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UN GLOBAL COMPACT PROMISES TO MAKE GOOD CITIZENS OF MULTINATIONALS AND PROTECT DEVELOPING NATIONS

Slovaks eye benefits, pitfalls of globalisation

"For Slovakia, globalisation is an inevitability," says Greenpeace's Ľubica Trubíniová. "We want to work with foreign investment to reach a higher level of economic and social development, but there are dangers."
Trubíniová's words echo a feeling that has been growing in Slovakia and across the world. As multinationals begin to lay foundations in states making the transition to free market capitalism, the fear has arisen that an irresistible 'globalisation' of business will leave immature economies at the mercy of ruthless corporate practices.
In Slovakia, the rush to embrace capitalism has indeed brought some pain. Since its overnight adoption of a free market economy 10 years ago, the country has had to deal with new problems such as unemployment, corrupt privatisation, organised crime and homelessness - phenomena that arguably are an inseparable part of the transition from a command to a market economy.


A cyanide spill which contaminated the Danube River earlier this year reminded the inhabitants of central Europe that responsible corporate behaviour could not be guaranteed without the cooperation of multinationals themselves.
photo: TASR

"For Slovakia, globalisation is an inevitability," says Greenpeace's Ľubica Trubíniová. "We want to work with foreign investment to reach a higher level of economic and social development, but there are dangers."

Trubíniová's words echo a feeling that has been growing in Slovakia and across the world. As multinationals begin to lay foundations in states making the transition to free market capitalism, the fear has arisen that an irresistible 'globalisation' of business will leave immature economies at the mercy of ruthless corporate practices.

In Slovakia, the rush to embrace capitalism has indeed brought some pain. Since its overnight adoption of a free market economy 10 years ago, the country has had to deal with new problems such as unemployment, corrupt privatisation, organised crime and homelessness - phenomena that arguably are an inseparable part of the transition from a command to a market economy.

On the other hand, Slovakia has so far managed to protect itself against the harsher potential effects of 'globalisation' - the environmental devastation seen in Latin America and Africa, the sweatshops of South-East Asia and human tragedies such as the infamous 1984 Union Carbide leak in Bhopal, India.


Environmentalists are still angry at the government's decision to raze 1,200 hectares of forest near Bratislava to make room for an industrial park for investors. Too often, they say, the environment plays second fiddle to FDI.
photo: TASR

But as the cabinet continues to woo foreign investors, some Slovaks are wondering what kind of impact these new firms will have on their country, and how their government can protect both the environment and the labour force against free market pressures.

Part of the answer was supplied in New York on July 26, when some of the world's corporate titans bound themselves to a UN initiative - the Global Compact. Proposed one year ago by UN Secretary General Kofi Annan, it calls for companies to adhere to nine principles in the spheres of human rights, labour and the environment, and to post their progress in doing so on a specially designed website each year (see chart, back page).

Designed as a safeguard for developing countries like Slovakia, the UN Compact aims to seed multinationals with the values many societies share, as well as a sense of accountability for upholding those values. In this way, the Compact hopes the possible ills of globalisation will be prevented rather than have to be cured.

"If you have a global market you need to have broadly-shared values, which is what this is about," said Kurt Sauvant of the United Nations Conference on Trade and Development.

"Slovakia has to remain aware of the benefits and pitfalls of large new companies and investments. Every country of course wants to emphasise the benefits this [investment] has, and to cut out the bad aspects of it. But an eye has to be kept open to this process."

Problems with capitalism

Countries such as Slovakia that are making a transition towards democratic and free market practices are often seen as vulnerable to the ill effects of globalisation because they lack the social and legal safeguards common to more developed nations.

The economic and social effects of Slovakia's leap into capitalism have indeed been stark. Unemployment, an impossibility under communism, now runs at 20%, with regional disparity exacerbating the problem. The service sector-oriented capital, Bratislava, has a jobless rate of 6%, while other regions reach as high as 30%.

