How a Great Power Falls Apart
Decline Is Invisible From the Inside
Author's Note: The major conclusions of this article will be expanded in "Sovereignty at Bay: The Multinational Spread of U.S. Enterprises," to be published in September 1971 by Basic Books, Inc., New York.
THE extraordinary spread of U.S. enterprises into foreign countries in the last two decades has produced its inevitable aftermath. Though the multinational enterprise as an economic institution seems capable of adding to the world's aggregate productivity and economic growth, it has generated tensions in foreign countries. As a rule, the tensions are a manifestation of powerful psychic and social needs on the part of élite groups in host countries, including the desire for control and status and the desire to avoid a sense of dependence on outsiders.
There are several unresolved conflicts. Sovereign states have legitimate goals toward which they try to direct the resources under their command. Any unit of a multinational enterprise, when operating in the territory of a sovereign state, responds not only to those goals but also to a flow of commands from outside, including the commands of the parent and the commands of other sovereigns. As long as the potential clash of interests remains unsolved, the constructive economic role of the enterprise will be accompanied by destructive political tensions.
What can be done about the potential clash? A useful first step in any prescriptive exercise is to attempt a projection based on the assumption that events will be allowed to run their course, without the conscious intervention of new policies. As far as the future of multinational enterprises is concerned, simple projections seem risky. As tension builds, more Chiles and more Cubas could easily develop. Despite such possibilities, however, there have been some exceedingly strong regularities in the patterns of growth and the patterns of relations between host countries and foreign-owned enterprises.
In modern societies, products have commonly moved through a predictable cycle from birth to senescence. As a consequence, the enterprises dependent on any given product have found their negotiating strength constantly in a state of change, rising for a time in the beginning of the cycle, then declining later on.
When a new industrial product is introduced, at first it is unique, controlled by only a few firms. Eventually, the demand for the product grows, the technology associated with its production is diffused and appropriated, and the specifications defining the product become more standardized. As demand grows, the threat of new entrants into the industry also tends to grow. Established leaders in the industry respond by trying to distinguish their standardized products from those of others; consumers are exhorted to put a tiger in their tank or a lark in their future. Sometimes, using various forms of advertising and minor product differentiation, industry leaders have tried to hang on. At other times, they have sloughed off products as they have lost their distinctive characteristics and have turned to the generation of new products. In industries involving raw materials there also has been a slow diffusion of control.
Despite the changing position of U.S. enterprises in any given product, their aggregate opportunities are unlikely to decline. The extraordinary improvements in international communication and transportation seem destined to continue, accompanied by more Intelsats, Concordes, IBM 370s, and all the other modern instruments for shrinking time and space. It seems likely also that the cost of generating and launching major industrial innovations will continue to grow.
On the other hand, it also seems likely that the rate of adoption of innovations by industrial users and consumers will continue to accelerate, when compared with historic norms. So will the rate of appropriation and imitation on the part of the producers that pursue a follow-the-leader strategy. These tendencies, taken in combination, suggest that multinational enterprises which base their business strategy on an innovational lead will have to plan even more than in the past for the speedy exploitation of any industrial advance over the largest possible market.
There are a few other critical projections that can be assigned a high probability. If the European Community grows larger and more cohesive, as seems likely, there will be a growing tendency for large European-owned enterprises inside the area to think of their market as pan-European rather than national-a tendency already well advanced in automobiles and electronics. The size difference between the large U.S.-controlled enterprise and the large European-controlled enterprise could very well decline a little. Where the asymmetry is likely to linger longest is in one of the most sensitive areas of all, the genuinely high-technology industries. Though Europe may yet find the institutional means for assembling the disconcertingly large quantities of resources that seem necessary for major advances in such fields as airframes, nuclear reactors and so on, progress on this front is likely to be slow.
