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Transnational Corporations; Conflict with Policies of Less Developed Countries?
Centre for Development and the Environment, University of Oslo
International Studies Association
March 1998
Transnational Corporations (TNCs) are not only one of the key economic actor in international production. TNCs is increasingly becoming embedded in local structures wherever foreign direct investment (FDI) is located. Local institutional affiliations give TNCs additional leverage in pursuing the fulfilment of corporate strategies. International studies have not fully taken into account the institutionalised political economy enveloping TNC's FDI projects in host developing countries. Studies are normally exogenizing what is an increasingly endogenous dimension with respect to corporate decision making. I will argue that TNC behaviour can be understood in the interface between two realms; the internationalisation of global economic structures and that of embeddedness within national political structures. This is elaborated by discussing the case of environmental politics in India. By focusing on the implementation of a TNCs' environmental procedures, I question whether these actions are in conflict with India's objective of promoting an environmental more sound industrial development.
1. An introduction
Foreign direct investment (FDI), 1 constituting the mere existence of transnational corporations (TNCs), is increasingly viewed as a major stimulus to economic growth in less developed countries (LDCs). Of a total of 114 changes in 65 countries' investment regimes in 1996, as many as 98 or 86%, were in the direction of economic liberalisation and FDI promotion 2 . Still, only a dozen LDCs have actually attracted significant volumes of FDI inflow, but India recently emerged as the third largest LDC recipient. 3, 4 While the average number of financial collaboration deals during the 1980s were 183 with an annual approved investment commitment of US$32 million, the number of approved financial collaborations in 1996 were 1,559, with a current value of US$904 million. From August 1991, when the new economic policy was launched, to July 1997 a total of 6.571 FDI project had been cleared by Indian authorities, of which 531 with an investment value of 80,6 billion were identified within the chemical industry, representing 6.3% of total FDI. A total of 2.529 foreign subsidiaries have been established since august 1991 of which 800 are wholly owned TNC subsidiaries. 5
I am concerned with transfer and dissemination of environmental procedures by TNCs to LDCs. Finger and Kilcoyne (1997:138) states: "TNCs are difficult to reform. By their very nature their activities must be environmentally destructive". My empirical findings indicate, however, that outcomes are more complex. As a direct impact of current investment liberalisation, suppliers, distributors, customers and even regulatory bodies are increasingly subject to TNC influence. TNC power is exercised, but these efforts are not necessarily environmentally destructive. With explicit reference to India's chemical industry, I will discuss local environmental procedures of a few selected TNCs as the outcome of increasing institutional embeddedness of TNCs in Indian politics and economy. 6
2. Environmental strategies of TNCs in LDCs
Shrivastava (1992) argues that the 1990s might be regarded as the decade of strategic action, in which both government and particularly firms understand the strategic commercial opportunities in environmental protection. Particularly within OECD countries the traditional approach to environmental management of minimising environmental damage, is increasingly being complemented with more dynamic approaches to strengthen corporate competitiveness. The question, however, is whether the analysis of environmental decision-making and management should stop here. 7
At the international arena, TNCs included my cases are all active through industrial associations like the European Chemical Industries Council (CEFIC) or World Business Council for Sustainable Development (WBCSD). 8 ICI's current corporate environmental manager is to become the chairman of CEFICs Responsible Care Programme. 9 The corporate environmental manager of Bayer A.G. has equally been active in CEFICs environmental programmes through the German Chemical Industry's Association, VCI. Norsk Hydro has been supporting the environmental work of CEFIC, but the company being more diversified, 10 has rather used its resources to consolidate and strengthen the work of the WBCSD which was initially supported by the previous CEO and chairman of Norsk Hydro. All these efforts are increasingly influencing the content as well as the procedures of relevant multilateral political processes such as the work within World Trade Organisation (WTO) and OECD.
Mr. Wakeford, ICI's international trade manager and currently the chairman of CEFIC's External Trade Committee, confirms that the chemical industry is strongly concerned with the current negotiations within OECD on a Multilateral Agreement on Investment (MAI). 11 Industry's argument is related to trade discriminatory measures, the promotion of regulatory transparency and the establishment of what he terms "a level playing field" with respect to domestic policies regulating TNCs differently and often more stricter than domestic firms. 12 Corporate lobbying at the international arena is intense, but what actually happens in a LDC like India.
I can document that state-of-the-art technologies are transferred, implemented and put on manufacturing stream in India. 13 The environmental conduct of TNCs in LDCs appears to be changing or at least complemented with a more mutually beneficial conduct than the one observed at Bhopal in 1984 when a cyanide leakage from a Union Carbide controlled plant caused the immediate death of around 3.500 people and injured more than 200.000. As part of strengthened corporate environmental policies and standards, affiliated TNC units are increasingly influenced by corporate efforts of co-ordinating global activities. Universal standards are developed, guidelines are specified and impacts on the particular FDI are increasingly materialised. Suppliers of TNC units are also increasingly subject to control, assessment and even auditing of local TNC procedures. As stated in the management priorities of one of my TNCs studied: The purchase and supply of raw materials, equipment and services shall be specified and monitored to ensure that corporate Safety, Health and Environmental requirements are met.
The practical outcome varies, but as a direct consequence of strengthened control, the TNC is specifying the quality and the content of the supplies, even asking the supplier to substitute "inappropriate" production equipment. This is often challenging as many of the suppliers are conducting the production in a very obsolete way with few alternatives available at least at a reasonable price. The way the TNC has solved this challenge, has been to concentrate on fewer suppliers and to support these in accordance with TNC environmental standards. As a consequence suppliers are trained by TNC representatives both on procurement, manufacturing processes, logistics and even transportation. Standards are implemented which far exceeds average operational procedures within the industrial area in question.
I found one rather striking example. The federal regulation requires manufacturers to use protective equipment such as specified helmet, goggles and gloves during chemical manufacturing. TNC standards, equally requires affiliated units including suppliers to use protective equipment wherever and whenever these chemicals are handled. Despite formal regulatory requirements, I could not observe any public enforcement, and local industrialist actually confirmed that public servants controlling the industrial area, did not enforce formal requirements. The suppliers to TNCs, however, were told by the TNC in question, to comply with these standards. The results are striking, when visiting the industrial zone in question, I could easily identify the single unit supplying the TNC. Of 9 units, only this did comply with public requirements of using prescribed protective equipment such as helmets, gloves etc. By the way, protective equipment was granted by the TNC in question.