The absence of job and wage security has had a major impact on society, particularly on family relations, which have become strained as the younger generation adopts a new lifestyle and attitudes, and moves away from home to find jobs. "The most important change Slovak society underwent was opening up to capitalism," said Darina Malova, sociologist and lecturer at Comenius University in Bratislava. "Society used to be based on close family and friendship ties, and some people just couldn't adapt to the sudden changes that capitalism brought. The older generation had problems with managing these changes, but the younger ones can handle it better."

Juraj Zamkovsky, of the NGO Centre for Environmental Public Advocacy, has studied globalisation and its effects on Slovakia, and says that with the growth of private enterprise and corporate culture in this country, people were forced to deal with new, harsh economic realities.

"Poverty has increased quite substantially over the last 10 years. There are now many more people below the poverty line. Globalisation has thrown up so many negatives," he said.

Tim Wall, of the UN's Development and Human Rights Section in New York, explained that in a state like Slovakia, protecting people from globalisation depended on two actors - the government, in setting and enforcing the rules of the game, and corporations, in agreeing to comply. The Global Compact, he said, was a signal that companies were now more ready than ever to cooperate.

"This [the Compact] is almost like adding an extra safeguard [in a transitional state like Slovakia]," said Wall. "We see it as encouraging a degree of corporate responsibility. But at the same time, it is in no way there to supersede natural laws, and is not a substitute for the government."

The government's role

The job of forcing huge firms to adhere to ethical practices is clearly easier in mature democracies with established legal and constitutional back-ups than in states like Slovakia, where public sector corruption is rife and laws vital for transition, such as those on money-laundering and bankruptcy proceedings, are delayed because of political bickering.

Government figures argue that they are working on bringing Slovakia's legislation into line with that of the European Union prior to its hoped-for entry to the bloc in 2004, and that the necessary safeguards are now being put into place to stamp out any kind of rogue business practices.

"The anti-monopoly office is working. The government is discussing a new anti-monopoly law and the situation will then become even better. Slovakia has very good laws on environmental pollution [perpetrated by firms]. This is very important for us," said Vladimír Tvaroška, an advisor to Deputy Prime Minister for the Economy Ivan Mikloš.

But the government's critics are equally convinced that not enough work is being done on legislation to soften the impact of globalisation.

The NGO sector's Zamkovsky, for his part, claimed that the dictates of international economic institutions had been readily adopted by the government, but that little thought had been given to the impact many structural reforms have had on the nation's development.

"There is certainly not enough in Slovak legislation to stop the negatives of globalisation. We need laws that will allow the public to get involved in major decisions. Any proposed industrial policies need input from the public," he said.

Zamkovsky added that in the face of the growing power of corporations, much more legislative protection had to be afforded for the secure development of the country.

"If you look at the building of industrial zones in [western Slovakia's] Malacky and the Volkswagen plant just outside Bratislava, the questions is why? If the aim of FDI is to boost employment in regions, why do all this in an area where there are few employment problems, and which is one of the richest in the country?

"Globalisation can be managed here, but it needs legislation. There will definitely be more problems for Slovakia as globalisation comes upon us. Once the economy of a weak country is opened to the world there are dangers. The economies of the rich nations were once very closed before they became powerful. We should take a lesson from that," he added.

The international example

With the almost complete 'victory' of capitalism over communism across the world in the past decade, and with the difficulty many countries have had adopting free market practices, the spotlight has in recent years been thrown on the responsibilities corporations bear towards the countries in which they operate.

Domestic corporate practice in Slovakia, still in its infancy, has been identified in many official reports and studies as dubious, with asset stripping and fraud widespread, and political cronyism, illegal privatisation deals and public sector corruption adding to the mess.

In such an environment, the multinationals operating in Slovakia such as Volkswagen, Sony and Whirlpool can play a lead role in fostering a new, more responsible corporate culture.

For telecoms giant Ericsson, that role has already, the company says, been recognised.