Even if the governments of the advanced countries continue to show grudging tolerance for the growth of U.S.-controlled multinational enterprises, as most of them have in recent years, it seems quite unlikely that such enterprises will increase their relative position in the world's industry and trade at the rate prevailing since the early 1950s. History may attribute part of the growth of U.S.-controlled enterprises during the past few decades, especially in the advanced countries, to two special factors: a belated introduction of the stream of innovations that U.S.-based enterprises had managed to accumulate in the war and immediate postwar period; and a temporary acceleration in Europe's demand for the products and processes in which these innovations were incorporated, generated partly by the postwar catching-up process and partly by the special stimuli associated with the creation of the European Community.
The Europeans and the Japanese can be counted on to elbow their way into some of these U.S.-dominated preserves, appropriating the designs or other elements of novelty embodied in the innovations and eroding the oligopolistic position of the U.S. leaders. The size and multinational character of U.S.-controlled enterprises, which may have been an advantage in earlier stages, will afford less advantage at the later stages. As the product is standardized and as demand grows, local enterprises in the advanced countries may be in a position to exploit all the potential economies of scale that then exist, without having to bear the costly overhead involved in maintaining an international organization of communication and control.
The production of standardized goods can be expected to continue shifting to Europe and Japan, as in the past, whether under the aegis of multinational enterprises or of local producers. What, then, are the consequences for the United States, especially if new products are not so readily forthcoming from the U.S. economy as they were during the 1940s and 1950s? There is every reason to suppose that the shift of production to Europe and Japan will slow up of its own accord. If production moved away from the United States and if it were unable to fill the economic hole with new innovations, then the mix of products and the type of process in the other advanced countries would begin to resemble the American mix more closely. In this case, one major reason for the higher labor productivity of the United States would disappear, and labor costs in Europe and Japan- which have provided one of the main advantages of those areas in producing standardized goods-would probably converge toward the U.S. level.
Japan is distinguished from Europe, however, in a number of respects. Until very recently, she had managed her spectacular industrial growth without appearing to increase her dependence on the resources of the U.S.- controlled enterprises. This stage of Japan's development could conceivably be coming to an end. The spectacular rise of Japan's living standards and industrial capabilities has begun to move her toward the position of Great Britain, Germany or France in terms of her technological needs. Until very recently, these needs could generally be satisfied by industrial technology that had already been in existence for some years-hence, by innovations that were not very closely held among foreign enterprises outside Japan. As long as the Japanese were bidding for technology that was well known and widely dispersed in other countries, their bargaining position was relatively strong. Paradoxically, however, as nations approach the frontier of industrial innovation, their bargaining position tends to weaken in certain respects; the technology they are reaching for is much more closely held. Except perhaps for the United States, there is no advanced nation in the world capable of generating more than a fraction of the technological elements needed for a highly advanced society. As Japan approaches that frontier, therefore, her negotiating position in relation to U.S.- controlled enterprises could well decline.
Turning from advanced to the less-developed areas, we find that some added factors are brought into play. In the raw materials industries, it can be foreseen that these countries will continue to press foreign-owned enterprises for a reapportioning of the rewards and that the outcome will depend on the bargaining positions of the two parties. In industries in which the foreigner's role was most dispensable-whether because of capital requirements, technological considerations, or questions of market access- the erosion of the foreigner's position will be most rapid.
In the manufacturing sector, foreign-owned enterprises may be expected to exhibit continued strength. The capacity of multinational enterprises to manage international logistical systems efficiently has been growing, stimulated by relative declines in international transport costs and absolute shrinkages in transport time. The growth in these enterprises has been matched by the growing needs of the less-developed countries for organizational skills and export markets. The result has been that the strong underlying hostility in those countries toward multinational enterprises engaged in manufacturing has been held in check. True, less- developed countries in the position of India, Mexico and Brazil-nations that have made some progress toward industrialization-have placed unremitting pressure on the more conspicuous multinational enterprises, compelling them to give up lines of local activity as rapidly as national entrepreneurs can take them over; and this sort of pressure can be expected to continue. But there is nothing to prevent multinational enterprises from continuing to do what they have done successfully in the past-adding new activities of increasing complexity, even as they slough off the old.
