Is Taiwan the Next Hong Kong?
China Tests the Limits of Impunity
As dramatic as the rise of the multinational corporation has been its increased political prominence. The very term implies a political visibility not associated with the words "direct investment" that were used a decade ago. In the past two years the role of these spreading enterprises has been debated in the International Labour Organisation, the Organization for Economic Cooperation and Development, the European Community, the U.S. Senate and the U.N. General Assembly. During 1973 a "Group of Eminent Persons" met under the auspices of the U.N. Economic and Social Council to study the role of multinational corporations in international relations and the process of development.1
To the common (and oversimplified) question whether multinational corporations are likely to render the sovereignty of the nation-state obsolete, the answer surely is a qualified "no." The multinationals are undoubtedly a large force to be reckoned with. There are currently some 200 large multinational enterprises or clusters of corporations which operate simultaneously in 20 or more different nations and are joined together by common ownership and management strategy.2 The three billion dollars of value added annually by each of the top ten multinationals is already greater than the gross national product of some 80 member-states of the United Nations, and some observers are predicting that by the end of the century 300 giant corporations will account for a large majority of world industrial production. Yet even weak states can and sometimes have nationalized the local affiliate of a multinational corporation. For the foreseeable future, the two kinds of entities will continue to coexist, in uneasy tension.
Why do multinational corporations now seem to many nations to represent an important threat? What in fact are the intended or unintended political roles they play? What can one now say about the longer-term impact of multinational corporations? And, the most acute subject of present controversy, what can be done to cushion or regulate the conflict that many now see between multinational corporations and the less-developed countries?
Apart from their sheer size, the significance of multinational corporations has acquired an additional dimension in consequence of the growing prominence of economic and welfare-oriented objectives in the national security equation. Nuclear technology and changing domestic values have made the use of military force a more costly option for the governments of the advanced industrial societies. While in extreme situations force is indeed necessary to guarantee national survival, much of international politics is not extreme and not about survival, and in these areas military force is far too blunt and costly an instrument to be useful. (A threat of bombardment may have helped the United States to induce Japan to trade a century ago, but it was not a useful instrument in the recent struggle over the value of the yen.)3 Most national security policies in today's world are designed not merely to insure the physical survival of individuals within national boundaries, but to assure some minimal expected level of economic welfare, a certain political and social autonomy for the nation, and a degree of national political status. Indeed, some national security policies actually increase the risks to physical survival in order to insure greater certainty in the enjoyment of economic welfare, political status and national autonomy.
For many states, the strongest sense of threat has shifted from the military area and territorial integrity to the economic area. Often such threats are unconventional and unintentional. As the distinguished Canadian John Holmes has described Canada's relations with the United States, "it isn't Washington we have to fear. It is Houston and Pittsburgh and Hollywood. . . . Our fear is not that the U.S. army will destroy Toronto a second time, but that Toronto will be programmed out of existence by a Texas computer."
Thus it becomes quickly apparent why multinational corporations have become important in world politics whether they wish it or not. Shifts away from the use of force are shifts away from the area of corporate weakness, and shifts toward greater prominence of economic welfare objectives are shifts in the direction of corporate strength.
Beyond this, generalizing about the political roles of multinationals becomes rather complicated. Corporations invest abroad for a variety of reasons. Firms in service industries differ considerably in size and mobility from those in extractive industries or in manufacturing. Even within manufacturing there are important differences in the bargaining positions at home and abroad of firms whose investments are oriented more or less toward access to local markets, inexpensive labor or exploitation of a technological advantage. Moreover, the same firm may have a very different impact on a country with a weak economy and fragmented society than on a country with a balanced economy and stable government.
Nonetheless, in general terms, multinational corporations can be seen to play at least three important roles in the day-to-day processes of world politics. These are:
1. The Direct Role: Private Foreign Policy
Here lie some of the most dramatic examples-notably the case of the International Telephone and Telegraph Company (ITT) in Chile, which helped to stimulate both the U.S. Senate hearings and the creation of the special U.N. group. This sort of case becomes particularly notorious because it contravenes the traditional assumption of world politics that governments deal with governments and that citizens or corporations affect governments of other countries indirectly through policies they press upon their own government. But here citizens and corporations are also affecting the governments and politics of other countries by dealing with them directly, quite apart from the activities of their home governments.
It is true that the widespread publicity attendant on such dramatic cases may lend them a disproportionate significance. The Chilean disclosures are informative in that ITT was notably unsuccessful in persuading other multinational corporations to join in direct political intervention. While evidence about this type of direct role is almost impossible to assemble scientifically, present evidence suggests that cases of major direct political involvement such as United Fruit in Guatemala in the 1950s, Union Minière in Katanga in the 1960s, or ITT in Chile in the 1970s, are a small portion of state-corporation interactions. Indeed, one careful case study that documents the political roles of American corporations in Peru indicates a trend away from such blatant direct political involvement.4 If we conceive of a scale of direct political actions by corporations ranging in descending order from the hiring of private armies through the bribery of host country soldiers or politicians, campaign contributions to political parties, legitimate lobbying of host government legislators, and so on down to advertising to influence the climate of ideas,5 we would undoubtedly find most direct political activities clustered at the lower end of the scale.
