The Elusive Saviours

Chapter 3: Involvement in the international environmental problem

Prominent presence in environmentally sensitive sectors

Transnational corporations dominate and influence the larger percentage of total world production in many branches of industry. But their power is not visible in the statistics, as they are not listed as a separate category and exact data is scarce. Still, they:

influence at least a quarter of all production activities in the world, they are responsible for 70 per cent of the international trade in goods and 80 per cent of the total amount of land cultivated for export crops. <10>

Perhaps more important than the omnipotence of the transnational corporations is their active involvement in environmentally sensitive areas of industry, including mining, the chemical industry, heavy metals, wood/paper, agro-business and the petroleum industry. And much of the production is concentrated within a limited number of corporations.

Dominant industries in sensitive sectors

CFC's, one of the most important contributors to the hole in the ozone layer, are almost exclusively produced by large chemical concerns - most of which are transnational corporations. E.I. DuPont de Nemours and Co. alone was, until very recently, responsible for 25 per cent of the total world production of CFC's. The Treaty of Montreal agreed to slowly bring their production to a halt. (See also Chapter 7 of this book.)
The pesticide industry is strongly concentrated within a number of large transnational corporations. The 20 largest pesticide corporations control 94 per cent of the world market. There is also a high concentration of transnationals producing the various sub-groups of pesticides.
In the aluminium industry, the 20 largest corporations control 90 per cent of the - highly polluting - world bauxite production.
Consequently, transnational corporations are also responsible for a large number of environmental problems and not only those caused by industrial activities.

The share of transnational corporations in the total production (through human activities) of greenhouse-gases <11>

(We refer here to emissions which transnational corporations can influence, through their own or governmental measures.)

CO2: Approximately half of all carbon dioxide emissions caused by human activity. (The total of carbon dioxide emissions resulting from human activity: car emissions, OECD oil and gas use, half the OECD use of coal and half of the use of fossil fuels in developing countries)
Methane: Between 10 and 20 per cent of the methane emissions resulting from human activity. (The total of methane emissions resulting from human activity: half of the emissions in oil and gas production, and half of the emissions from coal mines).
CFC's: Approximately two-thirds. (The total includes aerosol sprays, air-conditioners, solvents, and applications in refrigerators in the OECD).
Other: Approximately half of the other gases, such as nitrous oxide and ozone. (The anthropogenic total corresponds roughly with the same categories of fossil fuel as by CO2).

Before we can estimate the degree of involvement, responsibility and liability of transnational corporations, we have to define what we mean by transnational corporations, and what we define as being influenced by them.

How far do involvement, responsibility and liability go?

This may seem purely academic, but it is not. How we define transnational corporation determines how we measure the involvement and liability of transnational corporations in environmental problems and, as shall be seen in other chapters, how responsible they are for environmental problems and what sorts of measures they should take to solve them.
Transnational corporations are often defined in terms of ownership: the transnational corporation as a concern with production and sales units in two or more countries. In this definition, because it owns the subsidiary, the corporation as a whole is responsible for the environmental effects of the subsidiary.
This definition is inadequate. In general the relationship is more than simply one of owner/subsidiary. The subsidiary is usually, in many ways, a part of the larger corporate whole. At the very least the subsidiary has a financial relationship and as well as a general policy relationship with the owner company and, depending on the specific structure of the corporation, the transnational activities of the subsidiaries are tuned, to a greater or lesser degree, to each other. Some transnational corporations even have complete vertical integration; all stages in the production chain - often world-wide - are centrally organized, from mining to production and trade. The more integrated the activities are within the corporation, the greater is the corporation's responsibility for the activities of its subsidiaries. Investment decisions which are taken in one branch of the corporation have, after all, repercussions for all the other sectors of the corporation.

Liability is an important aspect of the relationship between the parent company and its subsidiaries. Most countries grant businesses a limited liability status. Under limited liability, shareholders are not personally liable for company debts, and the parent company is liable for the contractual obligations of the subsidiary only if the subsidiary is a fully integrated part of the corporation. OECD-memberstates recognize the liability of the parent company for the obligations of its subsidiaries. They do not recognize the corporation's general liability for environmental or other damage caused by its subsidiaries. There are many other forms of responsibility in which liability should be recognized. The parent company should be seen as liable for the damage caused by its subsidiary if, for example, it did not exercise sufficient control over the subsidiary or did not supervise it adequately, if it did not warn it of known risks, or supplied the subsidiary with defective parts or products.

An equally prevalent but wider definition of transnational corporations looks at who controls what. This fits in more closely with the present trend of less direct ownership and more contracting out of segments of production, using a network of businesses for various forms of cooperation. The transnational corporation is seen as a central organization controlling production in a number of countries.
According to this definition, transnational corporations are characterized not by the relationship of ownership, but by control over production. They control numerous business activities without actually investing in them. Such companies are practically, but not formally, subsidiaries. If the transnational uses nationally operating subcontractors, these also become, according to this definition, part of the transnational. The effect of the subcontractors' activities on the environment bear per definition on the environmental practice of the transnational as a whole.
If we define transnationals in this way, the question of whether national companies cause less pollution than transnational corporations becomes unimportant. Both transnational corporations and local producers are involved in polluting and risky activities, but it is the transnationals who exercise control.
The specific way in which a transnational controls an operative can be various. Whatever the form, the relationship of control implicates the transnational corporation in more environmental problems than the size or involvement of the company-specific activities would suggest.

