The Myth of the Global Corporation

Paul Doremus, William W. Keller, Louis W. Pauly, Simon Reich

• Publisher: Princeton University Press
• Year: 2021
• Print ISBN: 9780691010076, 9780691036366
• eBook ISBN: 9780691223872
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Critics and defenders of multinational corporations often agree on at least one thing: that the activities of multinationals are creating an overwhelmingly powerful global market that is quickly rendering national borders obsolete. The authors of this book, however, argue that such expectations commonly rest on a myth. They examine key activities of multinational corporations in the United States, Japan, and Europe and explore the relationship between corporate behavior and national institutions and cultures. They demonstrate that the world's leading multinationals continue to be shaped decisively by the policies and values of their home countries and that their core operations are not converging to create a seamless global market.


With a wealth of fresh evidence, the authors show that Japanese and German multinationals, in particular, remain only weakly committed to laissez-faire policy orientations and continue to exhibit strong allegiance to national goals in such areas as investment and employment. They also bring to light the consequences of enduring differences in government policies on, for example, industrial cartels, capital markets, and research and development.


The authors agree that the world economy is becoming more complex and integrated as overt barriers to trade and investment fall away. But they conclude that the extent of this integration is decisively limited by structural divergence at the level of the firm. The book will be essential reading for those seeking to understand the growing interdependence of still-distinctive industrial societies and the wellsprings of the true global economy.

Chapter 1

NATIONAL FIRMS IN GLOBAL COMMERCE

WITHOUT stable political foundations, markets collapse. Following years of depression and world war earlier in this century, the United States and its allies rebuilt an international economy around such an insight. Fifty years later, however, multinational business is often viewed, by proponents and critics alike, as providing a more solid foundation for a truly global economy than governments ever could. The increasingly common view today is that political authorities are relegated to the role of adapting themselves, as well as the societies over which they have receding control, to the convergent logic of an integrated, worldwide technology base crafted in significant part by corporations that owe allegiance to no state.

This book presents a very different view. In contrast to expectations now common both inside and outside the academy, the book finds evidence of the enduring influence of national structures within the home states of the world's leading corporations. Those structures continue to account for striking diversity in the character of core operations undertaken by those corporations.

Spreading the benefits of economic development and technological innovation may indeed be required to achieve and maintain peace and prosperity. But the proliferation of multinational corporations (MNCs) does not guarantee such an outcome. Despite intensifying international competition, MNCs are not promoting the ineluctable convergence and integration of national systems of innovation, trade, and investment, nor are they forcing deep convergence in the national economies in which they are embedded. They cannot do so because they themselves are not converging toward global behavioral norms.

Surface similarities in the behavior of MNCs abqund. Companies selling goods or services in the same markets do have much in common, and the range of cross-border mergers and acquisitions has broadened significantly in recent decades. At root, however, the most strategically significant operations of MNCs continue to vary systematically along national lines. The global corporation, adrift from its national political moorings and roaming an increasingly borderless world market, is a myth. States charter MNCs and shape the operating environment in which they flourish. States retain the political authority to steer their activities.

Variance in the application of actual governmental power in that process of steering is particularly apparent in comparisons among the United States, Germany, and Japan. In the contemporary era, these three home states remain the territorial bases for the vast majority of the world's leading multinational firms. In each case, enduring national political structures continue to shape the operations that most decisively determine the futures of those corporations—their internal governance and long-term financing operations, their research and development (R&D) programs, and their direct investment and intrafirm trading strategies. At the core of the world's leading multinationals, in short, there is no such thing as globalization; indeed, the empirical evidence suggests durable sources of resistance.¹ This has profound implications for the way policymakers, business leaders, scholars, and citizens should think about the changing world economy. At a time when critics are seeking points of resistance to pressures associated with the word globalization, we find systematic national differentation inside the very corporations that many believe to be the progenitors of a new global economic infrastructure.