In terms of pollution control, I found an interesting example where another of my TNCs studied, offered adjacent suppliers the use the installed in-house incinerator for destruction of hazardous waste. Despite regulatory requirement of performing such destruction in accordance with certain specifications, public incinerators are not made available. Hazardous waste are often illegally disposed or discharged into local waterways. According to the environmental manager the TNC initiative was taken as a remedy to combat increasing environmental degradation. Currently, a dialogue is initiated with local environmental authorities as well as with local civic community groups of setting up a common effluent treatment plant capable of handling these hazardous wastes. The TNC has offered financial, technological as well as human assistance in enabling this environmental project. 14
During a conference in May 1992, almost a year after the launching of the new economic policy, the President of Indian Chemical Manufacturers Association (ICMA) Dr. Narayanan stated:
"..The country needs captains of industry who possess the requisite drive and vision with a new attitude and work culture which can make things happen in the chemical industry of tomorrow. The global chemical industry today is well poised to make spectacular and epoch making changes, which are bound to widen the frontiers of human knowledge and improve the quality of life perhaps beyond recognition. To ignore these trends will constitute economic 'hara-kiri' and may slide Indian industry back by decades and condemn us perhaps to continued penury and lowly standards"
Five years later chemical TNCs are increasingly getting involved, not only in local manufacturing, supply-chain management and common effluent treatment. These TNCs are also increasingly becoming quite active within issue specific concerns raised by ICMA. The chairmen of the two working groups on Safety, Health and Environment (SH&E) and the Indian Responsible Care current environmental managers of TNCs. Through these networks, references are explicitly made to in-house-initiatives as well as life-cycle assessment within the respective value chain of TNC's products. As in the individual cases, the major concerns are related to awareness building and strengthening of personal commitment, but the ICMA is also discussion specific SH&E standards, management procedures and actual performance at the industry level. As stated by the previous chairman of the SH&E committee of the ICMA's eastern Region; ".. to defend our goodwill in adjacent communities, the chemical industry much perform better regardless of regulatory controls. 15 Networks are erupting, strategic partnerships are identified and power is actually exercised - all in the name of environmental protection.
Finger & Kilcoyne (1997:142) argues: " ...The fact that they [TNCs] are beginning to organise themselves, developing cartels, setting standards, increasing their influence over national governments and multilateral organisations, international agencies and NGOs for this purpose, is increasingly worrying. If their power cannot be reduced and they cannot be brought back under control, how are we going to prevent the further - an one might add - even more rapid - degradation of what remains of the natural world?" Based on my empirical findings I very much question such a deterministic approach. The outcome of the ongoing economic globalisation is complex. Many countries are become more marginalised, not receiving any FDI at all. Other LDCs like India receive an increasing volume of foreign transfers, but the environmental consequences are not necessarily destructive. The roles and responsibilities of business, civil society and formal political authorities appears to be changing into more interdependent relationships. We are obviously moving from a situation in which the Indian state had the sole responsibility for public good and where business - preferably domestic entrepreneurs, maximised profits independently of the society at large, to a situation where environmental management might become more dependent on the close synergy of interest among business, civil society and formal political authorities. Regardless of impacts, however, we need to conceptualise more theoretically these networks of institutional embeddedness erupting in the liberalising LDCs actually receiving FDI and increased involvement of TNCs.
3. The institutional embeddedness of TNCs of liberalising host LDCs
The internationalisation of business activity through TNCs have attracted an enormous literature. Facts and figures are published about the significance for politics and economics. I will argue, however, that the reason for their significance often is misunderstood. The largest TNCs are indeed very large, with business interests that stretch over large part of the world. Corporate sales are larger than many middle-income countries. In 1994 the top five TNCs 16 had total sales which were twice to the total Gross Domestic Product of South Asia 17 (United Nations 1997b) Apparently, TNCs have a profound potential power compared to national economies, but I question whether the actual power exercised necessarily is related to size as such? I will argue that this rather is related to the functioning of TNCs. What is making a difference is the fact that TNCs control a package of potential power resources, also termed ownership specific advantages (Dunning 1993), which they transfer across national borders. In contrast to national corporations, TNCs continue to control these resources abroad.
These transfers are often conceived solely in financial terms as various forms of investments, but by doing such a strictly economic approach, important functions are neglected - even omitting important issues of analysis. I would even argue that financial transfers are often of less importance than other TNC functions like transfer and management of technology and organisation, entrepreneurship and culture. TNCs are important because they have the capacity to move technologies and ideas around the world, and this is done within structures influenced by specific corporate priorities and strategies. This capacity rather than mere financial strength and size, gives them the potential to serve as an agent for social change potentially impacting local development processes.
Within the field of international studies, there appears to be an academic neglect of the role of individual TNCs in national politics. Particularly I find striking the general lack of interest in analysing actual political dynamics beyond the initial investment inflows. Currently, and as a direct consequence of economic liberalisation, global strategies of individual TNCs play a crucial role not only in promoting economic growth and shaping world economy (United Nations 1997a). Further, I will argue that these firms with a global reach, increasingly influence the direction, content and particularly outcome of public policy choices. TNCs have gained more political power, not only in actual bargaining processes, but also in setting the policy agenda of public policies - what Strange(1988) has termed structural power. TNCs are consequently strengthening the ability to influence formulation as well as implementation of development strategies. By becoming more involved in local socio-economic processes of change, new coalitions are formed. Contrary to the determinist argument advocated by Finger and Kilcoyne (1997), I believe that these coalition can create a complexity of positive as well as negative impacts.