In this study we define transnational corporations as the sum of corporately controlled industries and services. We will discuss this in more detail in the following paragraph on key positions in the production column.

Key positions in the production column

Transnational corporations have subsidiaries or affiliates throughout the world, and have relations with suppliers and buyers. They extract natural resources from one part of the world and export semi-manufactured goods, manufactured goods and services to other parts of the world. They are a very important link in international economic traffic. In their strategic policy, transnational corporations continually assess their position in relation to the production chains in which they are active. A production chain or production column is a progressive series of steps or phases in the generation of a product. It begins with mining or agriculture and ends with the user.
Environmental studies have introduced the term life cycle, emphasizing that the lifetime of a product is not ended once the consumer buys it, but continues on through to the waste phase, where it is dumped, burned, flushed or recycled. The vertical integration strategy is used in some chains, while others opt for horizontal concentrations and still others for acquiring key positions. In all these strategies, the corporate aim is to build and maintain its position of dominance in the chain of production. As a result of this power, transnational corporations play an extremely important role in international trade and, in almost all parts of the world, they are an extremely important party in national and regional economic development processes.

Economic power and vertical integration in the aluminium industry

Twenty large corporations dominate the world's aluminium industry, among them Alcoa, Alcan, Reynolds, Maxxam, Péchiney, Norsk Hydro, VIAG/VAW, Alusuisse, RTZ, INI and EFIM. These transnationals owe their tremendous economic power to the vertical integration of their production chain. The corporation is not, however, equally visible in every link of the chain.

Bauxite mining

The large corporations own concessions on no more than 30 to 40 per cent of the known world bauxite reserves. In absolute terms, however, the largest concerns, including Alcoa and Alcan, have very sizeable reserves. They can decide for themselves whether, and to what extent, they will mine these concessions. The bauxite reserves of these corporations are found in the countries with the largest bauxite supplies, including Australia, Guinea, Guyana and Brazil. They combine operations in a variety of ways with smaller aluminium companies, forming mining consortia. As a result, the aluminium corporations are able to negotiate very positive mining terms in each of these countries.

Alumina production

The corporations can not only decide for themselves when and where they mine their own bauxite concessions, but also have a large hand in the next link of the global supply chain: the production of alumina. Eighteen corporations own almost 90 per cent of the western world's alumina production. These same eighteen corporations are involved in bauxite mining.
With this scale of alumina factories and concentrated ownership, the corporation knows with every new mine it opens exactly who will buy the bauxite and how much they will buy. Conversely, in opening a new alumina factory or expanding the capacity of an old one, the corporation always knows which bauxite it will be processing.

Aluminium production

A mere 20 corporations control almost three quarters of the world's aluminium production. Most of them are actively involved in bauxite mining and alumina production. From the late seventies and throughout the eighties, more and more smelters were constructed in Third World countries, while investments increased in Australia and Canada. Brazil, Venezuela and Indonesia became the most important countries for new investment, together with the Middle East, Qatar and Bahrain. The price paid for electricity is one of the most important determinants in the choice of where to situate a smelter. Most of the production of these smelters is for export to traditional user areas - the United States, Europe and Japan. The smelting capacity, particularly in these export countries, will continue to grow.

Manufacturing to semi-manufactured and manufactured products.

The first step towards manufacturing the final product - casting (alloys), moulding, extrusion and rolling - is almost entirely in the hands of corporations which have their own smelting capacity.
In the second stage of manufacturing, from semi-manufactured product to manufactured product, the aluminium producing corporations are strongly represented only in certain business segments. The corporations are actively involved in a number of existing, highly valuable applications, such as specialized extrusion of profile mouldings, the production of aluminium plate for drinking cans, construction materials, etc. The corporations are also actively involved in new applications, such as ceramic products, aluminium-synthetic composite materials, and alloys. Market growth in this sector is primarily determined by the technological development of the products. The corporations invest tremendous amounts in research and development, and promoting the applications of the new products.

Because transnational corporations have powerful economic positions in polluting and high-risk production areas within production chains, they are important on two accounts. They are a link between economic development and underdevelopment, and between economic and ecological problems. Transnational corporations embody, as it were, in their worldwide activities, an important part of the relationship between development, underdevelopment and ecology. In other words, between wealth, poverty and environmental problems.

It will be clear that sustainable development has everything to do with the doings of international concerns. Without transnational enterprises there will be no sustainable development. That seems unquestionable. The controversy over their role concentrates on the question of whether the corporations are willing and able to take their own responsibility or whether they should be forced into acceptable environmental behaviour. Many aspects of the international activities of the corporations influence sustainable development. One of the subjects of discussion is the freedom of the international concerns in their choice of location of (environmentally polluting) investments and the international movement in the environmental problem which will result. The following chapter will deal with this in more detail.

Summary

The extent of the involvement, responsibility and liability accredited to transnational corporations depends on the way they are defined, and what one means by being influenced by transnational corporations. These business entities are prominent in environmentally sensitive sectors of the economy, such as mining, chemical production, heavy metals, wood paper, agro-business and the oil industry. A large segment of the production is concentrated within a limited number of corporations. Because transnational corporations are in positions of economic power in production chains which include polluting and high- risk production areas, they form an important link between economic development and underdevelopment and economic and ecological problems even when they do not exercise actual ownership at all stages of production. Thus, they can be held largely responsible for environmental problems in many chains of production.

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