Of all the problems we call “economic,” few have so baffled the expert and the nonexpert alike as those that involve the relations between nation-states. Indeed, one might even go so far as to say that economics, as a “science,” got its start from efforts to explain how gold and goods traveled from nation to nation, working their various effects on the countries they left and those they entered. In particular, that ill-associated group of seventeenth- and early eighteenth-century pamphleteers we call the mercantilists deserve their place in the history of economic thought if only because they annoyed people like Hume and Adam Smith (among others) sufficiently to get economic inquiry started along its present lines.
The basic theme of mercantilist doctrine had, at first glance, a certain logic. The mercantilists believed that a nation’s self-interest lay in the accumulation of a national treasure—gold. Gold was to be gained by selling goods to foreigners and was lost by buying goods from them. Therefore the pursuit of national self-interest resided in policies that would encourage exports and discourage imports, thereby increasing the stock of precious bullion by which the national wealth was to be measured.
To describe this underlying belief is enough to reveal that the philosophy of mercantilism is by no means dead. But at least in its original crude form, the mercantilist theory of international economic relations received its coup de grâce from the cool analysis of the classical economists. For the central message of Smith’s Wealth of Nations (1776) was that the proper measure of national wealth was not its stock of gold bullion but its annual flow of production. The road to maximizing wealth lay therefore in the pursuit of policies that would encourage the increase in that annual flow—in particular, policies that would augment production by encouraging the division of labor.
Smith, accordingly, envisaged the basic objective of international economic relations as one of bringing about a world-wide division of labor, a point of view that clearly required a willingness to buy abroad as well as an eagerness to sell abroad. Under his great successor, David Ricardo, this doctrine received its first keen analytical treatment, as Ricardo demonstrated that one nation, such as England, would benefit by trading with another, such as Portugal, even though England might be able to produce both cloth and wine more effectively than Portugal.1
From this genuinely stunning insight of the classical economists there followed an obvious prescription regarding the economic relationships between nations. That was that the well-being, not merely of one nation but of all nations, would be achieved by a willing surrender to the international division of labor, in which each did the work for which its climate, soil, skills, etc., best suited it. As a corollary, of course, each would thereafter trade its own products for the products of other nations, with no effort to block this exchange by tariffs or other impediments (except in very special cases, such as the infant industries of emerging nations). Thus emerged the doctine of free trade, a doctrine under which most economists still march, fortified by a century of theoretical buttressing of Ricardo’s work which culminates, in our own time, in contributions by such major figures as Paul Samuelson and others.
Alas for economics, from the beginning this grand and logically impeccable doctrine has ruled the theory of international economic relations rather than its reality. The reasons are not difficult to find. First, there was the fact that the flows of trade between nations often failed to “balance,” giving rise to complicated problems that had to be resolved by an international settlement of accounts. But this in turn was rendered difficult by the stubborn refusal of nation-states to adopt a single universal money-of-account, so that monetary bottlenecks of all kinds constantly prevented the smooth settlement of international obligations. (These so-called balance of payments problems also arose—and still do arise—from the fact that international financial transactions are not limited to the payment for international flows of goods and services, but are also used to transfer capital from one nation to another, to wage war overseas, to find a haven in numbered bank accounts in Switzerland, etc.) As a result, some nations have had trouble “financing” the imports they would have otherwise been willing to buy, while other nations have had trouble “selling” goods they were eager to get rid of because they were not willing to accept payment in another country’s currency.
Second, the doctrine of free trade has from the beginning encountered the stubborn resistance of the very workmen and employers whose ultimate well-being it was supposed to promote. No doubt part of the appeal of Ricardo’s theory lay in the fact that there were, in fact, no wine-makers in England who were being asked to shift to sheep-shearing. But the advice is more difficult to follow for the wine-makers of California who might be advised to take up automobile making, or for the French auto worker who is urged into champagne-bottling, so that the international output of both wine and automobiles might thus be maximized.