Nonetheless, direct transnational political behavior can be of crucial importance to particular states. Beyond the rather routinely used battery of lower-level political activities, corporations may also use economic means (both inducements such as the promises of new investment, and deprivations such as threats of withdrawal) in direct bargaining with host governments for favorable policies.
When one considers the direct political role of the corporation in world politics, it is useful to drop another traditional assumption, that states always act as coherent entities. If one recognizes that different groups in societies have different interests and that governments are sometimes alliances of competing bureaucracies pulling in different directions, one can conceive of policy coalitions composed of parts of different governments and corporations.
Private foreign policies toward host countries thus may work on internal differences within a country or may try to bring outside pressure to bear. Faced with the prospect of Chilean copper nationalization in the late 1960s, Anaconda relied on the local political defense of forming an alliance with the conservative elite in the host country-to no avail. Kennecott, on the other hand, worked out a sophisticated external defense based on transnational market and credit networks, so that when nationalization occurred the Chilean government would jeopardize its standing with credit institutions on several continents if it failed to provide adequate compensation. In situations of rising nationalism, the latter strategy may be the safer for a corporation. In retrospect, Harold Geneen, president of ITT, has argued that:
the answer may be a multinational approach. By this I mean the Germans, the Swiss, the World Bank, and others share in the investment. Then six countries are involved, not one. If something goes wrong, the countries can get tough and do things. You don't go to war, but maybe everybody refuses to give the offending country credits.
Finally, it is important to make clear that transnational coalitions do not always direct their influence toward host-country governments. The radical critique of multinationals, focusing on their penetration of weak states, or on alliances between corporations and central sectors in peripheral states, sometimes ignores the fact that these enterprises can also affect the coherence of home governments and societies. A prime example is the international lobbying that has taken place over a new seabed regime. There one could find oil companies (and some elements of the U.S. government) allied with some relatively cohesive poor states and against the official U.S. government position.
2. The Unintended Direct Role: Instruments of Influence
Apart from any political initiative of their own, the existence of corporations with decision domains crossing several national boundaries has provided an additional instrument that governments may attempt to use in their relations with each other. For example, the United States has attempted through extraterritorial control of the trading relations of affiliates of U.S.-based corporations to extend its foreign policy embargoes into the jurisdiction of other states. Similarly, in the 1960s, the United States used guidelines on capital transfers by multinationals to strengthen its international monetary position. And there can be little doubt that the U.S. government has on occasion been able to use, wittingly and unwittingly, the information-gathering capacities of global corporations domiciled in America for intelligence purposes.
Examples of political problems arising from such instrumental use are not hard to find. Of 16 conflicts cited by J. N. Behrman as arising from corporate activities among the Atlantic nations in the mid-1960s, 12 involved the American Trading with the Enemy Act, one involved computer technology related to nuclear weapons, and three involved enforcement of U.N. sanctions. In none of these cases did a corporation directly or deliberately provoke or profit from the conflict. And in the data assembled by David Leyton-Brown on 61 public conflicts in Britain, Canada, and France arising as the result of the activities of multinational corporations, interstate conflicts arose primarily from extraterritorial assertions of jurisdiction. In only two cases did a multinational enterprise seek the diplomatic support of its parent government.6
Manipulation of transnational corporations, however, is an instrument available to the host as well as the home government (an aspect to which the U.N. report gave little attention). The most dramatic recent example was the 1973 oil embargo. While the companies exerted some independence in diverting non-Arab oil to the Netherlands and the United States, the Arab countries were able to obtain almost total company compliance in regard to Arab oil. Even a small country like the Philippines was able to use a threat to nationalize American corporations in the 1960s to induce the U.S. government to extend trade preferences.7
Canada, with a third of its corporations foreign-owned (58 percent by value in manufacturing), is sometimes cited as a victim of the home government's ability to manipulate its corporations. Yet in a recent study of 31 non-trivial conflicts between the United States and Canada that reached the presidential level in the 1950s and 1960s,8 corporations were used as instruments as often by the Canadian government as by the U.S. government. Altogether nine of the 31 cases involved activities of transnational corporations; in five of the nine, corporations played an active lobbying role, but in four others, they were used (successfully) as instruments by governments-twice by the United States and twice by Canada. In the auto pact of 1965, the Canadian government achieved its objectives by obtaining letters of intent from the American auto companies, and on the Arctic sovereignty issue it got a de facto acceptance of its jurisdiction from Humble Oil. In general, Canada did no worse in government bargaining in cases involving foreign corporations than in those in which corporations were not involved. As Americans found out in the auto pact or in the oil negotiations at Tehran in 1971, multinational corporations have their own interests; when they are pressed in different directions by different governments, they cannot automatically be expected to be hard bargainers on behalf of the U.S. government's interests.
Fixed investments can be hostages as well as outposts-not only for governments but also for non-state groups. The corporation as hostage has provided a particularly valuable instrument for terrorist groups, both as a source of finance and as a means of destroying a government's credibility. Within the past year, in Argentina alone, guerrillas have kidnapped 12 foreign corporate officials and raised some $36 million in ransom.