THE APPEARANCE OF CONVERGENCE

The nature and extent of structural convergence in the economic realm should be highly sensitive to the global operations of MNCs. If national economies are pulling together and not coming apart, support should be found among the business vehicles that most prominently appear to be weaving tightening webs of interdependence. Multinational corporate executives certainly speak in this way. From them, we hear constantly about the emergence of global markets, the globalization of industrial sectors, the potential of unimpeded electronic commerce, all leading to the obsolescence of national economic borders.² Ironically, their most severe critics from the political left agree with their basic analysis. The difference between them is not descriptive but interpretive. The end—one world market—is agreed upon. Where the executives promise spreading prosperity and hope, however, their critics see catastrophic competition and social disintegration.³

It is intuitively plausible that a global system of business is being created as increasingly autonomous business enterprises seek the ever greater economies of scale and product definition required to finance, develop, and exploit new technologies. There can be no doubt that both capital and technology harnessed by MNCs are flowing much more freely across national borders. An apparently seamless web of global financial markets is taken by many observers to be a harbinger of things to come. Even more plausible is the notion that deep regional integration is driven by the expansion of financial and industrial corporations. As MNCs extend their operations across national borders, intuition suggests that locally minded citizens and policymakers would be pushed to adapt their own thinking to a corresponding regional or global logic.

The idea that cosmopolitan big business is inexorably creating a new worldwide political order has in recent years gained considerable currency. A leading explanation traces the process to a technological revolution focused on information-based industries. As one enthusiast puts it:

Global commerce will force through the construction of multi-media highways, and anyone by-passed by these highways faces ruin. [This] is changing the whole nature of political governance and its relationship to commerce. . .. The commercial enterprise of the future will be truly global, it will relocate (physically and electronically) to where the profit is greatest and the regulation easy.⁴

Another prominent observer puts the point more poetically when he takes the multinational corporation to be the defining metaphor for a new age: "Multinationals are like the idea of God during the Renaissance. Their center is everywhere and their periphery nowhere,"⁵ In more passionate terms, a leading social critic depicts such firms as the observable face of "the manic logic of global capitalism."⁶

Indeed, an emerging consensus seems in view: MNCs are ever more widely understood to be the most visible elements in a vast process of economic and political transformation akin to the industrial revolution that first spawned modern capitalism. The term globalization is, again, commonly invoked to capture the sometimes contradictory elements involved in that process. As one political economist explains it, globalization is moving "the world economy to an even larger structural scale." At the same time, it entails a more fundamental shift toward "the privatization and marketization" of politics. The result, he contends, is the creation of new centers of power that are "more sovereign than the state."⁷

The evidence presented in this book, which focuses on the actual activities of multinational firms in technology and capital-intensive sectors, suggests something quite different.

INNOVATION AND THE STATE

In theory, technological innovation and the economies of scale it increasingly demands could undermine political order. For much of the postwar period, analysts and policymakers alike did indeed expect the day-to-day work of corporations in ever-more-open markets to promote a gradual convergence of technological capability across national borders. In this sense, they anticipated a broad movement of effective decision making on future technological development increasingly to transcend the borders of states.

Dominant models of technological change and economic growth, in short, led to the expectation that expanding demand, market liberalization, and open trade would increase the speed and scope of technology diffusion. This process was eventually expected to level the technological playing field, both among corporations and national governments. International trade and attendant flows of information, largely conducted through corporate channels, would spread the benefits of technological innovation ever more widely. This could take the form of direct knowledge embedded in industrial designs, of technologically intensive goods and services, and of production experience. As a result, many economies could eventually be expected to approach or even reach technological parity with the dominant economic powers. After a lag reflecting their delayed start, even developing countries could follow if their political authorities pursued policies that converged in the direction of openness and efficient markets.

The actual record of technological convergence and growth in recent decades has been far less than expected. Certainly the technology gap between the United States and other large industrialized nations has narrowed considerably in many industrial sectors, although at present it appears to be widening with respect to the states of the former Soviet Union. Moreover, as the twentieth century comes to a close, various developing nations appear to have found a path to rapid economic and technological advancement, even if that path has yet to become a smooth one. Certainly, the rate and extent of technological leveling has varied widely across regions and across sectors. A deep integration of national systems of innovation has, however, not occurred. New technology, and the information embedded within it, does not flow as easily or smoothly across national borders as the model of global convergence would predict.⁸

The ability to develop, adapt, and use new knowledge is not a simple by-product of production. Technological innovation also requires concentrated capital investments in human and organizational resources. Our research indicates that the character of corporate and government sponsorship of technology innovation varies markedly, even among the most advanced nations.