Sally (1994:163) argues that " the last 25 years of reemergent IPE has witnessed a shift from 'old' to 'new' agendas on the subject of MNE 18 , without quite pinning down individual firms, or collectivities of them, in specific environmental contexts, let alone prising open the 'black box' of the firm to peer into its internal organisational dynamics". In accordance with this argument I will argue that otherwise opposing paradigms within international political economy, still are continuing to focus narrowly on governments or international organisations, rarely focusing on the TNC per se. If included, TNCs are often considered as linked to the phenomena of state power or international regimes (Krasner 1978 or Gilpin 1987). However, there are exceptions, and I will argue that it is the credit of Milner (1988) and particularly Stopford & Strange (1991) that the spotlight again is set on TNCs' role in international politics. 19
Inspired by Karl Kaiser's (1971) work, Stopford and Strange argue for a transformation of the old rather bipolar game of diplomacy where national boundaries defined the rules of the game where negotiations and actions are carried out on a triangular basis. The traditional players in the embassies and foreign ministries are still in business, but according to Stopford and Strange (1991:21-22) they have been joined by members of other domestic government ministries and by the executives of firms, both local and foreign. A triad of relationships, what is termed a triangular diplomacy is erupting. The central argument is that change in what they call world structures, has created both new possibilities for creating public wealth, but also new dilemmas for governments on how to balance the conflicting demands of their national and international agendas. Though all three sides of the new diplomatic triangle are interconnected, all often, states find less connectivity and more a sense of contradictory pulls among the imperatives of choices that cannot be avoided. I have chosen to elaborate on these postulates by explicitly focusing on India and local impacts. However, the postulates are equally and perhaps even more relevant for studies of regional and global processes of development, for instance as manifested with international governmental organisations like WTO, OECD and UNEP.
The TNC which by the bulk of economy literature is treated as a black box, is seeking economic growth motivated by different motives sometimes compatible, but often in conflict with current corporate strategies (Dunning 1997). The picture is further complicated by knowing that various departments & divisions focus on various motives as a foundation for global corporate strategy making. These motives consequently influence corporate behaviour, and my argument is that this cannot be related only to economic, market oriented activities. Differences within and between TNCs increasingly influence their external environment. The major cause for this conceptual weakness is related to neo-classical economics and its associated theory of comparative advantage as expressed by the Heckscher-Ohlin model. It is assumed accordingly that universal efficiency gains are created. Little attention is paid to the costs and benefits of the distribution of the national gain from the TNC activity, and the theoretical and empirical approach becomes rather flawed particularly if governmental intervention is analysed. Most of the economic literature on TNCs and FDI treat government as a exogenous variable, and it is assumed more or less implicitly that governments 'distort' otherwise 'free markets'. As expressed by Rugman (1981:156); "Regulation is always inefficient. Multinationals are always efficient". In accordance with such a neo-classically derived reasoning, the non-intervention of governments and the unfettered play of market forces allow TNCs to maximise competitive advantage and diffuse efficiency gains to the economy and the society in general. Current environmental degradation and particularly environmental disasters, illustrate quite clearly that there are no automatic outcome of economic liberalisation. I argue that these outcomes rather are direct consequences of economic dynamics increasingly becoming institutionalised with in local political and economic networks.
Markets has been and will always be dynamically shaped by a mixture of government and corporate actions, an interaction that leads to outcomes that not only generate wealth, but also distribute wealth and power. This is particularly the case when the distribution is asymmetrical between actors and varies between countries with structurally different institutional arrangements, which is exactly the context of TNCs localising FDI in LDCs. As expressed by Aharoni (1993), the modified conception of the TNC from being a static, "Heckscher-Ohlin firm" to a dynamic "Schumpeterian" enterprise, has much to do with this transformation of the market. The changes and implications for the role of government and public policy is profound. This is rarely accounted for in the mainstream economic explanation. Some scholars, however, have advanced our understanding on such trends, ranging from business-institutional history of Alfred Chandler (1977, 1990) to the new institutional economics school as expressed by Oliver Williamson (1985). However, even these approaches either seriously neglect the role of government as in the case with Chandler's work or do not focus on the political dimension of TNC-government interaction (Williamson 1975). Strategic interaction is debated, but merely as dynamics between headquarters and affiliated units. No attention is paid to local societal networks beyond the formal control of the TNC.
Grosse and Behrman (1993) have been particularly concerned about the TNC-government interaction, and a rather integrative approach of theorising has been proposed. However what is still lacking is a clear appreciation of the TNC as an institution in its own right combined with its embeddedness in an array of different regional, national and global institutional arrangements. By including the external institutional affiliation through TNC internal networks, I believe that a better understanding of the actual political and economic dynamics within liberalising LDCs can be achieved. I propose an analysis of TNCs as institutions embedded in external networks, because it more easily can shed light on the actual power of TNCs in various political settings. Further we can better understand how different political challenges can be leveraged within its own cross-border management for enhanced global competitiveness. As Stopford and Strange (1991:22) argue:
The growth of global competition can be seen as moving the world towards a position where events are conditioned more by an emerging managerial technocracy than by traditional notions of state power. In this new technocracy. Firms feature prominently but are only one component of a wider network.... Competition is increasingly about different production and institutional systems and contrasting social organisations.
Surprisingly, Stopford and Strange do not elaborate further on these institutional systems. While obviously perceiving the existence of inter-firm as well as state-firm networks, it is not discussed in further details and no attention is paid to firm-society networks. Odell (1990:140) advocated the need for an integrated model of analysing the ongoing process of economic restructuring, economic globalisation and international trade policies. Ruigrok & Tulder (1995:6) argue, however, that the bulk of the three debates remain conducted in relative isolation.
Polanyi (1957) argues for the necessity to link the domestic with the international, and the political with the economic - all in what he calls "an institutional canvas within the framework of a holistic political economy" (1957:3). Corporate involvement in public policy processes is extensively documented by Wilks & Wright (1987), Grant, Paterson & Whitson ( 1988) or Paterson, Grant & Martinelli (1989). What is important, however, is to study the political embeddedness of TNCs as coexisting with the internationalisation and "disembedding" from national political economies. International production and sales networks are increasingly disembedded from political control systems. Consequently, TNCs can be perceived as actors reembedding themselves politically in disembedded political economies. The TNCs are positioning themselves to take advantages of current structural changes. More than any other institution, TNCs are capable of leveraging with global reach, the organisational rationality of production, consumption and increasingly communication.
