The Impact of MNEs and FDI on Aspects of Working Conditions as Contained in the ILO 1977 Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy

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Abstract

This article reviews the literature on the impact of multinational enterprises (MNEs) and foreign direct investment (FDI) on employment and identifies the significance of this research, and where further research is required. It proposes that further research is needed, in particular, in the area of EEO and pay equity; the comparative effect on emerging economies, particularly the demand for skills and the impact on skills or training and knowledge transfer; minimum age of work and child labour; and the impact on industrial relations in general.

Introduction

This article is based upon a report commissioned by the ILO on the impact of multinational enterprises (MNEs) and foreign direct investment (FDI) on aspects of working conditions as included in the 1977 Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy1. The article takes the form of a review of existing literature from 2007 up until the end of 2010. Sources that were relied upon for information on FDI flows and incidences and characteristics of MNEs were the websites of the OECD and UNCTAD, although other organisations' reports were also consulted i.e. the World Bank, IMF and World Trade Organisation websites. The sources for academic research were through two electronic databases: Google Scholar and Business Source Premier (EBSCO). The terms MNEs, multinationals, TNCs, MNCs, FDI and export zones were all used as search terms, reflecting the range of terms used in the literature, along with the key terms associated with each area of the Declaration. The review is limited by the time period covered, however, this period is one in which increasing interest in MNEs has occurred and, therefore, the review does illustrate current research interests in the field as well as areas that need further development.

The Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy was introduced ahead of its time, well before current discussion of corporate responsibility. In part, because of this, it was controversial and took about 10 years to be formed and agreed on. The aim of the Declaration was to to encourage positive contribution of MNEs to economic and social progress through cooperation with tripartite partners. As detailed in Figure 1, the 1977 Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy has four main sections of Employment, Training, Conditions of Work and Life, and Industrial Relations.

MNE actions and FDI flows are playing increasingly important roles in employment worldwide. Since the introduction of the Declaration "the numbers of multinational corporations... has increased nearly eightfold from 11,000 in 1976 to 79,000 in 2007 and foreign direct investment (FDI) stocks almost threefold" (Royle, 2010: 249). MNEs employ about 77 million people globally, accounting for about three percent of the global workforce (UNCTAD, 2009a; OECD, 2009b).

Most of the FDI in the OECD countries peaked in 2007, with developed countries being the most impacted by the economic crisis. MNEs are further shining their focus to developing countries for outgoing FDI. Inward and outward FDI is changing, with India and China becoming more significant countries. It has been predicted that China will come out of the current global financial crisis a more significant country in the global economy, and that its outward FDI flow will soon exceed inward FDI (OECD, 2009a). These statistics are particularly interesting in light of the information in the following sections that indicate that MNEs operating in emerging economies such as China and India commonly base their working conditions on the host country, which often has lower regulated conditions than the country of origin. It will be of significance for future trends as the importance of MNEs from these same emerging economies grows. That is, emerging economies influence the lowering of working conditions in MNEs already, as host countries, and this influence might become stronger as they increasingly become the home countries of MNEs. …