Political questions will also affect the future of multinational enterprises. One important set of issues has to do with the social goals of the advanced nations. Will nations continue to emphasize such goals as the redistribution of personal income, the promotion of laggard regions, the provision of social services and the enlargement of guarantees against economic vicissitudes? The odds seem high that they will. If they do, the need of governments to feel that the main facets of the national economy are under their control will also grow. It would seem to follow that if multinational enterprises appear less controllable than national enterprises, that perception-whether justified or not-will create increasing agitation and perturbation.
Is one to assume, then, that multinational enterprises are bound to meet increasingly hostile national administrations in the advanced countries? Not inevitably. Improvements in international communication and transportation continue to generate common norms and problems among the advanced countries. Monetary and fiscal problems are more and more interrelated both within Europe and across the Atlantic; so are issues of employment and unemployment As long as these relations grow, there is a need and a possibility of achieving accommodation.
As for the less-developed countries, the main question is whether they are likely to adopt some socialist economic system that would grossly limit the role of the multinational enterprise. Just what socialism would mean for the multinational enterprise is not clear. During recent years, several genuinely socialist countries have cast about for a way of assigning a role to foreign-owned enterprises in their economies. Other less-developed countries-for example, Pakistan, Tunisia and Iraq-though committed to socialism of some sort, have nevertheless cultivated a certain deliberate ambiguity over the future position to be given multinational enterprises. As India edges her way closer to socialism, it is not clear whether or not her policies toward foreign investors will grow any more restrictive.
There is one characteristic of the less-developed world, however, that it does seem safe to predict will continue-endemic political instability. Each year during the 1960s, something like 40 insurgencies, revolts, coups or uprisings were reported around the world, mostly in less-developed areas. Whatever the trend of ideology may be in the less-developed world, uncertainty will be the lot of the foreign investor. Whenever one side or another in a local political struggle seeks to rally local support, a call for firmness toward the foreign investor is sure to be a useful tactic.
Most proposals for dealing with problems generated by multinational enterprises have been special in outlook and limited in objective.
To the extent that spokesmen for multinational enterprises see a problem, it is the unremitting governmental nipping at their flanks. The U.S. Government's insistence on maintaining a system of controls over the flow of funds between U.S. parents and their overseas subsidiaries represents one set of hurdles. The conditions imposed by other governments are another. Even after these obstacles have been surmounted, discrimination practiced against U.S.-owned subsidiaries established in host countries represents still another.
Contrary to the common impression, large U.S.-controlled enterprises are remarkably reluctant to invoke the support of the U.S. Government in overcoming the obstacles created by other governments. This seeming passivity, even when treaty rights are being impaired, reflects the basic fact that U.S. business interests feel most comfortable when they are holding the U.S. Government at arm's length.
There are times, of course, when governmental help is wanted, even demanded. Managers of the larger multinational enterprises are aware, however, that trying to pit government against government in an effort to solve their problems could have a price in terms of ill will and retaliation. Even when the U.S. Government applies pressure one cannot be sure it will work. Accordingly, when U.S.-controlled enterprises have felt foreign governments breathing down their necks, the disposition has been to find some answer that did not involve intergovernmental threat or collaboration.
Despite this general attitude, enterprises concerned with international business have been known to support intergovernmental agreements where they felt they could be held to carefully limited and selected goals. After all, the International Convention for the Protection of Industrial Property-a convention safeguarding the rights of inventors and their assignees to obtain patent protection in foreign countries-has been operating for 85 years or so. Bilateral treaties for the avoidance of double taxation have been sponsored by business interests for many years. These have been seen, however, as far less equivocal in effect and intent than any governmental initiative would be with regard to the more general problems of multinational enterprises.
Because explicit, well-defined bargains have proved useful in times past, managers of multinational enterprises have on occasion proposed that the United States might, for instance, exchange reductions in U.S. tariff schedules for guarantees that would benefit U.S.-owned subsidiary operations in foreign countries. However, such an exchange seems less than appropriate, given the character of the U.S. interests involved.
