FDI and Corporate Patriotism

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If you read my post from a few days ago on CSR and the Greenpeace “Dirty Laundry” report, note that I’m about to reiterate some of the same themes. If this bores you to tears, you may wish to change the channel.

Still here? Excellent.

In that Greenpeace post, the problem was that some corporations were doing things that society frowns upon (i.e. doing business with polluters). But there are a lot of other things that corporations do that we don’t like, some of which are particularly painful during bad economic times. These include outsourcing and foreign direct investment (FDI).

Ralph Nader, who is a frustrated American populist, has written an Op/Ed chastising such corporate actions and calling on U.S. companies to be more loyal and patriotic to their home country. Nader laments that as American law continues to grant more and more rights to corporations (he cites the recent Citizens United case that confirmed that corporations enjoy free speech rights under the U.S. Constitution), there is no reciprocal sense of duty or patriotism from the business community.

Here’s a taste of his argument:

Instead of extending patriotic gratitude, large U.S. corporations increasingly are sending the opposite message. “We’re outta here, with your jobs,” their behavior says. Unfortunately, some CEOs appear to have no problem with dictatorial communist regimes like China or oligarchies like Mexico that know how to oppress impoverished workers. Workers in China cannot start independent unions or uniformly use independent courts to recognize their health, safety and economic rights.

Without getting into the merits of his arguments concerning FDI or China’s labor laws, what about Nader’s basic point? What do companies owe to their home countries?

Nader’s list of corporate “misdeeds” are compelling and numerous. These actions are definitely not helpful to American economic growth or the U.S. labor force. Closing a factory in Ohio and opening a new one in Sichuan might not be good, in the short run, for U.S. employment and GDP. I understand Nader’s frustration.

But his solution makes no sense whatsoever. A call for companies to be more patriotic? If I didn’t know any better, I’d think that Nader was joking. This is a guy who cut his teeth as a tough tort litigator and started the consumer rights movement in the U.S. I’m a huge fan of 1970s Ralph Nader.

Why is 1970s Ralph Nader such a laudable figure? Because he used to system to effect change. First, he used the courts to obtain compensation for folks who suffered losses from defective products. Second, he set up a lobbying organization that successfully moved federal and state legislatures to pass new laws protecting American consumers.

But now, when faced with other corporate acts he doesn’t like, Nader turns to patriotism? Granted, private lawsuits against companies that close factories or outsource manufacturing or services wouldn’t work. But whatever happened to Nader as lobbyist?

What happened is that whatever organization Nader still has at his disposal has zero power these days to effect change, and he knows it. I’m sure his first choice would be to have Congress close certain tax loopholes, alter incentives, and legislate a variety of restrictions on corporate behavior.

Congress, however, is not at all predisposed to do such things, and even politicians in the Democratic Party won’t listen to Ralph Nader these days, while the Republicans merely use him as the butt of jokes.

With no other options, why not patriotism as a motivator? For the same reason why I don’t like non-economic calls for companies to become more “Green” or be more philanthropic. Corporate behavior should be regulated by the government and not based on, or motivated by, vague moral concepts of philanthropy, environmental stewardship or, yes, patriotism.

Just to be clear, if a company wishes to act a certain way based on a moral position (e.g. Google), that’s fine, as long as this is disclosed to shareholders. If corporations wish to donate funds to worthy causes or to reduce their carbon footprints, that’s wonderful. But if they choose not to, particularly for business reasons, I’m not going to demonize them for acting in their own self interest. That’s what these entities were set up to do.

Patriotism as corporate motivator is a non-starter. If the U.S. doesn’t want a domestic corporation to move its factory to China, then it needs to provide sufficient incentives (i.e. money) to make it worthwhile for that company to stay home. Given wage differentials in the manufacturing sector, I don’t think the U.S. should be doing that sort of thing at all, because it cannot compete against China on price.

One final point. What about Chinese companies? Don’t they act out of loyalty to their home country when doing business? If Chinese companies do so, shouldn’t U.S. firms follow suit?

Short answer (this really deserves a stand-alone post): I don’t think Chinese companies are any more patriotic than their American counterparts. Look at Chinese food scandals, accounting fraud, bribery and other shenanigans and tell me that these companies are all about helping China and Chinese people. As far as FDI is concerned, I believe that most Chinese corporations would have no problem moving their factories overseas if the move was economically beneficial and they didn’t have to worry about government disapproval.

But that’s a topic for another day.

Getting back to the U.S., I feel sorry for Nader that he longer has friends in the U.S. Congress. Unfortunately, when it comes to the actions of U.S. corporations overseas, Congress is still the place where change needs to happen. Insipid calls for corporations, which are for-profit entities beholden to shareholders, to act out of loyalty or patriotism is just sad.

6 responses on “FDI and Corporate Patriotism

  1. Justin Liu

    “Why is 1970s Ralph Nader such a laudable figure? Because he used to system to effect change”

    Maybe he thinks the system is no longer responsive enough to effect the change that he wants to see. The liberal class of America (meaning those who effect progressive change within the system) is pretty well decimated.

    1. Stan Post author

      Decimated, or perhaps co-opted? Certainly the Democratic Party is not all that interested in progressive causes these days.

  2. Hemulen

    The point is not whether Chinese companies are more patriotic than US companies, but to what extent the Chinese government expects them to be patriotic and deliver economic growth at home. And I daresay that the Chinese government is quite adamant that Chinese companies should benefit China.

    1. Stan Post author

      Each country has a certain amount of leverage over its companies. In China, that power is significant. In places like the U.S., leverage is limited, and the government needs to influence companies much more directly, via legislation.

  3. Laurentius

    Nader can only ask the shareholders to be patriotic and sell their shares to the government at a fair price. Then these nice State Owned Enterprises can keep the jobs in the US. Any board that wastes profits should be fired. As long as outsourcing is legal and it increases profits the board has a sacred obligation to pursue such a strategy.

    It is not always nice but if you want to make a buck and you are a public company then by law you can be sued by your shareholders not to do it if you have the opportunity to do so. You are required to externalize as much costs as you are legally allowed and push them onto society and the environment. Our friends at Wallmart have been masters at this game and look what it brought their shareholders? Profits! Lots of profits. In a good old fashioned honorable capitalist fashion.

    This is the system we have been worshiping for the past centuries and unless society decides on radical changes e.g. more legislation to save jobs and raise the costs of goods (most unlikely) we have to live with it. Nader should not have taken that nap during economics 101

  4. Chris

    I still quite like Nadar, but agree with Stan, that the focus on outsourcing is a bit tired. Nader has published recent articles on tax frraud and transfer pricing that are much more interesting. Amazing how aggressive use of tax hazens and transfer pricing has massively lowered the tax bills of US corporate giants – Apple, Google, GE etc, where vast profits are still being generated in the US but the profits are being offshored. Tighter focus on this issue is much more patriotic.