Political suasion, rather than force, is also used against the corporations by non-state groups. Pressure from black workers in the United States, for example, led Polaroid to adopt policies in South Africa that were designed to improve the social position of the South African Blacks.
The important point is that direct investment creates a transnational interdependence which groups or governments may try to manipulate for their own political purposes. Governments and interest groups in both developed and developing countries frequently employ this instrument, even as they may deplore its use at other junctures. A double standard is widely applied in this area.9
3. Indirect Roles: Setting the Agenda
Why some issues rather than others absorb the attention of statesmen is a question of considerable political importance that has received too little attention. Even if they had no other effect, the intentional and unintentional roles of multinational corporations in helping to set the agenda of interstate politics have been significant. Their lobbying for particular actions by their home government toward the host country is familiar but nonetheless important, often taking the form of appeals for intervention in support of claims against host governments. As a classic example, in the 1960s the dispute between the International Petroleum Corporation and Peru became a tail that for years wagged the dog of American policy there.
In other cases, such as the lobbying of Congress by executives of multinational corporations in favor of more liberal tariff treatment of the host country by the home country, the lines of policy influence run in the other direction. Canada has benefited from such allies in a number of instances. Perhaps most intriguing, in light of supposed ideological differences, has been the recent lobbying by business executives on behalf of more liberal trade arrangements with the Soviet Union. (Nor, one might add, is there much evidence for the charge that multinational corporations form a powerful lobby for a militaristic foreign policy. With a few exceptions, American multinational-as distinct from merely large-corporations do not have a particularly strong stake in military-oriented production or activities.)
Where multinational corporations have created conflicts among states, they have more often done so unintentionally than intentionally. One can identify three major unintended effects on the political agenda. First, in the past decade, the transnational activities of such enterprises have given rise to conflicts of jurisdiction and problems of extraterritoriality in such matters as antitrust, capital controls, trade restrictions, and taxation policy.
Second, multinationals have had major effects on the flow of trade and money. It may startle the uninitiated that production by subsidiaries of corporations outside their home countries has now grown to over twice the total value of trade among the developed countries. Moreover, a significant portion of international trade (more than a quarter of U.S. exports by some estimates) has been transformed from "arms length" to intra-enterprise transactions, between one arm of a multinational corporation and another. The result is that a variety of new trade policy questions have been put on the intergovernmental agenda and become intertwined with a broader range of industrial policy questions. Similarly, the ability of a few score corporate treasurers, thinking globally and acting rationally, to transfer vast sums with extraordinary rapidity was one of the factors that contributed to the inability of countries to maintain an international monetary system based on fixed exchange rates.
Third, multinational corporations have unintentionally affected the agenda of interstate relations by stimulating other social groups to press for particular governmental policies. Groups such as banks, advertising agencies, and some labor groups have been stimulated to press for policies of liberalization that would permit them to emulate the transnational strategy of the multinational corporation. Other groups, particularly most of labor, which are less transnationally mobile and feel themselves threatened or disadvantaged by the activities of the corporations, have pressed their governments for protective or nationalist policies. An apt example was the recent struggle between transnationally mobile corporations and the relatively immobile labor unions over the Burke-Hartke bill, which would have sharply affected the trade and investment policies of the United States.
It is easier to identify the various roles of multinational corporations in the day-to-day processes of world politics than to assess their likely long-term effects on its structure. Will they become more important as actors or instruments in world politics or have they passed their period of prime political importance? If they continue or grow in importance, will they have beneficial or malign effects on the creation of a peaceful and just world order? Will they redistribute power, wealth and status or lead to their increasing concentration?
It is sometimes argued that the political importance of the multinational corporation is a product of a unique confluence of factors in world politics in the decades following World War II. A major aspect of this situation was American military strength and a geographically broad definition of security that resulted in what has been called a Pax Americana. According to this line of thought, the multinational corporation is largely a creature of American political preponderance in the period following World War II, and will recede in economic and political importance as the American government defines its security interests in less expansive terms in the aftermath of Vietnam.
While there is certainly some relationship between the Pax Americana and the transnational activity of multinational corporations, it is not as simple as this "military-security determinism" implies. First, it is sometimes forgotten that the American multinational corporation arose in the nineteenth century when the United States was a net debtor; that it was not (then or later) located primarily in the Caribbean and Latin America; and that it had already created fear of a défi américain in Europe at the turn of the century. In fact, U.S. direct foreign investment was as large a percentage of GNP (seven percent) in 1914 as in 1966.10
Second, the causes of growth and the causes of continued existence are not necessarily the same. Sorcerers' apprentices have been known to take on lives of their own. While the United States was the primary source of the rapid growth of multinational corporations in the postwar period, there is a current trend toward the development of European- and Japanese-based multinationals. American preponderance as a source of direct foreign investment (some 60 percent of book value in the mid-1960s) is slowly being eroded by the more rapid growth rates of European and Japanese direct investment. Moreover, the past and future relations of Swiss and Swedish multinationals to a Pax Americana is at best uncertain and indirect.
