Accountable Strategies blog

A blog about accountability issues in the public, private, and nonprofit sectors

Does global business have a responsibility to promote democracy?

Posted by David Kassel on February 1, 2008

Nien-hê Hsieh, associate professor of legal studies and business ethics at the Wharton School at the University of Pennsylvania, argues that there are conditions under which large, multi-national companies have a responsibility to promote democratic political institutions in host countries that lack them.

In a paper that he discussed this week at a seminar co-sponsored by the the Kennedy School of Government’s Corporate Social Responsibility Initiative, Hsieh acknowledges that his assertion is controversial and examines a number of objections to it. 

He maintains that if a corporation is operating in a country that doesn’t have a minimal level of electoral democracy, such as free and fair elections and freedom of speech, people in that country have no redress from economic harms.  It’s a long overdue subject of discussion and concern, given the long history of involvement of U.S.-based corporations, in particular, in countries around the world that have lacked basic democratic institutions.

Hsieh disagrees with the argument that while multi-national enterprises (MNEs) have a duty to avoid violating basic human rights in the countries in which they operate, they don’t have a duty to come to the aid of those whose human rights are violated.  He maintains that violations of human rights aren’t the only way a person can be harmed through economic activity.  He cites a case in which a subsidiary of Texaco in partnership with PetroEcuador, the state oil company of Ecuador, extracted oil from the Oriente region of the Ecuadorian Amazon basin and released oil-laced water and millions of gallons of crude oil into the Amazon forests between 1964 and 1990.

In addition, more than 4 million gallons of highly toxic “produced water” was dumped daily into open pits rather than re-injected into the ground.  The contamination dramatically increased cancer rates in the region and caused widespread sanitation problems and hundreds of cases of avoidable sickness and death.  Ultimately, a class action lawsuit was filed on behalf of 30,000 Indians and farmers in the Oriente region and 25,000 downstream residents of Peru.

Hsieh maintains that the Texaco case shows that while some people who were negatively affected by the pollution may have benefitted economically from the MNE partnership, there is no reason to assume they were made better off on the whole.  On the contrary, a significant number of people were harmed as a result of the oil drilling activities.

In cases such as that, a company has an obligation, Hsieh argues, to take action to provide people harmed by its economic activity with some form of redress by promoting the development of democratic institutions.  There are three ways a company can do that: 1) it can undertake business activities that fall under the heading of “corporate social responsibility”; 2) it can promote those institutions through normal business activities; and 3) it can promote those institutions through internal practices and policies.

Examples of the first method of promoting institutions through corporate social responsibility are the participation of the Norwegian oil company, Statoil, in the training of Venezuelan judges about human rights law and IKEA’s funding of bridge schools in India.  An example of the use of normal business activities for this purpose might be the provision by Internet service providers of access to information critical of the government of the host country in which they are operating.  An example of the third method might involve promoting democratic ideals, such as nondiscrimination or participatory decision-making in a company’s internal policies, as well as providing support to their workers who are engaged in the promotion of democratic political institutions in the host country.

Hsieh dismisses objections that his proposals would constitute unjustified interference with the sovereignty of the countries hosting the MNEs.  But in his presentation this week at the Kennedy School, he acknowledged that there are a number of questions about his approach that remain unanswered, such as how much it is reasonable to ask of MNEs in promoting democratic institutions.

Given the number of questions that Hsieh had to field at the seminar, it appears clear that the question of a MNE’s obligations to promote democracy in non-democratic regimes constitutes a field of study that is still in its infancy.  My own concern is that the vagueness of Hsieh’s proposals could allow companies that have caused economic or other harms in other countries to rationalize their continued presence there as long as they are working in some vague way to promote democratic institutions.  But it’s also clear that studies such as Hsieh’s are a start in the right direction.

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