The global reach is pursued with what Karel Kosik (1993) calls a techno-economic value order. Horkheimer argues (1974) that the systematic changes in the 20th century mass society creates a metamorphosis of value rationality and enlightened reason into what he calls 'disenchanted' instrumental rationality of techniques. This causes an 'objectification' of the machine, and I will argue that the techno-economic value order as proposed by Kosik, can be perceived as a direct consequence of this objectification. Kosik predicts consequently a means - ends reversal in which the machine and technology become the ruling objects of societal pursuit. However, it is not only machines and technologies which to a large extent creates the terms of reference for corporate strategies. The construction of TNC-based techno-economic value order in accordance with corporate strategies, also enhances the political power of the TNC. Corporate power can be pursued against or in combination with the power of host governments. A dynamic approach must be applied. Potential conflicts prevail, but the outcome cannot be understood without analysing the particular institutional embeddedness of TNCs in local politics. Apparently we need more nuanced approaches than those deterministic approaches voiced by TNC critics like Finger & Kilcoyne (1997).
Hymer (1976) argued that free and perfect markets in the neo-classical sense do not exist where TNCs are present, because the existence of TNCs coexisting with the internationalisation ais directly related to market imperfection. Williamson (1985) further argues that internal 'hierarchies' are created to replace or internalise certain external market function in order to reduce transaction costs, creating what I would call a weak embeddedness. TNC relations with external actors are still perceived to be pursued at a kind of arm's length basis. In sharp contrast to Williamsonian hierarchies, creating few political repercussions, we can currently perceive a situation in which the TNCs are becoming more interwoven into the institutional knitting of the host economy through various forms of more or less formal agreements and commitments. TNCs are increasingly establishing long-term relations with external actors. The internal hierarchies of TNCs are increasingly linked with external network, establishing what have been termed 'co-operative capitalism' (Polanyi 1957, Chandler 1990). Consequently, TNCs are becoming increasingly embedded into what Polanyi termed 'institutional canvas of political economies'. This frequently includes a political and social dimension in addition to its primary economic function. Non-economic motives are included in the corporate agenda. Community needs are satisfied beyond external public requirements, environmental protection measures are taken not only within the industrial facility, but with adjacent communities as well as at national level. As illustrated from cases within India's chemical industry, proactive behaviour can be observed, and corporate performance is increasingly promoted beyond minimum regulatory requirements. This contrasts sharply with Williamson's perception of internal hierarchies coexisting but not institutionally co-operating with open markets.
FDI projects cannot be treated in political isolation. Besides, the interaction is not only conducted through formal negotiations. It may take place rather informally, and even more importantly they can be initiated regardless of formal politics. This interaction will often be materialised as a bilateral relationship between a central entrepreneur and those with whom entrepreneur would like to communicate or whom he tried to influence. It is important to keep in mind that these often informal interactions are conducted regardless and even despite public policies. Consequently, interactions may be highly structured and institutionalised, or much more loosely so. Such relations are by Wilks and Wright (1987: 3-6) called 'policy communities' which:
"encompass all those who own, manage, finance and work in industrial units, together with those whose interest are affected by activities of those units, suppliers and clients, for example, and those individual whose organisations have a direct interest in, or responsibility for, the activities of those units and their suppliers and clients - governments and quasi-governmental organisations at national, supranational and subnational levels"
These policy communities exists with a reasonable cohesive membership defined by products, services, technologies and markets. The constituting factor within the communities of my concern, is environmental management defined as those aspect of the overall management function that develop, implement and maintain the environmental policy. 20 The environmental policy is related to the intentions and principles of action of the TNC regarding its environmental effects.
The development of these policy communities will be done on a dual track basis. There exist formal environmental requirements set by public policies, but increasingly these requirements are influenced by formal and informal voluntary initiatives. What justifies my approach is the fact that these initiatives are causing procedures and performances beyond the behavioural requirements set by the public policies. According to Wilks and Wright, these communities - forming subsystems often too discrete to operate at a national or sectoral level, exist to deal with specific policy focus, for instance environmental policy concerns
In India individual TNCs are apparently creating policy communities to improve environmental management within the local area of involvement. However, these communities remain part of the public policy sphere, and these initiatives are often complemented with broader, more co-ordinated efforts. Consequently, we can argue that related policy communities of environmental management are linked through larger and looser 'policy network' of environmental management, which according to Wilks and Wright (1987:297-299):
"constitute a complex of organisations connected to each other by resource dependencies and distinguished from other complexes by breaks in the structure of resource dependencies"
Within countries pursuing economic liberalisation policy, allowing TNCs to get involved in economic activities previously reserved for indigenous entrepreneurs, TNCs are increasingly becoming part of distinctive policy networks such as the SH&E committee of the ICMA. My major argument, however, is the fact that the TNC affiliated actor is distinguishable from others precisely because of the uniqueness of being embedded in global as well as local structures. This makes a difference from domestic entrepreneurs not having such extraterritorial connections allowing access to specific financial, technological, organisational and human resources. Consequently, the affiliated unit is capable of making a difference in terms of environmental management, particularly when we consider the current state of environmental control in India.
4. The evolution of environmental regulatory control in India
During post independence India there has been a phenomenal growth in industrial production. Chemical manufacturing has multiplied 10 times from 1960 to 1990 21 , industrial activity is also among the major causes of current environmental degradation in India.
The enactment of the Water (Prevention and Control of pollution) Act of 1974, marked the beginning of an era of government regulation for the control of environmental pollution in India. In continuation, the Government of India has indeed undertaken a number of regulatory and promotional measures including the Water (prevention and control of pollution) Cess Act of 1977, the Forest (Conservation) Act of 1980, the Air (Prevention and Control of Pollution) Act of 1981, the Environment (Protection) Act of 1986 and The Public Liability Insurance Act of 1991. These legislations have empowered the Centre and State governments to create necessary institutions and regulatory instruments. The Central Pollution Control Board (CPCB) was constituted in September 1974 under the Water Act of 1974, and efforts were made to create implementing and enforcing agencies at the state level, the State Pollution Control Boards (SPCB). However, extensive documentation verify that the regulatory system combating environmental degradation remains both understaffed and still the system appears to be marginalised in current Indian politics. Its rather due to judiciary activism that regulatory efforts at state level recently have been strengthened.
