INTL 260 2012Winter Research Paper: The role of multinational corporations in social and political issues in developing countries: a case study of Royal Dutch Shell in Nigeria

Xiaorui Huang
INTL 260 Culture, Capitalism and Globalization
Research Paper
Grade: 99/100

The role of multinational corporations in social and political issues in developing countries: a case study of Royal Dutch Shell in Nigeria

Introduction

Given the inadequate living conditions and often undemocratic administration, the relationship between local people and governments in developing countries has its inherent social instabilities. When investing in these countries, multinational corporations inevitably involve in this relationship and usually become powerful forces that bring dramatic change to politics and society in host countries. As external forces, multinational corporations are often labeled as trouble makers when political and social issues occur in local community after their investment. However, the issues usually result from the intertwined impact of both corporate investment and pre-existing political and social instabilities. Through the case study of Royal Dutch Shell in Nigeria, this essay intends to investigate how these two causes intertwine with each other and the exact influences of multinational corporations on local communities in terms of politics and society. To facilitate the case study, the first part of this paper uses a general analysis to introduce and explain concepts that are necessary to understand this topic. After that, the case of Royal Dutch Shell in 1990s in Nigeria will be examined in detail. A conclusion will then be drawn about multinational corporations’ influence on social and political issues in developing countries.

General Analysis: Multinational Corporations and Nation States

With Royal Dutch Shell and its subsidiary Shell Petroleum Development Company of Nigeria (SPDC) as the key players in the case discussed later, addressing the concepts of business corporations and particularly multinational corporations are crucial. According to the Encyclopedia Britannica, a business corporation is a legal entity established based on the laws of a state to conduct business (“Corporation”). In most of countries, corporations enjoy eternal lifespan with privileges and limited liabilities unless being dismissed by court or by shareholders voluntarily. Legal personality, limited liability, transferability of shares, and hierarchical management controlled by a board structure are four general characteristics shared by most corporations in the world (Kraakman, and et al 2). When a corporation expands its business beyond a single country, it becomes a multinational corporation. A multinational corporation is has its management headquarters in one country and operates in several other countries through subsidiaries (“Multinational Corporation”). With their enormous financial power and extensive regional or even global network, multinational corporations have great influence on economics, politics and societies of their host countries especially those less developed countries whose local governments are rather incapable of administration. In addition, western multinational corporations control the means of production that developing countries are unable to develop and operate independently.

         Other than corporations, nation state is the other key concept in this study. Nigeria, during both the previous military dictatorship and the later democratic federation, has build-in instabilities largely due to its multi-ethnic nature. The corrupted and injustice Nigerian government, having its influence intertwined with Shell on local political and social issues, can be seen as a manifestation of these instabilities. Therefore, understanding the concept and functions of nation state in the culture of capitalism helps analyze the role of corporations in the following case. A nation state is a form of political organization under which a relatively homogeneous people inhabits a sovereign state (“Nation-state”). The formation of a nation state usually involves the weakening or even elimination of diversity among and independence of various ethnic groups within one nation. In the culture of capitalism, governments of nation states generally monopolize the legitimacy of violence within its borders (Robbins 106-09). With the progression of globalization and expansion of multinational corporations and international financial institutions, power of nation state especially periphery countries to control their domestic economies is impaired (Richard 87-88).

Case study: Royal Dutch Shell in Nigeria

       With the understanding of multinational corporations and nation states, we can now proceed to case study about Royal Dutch Shell in Nigeria. Royal Dutch Shell (as Shell in following context), whose operations cover nearly the entire oil and gas industry as well as major areas of renewable energy industries, is the second-largest energy company in the world (Forbes). Shell Petroleum Development Company of Nigeria (SPDC) is the primary subsidiary of Shell in Nigeria that mainly focuses on oil extraction. It is the operating partner holding 30 per cent share of a joint venture of which Nigerian government owns 55 per cent (Boele, Fabig and Wheeler 75).  Except for several temporary leaves, Shell has operated commercial oil production in Niger Delta since 1958 (Bird and Herman 43), which was accompanied by continuing complaints from residence of Niger Delta about environmental damage, unfair share of profits by local community and Shell’s suspect collusion with Nigerian government military and police force in brutal suppression of protest (Douglas and Okonta 2; Boele, Fabig and Wheeler 80). This case study focuses on Shell’s operations in Nigeria during 1990s when the conflicts among people in Niger Delta, Shell and Nigerian government experienced its most severe step and received most international attention.