There is not much doubt that in narrowly economic terms multinational enterprises usually make a positive contribution to the countries in which they establish their subsidiaries. In terms of U.S. economic welfare, the net effect is probably positive as well, though it clearly benefits management and stockholders more than labor. In terms of the political objectives, the case is more qualified still; the tension generated by the presence of U.S.-controlled subsidiaries abroad can hardly be thought of as an unequivocal and positive contribution to U.S. foreign relations.
The question of benefits to the United States from its multinational enterprises is further complicated by uncertainty as to whether the interests should be regarded as American. Measured by equity ownership, the overseas commitments of U.S.-controlled multinational enterprises are 90 percent or more American ; by sources of funds, perhaps 25 percent American; by the identity of employees, less than one percent American; and by the identity of the governments that receive their taxes, practically 100 percent foreign. Though the contribution of these enterprises to global welfare suggests that their rights and interests would still be worth fostering and protecting, it is questionable if the appropriate means for providing these safeguards is for one nation-the United States-to bargain with its tariffs to that end.
When U.S. businessmen have weighed the possibility of an intergovernmental agreement to buttress their foreign rights, they usually have preferred the promulgation of a code of fair conduct. This type of proposal assumes that businessmen will subscribe to general standards of behavior by which they will be guided in host countries. There is nothing wrong with an approach of this sort, but it is trivial in comparison with the malaise with which it deals. Commitments of this sort could not be expected to affect feelings in host countries about the effects of multinational enterprises.
If business leaders have little to propose in the way of constructive solutions, do host countries have richer suggestions? All the rhetoric to the contrary, many political leaders and members of other élite groups in host countries are well aware of the eagerness of most U.S.-controlled multinational enterprises to blend into the national environment and to adhere to the "when in Rome . . ." principle. For the local readers, the crux of the problem lies in the very nature of the multinational enterprise, namely its ability to think in terms that extend beyond a single country and to use resources located in more than one jurisdiction. These characteristics are seen as a threat by government leaders bent on full control, by local businessmen aspiring to compete, and by intellectuals hoping to overturn the status quo.
The challenge to domestic interests has caused host governments to favor schemes for sharing ownership and control in the subsidiaries of international enterprises. This sort of proposal assumes that although multinational enterprises may well perform some useful economic function when they set up their subsidiaries, the usefulness of any given subsidiary declines in the course of time. Sharing the control and requiring eventual divestiture are generally thought of as a remedy in two senses: they reduce the economic costs to the host country by cutting off the foreigner's right to perpetual rewards; and they reduce a source of political tension between the host country and the country of the parent enterprise, e.g. the United States.
The trouble with a general prescription of this sort is that it makes a fundamentally wrong assumption about the actual operations of most U.S.- controlled subsidiaries abroad. As a rule, these have continually altered the scope of their activities, pushed by threats of new local competition or government pressure or stimulated by the discovery of new opportunities in the local economies. Plants that began with certain products such as radios and small motors have had to slough them off, while taking on new products such as television sets; and they have had to go from simple assembly and packaging to the manufacture of complex components and ingredients. Some subsidiaries that originally had nothing to offer in terms of market access because they were selling only in the local market have turned to exports, using the intelligence network and the distributing machinery of their affiliates in the multinational enterprise structure. In such cases a constant process of divestiture and renewal has been going on inside the organization. This provides no basis for assuming that the benefits to the host country have declined in time; the contrary could just as well be true. In narrow economic terms, a program of formal divestiture could prove hurtful rather than beneficial.
There is a difficulty of another sort with any general policy of divestiture. Multinational enterprises might not be hostile to divestiture provided it were limited to cases where the investor and the host government had foreseen and arranged for it at the time of the original investment. But this proviso would be hard to guarantee. A divestiture by a consenting enterprise could easily whet the host country's appetite for another divestiture in which the enterprise was less willing, especially if the domestic political situation made it seem useful.