The Indian constitution guarantees, as a fundamental right, the right to life and liberty, and under article 32, any complaints relating to violation of Fundamental Rights could be raised directly to the federal Supreme Court (SC). Faced with the administrative crises at the state level, the SC has taking a more interventionist role urging various States to enforce its laws. Politically this creates a rather challenging situation in which the judiciary increasingly gets involved in law enforcement and administrative functions, tasks both beyond its competence and formal responsibility. The Montesqueian division of judiciary and executive powers explicitly clarified in the Indian constitution, becomes blurred. Environmental control were strengthened with respect to those cases referred to in SC rulings. The challenge however, is the fact that executive regulatory capacity as in the case of SPCBs, remains inadequate and not capable to perform rather resource consuming command and control interventions. As a consequence environmental politics at the state level is forced into an even more reactive but resource and time consuming strategy of complying with SC rulings.
As a consequence, there is very little dialogue between the regulatory bodies complying with the outcome of judiciary activism and actual polluters. In cases of actual enforcement, politics appears to be shifting from the ignorance of dirty industry to reactive promotion of "clean but closed industry". According to India Development Report 1997, the problem of industrial water pollution is more due to the inadequacy of measures adopted for effluent treatment than to the intensity of industrial activity (Parikh 1997). When environmental politics actually are conducted, developmental impacts are seldom considered. Industrial growth is strangled, and industrialists do not see any reason to implement pollution control equipment unless they are told to do so. Command and control measures appear to have developed a very conservative, reactive strategy of co-opting environmental free-riders into environmental laggards. Environmental pro-active performance is very seldom a feasible option, limiting voluntary opportunities for improved environmental management.
It's well documented the significant economic potential of pollution control. 22 Within the chemical industry, hazardous waste is often generated by inefficient utilisation of often expensive raw materials. By improving utilisation or recycling of waste, even without any significant investment outlays, cash costs and hazardous emissions are reduced and even eliminated. To achieve these environmental improvements, however, industrial pollution control must be linked to economic reasoning and commercial strategic thinking.
During the beginning of the 1970s several decisions indicated India's understanding of integrating environmental management into economic planning, thus treating environmental management as compatible with current economic growth strategies. The National Committee on Environmental Planning and Co-ordination in India was established in 1972, and until 1980 the NCEPC did valuable work in a number of areas like environmental appraisal of the projects from selected sectors and spread of environmental awareness. During 1980s there was an explicit recognition that environmental factors and ecological imperatives had to be built into the total planning process to achieve the long term growth of sustainable development. 23 The number of enactments, regulations and laws, confirms the formal commitments of tackling the environmental challenge. What is striking is the lack of actual integration of promotional activities of economic growth and environmental protection/management.
In spite of more than twenty years of environmental legislation, research conducted at Delhi University confirms that India has not really implemented economic instruments and incentives to combat environmental degradation (Murty 1997). No attempt has been made to use instruments like marketable pollution permits or pollution taxes. India continues in accordance with the reasoning of planned economies, to be using traditional coercive command and control types of measures often eliminating options to develop more cost effective pollution abatement technologies. The challenge, however, is the fact that equally or even more polluting units, are popping up even in the vicinity of those recently closed. 24 With current industrial growth rates, the problem will only increase. New approached to environmental management must be tried, even involving new partnerships with entities beyond Indian origin and nationality.
The collective action as an alternative to command and control measures is gaining importance in India, especially in the cases of water pollution abatement in the industrial estates (Murty 1997). Since collective action is a decentralised and more cost effective institutional alternative for the environmental management, the government and NGOs have to play a catalytic role in removing various impediments to collective action. 25 However. financial resources and technologies available at least at reasonable costs, remain a major obstacle. Increasingly a new actor is entering this stage, the TNCs, embedding themselves in these local efforts of promoting environmental management through collective action. My question is whether these efforts can complement current efforts of Indian environmental politics?
There is a wide spread belief in India that economic liberalisation can lead to more environmental degradation. With the reference to the Bhopal tragedy it is an even stronger belief that trade and investment liberalisation will cause severe environmental damage. TNCs are a priori characterised as an agent merely transferring dirty industry to LDCs and using India as a dumping ground for hazardous waste. Its a fact that industrialisation continues to cause severe environmental damage, but during the 1990s with the increased inflow of FDI and greenfield projects, an increasing number of state- and non-state actors are becoming rather pragmatic in identifying potential solutions to these problems. Traditionally "anti-economic growth" and "anti-foreign" environmental advocates are redefining their priorities and extending the scope of action. The renowned Centre for Science and Environment (CSE) are becoming convinced that economic liberalisation actually can enable a better and more appropriate environmental management of current production and consumption patterns. 26 A green rating project has been launched assessing corporate environmental performance. The overall reasoning is founded in the understanding that regulatory command and control capacity will never be capable of fulfilling environmental needs. A more market-oriented approach is considered. By developing a reputation incentive, launched as a benchmark of corporate management procedures, the CSE will trigger voluntary change through documentation of corporate environmental responsibility. The idea is to draw actively on local community groups reporting simultaneously but independently from corporate reporting. As an outcome new local networks can easily be perceived between responsible industries and environmental NGOs. CSE is launching this campaign after having documented rather extensively the state of the Indian environment, 27 and it confirms the urgent need to carefully evaluate alternative measures for promoting improved environmental management.
5. Environmental strategies of TNCs as materialised within value chains
The organisational history of international business is as elaborated by Jones (1996), one of constant change. TNC managers have sought the most effective and appropriate means to control operations. In search for the optimal structure at any time, it is however important to keep in mind that a firm's past structures and management cultures, represent a considerable influence. In terms of environmental management, I would argue that this influence rather can be perceived as a constraint on what ought to be done, but changes are nevertheless made. As elaborated by Bartlett and Ghosal (1989) the so called administrative heritage of TNCs justifies a evolutionary approach to understand international business, including a rather eclectic and interdisciplinary research methodology. Accordingly I have designed my study.
