Finding ways to alleviate global poverty poses a major challenge for development practitioners and intellectuals worldwide. Corporate contribution to global poverty reduction is a new policy approach, but one that is gaining momentum. The trend towards the globalization of national economies has accelerated in recent years, which has led to a more dynamic relationship between international business activities and economic and social development.
To convince disillusioned stakeholders, corporate social responsibility (CSR), corporate community involvement (CCI), creating shared value (CSV), profits with principle or ethics in business are overwhelmingly getting board-room accreditation these days. Many argue that involving multinational corporations (MNCs) - the powerful force of global capitalism - can play a positive role in the fight against poverty.
Why should a corporation - established to make profits for its shareholders - bother itself with the interests of stakeholders or society at all? While capitalism's founding father Adam Smith said "it is of their self-interest", Harvard professor Porter and Kramer, proponents of Creating Shared Value (CSV) argue that "for a business to be successful in the long-term, it must create value not only for its shareholders but also for society."
In a similar finding the World Business Council for Sustainable Development (2006) insists "The leading global companies of 2020 will be those that provide goods and services and reach new customers in ways that address the world's major challenges - including poverty, climate change, resource depletion, globalization and demographic shifts."
In developing countries economic informalities by some estimates account for 40 to 60 percent of all economic activity which cost poor the most. By investing in these regions - where more than 4 billion poor people reside in poverty, but left behind by the big companies - multinational corporations can play a positive role in poverty eradication, even in the pursuit of profits and shareholders’ wealth.
In a groundbreaking article Fortune at the Bottom of the Economic Pyramid (Harvard Business Review, 2002), C.K. Prahalad and Stuart Hart (Michigan and Cornell University professor and esteemed authority on Management and Business Strategy) provided the first articulation of how business could profitably serve the needs of the four billion poor in the developing world.
Stuart Hart’s book Capitalism at the Crossroads shows companies how to identify sustainable products that can drive growth while solving today's most crucial social problems.
By making their economic activities visible, by developing a formal market system, by delivering innovative/quality products at affordable prices, with increased individual choice, MNCs can be a supportive force for these ignored poor. Philips' smokeless stoves, Ericsson's rural wireless networks, Vestguard’s water purification tools, Fujitsu's low power-low cost Laptops, Danone low-cost Vitamin enriched yoghurt, ICICI (India), Cemex (Mexico), Casas Bahia (Brazil), and Grameen Phone (Bangladesh) are some win-win examples of corporate profit maximization and societal value creation - what Nobel Laureate professor Yunus defines as ‘social business’.
Corporate activities profoundly impact billions of people’s everyday lives almost everywhere on the planet. While Nestle, a Switzerland-based multinational corporation, is doing business all over the world (except for North Korea), Unilever, a Dutch-British corporation, is selling products to more than a billion people every day. Almost 300,000 households get their milk supply from the Nestle milk processing factory in Moga (a district in India's Punjab province), which is the largest in Asia and third largest in the world. Many say Nestle turned this previously poverty stricken area into one of the most affluent regions in India.
The flag bearers of global capitalism are around 79,000 multinational corporations (MNCs), control some 790,000 foreign affiliates around the world which account for more than 25 percent of world economic output. A study conducted by the University of Zurich found that the 147 largest corporations owned 40 percent of global wealth. In his PhD thesis (University of Florida 2008), Joseph R. Kraus revealed that the world's two largest corporations - Royal Dutch Shell and Exxon Mobil - each had revenues greater than the gross domestic products of 170 countries, and their combined revenues were nearly equivalent to the total GDP of 48 countries in Sub-Saharan Africa.
With such giant size, reach, capability to influence people and planet - for good or for bad - the international community can no longer ignore the need to include MNCs in the fight against poverty. In A Corporate Solution to Global Poverty, George Lodge of Harvard University and Craig Wilson of International Finance Corporation argue that the solution to global poverty lies in the creation of a new institution - the World Development Corporation (WDC) - a partnership of multinational corporations, international development agencies, and nongovernmental organizations.
Even NGOs (the traditional foe of big corporations) who keep pressure on issues such as tax avoidance and supply chains exploitation, found common ground and increasingly cooperate with MNCs.
Leaders of NGOs and development institutions have begun to realize that there is no way that they can sustainably reduce global poverty without the active involvement of corporation. In the hugely influential book Multinational Corporations and Global Poverty Reduction (2006), top scholars Jonathon Doh, Grosse, and Vachani and Smith all stress MNCs and NGOs must come to the same platform and make a combined effort to battle against global poverty.
Two organizations with very different aims and perspectives - Unilever and Oxfam - made an unusual effort to evaluate the impacts of Unilever in Indonesia. The research, Exploring the Links Between International Business and Poverty Reduction, focused on the entire business value chain: from producers/suppliers to the company's core business operations, distributors, retailers and consumers. The study found Unilever Indonesia has made a positive impact through employment generation, asset creation, tax revenues, skill improvements and stimulation of the local economy through forward linkages, distribution networks and retailers, and backward linkages through supplier networks.
The evidence shows that emerging/developing countries are not only a significant source of revenue in the case of western multinational corporations but also a source of substantial volumes of raw materials, paying comparatively better price than local buyers, from poorer parts of the world. Cocoa in the Ivory Coast, coffee in Latin America and Vietnam, palm oil in Southeast Asia and IT sourcing in India are also generating economic benefits for these regions.
Moreover, conglomerates from emerging countries like India, China and Brazil are buying established western companies and expanding their presence all over the world.
How can a profit-driven corporation be a partner involved in social development? In their book The Role of Business in Fostering Peaceful Societies, Fort and Schipani highlight four specific ways that corporation can contribute to peace: (1) by fostering economic development (2) by upholding non-state but effective diplomacy (3) by adopting external evaluation principles such as transparency and supporting a legal system and (4) by nourishing a sense of community both within the company and in the areas where the company is located.
But corporations, most importantly, need to show a real sense of responsibility, not just a lip-service to regain public trust. A growing number of critics have voiced concern that corporate dominance is leading to a worldwide commercial monoculture based upon the values of Western consumerism that destroy local cultures, products, and traditions.
Not only this, powerful MNCs from the West are blamed for colonizing countries (such as East India Company’s colonization of India between 1600 to 1874), and for abusing human rights, exploiting labour, destroying environments, and even causing death (such as American subsidiary Union Carbide explosion killed several thousands people in Bhopal, India in 1984).
However, if the business of business is merely to increase profits (as Nobel Laureate American economist Milton Friedman insists), not much happens. But if the business of business is about responsibility, about public good, not private greed (as Anita Roddick, a British businesswoman urges), then a lot will happen. Along with non-governmental organizations, Official Development Assistants, privately funded charities, e.g., Gates Foundation, OECD based development partners like UK's DFID and USAID - MNCs active participation, not in the guise of charity or media coverage but for making profits with principle, can have a positive impact on poverty alleviation.