Third, some 70 percent of U.S. direct investment is located in other advanced industrial societies, not in the less-developed countries. Yet it is the latter which are the most likely areas to be left out of a more narrowly defined conception of national military security.
In other words, the erosion of bipolarity and the decline of American hegemony need not diminish the role of multinational corporations unless it should be accompanied by a shift toward greater use of force and away from economic welfare goals. While it is true that multinational corporations exist within, and are affected by, the structure of political-military relations in world politics, it does not follow that the postwar Pax Americana is the only such structure under which they could prosper.
A somewhat different case for projecting a decline in the political importance of multinational corporations might be based on the continued importance of nationalism and on long-term trends toward government intervention in economic affairs. Protectionism is not a temporary aberration. Governments are unlikely to give free rein to organizations that powerfully affect their economies, and that threaten feelings of national autonomy and national status. The trend toward politicization of issues of direct foreign investment is likely to continue. Indeed, the process is prompted by the rapid growth and large scale of multinational corporations as they stimulate domestic groups to emulation and opposition.
Such politicization, however, need not imply a decline in political importance. If multinational corporations were merely a nuisance or an inconvenience, states could simply curtail them by resorting to restrictive economic policies or their police powers. Multinationals, however, present opportunities as well as problems. Governments are faced with trade-offs between their objectives of welfare and autonomy. Even when government controls constrain and diminish the direct corporate role in world politics, they may simultaneously increase the indirect importance of multinational corporations as an instrument or agenda item in intergovernmental politics.
Thus, the odds are that both the size and political impact of multinationals will continue to grow. On the other hand, predictions that 300 giant corporations will run the world economy tend to be based on simple projections of past ten-percent annual growth rates, and fail to take into account some of the disadvantages that appear with large size, particularly in manufacturing, when temporary monopoly advantages have been competed away. The challenge to governments will come more from global scope and mobility than from corporate size. Even smaller multinationals can make crucial allocative decisions that challenge the welfare goals of governments.
Corporate mobility (which is greater in service and some manufacturing than in extractive industries) is not only a challenge to small states, but also to large states like the United States (and particularly to groups like labor which influence the foreign policy of large states). If there is increased movement of some corporate headquarters and major divisions, whether to remote and pleasant tropical islands as some foresee, or simply in the form of shopping among developed states, the process of separating or differentiating corporate and home government interests will be speeded along.
Today most multinational corporations can be identified with a single home country. They are multinational in operation, but rarely in ownership or top staff. Home governments tend to have jurisdiction over a major portion of the corporate empire's assets, and to have close informal ties with top management. Nonetheless, because corporate profits and growth come to depend on economic and political conditions in political jurisdictions other than that of their home government, corporations gradually develop a view of their short-term interests coinciding with different governments at different times, and of their long-term interests as different from the interests of any particular state. The point was put rather dramatically by Carl Gerstacker, Chairman of Dow Chemical, when he admitted to dreaming of buying a neutral island for Dow's headquarters, "beholden to no nation or society."
This trend toward corporate differentiation from both home and host countries has not yet gone very far. Of some 193 manufacturing firms that operate transnationally and for which data was available, the U.N. Secretariat found only nine percent had more than 50 percent foreign content in employment; seven percent derived half or more of their earnings from abroad; and some 14 percent had half or more of their sales abroad. Nonetheless, some corporate developments do seem to point toward increased multinationality and autonomy of staff. Technological improvements are continuing to reduce the costs of communication and to enhance the corporate capacity to develop global strategies divorced from identification with the interests of any particular country.
This trend is complemented and to some extent reinforced by political attitudes toward multinational corporations in their home countries. A decade or more ago, multinationals were much less an object of domestic controversy, and it was widely assumed that the interests of American-based multinationals were roughly similar to the "national interest." Today the range of domestic attitudes is more diverse. The AFL-CIO has called for limits on direct foreign investment, and Senator Jackson has accused oil companies of disloyalty for obeying the embargo of Saudi Arabia even on deliveries to the U.S. Navy. While such criticism may force some firms to a closer identification with their home government, it is at least equally likely that the experience will encourage other firms to move activities out from under their original "home" jurisdiction. It is said that some American-based corporations, with nearly half their operations abroad, planned in the event of congressional passage of the Burke-Hartke legislation to establish binational structures, with European headquarters handling operations outside the United States.11
If the trends toward growth and differentiation of multinational corporate interests from national interests continue, would the effects on world order be benign or malign? Not surprisingly, there is a good genie and a bad genie theory of whatever may be escaping from the national bottles.
The enthusiasts, or optimists, endorse the growth of corporate autonomy as having a profound potential for transforming world politics and creating a better world order. Increasingly autonomous corporations, in this view, can even transform world politics from a contest among states into a broader game with more actors who focus primarily on welfare-oriented goals. Multinationals will become a vehicle by which mankind transcends the nation-state, our dominant international institution of the past four centuries. States will not cease to exist, but transnational production units will take over a large part of their role in providing for the citizens' welfare-and will even claim a proportionate share of their loyalties. These broadened economic domains will call forth new political institutions that go beyond the nation-state.