"Like all large companies we have a certain leverage in a country [to try and impose certain business standards]," said Lars Stalberg, spokesman for Ericsson. He added that the company's own 'corporate citizenship' programme had been carried over to the Global Compact agreement and that, as in other countries, Ericsson's Slovak operations would centre on adhering to the principles in the Compact.

"We not only make sure that all our own local operations are sound, but we will call on our local suppliers to engage in the Compact as well and adhere to those same principles," he explained.

Another global giant and Compact signatory, Unilever, is also ready to implement the principles of the agreement. The company has been active in central Europe since the fall of the Iron Curtain, and has been operating in Slovakia since 1993. The firm says it has already introduced practices more stringent than required by local legislation.

"Unilever in both the Czech and Slovak Republics is already compliant with EU environmental laws, which themselves are far more stringent than current local legislation. Our share of senior women managers is significantly above the Czech and Slovak averages," said Ladislav Červenka, spokesman for Unilever Czech Republic.

The company has also, it says, always followed a strict employment policy towards minorities, something stressed in the UN's contract. "We operate in 90 different countries, and in each there will always be minorities employed. It's company policy. We appoint people on the bases of their skills and qualifications, nothing else," said Mike Haines, press spokesman for Unilever at their London headquarters.

The role that global conglomerates have in shaping a transitional state, is, sociologists argue, a dual one. Grigorij Meseznikov, a socio-political analyst and head of the Institute for Public Affairs (IVO) in Bratislava, explained that firms like Ericsson and Unilever can foster better work ethics as well as hasten economic development.

"These big western firms won't just contribute to the economy, but they can also motivate local firms and people to do a better job, to bring in a new kind of corporate conciousness," he said. "There are some complex moments in any transition, but in general, with legislation and particularly with corporate legislation, Slovakia is going in the right direction."

Multinationals can also help make a country's business culture more sophisticated, according to Comenius University's Malova. The social prestige of working for a large western firm, Malova explains, is creating an important new identity in Slovak society. "The impact of globalisation really depends on the business identity it creates. Many people who go to work at Volkswagen's plant [in Devinská Nová Ves just outside Bratislava - Ed Note] see their work as a kind of individual promotion, a mark of prestige," she said.

"It's a positive aspect of globalisation that when western firms come into Slovakia and employ locals, these workers may be losing a degree of national identity, but are getting a new cultural identity," Malova added.

The threat to labour

One of the main reasons multinationals are attracted to countries like Slovakia is that the cost of labour is far lower than in the West. Striking a balance between using cheaper local resources and paying fair wages has been an ethical conundrum many western firms have had to deal with as they push operations into developing nations, and has become a rallying point for the opponents of globalisation.

But in Slovakia, union leaders remain focused more on problems with domestic firms, as well as on fighting the government for wage hikes, than on the exploitation of skilled workers by foreign companies. As well they might - a study performed this year by human resources firm Lugera & Makler of the salaries attached to 41 different business occupations found that international companies paid on average almost twice as much for the same work as Slovak companies (31,161 Slovak crowns monthly vs. 16,382), while even unskilled workers earned more with foreign firms (8,100 crowns a month) than with local employers (6,200).

However, the steady influx of western firms as the Slovak economy begins to move forward still poses questions about corporate responsibility. Eva Polkova, advisor for labour and legislative relations at the trade union umbrella group KOZ, said that the move toward the European Union was the only real legislative security for workers against exploitation.

"Preventing wage exploitation is something that is included in a special sector in Slovakia's labour code and which has been approximated with EU legislation. But really the only thing the government can do to protect workers wages is to raise the minimum wage. In the end, it's up to the employer to ensure fair wages and the protection of workers," Polkova said.

Managers at Ericsson said that their approach to local labour forces was consistent with the spirit of the Global Compact.

"The general regulations [in UN rules and international law] do not get to the level of local wages, but if you were to pay people virtually nothing and exploit them, then that would obviously be a breach of the kind of agreement [in the Compact]," said Stalberg.

Economic analysts said that critics of globalisation had to remember that while multinationals were not paying what they would for western labour, one had to take into account other factors such as differences in the costs of living as well as the economic spinoffs that FDI brought.