Last, the classical doctrine of the international specialization of labor and free trade has received its most crushing rejection from those nations on whom the theory was imposed most ruthlessly. Among the underdeveloped nations of the world a genuine specialization of labor did take place, accompanied by a more or less free importation of their products. But the emergence of banana-economies and coffee-economies and copper-economies did not bring with it the gradual convergence of living standards that was implicit in the theories of both Ricardo and Samuelson. Instead, the mono-economies discovered to their dismay that the ruling doctrine worked to widen rather than to narrow the disparity between themselves and their rich customers—a state of affairs for which standard theory had no explanation at all.2
I trust that the reader, especially if he or she is an economist, will forgive this capsule resumé of the theory of international economic relations. I offer it not to attack current theory, large portions of which are relevant to and indispensable for an understanding of these relations. My purpose, rather, is to set the stage for an exposition of the most important change in both the conception and practice of international economic affairs since Hume and Smith and Ricardo first promulgated the notion of international trade as the paradigm for the economic intercourse of nations. This change is the emergence of a new form of international economic relationship, based not so much on the exchange of goods as on the internationalization of production itself—an internationalization arising from the startlingly rapid growth of what are called multinational corporations.
Perhaps the best way to illustrate the nature of the change is to examine the multinational operation in action. Let me begin with a description of his own company offered by Donald M. Kendall, president of PepsiCo:
PepsiCo [operates] in 114 countries. Its most familiar product is bottled in 512 plants outside the United States. Production and distribution facilities in almost every country are owned by nationals of those countries. Regional managers may come from the area in question—or from some other part of the world—Frenchmen, Englishmen, Latin Americans—not necessarily from the United States. In the Philippines, where PepsiCo is about the twelfth largest taxpayer, the whole operation has only two persons from the home office. The company is multinational as far as employment, operations, manufacturing and marketing are concerned, and a good part of the operating management and plant ownership abroad is also multinational.3
We will come back to certain aspects of this multinational operation—one suspects, for example, that the two Americans in the Philippine office are not office boys. But the essence of the matter is that PepsiCo no longer exports Pepsi-Cola to, say, Mexico. It produces it there. And precisely this same internationalization of production is to be found in IBM, General Motors, Ford, Standard Oil, and so on down the hierarchy of American corporate enterprise. I do not wish to imply that every big company is multinational. But we do know that sixty-two of the top one hundred firms have production facilities in at least six foreign countries, and Kenneth Simmonds has shown that seventy-one of the top 126 industrial corporations (for which data could be obtained) averaged one-third of their employment abroad.4 This is probably a considerable underestimate of the extent of multinationality of the top industrials, but we will have to await the 1970 census data to be sure.
Meanwhile, on a broader canvas, there is little doubt about the importance of US international production taken as a whole. In 1966 (the last year for which we have all the data we need), the United States exported $43 billion of goods and services to various parts of the world. In that same year, the value of United States overseas production—that is, of goods and services made in US-owned factories or establishments abroad—came to $110 billion, or two and a half times as much.
Another way of establishing the importance of international production is to trace the rise in the value of US foreign “direct” investment (that is, investment in real assets rather than in securities). In 1950 the size of our foreign direct investment was roughly $11 billion. In 1969 it was something over $70 billion, or about one-fifth of the total assets (domestic as well as foreign) of the top 500 industrials. Moreover this figure for foreign direct investment represents only the value of the American dollars invested abroad, and not the additional value of foreign capital that is controlled by these American enterprises (for instance by their command over subsidiaries).5 If we add these assets to the purely American ones, the value of the American business empire abroad comes to considerably more than $100 billion.6
This is still, however, only part of the changing picture of international economic relations. The expansion of American corporate production abroad, especially in Europe, has given rise to a general awareness of The American Challenge, best expressed in Servan-Schreiber’s book of that name. But as economists Stephen Hymer and Robert Rowthorn point out, what seems to Europeans like an American challenge can be seen from another vantage point as a challenge to American corporations.7 For whereas it is true that American companies in Europe have been expanding faster than their European rivals, thereby scaring the daylights out of many Europeans, it is also true that European corporations have been expanding their total production, in Europe and abroad, as fast as or faster than the growth in total sales (at home and abroad) of the US giants.8 Thus while we challenge Europe in Europe, the Europeans challenge us elsewhere in the world, including within our own borders (think of the invasion of the American automobile market by European models).
The dynamics of this challenge and counterchallenge are complex, depending in part on the general tendency of larger companies to grow less rapidly than not-quite-so-large ones (hence the slower average rate of growth of the American giant); in part on the effect of the environment on corporate effort (the American companies in Europe were operating in a very fast-expanding market); and partly again on the relative technological capabilities of different countries and companies.
But Hymer and Rowthorn’s critical point is that the change in international economic relations is not an American, but a truly multinational phenomenon. If we take the ten leading capital exporting nations together, for example, we find that for 1967 their combined exports came to over $130 billion, whereas their combined overseas production amounted to at least $240 billion. Estimates by Professor Sidney Rolfe, by Judd Polk of the International Chamber of Commerce, and by Professor Howard Perlmutter (among others) indicate that the rate of capital outflow from the industrialized European nations and from Japan bears roughly the same proportion to their GNPs as does our own.
