Global Reach: The Power of the Multinational Corporations
America After Nixon: The Age of the Multinationals
Capital, Inflation, and the Multinationals
The term “multinational corporation” has become familiar only recently. Writing in these pages just five years ago, I felt obliged to explain that the multinationals were not merely giant corporations that did a world-wide export business, but giants whose manufacturing or servicing facilities were located around the globe, so that Pepsi-Cola, to take an example, could be bought in Mexico or the Philippines (or another 100-odd countries) not because the drink was turned out in America and then shipped abroad, but because it was produced and bottled in the country where it was consumed.
In recent years, largely as a consequence of the oil crisis, the word “multinational” has become standard newspaper usage, so that we now understand that Exxon or ITT are not just “American” companies, but maintain a network of refineries, factories, warehouses, service establishments, laboratories, training centers, and retail establishments spread across the continents. What we do not perhaps yet understand sufficiently is that the multinationalization of business is not just an American but an international phenomenon, so that when we fill up the tank at a Shell station or buy Valium at a pharmacy we are purchasing commodities produced in the United States by companies of non-American nationality.
Nevertheless, it is one thing to talk knowingly about the multinationals, and another to grasp the significance of their operations. Are they, as Richard Barnet and Ronald Müller write in Global Reach, “the most powerful human organization[s] yet devised for colonizing the future”? Do they challenge the nation-state as a main force for shaping the destinies of billions of men and women? Will their penetration into the underdeveloped world condemn these areas to perpetual backwardness—or can they serve as the conduits of technology and capital without which the underdeveloped nations will be condemned to eternal poverty?
It is not easy to answer these questions, for the impact of the multinationals remains in many ways obscure and perplexing. Or perhaps I should say that I find their impact difficult to appraise. Many other observers do not. Someone who wants a “clearer” picture of the multinationals would do well to consult the Guide for the Perplexed, appended to this essay, where I have briefly summarized a few recent books on the question. There the reader is sure to find at least one book that will tell him what he wishes to know.
Why are the multinationals so difficult to discuss? The first reason is that we know so appallingly little about them. How large are they? How big are their sales? How vast their profits? We really do not know.
Take, for example, the basic question of the value of the direct foreign investment—the plant and equipment, not the portfolios—owned by American enterprises. Our knowledge of the extent of this direct investment largely rests on a Commerce Department survey conducted in 1966. This survey collected data on 3,400 parent companies and 23,000 foreign affiliates. But efforts to enlarge and update that survey, now sadly out of date, have been systematically impeded. A government questionnaire sent to 500 companies in 1970 elicited only 298 responses. A more recent effort to discover some of the missing facts was severely truncated by the opposition of a committee of government representatives to questions that would invade the “privacy” of corporate life.
Hence some of the most important information required to assess the place of the multinationals in the world economy remains fragmentary or incomplete. We do not accurately know their capital outlays, their research and development expenditures, their foreign-based employment, the trade relationships between parent corporations and affiliates, or their full stockholdings in local companies. Let me add that if American data are inadequate, the statistical information obtained by other nations on their multinational enterprises is far worse. Many of the multinationals maintain two sets of books, one for the tax collector, another for themselves, and most European countries do not even have the staffs to compile the inaccurate statistics available from the “official” (i.e., tax-collector) books.
So we begin in a shadowy land of dubious facts. According to these facts (based largely on projections from the 1966 survey) the book value of American foreign direct investment was $78 billion in 1970 and is likely well over $100 billion today. In round numbers this compares with total assets (including foreign assets) of a little over $500 billion for the top 1,000 industrial corporations in America in 1973: we have no idea what the corresponding figures would be for, let us say, Sweden or the Netherlands or Switzerland.1
We have still less reliable data when we try to estimate the sales of US manufacturing affiliates abroad. The estimates we use are based mainly on guesses about how much output each dollar of investment is likely to generate. Working on this basis, the Commerce Department places the value of overseas production—not, remember, exports from the United States, but “American” goods produced abroad—at $90 billion in 1970. Assuming that sales abroad have been growing in accordance with past trends, this would put the value of American foreign production today at perhaps $125 billion. Again by way of comparison, total sales (domestic plus foreign) of the top 1,000 manufacturing companies are something over $600 billion, as of 1973.
This seems clear enough. At a first glance we can locate a second “American” economy, scattered around the globe (although mainly concentrated in the European industrial market and the Near East oil market), which is about a quarter as big as the “home” economy.