"Yes, it is true that some larger western firms are paying lower wages than they would do in Western Europe, but at that same time they will often be paying wages that are far above the average wage in the local market," said Radek Jac, an analyst at Commerzbank Capital Markets in Prague. "One also has to remember that quite simply the cost of living in central Europe is still much lower than in somewhere like London, and that as EU accession states, of which Slovakia is one, progress towards membership, wage levels should increase step-by-step."

Unionist Polkova added: "My personal feeling is that foreign companies are certainly benefitting from using Slovak labour, but at the same time we at KOZ have not received any complaints from Slovak workers at foreign firms and everybody there gets their wages on time."

Environmental concerns

One of communism's most damaging legacies in central and eastern Europe was the pollution the drive to fulfill numerous ten and five year industrial production plans left behind. A walk through the Krkonose mountains on the borders of Poland and the Czech Republic gives visitors a glimpse of the scars that industry left on the region's environment. But the catastrophic cyanide spill in Romania that devastated life in a large section of the river Danube in February this year was a reminder that poor corporate environmental behaviour is far from only a communist phenomenon.

High-profile natural disasters are something the UN Compact seeks to stamp out. By forcing the signatories of the agreement to make their environmental policies public, the Compact should, at least in theory, push multinationals to help secure the saftey of a country's environment.

But not everyone is so sure that this kind of agreement would improve environmental protection in Slovakia. Greenpeace's Trubiniova said that it was the government, rather than foreign investors, which was the main environmental offender. In its rush to get investment into Slovakia, she said, cabinet often disregarded the environmental impact of large investment projects. The construction of an industrial park in Záhorie, where 1,200 hectares of forest were cleared to make way for investment projects in the face of Environment Ministry objections, still rankles with environmental groups.

"Most of the government only sees the economic benefits of large investment projects and pays no attention to these environmental issues," Trubiniova said. "Generally, there are not enough legal safeguards, and in this country the environment is not taken as seriously as it could be in other places. Often, in fact, it's the last thing that is thought about."

She added that it was this very attitude that necessitated further safeguards against globalisation.

"Slovakia is in a kind of schizophrenic state. The government doesn't pay enough attention to the future dangers of globalisation, which it sees as a balance to the economic deformations of the past. There is a wish to repair the economic situation and basically any investment of foreign capital is welcomed here without paying much attention to the conditions of that investment. The laws here are still in such a basic shape that in the process of their reform, the environmental aspects of many new laws are not completely thought through, especially concerning the liberalisation of some sectors," she added.

"There need to be more legal safeguards in place before globalisation takes hold in Slovakia."

However, the government has denied any lack of concern over environmental issues.

"Environmental protection is very important for us. It's not just important when considering a new investment, but it's important for everybody living in Slovakia," said Tvaroška.

The UN, meanwhile, remains convinced that while it cannot legally force companies to abide by the Compact even after signing up to it, the inherent transparency in the agreement has an added weight that will make companies think twice before back-sliding on any commitments made.

"This [the Compact] carries the additional weight of internationally agreed principles and standards [in the corporate sphere]," Wall said. "The UN can't hold anyone accountable for failing to stick to these principles. But a website on which these companies are supposed to post their progress has been created and will be available for labour organisations and other [NGO] groups to look at and monitor. It will all be visible."

"We are counting on the public display effect of it."


THE COMPACT'S NINE PRINCIPLES:


HUMAN RIGHTS

  • 1. Businesses should support and respect the protection of internationally proclaimed human rights; and
  • 2. make sure they are not complicit in human rights abuses

LABOUR

  • 3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining.
  • 4. The elimination of all forms of forced and compulsory labour
  • 5. The effective abolition of child labour
  • 6. Eliminate descrimination in respect of employment and occupation
ENVIRONMENT
  • 7. Businesses should support a precautionary approach to environmental challenges
  • 8. Undertake initiatives to promote greater environmental responsibility and;
  • 9. encourage the development and diffusion of environmentally friendly technologies

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