On the basis of such data, one can estimate that the value of international production of all kinds is now roughly equal to about a fourth of world output of the commodities produced, and that if the rate of expansion of overseas production continues as it has in the recent past, the internationals will account for half or more of world industrial output by the year 2000. Indeed, Professor Perlmutter has argued that some 300 corporations (200 of them American) will soon dominate the world economy in much the way that the fifty or one hundred top American corporations dominate our economy.9
But enough of these figures. The essential point is that the rise of the multinational corporation signals a new era in international economic relationships, an era in which the international shipment of domestically produced goods is giving way to one in which nations affect one another by directly producing “foreign” goods within each other’s economies.
It must be apparent that the rise of the multinationals poses a bewildering array of questions. Why did they come into being? What is likely to be the outcome of the struggle among them? How does the rise of the vast international company affect the underdeveloped nations? How can a corporation simultaneously abide by the often conflicting laws and policies of a dozen countries? Is the multinational company a new source of potential international friction or an embryonic form of a new world order?
One asks such questions more to introduce some semblance of order into a sprawling problem than in the hope of providing crisp answers. As we shall see, much concerning the future of the multinationals remains obscure and unpredictable. But we can at least begin with some facts, for thanks to the work of Mira Wilkins, we now have a picture of the evolution of the overseas thrust of corporations, comparable to their domestic evolution from single-plant, single-product firms to multidivisional enterprises.10 For the reason why a corporation should produce abroad is, on reflection, not self-evident. It is expensive for a corporation to run facilities overseas. Inevitably it leads to the kinds of economic and political tangles that our initial set of questions suggests. If the profit drive is the impelling force behind corporate expansion, as most economists and businessmen tell us it is, we must explain why at one stage a corporation is perfectly content to export its wares, at another point to license their production overseas, and then finally to assume the responsibility for their actual foreign production.
As Miss Wilkins points out, the involvement of American business with foreign production has a considerable history. Samuel Colt, the inventor and successful producer of automatic pistols on an “assembly line” basis in America, transplanted his equipment and key workmen to London in the mid-1850s, and promptly failed. On the other hand, in those same years a group of American capitalists and engineers pushed the first railway across the Panama isthmus; and by the 1870s, Singer Sewing Machine was successfully producing abroad (in Scotland) and was in fact selling half its total output overseas. Moreover the degree of penetration (by export as well as production) continued until by 1914 a British writer could already speak of an “American challenge” in these terms:
The most serious aspect of the American industrial invasion lies in the fact that these newcomers have acquired control of almost every new industry created during the past fifteen years…. What are the chief new features of London life? They are, I take it, the telephone, the portable camera, the phonograph, the electric street car, the automobile, the typewriter, passenger lifts in houses, and the multiplication of machine tools. In every one of these, save the petroleum automobile, the American maker is supreme; in several, he is the monopolist.11
Miss Wilkins’s work allows us to see a certain organizational logic behind the quantum leaps overseas. It lies (if I may read certain conclusions into her work) in the existence of critical thresholds of size, domestic market saturation, and technology—thresholds that may differ from industry to industry, but that provide for each one, at some stage in its development, a point at which it is “natural” (i.e., more profitable) to take the leap.12
What is it, then, that marks the recent surge of international investment? If my speculations are justified, the answer must lie in the arrival of more and more industries at their critical thresholds, powerfully aided in our day by the development of a new technology for transferring information that makes it not markedly more difficult to supervise a plant in Hong Kong than one in Indianapolis. In a general way we can trace the influence of the improvement in the technology of supervision by noting the long-term shift of investment away from “next door” to more distant areas. In 1897, 56 percent of our direct foreign investment was in Canada and Mexico; in 1914 it had fallen to 46 percent; in 1968 to 32 percent.13
A second part of the difference (I am here again speculating beyond the bounds of Miss Wilkins’s work) can be traced to the gradual shift of corporate interest toward “high technology,” as contrasted with heavy capital, products, and activities. In 1897, 59 percent of American foreign direct investment was in agriculture (plantations), mining, or railways; by 1969 this figure had dropped to 11 percent. Conversely, in 1897 only 15 percent of our overseas direct investment was in manufacturing; this has jumped to over 40 percent today.
