The Political Economy Of The Multilateral Agreement On Investment
Alan M. Rugman

Analysis of the NGOs Role in the MAI

This brief description of recent events portrays a gulf between the environmental and self-serving agendas of the NGOs and the economic reality of global business. What analysis can be used to explain this dichotomy? Two theories will be considered. First, there is a traditional divide between the redistributional/equity concerns of NGOs and the economic/efficiency drivers of business. Democratic governments in Western economies have been able to balance these dual concerns when they embed different weights to these goals in their political platforms, giving voters the ultimate say in the direction to be followed. Recently, this has not worked as NGOs are operating outside of democratic political representation.

For example, having failed to influence the Liberal Party of Canada, (now the Canadian government) Maude Barlow has chaired the Council of Canadians as it performs as a self standing political unit. In the 1993 federal election the Council supported the economic nationalist party led by Edmonton publisher Mel Hurtig. In that election, despite fielding a national slate of candidates, Hurtig's party secured less than one percent of the total popular vote. Yet this complete rejection of the economic nationalist platform of Hurtig and the Council of Canadians (including its opposition to NAFTA) was ignored by Maunde Barlow's Council of Canadians. It has continued with a nationalist agenda even though it is divorced for the party platforms of all of Canada's major political parties. Similar unrepresentative, and politically unacceptable, behaviour is undertaken by most U.S. and European NGOs. Whereas the labour movement and business group link directly to political parties and have their agendas directly voted upon in elections, most NGOs are scared to face the voters. Yet their unrepresentative views gain vastly disproportionate influence in the media.

Complementary to the undemocratic nature of NGOs, especially in their biased understanding of international trade and investment, is a second failure. This is an intellectual failure of academic theory in which the twin basic paradigms of economics and polities are found wanting as explanations of today's global economy and the nature of foreign direct investment (FDI). In economics, the traditional efficiency-based neoclassical paradigm (with its associated theory of comparative advantages and the overall country gains from free trade) is unsuitable as an explanation of FDI. Despite the efforts by international business writers over the last 30 years to develop a modern theory of the multinational enterprise, most economists are unable to take on board this explanation of the reasons for FDI, Rugman (1996). As a consequence, the GATT and WTO have developed institutional frameworks to deal with the "shallow" integration of tariff cuts, but have failed to deal with the "deep" integration of FDI.

Related to the out of date economics paradigm of free trade is the political science focus on the nation state. Despite minor modifications to nation state paradigms, for example, to incorporate subnational units in decision making, there is a limited buy in to the alternative International Political Economy (IPE) viewpoint first popularized by Susan Strange (1987). Indeed, there is another unfortunate parallel between economics and political science in that both sets of work on the role and power of the MNE have failed to change the out of date thinking of the majority of academics, despite the abundent evidence of the relevance of MNEs and the global economic and political systems of today. Into this vacuum the NGOs have slipped with their simplistic view of MNEs as big, bad and ugly. Based on prejudice rather than evidence the NGO thinking is now more influential with government in North America and Europe than is the more scientific (and thereby more qualified) work of serious academic scholars working on MNEs, Ostry (1997).

The issue here is one of process. There is an "administrative heritage" of ideas. Today's media are poorly trained in economics, politics and international business. Those few who have any training are usually victims of the out of date paradigms of traditional economics and political science, which cannot explain FDI and the MNEs. The MBAs of business schools, who are now exposed to the new thinking on MNEs, are in business rather than the media. The professional intermediaries, such as management consultants, have a focus on their business or government clients rather than the media and their very skills of confidential advice and inhouse retraining make them poor advocates in comparison to the pessimistic and opinionated NGOs. Finally, the civil service is totally useless in dealing publicly with NGOs as bureaucrats attempt to support and influence ministers rather than entering into the public forum. This institutional failure of academics, consultants and bureaucrats to prepare a credible case for the MAI and be able to debate it publicly leaves the field open to NGOs.

Although the NGOs can be credited with the defeat of the MAI the real reason for its delay lies elsewhere. Even with the high profile activities of NGOs in 1997 and 1998 the MAI would likely still have been concluded at the OECD if one country had its act together. This, of course, is the United States. The right of the U.S. Congress to pass trade laws and the corresponding current lack of power of the President to negotiate international trade and investment treaties is the real explanation for the delay of the MAI. The failure by the President to obtain "fast track" negotiating authority from Congress in Fall 1997 (for a free trade area of the Americas, but also for a future round of the WTO, and for an MAI) was the single most important reason for the failure of the MAI. Into this vacuum the NGOs were able to step and steal the agenda.

Without the full commitment of the United States to champion a trade or investment agreement, there is little hope of success, as is demonstrated by the MAI process. All countries will be lobbied by various producer groups to exempt certain sectors from national treatment (e.g. cultural industries for Canada and France). To broker an international agreement the full participation of the United States is vital as it is still the only country powerful enough to pull along other countries rife with internal dissent and sectioned interests. Yet while President Clinton pushed through NAFTA in 1993 he has been unable to assemble a coalition to follow any free trade and investment liberalization initiatives since.