Despite empirical references of life-cycle assessment materialised through supply-chain management, I have no general documentation that this kind of private enforcement is widespread. However, it is manifest and ought to be accepted and appreciated rather than rejected. Suppliers are subject to increased TNC control. Environmental management procedures of firms supplying TNC affiliated units are increasingly becoming subject to TNC surveillance, and these suppliers are consequently becoming part of policy communities promoting improved environmental management in accordance with environmental strategies of the TNC in question.
Several of the suppliers I have studied do supply a number of buyers, but almost all expressed a preference to supply to the TNCs. 28 Asking whether this could merely be explained by better prices, they said no. Actually in some of the cases, alternative, "domestic" buyers paid even better. However, they rather focused on the opportunities to establish a longer, and more lasting relationship with customers, and this was more easily achieved with the TNCs. Besides, better access to resources not easily available locally was also acknowledges as a driving force in voluntarily accepting increased dependency vis-ˆ-vis the TNC.
The suppliers in questions are obviously expressing an economic rationality I did not expect to find in India. The Indian economy is often managed by extreme short-term investment horizons. Confronting the TNC with these supplier priorities, I was explained that company policies were changing into establishing more permanent supply-chain management. This was done basically to control the quality of raw materials, but new standards of life-cycle management and cradle -to-grave responsibility did also influence current policies and practices towards up-stream suppliers as well as down-stream distributors or dealers.
TNCs are extending the time horizon of contracts with suppliers of raw materials, but at the same time strengthening control by setting certain performance criteria. Increased and strengthened interdependence is the result when influence on environmental management is extended beyond TNC's factory walls. TNC induced environmental management priorities become part of policy communities in which the TNC is embedded as an increasingly central actor. Why does this happening?
One of the TNC in question, had experienced a lot of criticism by the way certain suppliers were performing in Brazil. Accidents had caused injuries and even death, and public criticised the TNC for not having tried to up-grade the rather primitive and hazardous working environment. This triggered a minor "Bhopal syndrome", and in the name of life-cycle management, affiliated units world-wide were told to strengthen the surveillance of permanent suppliers. Thus, the TNC subsidiary were subject to a kind of structural control by the HQ to extend the realm of influence. The management of the affiliated Indian TNC-unit found this rather challenging using a lot of resources to control the performance of suppliers far beyond average local procedures. Some even expressed a clear scepticism of conducting a kind of "cultural imperialism". 29 Nevertheless, it illustrates a new phenomena of TNCs traditionally being termed as culprits and dirty firms, increasingly controlling not only the environmental procedures of affiliated LDC units, but environmental policies, programmes and procedures outside the realm of formal TNC control.
TNCs are directly influencing environmental management of suppliers to chemical manufacturers by formalising ties and by increasing direct and structural control. The TNC managers in charge at the local units are not always convinced that this necessarily is appropriate, but as it was stated: "We must comply with company standards". Suppliers voluntarily agreed upon a stronger surveillance by TNC, basically because this could guarantee a longer and even permanent commercial relationship. The same tendency was found among dealers and distributors. In the case of intermediate dealers, I can document a quite interesting case in which environmental standards between the TNC in question and the final user of the intermediate products, varied significantly. As long as the end user did not have any particular environmental standards beyond high quality, the distributors were less willing to comply with TNC standards. Market conditions rather than supplier strength appear to be triggering their environmental priorities.
However, the TNC approached the final user (itself affiliated to a TNC involved in auto manufacturing) asking whether they could consider a slight change in the product specification. To comply with TNC environmental standards of phasing out the use of hazardous pigments, certain inputs had to be substituted. This was a policy far beyond Indian standards - actually having no relevant regulation at all - and local industry did not really see the meaning of doing this phase-out. The end-user, however, did sympathise with the argument, but agreed upon the modification dependent on two reasons; that quality and price remained unchanged.
The phasing out of the hazardous raw materials required a somewhat more expensive substitute, but the affiliated TNC unit considered the current commercial relations as very important and they were willing to sacrifice short term profits to defend present market portfolios. 30 It remains a question, whether the TNC can manage to comply with environmental standards while simultaneously maintaining and hopefully expanding its market share in booming local markets.
The story goes on. Particularly efforts of strengthening product stewardship for instance by more actively trying to educate customer into more environmental sound consumption patterns, is very interesting and relevant. These efforts, however, being characterised as marketing efforts, are more easily compatible with traditional strategies of promoting local business development. Besides, very few findings are actually made of more green consumption patterns in the household market, and I will rather end this paper by discussing the implications for environmental politics in India.
6. Environmental TNC strategies and impact on environmental politics in India
Despite being industrial pillars of India's chemical industry, TNCs are rather treated as aliens. This was perfectly demonstrated recently when one of the TNCs in question, wanted to acquire less than 10% of the share of a competing company, actually the market leader. The local promoters of this company controlling almost 50% of the shares, rejected the acquisition attempt as a hostile take-over. 31 The minister of industry addressed the TNC efforts as incompatible with India's industrial policy, stating that India ought to readdress current economic reforms to impede the entrants of new multinationals. 32 TNCs are easily scrutinised, and it is definitely a challenge to broaden its scope without being criticised.
It's a kind of a paradox erupting that when the 1970s Indian government of Indira Gandhi heavily promoted joint ventures between TNCs and domestic entrepreneurs, the financial community did not respond to these political arrangements. However in the wake of economic liberalisation, the same investors are more eager to put their risk capital into TNC controlled units, and these units are increasingly given local credits in LDCs. However, the financial community of India as elsewhere, is managing it's portfolio on an extreme short-term basis. Green consumerism is lacking in traditional goods market, but it's even more absent within the market of financial services. In a particular case a TNC wanted to get local funding to install recycling technology. Even with a paid-back period of less than a year, the particular project was not even considered by the local bank. The risk was perceived as to high. 33
The solution for the TNCs I have studied, is foreign funds or reinvestment of profits. TNCs have access to necessary resources, and environmental projects are materialised. Efforts of strengthening environmental management are also disseminated to external actors collaborating with the TNC. TNCs are consequently becoming embedded in the local economic community, regardless of local financial community. What are the implications for Indian environmental politics of these new policy communities of environmental management?