This shift to high technology has redirected the marketing concentration of international direct investment. In 1897, 54 percent of our overseas direct investment was in the underdeveloped parts of the world, the remainder in the European-Canadian developed areas. Today the balance has swung the other way. Sixty-four percent of our foreign direct investment is now in Canada, Europe, and Oceania and only 36 percent in Asia, Africa, and Latin America. More striking, of the increase in American foreign direct investment during the last decade, almost three-quarters was located in the developed world.
Thus behind the rise of the interlocking, interpenetrating webs of overseas production there lies a certain logic of technology and organization—a logic that no doubt applies in much the same fashion to the expansion of European or Japanese investment as it does to our own. The gradual “saturation” of national markets (which occurred, needless to say, earlier in the small European nations than in our continental-sized one) provided the initial stimulus for a shift from mere export-orientation to true international production, and accounts for the fact that in 1914 European foreign investments (both direct and portfolio) were ten times larger than American; whereas in 1966 American direct foreign investments were a third larger than European. 14
Simultaneously, the explosion of high technology vastly altered the character of international enterprise in a direction favorable to American-dominated industries: the annual growth rate of IBM alone at home and abroad for, the past decade has been sufficiently great so that, if it continues uninterrupted for another generation, IBM will be the largest single economic entity in the world, including the entities of nation-states. This proliferation of high technology in turn has redirected the areas in which international investment was profitable, turning it away from the banana groves of Honduras, whose market was relatively slow-growing, to the developed world where the demand for high technology products was expanding with extraordinary speed.
What is apt to be the outcome of this shift in the nature of international economic relations? Here we move from the domain of fact, however shadowy, to that of findings, however speculative. Let us postpone the most tenuous of these to the end and deal initially with a few things that we know.
The first of these is that—despite the claim made on behalf of PepsiCo by Mr. Kendall—the great international producers are not “truly” multinational. With very few exceptions (one thinks of Unilever or Shell, whose ownership is genuinely divided between different national interests) most of the multi-corps, PepsiCo included, are essentially extensions of national enterprises, controlled by a single national center, in so far as the location of investment and (more important) the international remission of profits are concerned.
To be sure, the multinationals have learned to break away from what Howard Perlmutter calls an ethnocentric attitude, in which the number of calls made per day by a salesman in Hoboken becomes the standard for operations in Brazzaville or Buenos Aires, toward a more “polycentric” and even geocentric (world-oriented) perspective.15 Moreover a few harbingers of true internationalism are visible in the presence of a Canadian as president of Standard Oil of New Jersey, a Venezuelan on its board, and a Frenchman as president of the IBM World Trade Corporation.16
But these are, I think it can safely be said, exceptions to the general rule of the tight retention of national control over the operations of the international corporation. As Kenneth Simmonds has pointed out (in the study we previously cited), foreigners constituted only 1.6 percent of the 1,851 top managers in those US companies with substantial employment overseas. Simmonds has not matched his findings with similar studies of Belgian, British, Swiss, Swedish, Japanese, etc., firms, but one has the strong suspicion that a similar conclusion would emerge. Simmonds, with his eye on the rise of American economic power in Europe, fears that an American “master race” of executives will come to control much of the international production of the globe, unless American corporations allow other nationals into the top echelons of power. On the other hand, if Hymer and Rowthorn are correct in stressing the genuinely multinational character of international production, we are more apt to have a master “race” of executives of different nationalities.
Whichever view is right, the problem brings us to the next question: What of the relationship between these corporations, which, whatever their “nationalities,” are organized for private ends, and the nation-states within whose territories they operate? Here we begin to arrive at the critical areas in which politics and economics collide or coincide, and in which the “logic” of this new kind of international economic relations must make its peace with the “logic” of national interests as they now exist.