The optimists thus see the multinational corporation tying the world together in a meaningful way. It shifts industrial production toward the poorer parts of the globe. It transfers technology and managerial resources from advanced to less-developed countries. It promotes both regional and global economic integration. The Economist has predicted, for example, that by the end of the century most automobile and machinery production will be carried out in less-developed countries. As it becomes politically difficult to bring workers from poor countries to jobs in rich countries, multinational corporations will promote global economic integration by taking the jobs to the workers.
The multinational corporation may also help to erode the great ideological cleavage that divides the world. Already there are more than a thousand agreements between Western corporations and Communist countries. Many of these are simple arrangements for "turn-key" plants. (A multinational corporation builds a plant, turns it over to the Communist government, and is paid out of future production.) But a number of Communist countries in Eastern Europe have found that long-term managerial involvement by the multinational corporation is a better way to insure continuous inputs of managerial and technological resources. Now some East European governments, particularly Yugoslavia, have followed this logic a step further, and to insure full access to the latest generation of technology have invested abroad, often in joint ventures with multinationals. Should this trend continue, it would require ideologists to reinterpret their view of imperialism as the transfer of labor's surplus value across national borders and raise questions about the simple equation of multinational corporations, capitalism and imperialism.
Looking further ahead toward the end of the century, it is possible that the multinational corporation will itself evolve into a new and flexible form of functional international organization. Not only will East European (and other) governments participate, but with increasing politicization of the question of control of multinationals in their former home countries, demands may increase for government, labor or consumer group representation on their management boards. Large segments of world industrial production will be managed by large public and quasi-public multinational corporations as well as a host of smaller private ones. Autonomous management (regardless of ownership) will provide flexibility and efficiency in the organization of global production. Questions of public versus private ownership will have been transcended. Only questions of managerial autonomy versus democratic control will remain.
Pessimists share with the optimists many of these projections about the future of multinational corporations-but see the malign effects prevailing over the benign. The economic benefits of global integration, they feel, will be unevenly spread and some areas will gain very little, so that the resulting inequality is likely to breed conflict. Moreover, even if multinational corporations distribute industrial production more evenly about the globe than is now the case, they will tend to centralize strategic decisions in regional coordinating centers and at global corporate headquarters. Technologies and areas to develop will be determined from a few key cities in the advanced countries, surrounded by regional sub-capitals, while the rest of the world is confined "to lower levels of activity and income, i.e. to the status of towns and villages in a new Imperial System."12
This might not matter if economic welfare were the only goal that peoples seek. But middle classes seek high status occupations that are associated with managerial and research functions. In addition, people often desire status for their nations, and some sense of autonomy, of helping to shape decisions rather than always feeling shaped by them. Such people fear that the transnational systems of production organized by multinational corporations will perpetuate and even accentuate an international economic structure that leaves them dependent on the advanced countries. Slogans of "global interdependence" frequently gloss over the reality that it makes an important political difference if one party is continually more dependent than the other.
As multinational corporations become more autonomous, this sense of dependence, threatened status, and lost autonomy may not be confined to poor countries. Social groups and regions within advanced countries may experience the same feelings. Autonomous corporations are a challenge to governments and politically important groups in large states as well as small.
According to this view, the diminution of the role of the nation-state would signal a new feudalism rather than healthy progress. Kings and corporate barons will engage in conflicts and coalitions, but the serfs of the world will suffer. The real global divisions will not be among nations, but between a world city knit together by transnational elites and the diverse but intense parochialisms of the world countryside. The decline of the nation-state would not be a sign of health but a sign of disaster: "a sound international order cannot be built on the wreckage of nation-states."13 The nation-state provides the internal order and sense of political community that underlie democratic institutions, and there is little prospect that our political norms can be adapted to keep pace with the evolution of powerful and autonomous transnational corporations playing increasingly political roles.
At the extremes, neither the optimistic nor the pessimistic view of the future seems likely to come to pass. Indeed it is unlikely that there are any prognoses that represent reality as it will be at the end of the century. What is clear, however, is that the evolution of multinational corporations has tremendously important implications for current and future world order. Apart from the direct and indirect political roles they already play, their effects on the long-term structure of world politics amply justify the attention of a United Nations charged by its Charter to achieve cooperation and harmonization of the actions of nations.
On any reading the most likely intermediate prospect is that the relations between multinational corporations and nation-states will continue to be mixed. To a certain extent they are complementary institutions: one, the corporation, pursues (with a few notorious exceptions) a relatively specific set of economic objectives; the other, the territorial community of the nation-state, seeks a broad range of goals. Each institution can profit from the activities of the other.
But it is also amply clear that conflict is endemic in the relationship. As non-territorial entities without military force, corporations are not a threat to the physical survival of a nation, but their economic power can be used to threaten particular political parties or ruling regimes. Second, while multinational corporations may bring in the technological and managerial resources that enhance national autonomy vis-à-vis other states (and vis-à-vis the corporations themselves in the long run), there may be high costs in terms of autonomy in the short term, and possibly over the long run as well, if a structure of dependent relationships becomes firmly established with strong local roots. Third, although corporate contributions to development may in one sense enhance national status, a too-powerful foreign ownership (particularly if high-status managerial and research jobs are concentrated abroad) may be seen as a threat to national status in another sense. This is the contrast, and dilemma, that seems to have developed in Canada in the course of the past decade.
