3.4.2 Ethical issues



    There may be stakeholder conflicts due to the many different types of people that are invested in the actions of an MNC. One example of this is the shareholder model which means that profits need to be high. This means they may have to keep up with other firms which cut costs by employing cheap labour which means that less emphasis is put upon employees, the local community and the Government.


    This is seen in the principal-agent problem which can be linked to the asymmetric information. This is when the agent makes decisions for the principal, but the agent is inclined to act in their own interests, rather than those of the principal. Often, companies will get cheap energy through using coal to cut costs but will not take the environmental impact on the local community into account.



    There are significant ethical issues concerned with the poor working conditions and the exploitation of workers. This is especially seen as MNCs use cheap labour to cut their costs in countries where regulation and enforcement are weak. This means that they do not have to spend as much money on good conditions or wages. MNCs will prefer to also sub-contract to hide what they do. One extreme example of this was in Dhaka, Bangladesh in 2013 when a garment factory collapsed, killing over 1000 workers trapped inside.

    Often firms exploit workers to maximise their profits with little to no consideration of worker welfare. There is also controversy surrounding the use of child labour in cocoa farms and clothing factories. In the former it has been known for them to illegally employ trafficked children and force them to use dangerous equipment e.g. machetes.



    High and fast levels of economic growth may mean that production levels are high. This can use up natural resources such as coal, natural gas and oil. There may also be deforestation to build more factories and find more resources. Governments may try and implement laws to avoid depletion of their finite resources, but some companies may move production where laws are less strict which increases global emissions (may cause externalities such as inc. asthma). As well as this, if waste disposal is not regulated then companies may dump waste in local rivers etc. which has an adverse effect on the local environment and can impact citizens.



    Global brands have their expertise in marketing and product design so they will set up production subsidiaries in developing countries. Instead, they may subcontract work to unregulated independent businesses which creates a longer supply chain. They do this to pass on the blame. As well as this, they may use sweatshops and child labour as it will lower costs significantly. They exploit workers by denying them good conditions and forcing them to work long hours with little pay. Often MNCs are monopsonists in their markets which means that workers have little choice and must accept these conditions.



    Producers of tobacco products and baby milk have been targeted in developing countries as sales began falling in developed countries. Companies much be especially careful with how their goods are marketed, especially with goods such as tobacco which have significant social costs.


    In terms of product labelling, this can be misleading in developed countries e.g. ‘natural’ products are allowed to contain preservatives which can have negative consequences and product may not be as truthful or as healthy as advertised.


    Counter-argument à However, MNCs may pay better wages than local businesses and have CSR policies which do keep them in check. As well as this they may be paying low wages to survive in a competitive market where low prices are a necessity.


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