First glances are, however, notoriously unreliable. For example, the value of American assets abroad includes $22 billion of assets in the petroleum industry, as of 1970. The marketable value of that portion of those assets represented by oil reserves is now much larger than in 1970—or is it much smaller, because the oil now “belongs” to the nations under whose sands it lies in a much more decisive fashion than in 1970? Another example: what about the banks that play so critical a role in supporting the growth of overseas enterprise? Any appraisal of the extent of multinationalism should take into account the fact that foreign deposits in the nine biggest US banks have risen from less than 30 percent of their total deposits in the late 1960s to over 66 percent today, and that the total number of foreign locations for the twenty largest US banks rose from 211 to 627 over the same period. But this information also escapes the standard measurement of the extent of multinational wealth.
So we begin with uncertainty about the true size of the multinational sphere. But we do know, with a fair degree of certainty, that the sphere is expanding very rapidly. Industrial sales abroad, to judge by the fragmentary data we possess, have been growing twice as fast as sales at home. So has the flow of capital into new investments abroad—in 1957 American companies invested about ten cents abroad for every dollar of investment at home; today (at least until the recent depression) they are investing twenty-five cents. Total profits earned on operations abroad have risen from 25 percent of total profits at home in 1966 to 40 percent in 1970.
Furthermore, European and Japanese multinational firms are also accelerating their rate of growth. On the basis of past trends, these non-American multinationals are probably expanding even faster than US firms. According to the estimates of Karl P. Savant of the University of Pennsylvania, about a quarter of world marketable output was attributable to the multinationals in 1968 and this share will rise to a third by the end of the 1970s and to over 50 percent by the last decade of this century.
Are we then in a new era of capitalism? These scattered figures—most of them, I emphasize again, based on partial or even erroneous data—seem to indicate that some great sea change is underway. But here is where the picture becomes even more obscure and confusing. Consider, to begin with, the following thumbnail description of the multinational economy whose salient features we have been examining:
The concentration of production and capital has developed to such a high degree that it has created monopolies that play a decisive role in international economic life.
Bank capital has merged with industrial capital to create a financial “oligarchy.”
The export of capital, as distinguished from the export of commodities, has become of crucial importance.
International cartels, or oligopolistic combines, have effectively divided up the world.
This description, which might well have been taken from some of the books listed above, surely covers many of the salient features of the multinational phenomenon. The trouble is that it was written (with a few emendations by myself) by Lenin in 1917. This surely suggests that the phenomenon is not as new as we tend to think—or rather, that whatever is “new” about it cannot be discovered in the mere presence of great sums of capital invested by the enterprises of one country in the territory of another country.
Add to that the following disconcerting fact. According to the calculations of Myra Wilkins, in The Maturing of Multinational Enterprise, the value of total US foreign investment in 1970 amounted to about 8 percent of United States GNP. In 1929, long before the great multinational “acceleration” took place, it was 7 percent. In 1914 it was also 7 percent. Although the geographic location of investment has changed—out of the agricultural and mining belts into the industrial markets of the world—and although the type of investment has altered accordingly—away from plantations into factories—the global magnitudes remain surprisingly constant.
Of course one is tempted to say that the shift into “high technology” industry has hugely increased the economic leverage of this foreign investment. Has it? One could also argue that in an era of impending constraints on growth and technology, and increasing importance of food and raw materials, this very shift has also reduced their potential for economic power.
Can one, in the midst of so much confusion, make some sense of the multinational presence? With much trepidation, I shall try.
We must begin by recognizing that the fundamental process behind the rise of the multinational corporation is growth, the urge for expansion that is the daemon of capitalism itself. Why is growth so central, so insatiable? In part the answer must be sought in the “animal spirits,” as Keynes called them, of capitalist entrepreneurs whose self-esteem and self-valuation are deeply intertwined with the sheer size of the wealth they own or control.
But growth is also a defensive reaction. Companies seek to grow in order to preserve their place in the sun, to prevent competitors from crowding them out. Hence the struggle for market shares has always been a central aspect of the capitalist system, lending color to the robber baron age, taking on a more restrained but no less intense form in the age of the modern “socially responsible” firm.
There is some scattered data in Levinson's book, p. 94f., including the extraordinary fact that Holland, with a population of only 13 million, has three companies (Shell, Unilever, Philips) that are among the largest in the world.↩
There is some scattered data in Levinson’s book, p. 94f., including the extraordinary fact that Holland, with a population of only 13 million, has three companies (Shell, Unilever, Philips) that are among the largest in the world.↩