       Shell has been accused of causing and worsening various social and political issues in Niger Delta, among which the most infamous is Shell’s involvement in using Nigerian government military and police force to violently suppress protesters. According to John Vidal, confidential documents released in 2009 show that in 1990s Shell “regularly paid the military to stop the peaceful protest movement against the pollution, even helping to plan raids on villages suspected of opposing the company.” It is immoral and illegal that Shell appealed to violence to deal with the peaceful protests. However, these human right violations were caused by the Shell’s corporate power and pre-existing social instabilities in Nigeria combined. On one hand, frequent inter-ethnic conflicts and regional turmoil, and a civil war occurred in Nigeria during 1960s and 70s due to its loose nation bonding, several replacements of military dictatorship and complex ethnic composition (Bird and Herman, 36-37; Douglas and Okonta 15). Considering these historical unrest and associated poor public security that lasted for years, it was understandable that Shell requested that police and government military to protect its facilities. On the other hand, Nigerian government has been known as severely corrupted since its independence (Litvin 258). Military and police force were given orders by generally corrupted senior government officials from three major ethnic groups who benefited greatly in the disproportional distribution of oil production profits (Rashid 96). Based on the inherent ethnic conflicts mentioned above and the fact that protesters required more profit stay in local communities, it is likely that the then military government did not regard minority people in Niger Delta as fellow countrymen but alien others who might decrease these officials’ income. In addition, Nigerian law obliges that companies to pay police force used to protect their facilities, which means Shell have to pay salary to police protecting its installations (Litvin 260).  All three factors form the breeding ground of the illegal and unethical collaboration between Nigerian government and Shell to repress peaceful protest with violence.

The other influence brought by Shell in Nigeria is that it contributed to long-term maintenance of the military dictatorship. Since its independence from the United Kingdom in 1960, Nigeria had been ruled under military dictatorship for more than 30 years. Shell’s commercial operations continued throughout the military regimes except for several temporary suspensions. According to Daniel Litvin, since 1950s till late 1990s, Nigerian governments’ total revenue from oil export had gone beyond 290 billion dollars, of which Shell as the largest operator was responsible for up to 80% (257). In this sense, Shell was the primary financial supporter of several military dictators. Nevertheless, the inherent social instabilities in Nigeria also played an important part in this issue. Specifically, the c combination of loose multi-ethnic nation state and highly lucrative but geographically unevenly-distributed oil resources made military dictatorship highly probable if not inevitable. Before independence, Nigeria was established through British colonialists’ coercively uniting various distinct ethnics under one single political entity (Douglas and Okonta 15-16). No strong cultural and religious bonds exist. Therefore, in democratic federation, it was extreme difficult for these ethnic groups to reach a unanimous arrangement of oil profit distribution when every group wanted to maximize its share but oil reserves concentrated in Niger Delta. In this case, powerful military officials were very likely to emerge as dictators and control all domestic oil reserves. Dictatorship is undemocratic, yet, it facilitates Shell’s operations since the company only needs to deal with the rulers for access to oil reserves in the whole Nigeria. In return, Shell paid a significant part of profit to the dictators. Therefore, to some degree, mutual benefits existed between Shell and military dictators.        

