Transnational Corporations and Uneven Development (RLE International Business)

The Internationalization of Capital and the Third World

Rhys Jenkins

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9780415656634
• eBook ISBN: 9781135133023
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Is the transnational coporation (TNC) an engine of growth capable of eliminating international economic inequalities or a major obstacle to development through a massive drain of surplus to advanced countries? This book presents five different perspectives on the role of TNCs:

• Neo-Classical
• Global Reach
• Neo-Imperialist
• Neo-Fundamentalist
• Internationalization of capital

The author looks at their effect on local labour and capital, and considers the future prospects for TNC involvement in the Third World. The book provides an excellent comparative analysis of TNCs and will appeal to students in development studies and international economics.

1

Transnational corporations: significance and growth

INTRODUCTION

Few economic institutions give rise to such passionate feelings as the transnational corporation (TNC). This is particularly true in the context of its impact in the Third World. It has been portrayed both as an engine of growth capable of eliminating international economic inequality and as a major obstacle to development. It is seen both as a force capable of revolutionizing the productive forces in the economically backward areas of the world and as a major cause of underdevelopment through a massive drain of surplus to the advanced capitalist countries.

These debates have not been confined to academic students of development but have also been fought in national and international political fora, business and trade union circles, the media and even in the arts. The aim of this book is to provide the reader with an understanding of the different positions in this continuing debate and the underlying analytical frameworks of the participants. Its focus is the impact of TNCs in the Third World and as such its scope is relatively narrow. Nevertheless a number of issues will need to be considered in order to obtain an overall perspective on this question.

DEFINITIONS AND TERMINOLOGY

Before embarking on a discussion of the impact of TNCs it will be as well to clarify a few points concerning definitions and terminology. There is no universally accepted definition of a transnational corporation. Indeed after over a decade in operation the United Nations Centre on Transnational Corporations has not been able to arrive at a definition. The broadest definition put forward by the UN Economic and Social Council refers to ‘all enterprises which control assets – factories, mines, sales offices and the like – in two or more countries’ (UNCTC 1978, 158). Usually, however, the term is limited to firms that control production in at least one foreign country (Hood and Young 1979, 3). The term is sometimes qualified by specifying that firms should have a certain minimum level of overseas activities, either in terms of the number of countries in which they operate or the proportion of production, assets or employment overseas, and that they should be of a certain minimum size. Thus, for example, the Harvard Business School Multinational Enterprise Project defined a US firm as a multinational if it was listed in the Fortune 500 largest US corporations and had subsidiaries in six or more countries. Another issue which has been debated within the United Nations is whether the term should only be applied to privately owned firms or whether it should also extend to state corporations, some of which, such as Renault, are indistinguishable from privately owned TNCs.

In a book of this kind which seeks to examine recent debates and which draws on a variety of sources for its empirical material it would be undesirable and probably impossible to adopt a single, rigid definition of transnational corporations. In other words an author is obliged to take on board the definitions which are employed by other writers. Having said this, it seems desirable to exclude from the definition firms that supply foreign markets entirely through exports and to concentrate on those which engage in international production. It is also important to bear in mind that different writers may be working with different definitions and to seek to avoid unnecessary confusion. Often empirical evidence from both home and host countries is available only on direct foreign investment and not on the operations of TNCs. The extent to which this constitutes a major problem will depend on the proportion of foreign investment which is accounted for by non-TNCs. The degree to which a relatively small number of TNCs dominate overseas investment (see below) limits the distortion involved in using such data.

It should also be noted that the book is primarily concerned with the internationalization of industrial capital. As such it does not seek to examine the operations of transnational banks or services, such as advertising, accounting, etc., except in so far as these are related to the international expansion of industrial capital.

In writing this book I have tried consistently to use the term ‘transnational corporation’ as opposed to alternatives such as ‘multinational corporation’, ‘multinational enterprise’, ‘international firm’ and so on. This is the term used in United Nations publications and institutionalized with the creation of the UN Centre on Transnational Corporations in 1974. The UN adopted the term ‘transnational’ in preference to ‘multinational’ at the insistence of certain Latin American and Caribbean states who wished to distinguish between foreign-owned TNCs and joint-ventures of two or more participating countries established as part of regional integration schemes (UNCTC 1978, 159). This term emphasizes that such corporations are usually national firms (in the sense of having a clearly identifiable home base) which operate across national boundaries.

The second term that requires definition is ‘Third World’. Fashions come and go in development studies to describe groups of countries. In this book the term Third World is the main one used as a shorthand for the countries of Latin America, Africa (excluding South Africa) and Asia (excluding Japan). To avoid undue repetition the term ‘less developed country’ (LDC) is also used from time to time.