Even in regard to economic welfare, where corporate benefits are likely to be greatest, a certain amount of conflict is unavoidable. What distinguishes the modern multinational enterprise from the large international corporations of earlier centuries is its global management strategy, made possible by the technology of modern communications. The most honest corporate manager allocating resources rationally within a transnational perspective is bound to have conflicts of interest with the most reasonable of statesmen whose rationality (and democratic responsibility) is bounded by national frontiers. For example, Chrysler resisted British government pressures in 1971 and granted an inflationary wage increase to its British workers, not because it wished to thwart the government but because the increased wage costs were less important, from a global point of view, than avoiding disruption of production for the American small car market.
Given the complex pattern of potential threats and benefits that multinational corporations present in relation to a variety of national values, it is sensible to expect conflictual relationships. It is equally likely, however, that the conflicts will frequently be of the type that have solutions from which both parties can benefit. In many instances, the enlarged size of the pie can be more important than the size of the slices. A basic principle for an international economic order will be to enhance situations in which joint gains are perceived and shared by states and corporations. This will help to diminish the intensity of conflicts.
However, since many national values are involved, and their intensity may vary among nations and over time, a second and equally important principle must underlie a just international economic order. National communities must be allowed to decide for themselves what degree of interdependence with corporations they find optimal and what they are willing to pay for it. If the benefits of multinational corporations are as great as proponents claim they are, then there should be no objection to letting host countries choose freely. If the economic, social and political costs are as great as the critics charge, then host countries should be free to reject the transnational organization.
These two principles-that all parties should seek to enhance actual and perceived net economic gain, and that in the end individual nations must be free to decide-help to illuminate the most difficult area of present and potential conflict, that involving the relationship of multinational corporations to the less-developed countries.
This is the area which received greatest attention both in the deliberations and in the report of the U.N. Group of Eminent Persons. As the International Chamber of Commerce has correctly pointed out, the report thus does not focus on the two-thirds of investment that is among the developed countries. Nonetheless, the focus of the Group was politically justified. Multinational corporations do pose greater political problems for less-developed countries, because of the difference in scale (General Motors' annual profits exceed the annual income of most African states), the sensitivity of post-colonial states to situations of dependence, and the internal cleavages that often make their polities both penetrable and fragile. Moreover, poor countries have generally found themselves as hosts, but rarely as homes of multinational corporations.
There has been no shortage of arguments recently about the economic costs and benefits of multinationals to less-developed host countries. Proponents contend that transferring technology and relocating industrial production from the richer to the poorer parts of the globe can only be done through transnational organization, to overcome what for many states is the economic irrationality of narrowly bounded political sovereignty. Unlike portfolio investment, the contribution of the multinational corporation is not so much the movement of capital as the organization of capital, management, technology and access to rich country markets into an economic package which is greater than the sum of its parts.
Critics, on the other hand, argue that the four parts of the package are often obtainable separately, and that the costs of "packaging" are too great. Among the costs sometimes charged to the corporation are inappropriate technology; creation of inefficient oligopoly patterns in small national markets; discouragement of local entrepreneurship; erosion of local economic policy and controls; stimulation of inappropriate consumer tastes; and illegitimate meddling in the local political process.
Evidence can be marshalled on both sides of the economic argument, and the facts vary from case to case. From a practical point of view, proponents and critics who focus on the system as a whole often fail to ask the crucial question: "What are the realistic alternatives in a given situation?" In some cases a critical factor such as advanced technology can be obtained by licensing; in other cases it may be unobtainable except as part of a corporate package. In some cases, access to markets is a simple matter; in others, protected markets in rich countries can only be reached through the sales network or political clout of a multinational corporation.
Less-developed countries can follow a wide range of strategies vis-à-vis multinational corporations. At the two extremes are the strategies of laissez-faire and complete exclusion. (The benefits or costs of exclusion look somewhat different depending on whether one thinks of it as the "Chinese" or "Burmese" example.) Another approach is to let multinationals enter on generous terms and renegotiate these terms as the factors that the corporations bring in become less scarce. This situation of "let them in and squeeze them later" has characterized many raw material investments, where the terms of the original bargain tend to become politically obsolete over time.
A quite different approach is the "high threshold." The Andean Group of countries, for example, permit entry only on quite stringent conditions (including eventual divestment), which are agreed to by the corporation at the outset. Other countries permit entry only if corporations agree to joint ventures with local capital or the local government. A further variant of this approach is to disassemble the four-part package of direct investment and allow corporations entry on contractual terms to provide a specific service.
These various strategies are discussed at some length in the U.N. Report. A recurrent theme in the dissenting comments is the fear that any restrictive strategies will discourage corporate investment in less-developed countries and inhibit the beneficial relocation of industrial production in the southern part of the globe. A common-sense conclusion, however, might be that each of these strategies promises different costs and benefits for different countries, and for different economic sectors at different times. No single strategy or legal regime is likely to satisfy all countries, or even the same country over time. For this reason alone, agreements on international legal regimes are distasteful to many less-developed countries.