The director/member secretary of the Central Pollution Control Board, Mr. Biswas, could not refer to any voluntary initiatives done by TNC neither individually nor collectively through relevant industrial associations. He referred to corporate statements, particularly through the branch organisation; ICMA, but as he stated; "I am not really impressed with what I have seen". 34 He appears to be perceiving TNCs rather as a problem for India's efforts of promoting improved environmental management. This opinion was shared with Dr. Sengupta, head of CPCB's Pollution Control Implementation Division II - on basic industries. 35 However. Mr. Verma, additional director and head of Pollution Control Implementation Division I on petrochemical and chemical industries, were less categorical. Actually in charge of environmental control of the sector where the TNCs in question are operating, he did not object to my observation, but stressed that these findings were not necessarily representative. 36 I cannot disagree with this statement, although he agreed upon the increasing challenge of fulfilling the objectives of India's environmental policy, my revelations did not cause particular enthusiasm. Environmental management is easily politicised, and the statements from the top management of CPCB confirm that the traditional antagonistic attitude towards TNCs still remains. Accordingly it was stated that "these TNCs are dumping hazardous waste in India, and adjusting to lower local standards, 37 resources are exploited and few impacts can be observed in terms of improved environmental performance of TNCs". 38
However, if we focus on those agencies actually in charge of enforcing current regulatory requirements, the state pollution control boards (SPCBs), I found a different attitude. The member secretary of Maharashtra state pollution control board, Mr. Sangitrao did acknowledge both the lack of resources at the disposal of the SPCB to enforce regulations as well as those voluntary initiatives beyond minimum regulations initiated by TNCs. 39 Somewhat more reluctantly, the West Bengal Pollution Control Board did express similar statements. Obviously public servants at the state level know better what is actually happening within the particular industrial zones in question. Despite ignorance at the federal level, SPCB representatives in charge do seem to understand the erupting dynamic. But are these public servants also becoming part of the erupting policy communities in question?
SPCBs lack resources, judicial activism are forcing them into even more reactive behaviour, allocating available resources to comply with rulings from the Supreme Court. Voluntary initiatives from the TNC, with a global access to relevant resources, becomes a tempting partner to achieve objectives of improved environmental control. I cannot document any formal collaboration on environmental policy making, but I do have examples where SPCB representatives have been briefed by TNC representatives on technological innovations and particularly a zero-liquid effluent concept recently transferred and implemented within India's chemical industry. In another case, the SPCB was invited 40 to the plant in question to learn more about future plans, and current improvements. This was done as a direct consequence of repeated complaints from local NGOs that this TNC was responsible for hazardous liquid discharges into adjacent water ways.
The activities of environmental NGOs vis-ˆ-vis TNCs were constituted in the wake of the Bhopal tragedy. However, while at least some of the TNCs have changed their local procedures and actual performance, the NGO procedures of criticising TNCs seem to be part of their identity. The criticism from the relatively large NGO, triggering the TNC initiatives of inviting the SPCB, actually caused interesting outcomes. The representatives of the SPCB acknowledged that the TNC did make the improvements it had stated it wanted to make. These improvements are based on transfers of technology from TNC headquarters, but the affiliated TNC unit offered the local SPCB relevant training both to understand the processing as well as the particular pollution control equipment. Triggered by critics from the NGO community, a collaboration appears to be institutionalised between actors previously not even talking to each other. The technology in question has later been installed. By making a retrofitting of rather old processing technology, liquid hazardous emissions are eliminated, and the SPCB gets more detailed and specified information.
I confronted the environmental NGO with this documentation, they did not criticise the actions as such, but rather shifted focus to other inappropriate TNC activities. As previously referred to, the Green Rating Project proposed by CSE, is actually applauding these pro-active environmental initiatives as some of the very few efforts to improve environmental management within industrial segments hardly subject to any environmental regulation at all.
Some SPCBs regardless of the ignorance from CPCB, are at least informally becoming part of policy communities of environmental management. The environmental strategies of TNC not only influence affiliated units of the TNC. Distributors, suppliers and other economic actors associated within the life-cycle management of the products the TNC is manufacturing, are increasingly subject to environmental control. This is increasingly done regardless of lax or in practice non-existing public policies. India's environmental policies are influenced positively as much as these initiatives are complementing efforts done by regulatory agencies. This is even materialised as direct exchange of information, creating an embeddedness of environmental control between public formal agencies and private commercial agents as in the case of TNCs, promoting development beyond local regulatory environmental requirements.
It has been difficult to get the TNC managers to explicitly acknowledge that the initiatives taken actually influence politics. They do acknowledge their position as entrepreneurs, and they would like to be perceived as a good corporate citizen defending their corporate goodwill. But TNC managers did not accept the argument that by sharing their resources of global reach with local industrial partners as well as local regulatory bodies, they increasingly influenced environmental policy making. However, they did accept my argument that these efforts where not in conflict with India's environmental policy.
TNCs and FDI is not necessarily incompatible with growth oriented, liberal developmental priorities of LDCs. This does not say, that they are always compatible. 41 Quite the contrary, corporate commercial priorities can always create perverted outcome quite incompatible with local development priorities. Nevertheless, as long as these actors actually are acting, we need to developed an analytic framework for studies of the political economy of environmental management, accepting the dynamics taking place within policy communities in which TNCs increasingly are becoming embedded as an influential agent of change.
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Note 1: FDI in contrast to portfolio investment is a transfer made acquire control and a lasting management interest. Back.
Note 2: Further details in World Investment Report 1997, pp 18 - 20. Back.
Note 3: Classification calculated in Briefing Paper, 1997 (3): Foreign Direct Investment Flows to Low-income Countries: A review of the Evidence, published from Overseas Development Institute Back.
Note 4: Due to severe balance of payment problems, in August 1991 India introduced a number of changes in the country's economic policy. Licensing requirements were softened and abolished, allowing even 100% foreign ownership. Imports of technology were promoted with tariffs of only 1/10 of previous levels and managed with significantly less interventionist measures from public authorities. Back.
Note 5: Data compiled from a database prepared by The Institute of Industrial Studies (ISID), New Delhi. Back.
