The warning lights are blinking on the dashboard of the world economy. Germany has slashed its economic outlook for the next two years, predicting negative growth in 2022. Britain is also forecasting contractions as it struggles to stay on top of skyrocketing bond yields. Inflation in the US is at a four-decade high, and the Federal Reserve’s aggressive interest-rate increases are exporting monetary pain far and wide.
As European economies begin a gradual slide into recession, all eyes are now turning to Asia. The world’s most populous continent has established itself as an economic linchpin, sheltered from the worst economic ramifications of the crisis created by Russia’s invasion of Ukraine by its booming labor market, abundant mineral and energy resources, and technological innovations.
But confidence in the institutions of capitalism is being steadily eroded in many Asian countries, where multinational behemoths have engorged themselves on the continent’s plentiful assets for years, leaving environmental damage, poverty, and lawsuits in their wake.
Such behavior lays a time bomb in global supply chains, imperiling not only local ways of life and ecosystems, but indirectly threatening the whole global economy by sowing mistrust and resentment toward globalization, the countries they represent, and even capitalism itself.
If the coming economic crisis has an upside, it will be the opportunity it affords us to pause and assess the strengths and failures of the established modus operandi. With any luck, 2022 will be remembered as the year that multinationals in Asia began to compromise on profits in the name of sustainability.
A colonial legacy
Multinationals behaving badly in Asia is nothing new. They established themselves as the 17th century, when the Dutch East India Trading Company was formed as the world’s first joint-stock company. It soon began vying with other colonial businesses in Asia, such as the British East India Company, with both engaging in a moral race to the bottom and carving out corporate fiefdoms in the name of their governments.
These companies were actively involved in the slave trade, shipping millions of Africans around the world for the purposes of trade or unpaid labor. India and Indonesia both became hubs in this egregious market, and locals were systematically enslaved and put to work in inhumane conditions in service of the companies’ profits.
These were the swashbuckling forebears of today’s multinational corporations, and while the methods have certainly changed, some of their descendants still show a reckless indifference toward human rights and fair distribution of profits, all while abnegating their responsibility toward the regions where they operate.
Environmental stewardship
The vivid image of Western governments sending their garbage to Indonesia, the Philippines and Vietnam has dominated headlines when it comes to exporting pollution. But unbeknownst to many, a similar phenomenon occurs in many resource-intensive industries.
Multinational companies, keen to satisfy strict environmental limits in their home jurisdictions in order to avoid fines, end up producing more emissions in foreign countries.
Oil and gas companies are big culprits in this regard, with China, Russia, Japan, India and South Korea all among the world’s largest refiners of oil products. Around 50% of the world’s greenhouse gas emissions are produced in Asia, which suffers from poorer air quality, regular oil spills, and waste-management crises as a result.
Anglo-Australian mining conglomerate Rio Tinto has also been implicated in environmental scandals.
In the 1990s, allegations surfaced on the Pacific island of Bougainville linking Rio Tinto to violations of international environmental rights. These included depriving islanders of a key source of subsistence by destroying the rainforest using chemical defoliants and dumping toxic waste in rivers and on land. The plaintiffs also accused the multinational of viewing locals as “inferior due to their color and culture.”
They also alleged that Rio Tinto’s mining operations had “incited a 10-year civil war, during which thousands of civilians died or were injured.”
Ultimately, the case was thrown out by a US appeals court, which said that a precedent set by the Supreme Court meant that it was unable to rule on claims for violations of international law committed by corporations. But Queen Mary University’s International State Crime Initiative says that the Australian, British and American governments all lobbied for this outcome.
The Bougainville scandal returned to haunt Rio Tinto again in 2021, when 150 people living on the island filed a complaint with the Australian authorities, alleging that waste from the closed copper mine was causing health problems for 12,000 locals.
Rio Tinto has since recognized “concerns about impacts to water, land, and health,” and agreed to set up a fund to help address the harms allegedly caused by the mine and assist long-term rehabilitation efforts.
Treatment of workers
Another area where multinationals sometimes fall short is the treatment of locally employed workers in Asia.
American oil and gas corporation ExxonMobil was accused of human-rights abuses in a lawsuit brought in US courts by the International Labor Rights Fund in 2001. Like the Rio Tinto Bougainville case, the litigation has been dragged out for years. After being passed around between courts for decades, the lawsuit is still ongoing.
ExxonMobil hired units of the Indonesian Army as security for its oil and gas projects, estimated to generate as much as US$1.5 billion a year. The plaintiffs allege that they were tortured, sexually assaulted, raped and beaten by soldiers in and around the ExxonMobil oil and gas plant. ExxonMobil pleads that it cannot be held responsible because it didn’t know about the alleged human-rights violations.
In July this year, a judge ruled that the case could finally go to trial.
Corruption
Corruption and tax avoidance have proved another stumbling block for some multinationals operating abroad. The State of Tax Justice Report published in November 2020 found that tax-dodging multinationals were losing India more than $10.3 billion annually – around half of India’s total health-care budget in the year the report came out.
Meanwhile, Rio Tinto cropped up again in a corruption-related context when the Pandora Papers were released in October 2021. The mining giant, which industry critic Danny Kennedy once described as a “poster child for corporate malfeasance,” was embroiled in scandal when the leaked files showed that it had continued to trade with Chinese steel mogul Du Shuanghua after he confessed to paying bribes to a Rio Tinto executive.
Since Du Shuanghua admitted to paying the “good-deed fees” in return for contracts, Rio Tinto has done more that $200 million worth of trade with his companies.
The accused Rio Tinto executives, including Australian citizen Stern Hu, were sentenced to between seven and 14 years in jail. The Australian government said there were still many “serious unanswered questions” in the case.
Some analysts are beginning to factor the ESG (environmental, social and governance) risks of Rio Tinto and other multinational giants into their ratings, indicating that the markets may soon begin to penalize companies that are perceived to flout good management principles overseas. But the biggest victim here is undoubtedly globalization.
As paranoia surrounding exposure to foreign economic and political interests takes hold, it is more important than ever that multinationals are responsible ambassadors for international cooperation.
Certainly, not all multinationals are malign actors, but the example set by a visible few is enough to stir up resentment and accelerate the trend toward onshoring and protectionism. Now is the perfect moment finally to consign the colonial principle of profit before morals to the annals of history.