As we saw earlier, multinational corporations can also follow a number of political strategies in their bargaining with host states: (1) they can appeal to their home governments for support; (2) they can use their economic power to participate in the local political process, legally or illegally; (3) they can organize external boycotts and restrictions of credit. Alternatively, the corporations can restrict themselves to economic agreements, attempting to convince host states that the corporation brings in resources from which there is a joint gain. In other words, they can seek to prove that the goose roasted is worth less than the goose laying golden eggs. As Charles Robinson, president of Marcona Corporation, has put it, "the only thing that counts is whether you [the corporation] are worth more alive or dead."
If one is concerned with an international order that involves global equity and freedom of choice-or indeed if one seeks merely to avoid unbearable strain and conflict-it is clearly preferable that corporations eschew the more extreme forms of action and pursue the "golden egg strategy." A process of realistic discussions and bargaining with individual host countries is what is needed, and what a U.N. commission charged with developing international codes of conduct should attempt to promote-rather than rigid rules that cannot hope to cover the great variety of cases and political attitudes involved.
In line with the principle of free choice (and, one might add, with political realism), host countries must be free to disassemble the package of direct investment, to accept or reject all or part of any proposed investment project. But it is essential that the bargains be freely struck, and free choices require meaningful alternatives and accurate information. Particularly with regard to the less-developed countries, international institutions should help enhance the conditions and opportunities for free political choice on such matters as how much aggregate growth a people are willing to sacrifice for autonomy and experimentation (and vice versa). This requires dispelling the fear and mistrust that frequently blocks clear appraisal of self-interest by poor, weak countries. It also means discouraging the use of home government influence that goes much beyond normal diplomatic representation, or corporate political activities that prevent free choice by the indigenous political processes of the host state. As a number of comments in the U.N. Report indicate, it is unrealistic to expect governments to refrain completely from support of their corporations. Nonetheless, the basic diplomatic norms should reflect the principle of free choice.
It is sometimes suggested that the only international institutions needed are those which would establish a legal order to facilitate the corporation's work. This view, however, fails to take into account the political roles of the corporation that we have described above. Even while pursuing economic goals, their involvement in the political process is too untidy and changeable to be contained within a static legal order.
Given deep-seated differences among countries, moreover, it is unrealistic at this stage to expect, for example, a strong supranational organization to oversee the activities of multinationals, or the global chartering of corporations as suggested by George Ball, or Charles Kindleberger and Paul Goldberg's "GATT for direct investment."14 A global charter would formally denationalize corporate origin, but would remove none of the real conflicts stemming from the central dilemma of differing decision domains. As for a specific legal convention, the broader the agreement in numbers of countries or scope of subject matter the less likely the prospects for success.
The problem is not only one of organizing collective action among large numbers of states. It also stems from the basic political reality that underlies corporation-state bargaining, particularly between rich and poor. As Raymond Vernon has pointed out, when the basic bargain is political and may be obsolescing over time, poor countries consider it unwise to institutionalize a set of norms or adjudication procedures that represent a stage in which they are relatively less favored.15 (This is one of the reasons why a number of countries have refused to join the International Center for the Settlement of Investment Disputes that has been established by the World Bank.)
The U.N. Report recommended the creation of an expert commission which would, among other things, work out codes of conduct for multinationals. This sort of continuing discussion and negotiation of codes of conduct is a more realistic approach to the task of creating and adjudicating norms than the more elegant solutions would be. As L. K. Jha, former Governor of the Bank of India and Chairman of the Group, commented in the report, developing countries need not feel disappointed with the recommendations if they look upon the report as the beginning rather than the end of an exercise in the creation of norms.
The U.N. Group also recommended the creation of an information and research center on multinationals as part of the Secretariat, and a number of specific steps, including technical assistance, designed to strengthen the bargaining position of the less-developed countries vis-à-vis the multinationals. Access to information, variable identity and mobility of resources are key assets of multinational corporations in their bargaining with states. Information that improves governments' knowledge about global corporate activities and about mutual alternatives can affect the terms of the bargain. Much of the information will be difficult to obtain and equally difficult to assess. Since knowledge is power, it will not be easily parted with, either by corporations or by governments. Many countries have weak rules for disclosure of corporate information, and sometimes governments find it to their advantage, on tax incentives for example, not to disclose the information they have. Even the Commission of the European Community has had to compile inadequate data on corporate mergers from public sources because some member-governments refused to share the information that they collected nationally.
Nonetheless, the collation and sharing of information from public sources can be useful to many governments. Moreover, the amount of information in the public domain may increase as national demands grow for corporations to demonstrate their contribution to the local economy. Comparison of such company national reports by an international staff can identify discrepancies and raise important questions. The usefulness of the international institution will be greater the more the staff develops a reputation for fair-mindedness. This last point is essential, since the only sanction which a U.N. Commission on Multinationals would have is publicity. This is not an insignificant sanction against corporations dealing with the public, but it would be quickly dissipated by biased work.
