed out that things are better in India with the presence of MNEs than before the days of globalisation.

Professor Elisa Giuliani of the University of Pisa, however, claimed that we are only seeing the tip of the iceberg when it comes to the violations of the rights of the most vulnerable. When shifting our view from macro to micro level, we should not accept the faulty dominant rhetoric of “the greatest good for the greatest number” that grants human rights abuses and retrogressions as an inevitable cost. Most developing country government are according to her still institutionally too weak to regulate MNEs and to ensure justice.

A rather different perspective to the discussion was brought by Professor Khalid Nadvi of the University of Manchester, a Political Economist, who talked about the new world order with the new geographies of production and consumption. We should according to him shift our attention to South trade and the Southern end markets. The key question is: How might states better regulate global value chains, especially if global value chains led by Southern firms are different than the ones led by global Northern firms?

A paper called “Peacebuilding in emerging economies: the give and take of MNEs and host-market institutions” by the Oulu Business School researchers Jan Hermes and Irene Lehto was presented at the conference to discuss how MNEs originating from both developed and developing countries are to be seen as actors who can have derogative or conducive influence in peacebuilding. MNEs can play an important political role through import of cognitive pressures to conduct business in a socially, environmentally and economically responsible manner. However, it is recognized that institutional change through regulatory development may enforce entrant firms to responsible business conduct in emerging economies. It is also important to understand the co-evolution of MNEs and local institutions, i.e. how each influences one another continuously in a way that is conducive to peacebuilding and equality, rather than to view MNEs simply as entities that adapt to rules or enforce ones of their own with influences to inequality.

More information:

Dr. Irene Lehto, Martti Ahtisaari Institute
Irene.Lehto[at]oulu.fi