Furthermore, when measured in standard economic terms, a prearranged scheme for divestiture would often be hurtful to host countries. It would tend to scare off foreign investors who had a long-term view of their investment. It would probably repel investors possessing genuinely scarce capabilities. And it would almost certainly discourage investors who were planning to use the subsidiary to produce for export to other affiliates rather than to supply the local market. Still, if host governments were prepared to accept the consequences of their policies and if divestitures were between consenting parties-that is, if they were a condition of entry laid down by the host government and accepted by the enterprise-outsiders could hardly make any objection.
The proposals discussed above are those of the obvious protagonists. What about the views of those lucky enough not to be embroiled directly in the fray? One set of neutrally proposed remedies has been based on the concept of the "world corporation" or the "U.N. corporation." Because multinational enterprises have global interests and affect many states, only a global régime, it is supposed, could provide the essential geographical symmetry. For proposals of this sort, an enterprise that expects to establish itself in many jurisdictions ought not to consist of an agglomeration of artificial persons, each created by the notarial seal of a different sovereign and each responsible to its mandates. Instead, it should be a single entity, responsible in the first instance to a world body.
While this approach may satisfy the intellectual need for symmetry between the governor and the governed, in other respects it is out of joint with the times. For it consists essentially of assuming the problem away. The underlying assumption is that nations can be persuaded to delegate the rules of corporate behavior to an international body and that the conflicts of national interest resulting from the operation of the rules will be allowed to work themselves out without direct interference by nation- states. Where the mandates imposed by the nation-states and those imposed by the higher global authority are in direct conflict, it is assumed that the mandate of the nation-state will give way to that of the global authority. One day, these assumptions may seem plausible, but not at present.
It is very likely that the manifest technical advantages of large enterprises and of strong governments will lead men in the future to insist on both. Adam Smith's model of a world of little firms and Karl Marx's model of a society of many benign utopian proletariats both seem grotesquely implausible. But in dealing with large concentrations of economic power, it is well to remember Lord Acton's maxim: Power corrupts. Men with power have an extraordinary capacity to convince themselves that what they want to do coincides with what society needs done for its good. This comfortable illusion is shared as much by strong leaders of enterprise as by strong leaders of government. The challenge in social organization is to ensure that the large units on which our future societies are likely to be based act as countervailing political powers, not as mutually reinforcing ones.
The problems generated by the operations of multinational enterprises will not stand still. Despite the recrudescent nationalism of the U.S. Government and those of other advanced countries during the early 1970s, the factors that have been increasing the economic and political interaction between national economies during the 1950s and 1960s are still hard at work. The flow of international communications is still increasing exponentially, stimulated by mounting efficiency and declining cost. Though international trade may be a bit inhibited by tariffs and quotas, attempts to control the international movement of ideas or capital by means of national border restrictions seem increasingly quixotic. As these elusive elements move more rapidly across international boundaries and blunt the effectiveness of national controls, a key question for the future is how long it will take for governments to find the level of tension unacceptable.
When the tension does come to be unbearable, the time for substantial action may be at hand. Then a number of steps can be envisaged.
Let us begin at the most mundane level of all, at the level of the pocketbook. As local governments are well aware, their own ability to gauge the appropriateness of the taxes that are paid by the subsidiaries of multinational enterprises is fairly limited. This fact does nothing to contribute to their sense of assurance and control. The multinational enterprises themselves also take a detailed and continuous interest in the question of local taxes. Because of the interrelated operations of their subsidiaries, the division of the profits of such enterprises among different national jurisdictions almost always unavoidably involves arbitrary allocations. As long as multinational enterprises have felt that the freedom to allocate their profits among jurisdictions offered them net advantages, they have preferred to let the problem rest in obscurity. This freedom, however, shows signs of being reduced. The curiosity of governments over how allocations are made and how they affect tax liabilities is growing speedily. Questions of international transfer pricing, overhead allocation, the use of debt in lieu of equity, and similar esoteric issues are rapidly becoming familiar concerns of many national tax officials.