The third issue that Shell involved in Nigeria is the social inequality between majorities and minorities groups in terms of income gap. Nigeria is the 8^th largest oil export country and its government has gained billions of dollars from its oil industry. However, according to World Databank during 1990s, around 80 per cent Nigerian people live under 2 dollar a day, and its GINI index was higher than 45, which indicates considerable income inequality in Nigeria. Both corporate investment of Shell and inherent social instabilities are counted for the income gap. Firstly, Shell generated huge profits for Nigerian governments. The major ethnic groups’ dominance of governments and the pervasive corruption caused that most profits generated in oil industry end up to be personal possession of elites of these groups. In other words, Shell indirectly helped increase the income of the upper class in Nigeria. Secondly, Shell’s production installations concentrate in Niger Delta, where many minorities groups live. While agriculture is the primary income source in Niger Delta, oil spillage and natural gas flaring, as side-effects of Shell’s operations, greatly polluted the residence, farmland and fishing creeks of local people (Douglas and Okonta 72-73). Based on its investigation in 1994, Greenpeace pointed out that Shell’s extensive aboveground pipeline network in Niger Delta frequently crossed farmland (qtd. Douglas and Okonta 77). The often oil spill from these high-pressure pipeline significantly degraded the productivity of farmland it went through. Although complaints and protests against pollution basically never ceased in 1990s, Nigerian governments were simply absent from the enforcement of environmental regulations (as specified in detail in the next paragraph), which indirectly connived Shell’s damaging local agriculture. Consequently, taking advantages of the mismanagement of governments, Shell’s operations decreased minority farmers’ income and impaired their self-sustainability. By increasing the income of upper class and decreasing the income of lower class, Shell, in the context of inherent environmental injustice between major and minor ethnic groups, enlarged the income gap and social inequality in Nigeria society.   

Together with Nigerian government, Shell also jeopardized the environmental justice in Nigeria. For Shell, it only operated in where oil reserve located but caused severely environmental damage. For the Nigerian government, it was dominated by major ethnics groups that not only benefit greatly from oil production but also largely exempted for the environmental damages as the major oil reserves located in land of minorities. In this case, government officials who barely lived with destructive environmental influence of oil production only focused on the profits. Given the pervasive corruption and mismanagement, governments tend to be reluctant to carry out and enforce environmental regulations. When spillage and other incidents occurred, local people reported to Shell but not the governments, even if they knew Shell often act sluggishly (Litvin 269-70). This fact indicates the absence of government in addressing pollution. Even after complaint about pollution from Niger Delta drew international attention, Nigerian governments rarely take actions to restrict eco-unfriendly operations of Shell. Thus, due to both Shell’s pollution and Nigerian governments’ incompetency, people from major and minor ethnic groups receive different treatment with regard to environmental regulations.

Other than worsening destructive issues, Shell was also partly responsible for its unsatisfactory community supporting measures. Shell claimed that more than $20 million was spent annually to support local communities and a new Community Programme Development Unit was established in 1997 by the company particularly to conduct community supporting projects (qtd. Boele, Fabig and Wheeler 83.). However, local people often criticize Shell’s effort of being ineffective and inadequate (Boele, Fabig and Wheeler 84). In my perspective, both Shell and Nigerian government were accountable for the ineffectiveness of these community developing projects. Nigerian governments’ mismanagement and corruption somehow made local communities largely depend on Shell both financially and executively. Nevertheless, as one Shell manager argues, “We’re an oil-producing company. We don’t have great expertise in development.” (qtd. Livtin 269) Shell itself was inexpert to take over the responsibility, appropriate governmental guidance was necessary, yet, absent.

Conclusion

During its operations in 1990s in Nigeria, Shell involved in various social and political issues including the use of violence to suppress protesters, long-term maintenance of military dictatorship, significant inter-ethnic income gap and environmental injustice, and ineffective community-support spendings. The corporation often worsened the problems both directly and indirectly. Nevertheless, Shell itself was not the only one to blame. The inherent instabilities of Nigerian society and politics, mainly stemming from the loose bonding of this nation state, often manifested as governments’ corruption and mismanagement, major ethnic groups’ dominance of politics, and brutal military dictatorship. These instabilities and associated manifestations both served as breeding ground of Shell’s misconduct and emerged as direct players that intertwined with Shell in social and political issues. Therefore,  multinational corporations act as forces that amplify or prolong problems of which the roots are set by pre-existing social and political instabilities. Corporations are single-minded for making profits, but their operations always cause unintentional influences on society and sometimes on politics. As indicated in this case, although we should definitely call for corporate social responsibility, it somewhat relies on nation-state or governments to steer these unintentional influences to be either positive or negative for the society.