On one side of this complex issue is the fact that the multinational corporations are often in the same position in dealing with governments as were the railroad builders of the West in dealing with the various municipalities that competed for their services. A considerable competition exists among European nations for the location of high technology investment within their national borders, a competition that takes the form of capital grants, tax privileges, and, not least, an “acquiescence” in a growing American presence. As Kenneth Waltz points out, in 1962 the French government refused to permit General Electric to buy 20 percent of the ownership of Machines Bull, a large manufacturer of computers and other electronic products. By 1964, unable to find another buyer and unhappily aware that Machines Bull could not begin to develop the R & D needed to stay abreast in its field (IBM spends more on R & D than the sales of its largest English competitor), the government capitulated to a 50 percent GE ownership.17
To an even greater degree, the multinationals can dictate to the governments of the underdeveloped nations. For all the talk (and the reality) of imperialist domination, most of the underdeveloped nations want domestic foreign investment, European and/or American, for a variety of reasons. The multinationals pay higher wages, keep more honest books, pay more taxes, and provide more managerial knowhow and training than do local industries. Moreover, they usually provide better social services for their workers, and certainly provide fancy career opportunities for a favored few of the elite. They are, in addition, a main channel through which technology, developed in the West, can filter into the backward nations. To be sure, the corporations typically send home more profits than the capital that they originally introduce into the “host” country; but meanwhile that capital grows, providing jobs, improving productivity, and often contributing to export earnings.18
This is, however, only one side of the story—the side that stresses the ability of the multinationals to drive hard bargains, to win strategic geographic positions, and to exercise a powerful voice in the economic policy of the countries in which they deign to operate. There is another side as well. For if the multinationals are bases for the exercise of economic power, they are also hostages within the nations in which they have settled. In the backward nations, the threat—and, more and more, the practice—of nationalization hangs over the heads of the multinational corporations, partly as an act of revenge against an often grossly exploitative past history, but more and more, simply because countries that are beginning to plan for development cannot allow critical decision-making powers to escape their control. As George Ball, in an essay highly sympathetic to the “cosmocorp,” candidly puts it: “How can a national government make an economic plan with any confidence if a board of directors meeting 5,000 miles away can by altering its pattern of purchasing and production affect in a major way the country’s economic life?”19
Ball and others think that the answer lies in the gradual “denationalization” of the international company, a view to which we will revert at the end of this essay. But let me first emphasize that the balance of power between the corporation’s ability to allocate its technical expertise and its production, and the nation’s ability to force a plant, once located, to abide by its will, is by no means one-sided in Europe or the developed areas, any more than it is in the underdeveloped countries. Here too, the economic benefits provided by foreign capital are often overwhelmed by the sentiments of nationalism to which the plusses and minuses of the balance sheet simply do not apply.
For example, the Canadians may be grateful in their moments of economic reflection for the enormous boost to productivity that has resulted from the inflow of American investments, but in their political moments they are bitterly resentful of a situation in which US residents own at least 44 percent of all capital invested in Canada, and in which foreigners (mainly Americans) own 54 percent of all Canadian manufacturing, 64 percent of all Canadian oil, and virtually 100 percent of its auto industry. Hence, in Canada, France, and elsewhere, the multinationals face actual or prospective legislation limiting the degree to which they can invade or dominate the domestic economy. As a case in point, in 1969 France refused to allow Westinghouse Electric Corporation to buy a controlling interest in the Jeumont-Schneider group (producers of heavy electrical equipment), insisting that the company remain French.
In this tension between the corporate drive for logistical coherence and the national drive for economic independence, the “proper” role for the multinational is far from clear. Even if we assume that the directing management is of “neutral” national composition, what should be its guiding policy with respect to the international location of research and development facilities, the expansion or contraction of production in plants located in different countries, the remission of profits from one unit to another? It is not enough to say that the rule of profitability must hold sway, for in obeying that rule the multinationals are also affecting the growth rates, the employment, and the balance of payments problems of nation-states who put their national well-being far ahead of the profits of any international enterprise.
There is, in fact or theory, no answer to such questions, for they pose problems entirely outside the present legal and juridical arrangements of nation-states and international organizations. Henry de Vries notes for example that no consistent pattern can even be discerned for such a basic question as where the “home office” of a corporation exists. In the United States and the United Kingdom, it is the place of incorporation. In Morocco, it is the location of the registered head office. In France, Belgium, and Germany it is the center of management. In Italy and Egypt it is the locus of principal business activity. This and innumerable other legal problems bestrew the path of international production and are far from being close to solution.20
What, then, are the ultimate implications of this new form of international economic relationship? If the question leaves us groping, the reason lies in the fact that we have not yet developed a coherent picture in our minds—a “model”—with which to organize the confusions and conflicts introduced by the rise of the multinational company. We lack, in other words, a theory of international production (even a wrong theory) that would introduce into the disarray of facts the possibility for systematic analysis that the theory of free trade gave us for an earlier epoch.
Already, however, we can see some of the elements with which such a model will have to come to grips. First, a theory of international production must explain whether or not the interpenetration of national territories by foreign producers will lead to a stable “division of the market” or not. If, as Perlmutter and others hypothesize, the industrial core of world production and trade is moving in the direction of global oligopoly, will the outcome be a more or less peaceful coexistence of giants, such as we see in the American automobile or steel or electrical equipment industries, or a struggle à outrance, such as characterized the cut-throat competitive race of the late nineteenth century?
