There can be no doubt of BP's culpability and financial responsibility for the ecological disaster in the Gulf. But as I watch and read the press coverage, and even in conversations with acquaintances, I hear an unfocused attack on large multinational corporations (MNCs) in general. It's nothing new, and it's regrettable.
I was employed by an MNC for 24 years. Having served in a variety of middle-management roles, managing staff on five continents and dealing with customers across the globe that themselves were MNCs, I can say with confidence that MNCs do not deserve most of the attacks they receive.
Next week I'll respond to the most frequent criticisms of MNCs, but in this post I’ll make the case that MNCs uniquely enhance our lives in several ways.
My first example is cellphones. We consider them indispensable. Worldwide there are 4 billion cellphone subscribers -- over half of the planet’s population. The expense of installing traditional copper cables had precluded most of the third world from receiving telephone service until cellphone technology became available.
Cumulative investment in research and development of cellphone technology is on the order of $15 billion. Without this investment, cellphones as we know them (and can afford them) would not exist. Who made these investments? Not governments, and not the telephone companies. Rather, the investments were made by a handful of MNCs who produce and sell cellphone infrastructure across the world.
Two guys in a California garage – the paradigm of Steve Jobs and Steve Wozniak founding Apple Computer – could not have developed this cellphone infrastructure. Even the first-generation of cellphones required a nine-figure R&D investment. MNCs have the financial resources to make these investments, and MNCs have the global reach to win enough customers for ten-figure investments to generate the necessary profits.
Another example of massive investment by an MNC is Boeing, which spent $10 billion to develop the 787. (This sum excludes the investment of engine manufacturers, who are also MNCs.) Offering increased fuel efficiency and passenger comfort while decreasing noise, the 787 is far superior to the 767 and similar aircraft that it will replace. Only by selling 787s to airlines worldwide – some of those airlines being virtual MNCs themselves, like British Airways – can Boeing get an adequate return on its investment.
Direct investment to produce a single product, however, is only one modus operandi whereby MNCs uniquely drive innovation. Another is playing the odds. A pharmaceutical MNC can afford to invest in ten investigatory drugs, only one of which will actually succeed; the MNC knowingly absorbs its losses on the other nine. An insurance MNC can afford to underwrite coverage in many parts of the world, knowing that a natural disaster will inevitably arise somewhere in the world each year.
And at the risk of being inflammatory in the current context, let me say that a “big oil” MNC can afford to explore for petroleum repeatedly in many places, knowing that despite the best geological research, only one test well in ten will ever produce oil.
Most MNCs, although not all, provide jobs with fair salaries and good benefits. The majority of those jobs remain in first-world nations, but MNCs have migrated considerable wealth into second-world and third-world nations. Also, MNCs provide investment opportunities around the world that are widely considered to be safer than the securities of individual countries. Ask yourself, if you were a citizen of Greece, would you prefer to hold bonds issued by the government of Greece or the bonds of Coca-Cola or IBM? Securities of MNCs stabilize the global economy by insulating investors – including pension plans – from the vagaries of currency exchange rates and regional defaults.
Hold your fire, please, with the common criticisms of MNCs. I’ll write about those next week. Some I agree with, but most I don't.