Work Cited

Bird, Frederick, and Stewart Herman. International Buinesses and the Challenges of Poverty in the Developing World: Case Studies on GLobal Responsibilities and Practices. 1st ed. New York : Palgrave Macmillan, 2004. 43. Print.

Boele, Richard, Heike Fabig, and David Wheeler. "Shell, Nigeria and The Ogoni: A Study in Unsustainable Development: I. The Story of Shell, Nigeria and the Ogoni People – Environment, Economy, Relationships: Conflict and Prospects for Resolution." Sustainable Development. 9.2 (2001): 74-86. Web. 4 Mar. 2012. <http://onlinelibrary.wiley.com.libproxy.uoregon.edu/doi/10.1002/sd.161/abstract;jsessionid=2D6569D32E11B0277030A8315B839773.d01t02>.

"Corporation." Encyclopædia Britannica. Encyclopædia Britannica Online. Encyclopædia Britannica Inc., 2012. Web. 5 Mar. 2012. <http://www.britannica.com/EBchecked/topic/138409/corporation>. 

Douglas, Oronto, and Ike Okonta. Where Vultures Feast: Shell, HUman Rights, and Oil in the Niger Delta. 1st ed. San Francisco: Sierra Club Books, 2001. Print.

Forbes. "Royal Dutch Shell on the Forbes Global 2000 list." Forbes. N.p., n.d. Web. 4 Mar 2012. <http://www.forbes.com/companies/royal-dutch-shell/>.

Kraakman, Reinier, First , et al. The anatomy of corporate law : a comparative and functional approach. 1st ed. New York : Oxford University Press, 2004. 2. Print.

Livtin, Danel. Empires of Profit: Commerce, Conuest and Corporate Responsibility. 1st ed. New York: Texere LLC, 2003. 249-73. Print.

"Multinational corporation (MNC)." Encyclopædia Britannica. Encyclopædia Britannica Online. Encyclopædia Britannica Inc., 2012. Web. 3 Mar. 2012. <http://www.britannica.com/EBchecked/topic/397067/multinational-corporation>.

"Nation-state." Dictionary and Thesarus. Merriam-Webster Online. Encyclopædia Britannica Inc., 2012. Web. 3 Mar. 2012.
            http://www.merriam-webster.com/dictionary/nation-state.

Rashid, Khadijat . "Ethnic Politics and Ethnic Conflict Review of Ethnicity and Sub-Nationalism in Nigeria: Movement for a Mid-West State Review of Ethnic Politics in Kenya and Nigeria Review of Federalism and Ethnic Conflict in Nigeria." African Studies Review. 46.2 (2003): 92-98. Web. 5 Mar. 2012. <http://www.jstor.org.libproxy.uoregon.edu/openurl?volume=46&date=2003&spage=92&issn=00020206&issue=2&>.

Robbins, Richard. Global Problems And the Culture of Capitalism. 5th ed. Upper Saddle RIver: Prentice Hall, 2011. 87-88 & 106-09. Print.

The World Bank Group World Databank (2011): n.pag. World Databank: World Development Indicators (WDI) & Global Development Finance (GNF). Web. 5 Mar 2012. <http://databank.worldbank.org/ddp/home.do?Step=3&id=4>.

Vidal, John. "Shell oil paid Nigerian military to put down protests, court documents show." The Guardian. The Guardian, 02 OCT 2011. Web. 4 Mar 2012. <Shell oil paid Nigerian military to put down protests, court documents show>.