Center for Governance and Sustainability

at the University of Massachusetts Boston

MNCs as Governing Actors

MNCs as governing Actors have long been able to make decisions and influence decision-making in the international arena.

Most of the international economic and political space is largely ‘governed’ by the firms in a given sector or geographic region. The enterprises make an enormous number of decisions that affect the distribution of vital needs (e.g. the prices and quantities of food supplies); set payments for labor (e.g. the push to drive wages down between different jurisdictions); determine what products are traded in the market (e.g. the selection of products to manufacture and their technical standards); and that create de facto local governance arrangements (e.g. export processing zones and communities affected with the natural resource “curse”). The net result is that control of international markets, unlike domestic markets, remains outside any state (or inter-governmental) intervention.

In this context, GRI recognizes that if MNCs are not involved in the process of international negotiations, the outcome of those negotiations is unlikely to be accepted by these dominant Actors. Unlike national political processes whereby the state can exercise regulatory authority, at the international level MNCs do not recognize an obligation to follow interstate decisions or declarations. If MNCs are just passive non-participants, an intergovernmental agreement or declaration may be just words on a piece of paper, further discrediting the existing international community. The lack of recognition by the intergovernmental community of the governance power of multinational corporations may well be contributing to its own weakening. MNCs may well have the final 'vote' on an intergovernmental outcome in the sense that they can obstruct (actively or passively) its implementation. 1

In recent decades, the traditional source of government finance to implement international decisions has eroded at the national level. The 1960s set target of 0.7% of GDP toward development has been not been attained by most OECD countries. In the past three decades, the range of acknowledged actions at the international level that need significant funding has expanded exponentially. The new funding demands are wildly expensive; it is often not even possible to estimate the order of magnitude of outlays for a reasonable response to climate adaptation, mass population migrations, Millennium Development Goals, or ocean degradation. The net effect is that MNCs and private foundations have become the prime source of funding for new intergovernmental programs. This is only possible if, of course, they agree with the proposed intergovernmental projects and programs.

One example of this shift in financial realities is the 2009 climate financing ‘commitment.' At the Copenhagen climate conference, some key OECD Governments declared   2  that there should be $10 billion per year available for climate-related costs for the 2010-2012 period and $100 billion per year from 2020 onwards. The OECD nation-states endorsed this level of funding with the ‘understanding’ that a significant portion will come, not from their official development assistance budgets, but from the resources of willing multinationals and other donors. WEF’s perspective is that this half recognized reality should become a fully recognized reality by the international community, by nation-states and the UN system.

The WEF approach diverges in a number of ways from that of the International Chamber of Commerce, the World Business Council for Sustainable Development, and other international business associations. WEF argues explicitly that MNCs have already become crucial Actors in global governance. It points out that MNCs cannot pretend that they are simply overgrown national enterprises or that they are not able to make or break international agreements. This is a marked departure from the position of old line business trade organizations as well as from the views expressed in mainstream political economy and governance discussions.

WEF argues that if leading MNCs were inside the formal international decision-making machinery, these firms may well be able to craft an outcome that will not produce passivity or objections from other MNCs. In short, WEF wants to use the recognition of the defacto MNC 'vote' on intergovernmental decisions to get MNCs institutionalized as members of the formal governance system.

 

Related Ideas: Missing sense of ownership; G20 Stewardship; Energy efficient; Financial risk repository

The Readers' Guide welcomes comments with alternative examples or counter examples and commentary – critical or otherwise – of the above interpretation of GRI’s perspective.

  • 1. ^ The joint intelligence agency report put this in a slightly different fashion . “. . . Power is also shifting toward nonstate actors [bold in original],  be they agents or spoilers of cooperation”. Global Governance 2025, pg iv
  • 2. ^ See para 8 of the Copenhagen Accord,  http://unfccc.int/resource/docs/2009/cop15/eng/11a01.pdf (accessed July 27, 2012)

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