A multinational approach to tax problems could take several different forms. A relatively easy response would be to enunciate some general principles applicable to all tax jurisdictions, relating, for example, to transfer pricing and the use of debt in lieu of equity, and to develop a means for settling disputes in the application of the principles. If the principles were adopted by a sufficient number of countries, they would accomplish two things: they would reduce the chances that a multinational enterprise, caught between the scissor blades of two taxing jurisdictions, would be unfairly taxed; at the same time, they would increase the assurances that such enterprises were not using their flexibility to slip between the national taxing authorities.
Still another approach would be more fundamental in character and more ambitious in reach. In view of the arbitrary nature of profits assigned to subsidiaries, it can be argued that the assessment of tax liability in any jurisdiction should be based on the proration of the consolidated profit of the multinational enterprise as a whole, according to an agreed proration formula.
A change of this sort, however, would require the United States and other countries to look on the taxable profits of their multinational enterprises in a fundamentally new light. Germany then would share in the profits generated by General Motors in the United States, while the United States would share in the profits generated by a sudsidiary in Germany. The experience would be novel for both: for Germany because she has so far been entitled to look only to the German subsidiary for taxes, and for America because she has up to now confined her tax reach mainly to the parent's dividends from foreign subsidiaries.
Another problem suitable for international collaboration is the question of joint jurisdiction over subsidiaries. In essence, countries would have to be prepared by formal treaty to give up the right to reach into the jurisdiction of others in order to influence actions that they feel affect their national interests. The prospects for joint action of this sort would be greatest among countries that thought of themselves as having a common interest and a common viewpoint, and greatest with respect to those fields in which consultation appeared easiest. On these criteria, the United States would find collaborative efforts easiest with the advanced countries of Western Europe, perhaps with the European Community itself. And the fields of possible collaboration might be expected to include national policies with regard to restrictive business practices and mergers, trading- with-the-enemy policy, and the control of capital movements.
At the same time, however, there would almost certainly be need for a continuous harmonization of policy wherever restraints on the exercise of sovereign power were being assumed. Substantial differences in national levels of control are tolerable, provided a channel for consultation exists. The United States, for instance, has long since resigned itself to the fact that other countries exercise more relaxed restrictions than it does over trade with the communist world, and is prepared to permit overseas subsidiaries to impair the objectives of U.S. policies in this area. The same is also true of the antitrust field; the United States is by now ruefully aware that it must move with a certain restraint when it reaches into the jurisdictions of other countries to enforce its antitrust objectives. The formalization of procedures for consultation and the commitment to harmonization efforts, therefore, would represent no giant departure from present practices.
Undertakings of this sort might conceivably enlist some support from multinational enterprises, but they have a corollary that is likely to encounter much heavier going from that quarter: if sovereigns agree to refrain from trying to control the overseas subsidiaries of their national enterprises, the subsidiaries themselves should be treated as nationals by the host governments, and consequently, should give up diplomatic support from the governments of their parent companies. These principles have cropped up repeatedly in the diplomatic history of international investment and have evoked unrestrained hostility on the part of U.S. enterprises. Known as the Calvo Clause after the Argentine minister who first advanced them, these principles have been pushed hard by Latin American governments in their efforts to cut off U.S. Government support of U.S.-controlled subsidiaries. As Latin American governments generally frame the principles, they would deny all local rights and remedies to any foreign-owned subsidiary if the subsidiary called on a foreign government in a dispute with its host government.