Note 6: I have chosen to conduct embedded, single-case studies of Imperial Chemical Industries (ICI) plc of UK, Bayer A.G. of Germany and Norsk Hydro A/S of Norway. Back.
Note 7: Which is the normal approach. To verify take of look in the journal Business Strategy and the Environment, published by John Wiley & Sons and ERP Press. Back.
Note 8: WBCSD is the outcome of the merger between Business Council for Sustainable Development (BCSD) and World Industry Council for the Environment (WICE). These organisation were both established to lobby business and industry interest during the UNCED process prior to the Rio conference in 1992. Interestingly, WBSCD has continued its work both as a lobbyist in questions on trade/investment and environment, but also as an increasingly active entrepreneur for improved environmental awareness among its member and in industry in general. Back.
Note 9: The Responsible Care Programme launched by the Canadian chemical association in the wake of the Bhopal tragedy in 1984, is the worldwide chemical industry's voluntary environmental improvement programme. Back.
Note 10: Norsk Hydro traditionally manufacturing fertilizers, has diversified into manufacturing a range of agricultural products, industrial chemicals, petrochemicals, bio medicine, light metals such as aluminium and magnesium, energy and oil and gas. Back.
Note 11: A very interesting debate in going on with respect to MAI, reflecting the two opposing working hypotheses on the relationship between trade and environment, as either a (dirty) race to the bottom or a (clean) race to the top. Back.
Note 12: Stated during a meeting on April 10, 1997 Back.
Note 13: This done by all the three TNCs studied, but on different scale and scope. Modern and advanced process and product technologies are transferred. Impact are more significant in terms of manufacturing rather than marketing. Actually in one case a green field processing plant was designed and operated as a zero-liquid effluent plant with emission standards far below equivalent plants at the headquarters - and not at all comparable to local manufacturing performance. Back.
Note 14: These observation are made during March/April 1996 and October 1997 in the Thane-Belapur industrial district of the Maharashtra State. Back.
Note 15: Stated by Mr. P.J.Nag, previous environmental manager of ICI India, February 10, 1996 Back.
Note 16: General Motors, Ford, Toyota, Exxon and Shell. Back.
Note 17: South Asia consists of Pakistan, Nepal, India, Bangladesh, Sri Lanka, Bhutan and the Maldives. Back.
Note 18: In the literature various terms are used to describe internationalised manufacturing activity. I prefer to use term TNCs in contrast to Multinational Corporations (MNCs) (Dunning 1993) or Multinational Enterprises (MNEs) as applied by Caves 1982 or Sally (1994), this because the definition of TNCs explicitly refers to corporate control and more hierarchical organisation of international activities. Back.
Note 19: Surprisingly a relevant research agenda was set in the beginning of the beginning of the 1970s, with the 1972 publication of "Transnational Relatons in World Politics" edited by R. Keohane and J. Nye, even including the article of Karl Kaiser. However, it took twenty years before the transnational political dimension was brought back into studies of international politics. Back.
Note 20: Defined by British Standard 7750, specification for environmental management system. Back.
Note 21: According to Hand Book of Industrial Statistics, 1992 Back.
Note 22: This is part of the credo of environmental economics. Within the management literature, an increasing number of articles are focussing on how the lean becomes green. A good introductory guide is Cairncross. (1995). Green, Inc. A guide to business and the environment, Earthscan The journal Business Strategy and the Environment as previously referred is also recommended relevant reading. Back.
Note 23: As stated in the 6th planning document of the Indian Government convering the period 1980 - 1985. Back.
Note 24: Which quite often are reopened with or without political consent regardless of environmental control. Back.
Note 25: As it is stated in a number of policy statements from state and federal governments. Back.
Note 26: According to the responsible project manager at CSE, Mr. P. Dutt, stated in November 1997. Back.
Note 27: As documented in the journal; Down to Earth, published by CSE, New Delhi, India. Back.
Note 28: I openly admit that those suppliers contacted were all indentified by the TNC in question. In terms of representativity I assume that those suppliers having a propensity to defect and not accept the increased TNC control, would rather not be identified by the TNC. I nevertheless defend my approach by referring to the methodological consideration of conducting an explorative and even revelative embedded case study. See Yin (1984) Back.
Note 29: Due to India's colonial past, particularly managers of Indian TNC unit headquartered in the UK are reluctant to act as a neo-colonial agent, imposing standards delinked from local procedures. Back.
Note 30: This comes in addition to the simple fact that corporate headquarters as per January 1, 1997 forced the Indian unit to implement the phasing out stategy. Back.
Note 31: According to India's Company Act, acquisition of more than 10% must be approved by the current board of the selling company. In this case, only 9.1% was considered for sale, but still the current board thought it could veto the sale proposed by a previous promotor and managing director of the domestic firm. Back.
Note 32: The TNC in question has been operating manufacturing units in India, in the sector in question, even before India got its independence in 1947! Back.
Note 33: This ought to be qualified particularly with the increased inflows of multilateral funding through ODAs, etc. Increasingly local financial institutions are co-funding these schemes and environmental policies and practices are strengthened. Perhaps we can perceive new policy communities, for with respect to Asian Development Bank funded project as in the case of the proposed loan and technical assistance grant to the state of Gujarat to strenghten its resource management program. Back.
Note 34: Statement obtained in a meeting at CPCB on November 3, 1997.. Back.
Note 35: Statement obtained during a meeting on April 10, 1996. Back.
Note 36: Statement obtained during a meeting on November 3, 1997. Back.
Note 37: As stated by Dr. Sengupta, op.cit Back.
Note 38: As stated as Member Secretary Dilip Biswas, op cit. Back.
Note 39: Statement obtained during a meeting in on April 15, 1996 Back.
Note 40: which is the contrary to standard operational procedures of SPCB requesting a visit to control that the unit is operated in accordance with the license to operation, granted by public authorities. Back.
Note 41: Besides, a related question, not to be elaborated here, is whether these initiatives are compatible with India's industrial policy. Because as a predictable outcome of these initatives, the competitiveness of TNCs vis a vis local entrepreneurs is strengthened and local market shares are growing. In the name of environmental protection - through globalization strategies, new oligopolistic market structures are emerging locally in accordance with the global reach of the TNC. Back.
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