Some governments commit substantial portions of national income to scientific and technological development, particularly in the military arena. Others favor investments in broad national technology missions, or investments in the acquisition and diffusion of new commercial technologies. Some promote research directly and aggressively, while others leave the majority of such activity to the private sector. Some governments regulate competition in ways that inhibit centralization and structured collaboration, while others encourage concentration and combination in the name of production efficiency.

At base, the persistent divergence in corporate strategy and structure surveyed in this book points directly to the longevity of national systems of innovation and investment.⁹ Different ways of organizing the institutions and underlying ideologies that frame the modern state continue to shape decisively the organization of the MNCs whose activities often create and sustain national technological competencies. Different ways of organizing the relationship between states and their societies are mirrored directly in the relationships that constitute fundamental corporate operations. In a world where the lion's share of actual technological innovation takes place within corporate networks, the nature of those relationships continues to vary along national lines. This book explores the causes and consequences of those fundamental differences among the world's most prominent MNCs.

DOMESTIC STRUCTURES, MULTINATIONAL CORPORATE STRATEGIES

Through an empirical examination of the most basic strategic operations of MNCs across their core industrial markets, this book probes the phenomena of cross-national economic integration, technological innovation, and structural convergence. The analysis draws on a wide variety of sources, and it deliberately focuses on leading MNCs from leading states.

Despite constant references in the popular media to firms originally chartered in smaller states as harbingers of the truly global economy, we have emphasized American, Japanese, and larger European (mainly German) firms in this study. Firms from small home markets were long ago forced to adapt as they sought growth in external markets. If the term globalization is used simply to characterize the struggle for survival of such firms, then it refers to nothing new. Even so, among the ranks of the world's largest public firms, the number of firms like Nestle and ABB Asea Brown Boveri remains tiny.¹⁰ In terms of market valuation in 1995, the top 100 corporations in the world included 43 from the United States, 27 from Japan, 11 from Britain, and 5 from Germany. No other country accounted for more than five. Countries as diverse and sizable as Russia, China, India, Canada, Spain, Indonesia, Australia, and Brazil could claim none.¹¹

Moreover, although some of the analysis draws on the larger industrial base of the European Union, we view the German base as distinctive enough and regionally dominant enough to be the central analog to the American and Japanese cases.¹² Of Europe's top 100 firms, 27 are German. In the 1990s, they accounted for approximately 25 percent of all sales by Europe's largest firms (as compared to 21.1 percent for France and 20.8 percent for Britain).

Germany has also consistently accounted for the largest share of the internal industrial production of the European Union (23 percent for Germany, 19 percent for France, 16 percent for Britain).¹³ Finally, across key technologically intensive sectors, German firms hold a much larger—and rising—share of world production than firms based in any other European country.¹⁴ In short, if technologically driven structural convergence at the level of the multinational firm is happening, and if it is an important phenomenon capable of reshaping the contours of the global political economy, then it should be evident among American, Japanese, and German firms.

Once established, of course, the technologies developed by multinational firms tend to spread, largely through licensing agreements, joint ventures, and alliances, even though they are most often confined within networks of affiliated firms. This is important because a key determinant of the world's future political organization concerns precisely where technologies will be created, controlled, and deployed. This book seeks to shed light on just that issue as it presents a wide array of evidence on the research and development operations of MNCs, their investment and trading strategies, and their internal governance and core financing. In these fundamental areas of corporate activity, the evidence shows that convergence can be demonstrated only on the surface.

Certainly MNCs change. Indeed, continuous adaptation to dynamic markets is critical to firm survival. If firms from different regions of the world want to sell similar goods or services in the same markets, their day-to-day behavior in those markets will often be quite similar. For those firms that dominate international markets today, however, nationality continues to matter in much more fundamental ways. That nationality is not necessarily given by the location of corporate headquarters or the addresses of principal shareholders, although it usually still is. More fundamentally, it is given by history.

The core strat...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Dedication
• Contents
• List of Tables and Figures
• Preface
• Chapter 1: National Firms in Global Commerce
• Chapter 2: States and Firms: Conventional Images, Complex Realities
• Chapter 3: National Foundations of Multinational Corporate Activity (I)
• Chapter 4: National Foundations of Multinational Corporate Activity (II)
• Chapter 5: The Strategic Behavior of MNCs
• Chapter 6: Corporate Diversity and Public Policy
• Notes
• Selected Bibliography
• Index