It has to be remembered, however, that the application of governmental authority on a nondiscriminatory basis to enterprises, whether local or foreign, is far from universal; under most systems of jurisprudence, governments are free to distribute rewards and penalties to their nationals according to less obvious criteria, without running afoul of their own laws, expectations and customs. Accordingly, a guarantee of "national treatment" in such cases does not have much content. Instead, some minimum guarantees of equitable treatment would probably have to be substituted for the standard of national treatment. Defining the concept of equitable treatment would be difficult; enforcing it would be more difficult still. Given the nature of the judicial process in many countries, it would not be feasible to leave the enforcement problem wholly to national legal systems. More likely than not, some sort of international tribunal would have to be charged with the adjudicating function.
The objective of disentangling conflicting jurisdictions, therefore, will require a series of international commitments: self-denying ordinances on the part of sovereigns to prevent their reaching into other jurisdictions and a means of international consultation to interpret them; a denial to foreign-owned subsidiaries of the right to call on the governments of their parent companies for diplomatic support; and a means of providing and enforcing commitments for the equitable treatment of the subsidiaries concerned.
The chances are that some forward motion on these agreements and procedures will be possible among the advanced nations long before similar action might be taken in the less-developed world. The refusal of Latin American governments in the latter 1960s even to sign a relatively innocuous multilateral Convention on the Settlement of Investment Disputes suggests how far they are from any willingness to consider joint action in this general field. Nor does the fact that so many African countries have gone along with the agreement offer any basis for greater hope, since in many cases that was much more a recognition of weakness than an expression of collaboration; eventually, a more independent line of response is to be expected from this quarter as well.
But even if most of these suggestions were adopted and enforced, many sources of tension still would remain. Foreign-owned subsidiaries and their parents would have waived rights of diplomatic support from the parent government, while the host countries would have extended guarantees of equitable treatment to the subsidiaries.
Agreements not to impose controls on outward flows of direct capital investment, let it be assumed, have been developed among the major advanced countries. Assume, too, that the division of taxes has been made a matter of joint commitment and interest among major governments. Would these measures eliminate the problems generated by multinational enterprises?
The answer is clearly no. The capability of multinational enterprises to exercise flexibility and choice would still seem oppressive in the eyes of many who had to deal with them. What more could be done? There is a certain urgency in the question, arising out of the fact that individual states are beginning to require multinational enterprises to justify major decisions in the allocation of production or of markets among facilities located in different national jurisdictions. The prospect that the various states might expand such practices, unilaterally and on an uncoördinated basis, is slightly nightmarish from the viewpoint of the multinational enterprise. In industries where such action is not uncommon, as in the oil industry, the experience of conflicting government commands already hurts at times. The international regularization of such demands would be more tolerable than the growth of unilateral actions by states.
Under what ground rules might an international organization become party to the major allocative decisions of multinational enterprises? If the broad interests of all nations are considered, a major decision of such enterprises that was otherwise consistent with the laws and policies of the nations concerned ought not to be subject to the veto of parties that felt threatened, unless the project was based on some patently "artificial" factor, suitably defined. The definition would presumably include cases such as the existence of a subsidy or of a threat coming from one of the signatory governments or of a private market-sharing agreement among enterprises.
Situations involving subsidy are an obvious problem area. Nations cannot put off much longer some joint understanding over the use of subsidies and tax concessions as incentives for the international movement of industry. The competition among advanced countries in making lavish capital grants to industry, and among less-developed countries in extending broad tax exemptions to industry, should be brought under some measure of control. If all host countries were to reduce or eliminate the benefits, foreign direct investment probably would not decline very much, nor would global welfare be impaired. If less-developed countries felt that they wanted to retain a limited right to extend such subsidies, however, their desires could be accommodated in the agreement. A major implication of this approach is that governments-especially the U.S. Government-will be obliged to convert issues which they had once thought domestic into issues of international concern. U.S. labor, for instance, would find itself in an international forum if it sought to block the establishment of the Taiwan subsidiary of a U.S. parent.
The direction of these suggestions is clear. The basic asymmetry between multinational enterprises and national governments may be tolerable up to a point, but beyond that point there is a need to reestablish balance through accountability to a governing body multinational in scope. If this does not happen, some of the apocalyptic projections of the future of multinational enterprise will grow more plausible.