NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Since the anti-globalization movement burst into the mainstream during the WTO Ministerial Conference of 1999, multinational corporations (MNCs) have come under increasing scrutiny for their business practices in developing countries. The debate has often centered on whether MNCs and globalization contribute to poverty or help to eliminate it. A more appropriate question may be whether or not MNCs can (and should) contribute to poverty alleviation, and if so how?

In a two-part series, Harvard professor George C. Lodge and International Finance Corporation economist Craig Wilson argue that multinational corporations (MNCs) have contributed enormously to reducing global poverty.

According to the authors, “MNCs exist to provide value for their shareholders, but are also in a position to serve as driving engines of social change, even in countries troubled by corruption and mismanagement.”? They argue that “the reduction of poverty depends on the growth of business, especially small, domestic businesses. And increasingly for a local business to flourish it must have access to the world: to markets, credit, and technology, all facilitated by MNCs.”? They also maintain that “poverty reduction requires systemic change, and MNCs are the world’s most efficient and sustainable engines of change.”

Nextbillion.net provides a number of examples of how MNCs are contributing to poverty alleviation while still making a profit. Lodge and Wilson propose that such successful models serve as the basis for the creation of a new institution, the World Development Corporation, which could harness the capabilities of MNCs to confront global poverty while at the same time reviving their legitimacy and maintaining shareholder value.

“Assisted by rich governments and by loans from development banks, the WDC would bring to impoverished areas technology, credit, access to world markets, and management know-how. Its projects would need to be subsidized at first but should become profitable in the long run. This last element is critical, for there is not enough charity or taxpayer money to make a sustainable difference; only the profit motive can do that.

“Rather than merely applying superficial aid, the WDC, with its varied and integrated capabilities, would work to change the very system that has caused poverty in poor countries in the first place. Here again the profit motive would come into play. The WDC would not only provide jobs and raise incomes, it would also improve education by giving individuals a new motivation to pursue it.”

It’s an interesting proposition, one that was first proposed by Lodge in Foreign Affairs in 2002. The same piece gives additional details on the steps to establishing the WDC, and provides further supporting evidence of its potential viability. The authors develop these thoughts further in their book, “A Corporate Solution to Global Poverty: How Multinationals Can Help the Poor and Invigorate Their Own Legitimacy,” to be published in March 2006 by Princeton University Press.