Not all governments have the ability to make full use of the information already available to them. Providing experts in this area can be an important function. Technical assistance cannot remove all conflicts from the interaction of weak states and foreign corporations, but at least it can help to dispel the mistrust that stems from fear of the unknown, and allow the parties to bargain on the basis of more clearly perceived self-interest. The experience of Harvard's Development Advisory Service in helping countries such as Liberia and Indonesia to improve the terms of their contracts with foreign corporations is an instructive example. Again, while controversy cannot (and should not) be completely avoided, a reputation for fair-mindedness is essential.
The obstacles to any larger role for the United Nations here are several. Specifically, there are the problems and pitfalls of "geographic distribution," extraneous politicization, and occasional bias that beset the U.N. system. Steering clear of these will be essential. More generally, one cannot be too optimistic about states reaching agreement on international institutions in the short run, because, as we saw earlier, states have conflicting as well as complementary objectives vis-à-vis multinational corporations.
On the other hand, there are several trends that increase the elements of common challenge which corporations present to governments. With Europe and Japan growing rapidly as sources of direct investment, more of the crucial governments-and particularly the United States-will feel the divided interest of being both home and host rather than merely home to multinational corporations. Second, as we have seen, many corporations are moving toward differentiation of their corporate interests from the interests of either their home or host countries. Third, corporations are more and more caught up in politics, whether they will or no.
The initial response to these challenges is likely to be unilateral national efforts, rather than international cooperation. But conflicting unilateral policies can be self-defeating unless there are some international rules and mechanisms for coordination. Moreover, multinational corporations may find themselves so hindered by contradictory national regulations that they may press various governments to initiate efforts to achieve greater international uniformity. At this point the prospects for international economic organization improve. Whether the United Nations or another institution will acquire a sufficiently strong mandate to deal with the problem, the political challenge of the multinational corporation seems to be gradually leading to a concerted response. The role of the multinational corporation today cannot be understood merely in economic terms, but must be seen in terms of this larger political challenge and response.
1 Of the 20 persons appointed, eight came from less-developed countries, two from Communist countries, and ten from the "rich" countries, including two Americans, Senator Jacob Javits of New York and J. Irwin Miller, Chairman of the Cummins Engine Company. During 1973, the Group heard testimony from corporate presidents, professors, trade unionists and general social critics, and in the summer of 1974 presented its report. U.N. ECOSOC, The Impact of Multinational Corporations on Development and on International Relations, E/5500/Rev. 1 1974.
2 In a document prepared for the Group of Eminent Persons, the U.N. Secretariat discussed problems of alternative definitions, and pointed out that the number of multinationals can be set as high as 7,300 if one foreign affiliate is set as the criterion. Multinational Corporations in World Development, ST/ECA/190, 1973. While the term "enterprise" is more strictly accurate, "multinational corporation" remains the more popular term.
3 The relationship between politics and economics is developed in "World Politics and the International Economic System," by Robert O. Keohane and Joseph S. Nye, Jr., in C. Fred Bergsten (ed.), The Future of the International Economic Order, Lexington, Mass.: D. C. Heath, 1973.
4 Charles T. Goodsell, American Corporations and Peruvian Politics, Cambridge: Harvard University Press, 1974.
5 Or not advertising. In 1972, some U.S. companies in Mexico organized an advertising boycott of the "anti-American" newspaper Excelsior. (The New York Times, June 23, 1974).
6 J. N. Behrman, National Interests and the Multinational Enterprise, Englewood Cliffs, N.J.: Prentice-Hall, 1970; David Leyton-Brown, "Governments of Developed Countries as Hosts to Multinational Enterprise: The Canadian, British and French Policy Experience," unpublished Ph.D. dissertation, Department of Government, Harvard University, 1973, p. 423.
7 J. N. Behrman, "The Multinational Enterprise and Nation States: the Shifting Balance of Power," in A. Kapoor and Phillip D. Grub, (eds.), The Multinational Enterprise in Transition, Princeton: Darwin Press, 1972, p. 420.
8 J. S. Nye, "Transnational Relations and Interstate Conflicts: An Empirical Analysis," to be published in International Organization, Autumn 1974.
9 The recent U.N. report is no exception, seeming to deplore multinationals' pressure on host governments at some points, while inviting home governments to influence corporations to further positive social objectives within host countries in others.
10 Contrast Robert Gilpin, "The Politics of Transnational Economic Relations," in Robert O. Keohane and J. S. Nye (eds.), Transnational Relations and World Politics, Cambridge: Harvard University Press, 1972, with Mira Wilkins, The Emergence of Multinational Enterprise, Cambridge: Harvard University Press, 1970.
11 I am indebted to Howard Perlmutter of the Wharton School for this point.
12 Stephen Hymer, "The Multinational Corporation and Uneven Development," in Kapoor and Grub, op. cit., p. 441.
13 David Calleo and Benjamin Rowland, America and the World Political Economy, Bloomington: Indiana University Press, 1973.
14 "Toward a GATT for Investment: A Proposal for Supervision of the International Corporation," Law and Policy in International Business, 2 (Summer 1970).
15 Raymond Vernon, Sovereignty at Bay, New York: Basic Books, 1971, p. 46.