The answer to this question lies partly in the habits and attitudes of business managers, who are now mainly accustomed to the non-price-cutting “competition” of gadgetry and style. But it will also be powerfully influenced by the national elements that are inextricably intermingled with the economic ones. That is, the degree of ferocity and effectiveness of the “European” response to le défi americain depends to a large extent on whether European governments overcome their parochial nationalisms enough to allow the formation of truly Pan-European corporations whose strength and penetrative power could then be matched against American enterprise on American soil.
Thus, unlike the theory of international trade, which rested its case solely on the economic consequences of the division of labor, there is no theory of “the division of the market” unless we introduce political variables into the picture. Lacking a knowledge of this political element, we cannot yet place limits on the degree of interpenetration that will occur, or on the probability of an “equilibrium” being reached on a global scale.
Second, there arises the question of whether the rise of international production can be viewed as a force making for world integration and betterment, or for world divisiveness and disruption. The classical theory of international trade promised that the international division of labor would in fact unify the world, both with regard to living standards and (implicitly) with regard to political stability because of the increased interdependence of nation-states. That noble image proved to be delusive. But what image does the rise of international production project?
Two views are currently propounded. One, advanced by George Ball, sees in the emergence of the “denationalized” multinational corporation the first appearance of a supranational world order—an order in which the terrible and violent rule of competitive nationalism would gradually be superceded by an international organization of production, regulated by the impersonal constraints of profit (which even the socialist countries concede is the single best indicator of efficiency). What is envisaged is a “businessman’s peace” in which pragmatism and production take precedence over national pride and vainglory.
The proponents of this view have very little trouble demonstrating that the multinationals are much less interested in the cold war than are the members of the political elites; that “co-production” between capitalist and socialist countries is already in existence; and that, all stereotypes (and some examples) to the contrary, businessmen usually have preferred to do business with governments, even revolutionary governments, than to call in the Marines.21
There is undoubtedly an element of truth in this view: one thinks of Henry Ford seeking to build tractor plants for the Soviets; of the recent Fiat contract to build Russian autos; of the chafing of American companies at the idiocy of State Department constraints on their investment in communist countries, etc. It is one thing, however, to point to the presumably less bellicose disposition of businessmen (a point that was first made by Herbert Spencer) and another to ask what sort of “world order” the multinationals could create.
Ball’s view assumes that the internationalization of production would bring about a more rational world than that in which we now live. But such a view begs the question as to whether a world order that is rational for the multinational corporation is necessarily also rational for a backward nation seeking to escape from the shackles of its heritage. For the assumption that the multinational company can become a major vehicle for development ignores a major aspect of underdevelopment itself—the gulf between the “Western” metropolises of the backward world and their “Eastern” countrysides. This is a gulf that the presence of the multinationals is more likely to widen than to bridge. Ball’s view overlooks as well the certainty that the multinationals will powerfully oppose the kinds of revolutionary upheavals that in many backward areas are probably the essential precondition for a genuine modernization.
This conflict between the demands of the nation-state and those of the corporation forms the core of the Hymer-Rowthorn view, which stands opposed to that of Ball and his like-minded business internationalists. Hymer and Rowthorn do not doubt that the momentum behind the internationalization of enterprise is very strong, but they see this as leading to an exacerbation of world conflict rather than to a resolution of it. For they do not see the economic imperative asserting itself easily over that of the national entity, either in the developed world or in its backward regions. “Nation-states are powerful and are not likely to die easily,” they write. “Merely to ask which institution one expects to be around 100 years from now, France or General Motors, shows the nature of the problem.”22
I should say, rather, that this question reveals the tensions of the problem but does not fully analyze its outcome. There are some things that nation-states can do that international corporations cannot, but there are other things, of increasing importance, in which the corporation is the more effective instrument of social action. If Hymer and Rowthorn had posed the question of long-term survival as between Costa Rica and IBM, another answer might have suggested itself; and if they had asked which was likely to be here a century hence, the French national state or some transnational production unit that had evolved from IBM, the answer would not be so unambiguously clear: it is probable that both will be here.
Thus what we seem to be witnessing at the moment is a conflict between two modes of organizing human affairs—a “vertical” mode that finds its ultimate expression in the pan-national flows of production of the giant international corporation, and a “horizontal” mode expressed in the jealously guarded boundaries of the nationstate.