A word of caution is in order here, as much to the author as to the reader. The use of the term Third World suggests an unified entity which has many common features. However the Third World is in fact extremely heterogeneous and in the process of becoming more so. The states which make up the Third World range from Brazil to Botswana, Saudi Arabia to Surinam, and Taiwan to Tanzania. In talking of the impact of TNCs in the Third World there is a real danger of losing sight of this heterogeneity and presenting it as though their impact is the same everywhere irrespective of local class structures, levels of development or state forms.

The danger is all the more real because most studies of TNCs in the Third World have tended to be concentrated on a few countries which have been the main hosts for foreign investment. These have tended to be either middle-income countries, or countries with substantial natural resources. The reader should therefore always try to bear in mind the heterogeneous nature of the Third World and ask him/herself, what kind of Third World country does this point apply to? What would be the situation in a different kind of country?

ORIGINS AND GROWTH OF THE TRANSNATIONAL CORPORATION

Capital has operated internationally from the earliest days of capitalism. Merchant capital, engaged in long-distance trade, pre-dated the emergence of the capitalist mode of production in Europe. Later trade played a major role in the emergence of industrial capitalism in eighteenthcentury Britain. In the nineteenth century finance also became increasingly internationalized as Britain, and to a lesser degree France and Germany, invested abroad in government and municipal bonds, and shares in railways, trams and public utilities. In contrast to the direct foreign investment associated with TNCs, this was primarily portfolio investment¹ and at the outbreak of World War I 90 per cent of all foreign investment was portfolio investment. The late nineteenth century however also saw the beginnings of the internationalization of productive capital and the origins of some of today's major TNCs. This was the outcome of a number of developments in the capitalist mode of production. From the middle of the nineteenth century certain developments in transport, storage and communications had paved the way towards the creation of a more integrated international economy. These included the development of the railways, iron steam shipping, refrigeration and temperature-controlling techniques, and the invention of the telegraph.

At the same time the concentration and centralization of capital was leading to an increasing size of firm in the advanced capitalist countries and with it important changes in the organization of capitalist enterprise. This has been described by Hymer (1979, ch. 2) for the United States. In the 1870s the typical enterprise in the United States was the single-function firm controlled by an entrepreneur or a small family group. By the early twentieth century this had been replaced by the large corporation carrying out numerous functions and operating several plants. The organization which developed to administer and control these corporations on a continent-wide basis in the US were also well suited to operate plants and subsidiaries in other parts of the world and so the TNC was born. In Europe the so-called Great Depression (1873–96) stimulated the growth of many consumer-good industries as food prices fell, and increasing tariff protection from the 1880s in the USA, Germany, France and elsewhere stimulated international production (Wilson 1974).

Many of the earliest TNCs were in the manufacturing sector. In the last quarter of the nineteenth century, firms such as Singer, ITT, General Electric and Westinghouse from the United States, Dunlop and Lever Brothers in the UK and Nestlé and Siemens in Europe established manufacturing plants overseas. Most of these early manufacturing investments were in Europe (including Russia) and North America.

The first TNCs to enter the Third World were concentrated largely in the primary sector. Although there were earlier foreign investments in raw material production in the Third World, the emergence of modern TNCs with substantial operations in these areas dates from the turn of the century. These included oil and mineral investments in Mexico, copper mining in Chile, Peru and the Belgian Congo, bauxite in British and Dutch Guyana and oil in the Dutch East Indies.

The expansion of these extractive TNCs was triggered by the rapid growth of demand for certain crucial raw materials which outstripped domestic production capacity in the advanced capitalist economies. New, lower cost sources of supply were eagerly sought by established producers and these were frequently located in the Third World. Thus major TNCs such as Exxon, Royal Dutch Shell, Anaconda, Kennecott and Alcoa were born.

At about the same time, a number of TNCs also began to emerge in agriculture. The United Fruit Company was formed in 1899 and established its ‘Banana Empire’ in Central America and the Caribbean before World War I. Major US food-processing companies invested in sugar plantations in Cuba and W. R. Grace and Co. began large-scale sugar production in Peru. British TNCs such as Unilever in vegetable oils and Cadbury in cocoa invested in Africa before World War I, while Dunlop owned rubber plantations in Malaya and Brooke Bond set up tea plantations in India and Cey...

Table of contents

• Front Cover
• Half Title
• Title Page
• Copyright
• Title Page
• Copyright
• Contents
• LIST OF TABLES
• LIST OF FIGURES
• SERIES EDITORS’ PREFACE
• PREFACE
• 1 Transnational corporations: significance and growth
• 2 Theoretical perspectives on the transnational corporation
• 3 Transnational corporations, competition and monopoly
• 4 Transnational corporations and technology
• 5 Capital flows, accumulation and the balance of payments
• 6 Transnational corporations and labour
• 7 Transnational corporations and local capital in the Third World
• 8 Transnational corporations and the state
• 9 Conclusion: future prospects
• GLOSSARY
• BIBLIOGRAPHY
• INDEX