Hymer and Rowthorn conceptualize this conflict in two “ideal-types”—a capitalist ideal-type in which the global production of a single commodity is organized under the unified direction of a single corporation; and a socialist ideal-type in which the production of all commodities in a single state is organized under the control of a single planning agency. In a word, they see the trend of capitalism toward the vertical unification of production and the trend of socialism toward its horizontal unification. In this conflict of ideals, they clearly believe that the socialist mode of organization will, in the end, prove the more resilient and enduring.
Perhaps. And perhaps not. At least in my belief, their dichotomy underestimates the adaptive capabilities of both systems. Hymer and Rowthorn do not ask what might be the role of a vertical organization of production among socialist states—whether, for example, a Russian ministry of computers might not play the same role, within a bloc of planned economies, as IBM might play within the bloc of capitalist economies. Nor do they inquire into the possibilities of capitalist economies adopting “socialist” modes of control through the agencies of conglomerate corporations.
In the mid 1960s, for example, at the very time that the Ford Motor Company was investing American dollars in the purchase of Ford in England, a British syndicate was investing pounds in the Pan Am Building. Why did not Ford build Pan Am and the British investors put their money into cars? If the full-blown conglomerate corporation comes into existence, where the top management serves only as a (private) planning board for the allocation of capital, precisely this sort of thing may take place. Indeed it already has: International Telephone now bakes bread, rents cars, runs hotels, builds houses, lends money, and manages a mutual fund, in addition to providing communication service. At this level of organization, the “fundamental” conflict between the idealtypes of socialist and capitalist planning beings to melt away.
Indeed, to my way of thinking, it is quite the wrong way of seeking to understand the problem of the nationstate and the multinational corporation. Both nation-states and corporations are crude instrumentalities by which we deal with the state of humankind today. Governments, no matter how socialist, still depend on patriotism which remains the last refuge of scoundrels; and international corporations, no matter how purified of national taint, are still run by motives that glorify propensities of mankind that should be, at most, tolerated. Both forms are ill-suited to the long-run development of humanist societies. It is only because we do not know how else to organize large masses of people to perform those tasks essential for society that we have to depend on the nation-state with its vicious force and shameful irrationality, and the corporation with its bureaucratic hierarchies and its reliance on greed and carefully inculcated dissatisfaction.
This is emphatically not to claim that other organizational means do not exist. From the study of primitive societies we know that people can order their lives without the commands and incentives of modern society, by building them around the great supportive principle of tradition. What we have not learned is how to reintroduce this mode of societal organization in a civilization dedicated to the accumulation of knowledge, to experiment, to change, to accumulation. Perhaps it is impossible, at least until the period of accumulation has come to an end.
In our present-day conflict between the organizational capabilities of the state and the corporation, it is difficult to state with certitude on which side “progress” lies, when both modes of social control are freighted with the capacity for human degradation and even destruction. All that one can say is that at this moment in history both seem necessary. I suspect that the interaction of the international corporation and the nation-state is less comprehensible as a conflict between “capitalism” (Sweden? Japan? South Africa? The US?) and “socialism” (USSR? Yugoslavia? Cuba? China?) than as part of the ignorant and often desperate processes by which we seek to contain the demon of technology and to organize the collective endeavors of men at a time when the level of human understanding is still pitiably low, even in the most “advanced” countries.
For the interested reader let me present a short critical survey of the books on which I have particularly leaned in the preparation of this essay. For a general survey of the field, I would suggest Louis Turner’s Invisible Empires (Harcourt, Brace, Jovanovich, forthcoming in February, 228 pp., $6.95). Mr. Turner is succinct, often startling, and best of all, an excellent source of further exploration through his extensive bibliography.
Those concerned with the background to the problem will have to read Mira Wilkins’s beautifully researched account of American foreign direct investment up to 1914 (a second volume is to follow). If there is any fault to find with her The Emergence of Multinational Enterprise (Harvard, 310 pp., $9.50), it is a failure to pursue the logic of organizational expansion developed by Alfred Chandler or to relate her findings to the broader theme of American expansionism, as presented in the works of W.A. Williams and others. Perhaps she will deal with these questions in her second volume, which I eagerly await.
The collection of essays edited by Charles Kindleberger (The International Corporation, MIT, 415 pp., $15.00) is directed at a more professional audience, but with one or two exceptions is easily accessible to anyone who wishes to learn about the problem in greater detail. It contains the essay by Stephen Hymer and Robert Rowthorn that I have singled out as central to the whole discussion of the international corporation, but also much more that is of high quality and interest besides this. In addition, I would not want to overlook a small book by Professor Kindleberger himself, American Business Abroad (Yale, 224 pp., $6.75; $1.95, paper), marked by great urbanity and intelligence, but weakened, in my opinion, by a certain absence of the kind of historical approach offered by Hymer and Rowthorn that, for all the shortcomings I see in it, somehow sets the problem into a broader framework than Kindleberger’s work.
Finally let me call attention to a book edited by Courtney Brown, World Business, Promise and Problems (Macmillan, 338 pp., $9.95), in which some essays exemplify in full the vapidity of the book’s title, but in which others (such as those by Benoit, Simmonds, Perlmutter, De Vries) are of genuine interest. There is, however, a problem with this book. It is one of these fancied-up volumes on which the publisher has spent a few hundred dollars for gold designs on the front cover and for brown as well as black ink in the text, rather than allocating those dollars for the services of a professional indexer. A book of original pieces (not a “reader”), presumably intended for serious reference, is utterly valueless without an index, as I can testify from my infuriated search in the writing of this essay for dimly remembered quotes and figures within it. It is impossible for me to recommend that anyone purchase this book unless he is prepared to make his own index as he goes along. Macmillan (multinational corp, New York and London), take note!
February 11, 1971
The point of this doctrine of comparative advantage can be summed up in the homely analogy of the banker who is also the best carpenter in town. Will it pay him to build his own house? Clearly not, for he will make more money by devoting all his hours to banking, even though he has to pay for a carpenter less skillful than himself. In the same manner, the classicists explained that one country will gain from another if it devotes all its resources to those activities in which it is relatively advantaged, allowing less well-endowed or less skilled nations to supply those goods which it has relinquished in order (like the banker) to concentrate its efforts where their productivity is greatest. ↩
It should be mentioned that in recent years the idea of the benign effect of an international specialization of labor has come under increasingly critical scrutiny, stemming mainly from the work of Gunnar Myrdal. Myrdal pointed out that in international relations (as also in the interregional relationships within a given country), free trade does not always lead to an equalization of wages, etc. Rather, an initial center of industrial strength attracts supporting skills and services, public as well as private, whereas an initial center of weakness loses them. (E.g., an industrialized center has a rich tax base that provides schools, roads, etc., while a rural backwater stagnates.) ↩
In World Business, edited by Courtney Brown, pp. 258-9. See the listing of sources at the end of this essay for further details. ↩
Interplay (November, 1968), p. 17; Simmonds in World Business, p. 49. ↩
Much of these assets may also be grossly undervalued. The entire book value of the US private investment in Middle Eastern petroleum for 1969 is carried at $1.65 billion. Earnings from petroleum from that area amount to over $1.1 billion for the same year. (Survey of Current Business, October 1970, pp. 28-9.) ↩
Kenneth Waltz in The International Corporation, edited by Kindleberger, p. 219. ↩
In Kindleberger, The International Corporation, pp. 57-91. ↩
In Kindleberger, The International Corporation, p. 72. ↩
Interplay (November, 1968); also Louis Turner, Invisible Empires, p. 191. ↩
Wilkins, The Emergence of Multinational Enterprise. For the most impressive exposition of the changing structure of domestic enterprise, see Alfred Chandler, Strategy and Structures (MIT, 1962). ↩
Wilkins, pp. 216-7. ↩
It is interesting to note that the degree of international production (as contrasted with export) varies widely from one industry to another. There is a considerable amount of international production in glass and very little in steel; a huge amount in computers but virtually none in machine tools; a great deal in automobiles but not (so far as I am aware) in shipbuilding. The reasons for this variation are not altogether clear. The answer way lie in specifics affecting the technologies of different industries, or in the characteristics of the markets they serve, or simply in their “outlooks,” for I believe there is a discernible variation in the “character” of industries, much as there is in that of nations. ↩
See Wilkins, p. 110; Survey of Current Business (October, 1970), pp. 28-9. ↩
Wilkins, p. 201; Interplay (November, 1968), p. 16. ↩
In Brown, pp. 66-82. ↩
Kindleberger, American Business Abroad, p. 208. ↩
In Kindleberger, The International Corporation, p. 216. ↩
See essays by Emile Benoit in Brown, p. 22; and by Carlos Alejandro, in Kindleberger, The International Corporation, p. 329. ↩
In Brown, p. 334. ↩
In Brown, pp. 281-303. ↩
Wilkins, pp. 154-72; Brown, pp. 6-7, 122. ↩
In Kindleberger, The International Corporation, pp. 88-9. ↩