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International Socialism, Autumn 1979


Sabby Sagall

The crisis and the multinationalization of capital

(Autumn 1979)


From International Socialism, 2:6, Autumn 1979, pp. 123–136.
Transcribed by Marven James Scott.
Marked up by Einde O’Callaghan for ETOL.


Since the War, the export of capital has increasingly taken the form of the export of manufacturing capacity by enterprises located in one country to subsidiaries in others. By 1967, the exports of the ten leading Western countries just exceeded half the turnover of the overseas production sites of the multinational corporations (MNCs): 130 billion dollars compared to 240 billion dollars. [1] The purpose of this article is, to analyse the impact of the current world crisis on the changing patterns of foreign direct investments by the system’s international giants.

The slump and the theory of the crisis

In 1974/75, following the four-fold increase in the price of oil, the international capitalist economy experienced the first generalized slump since the war. It was the first post-war recession that swept through all the advanced countries simultaneously.

In the US, according to one estimate, the after-tax rate of profit on capital of non-financial corporations fell from 7% in 1966-70 to 5.4% in 1973. [2] In Britain, the pre-tax real rate of return on trading assets declined from 13.3% in 1960 to 3.8% in 1974. [3] In Japan, the pre-tax rate of profit on gross holdings of all companies declined less dramatically from 12.5% in 1963 to 10.9% in 1973/4. [4] And in W. Germany, the net rate of return on capital declined from 13% in 1964 to 10.5% in 1973. [5]

With the slowdown in military spending since the mid-sixties, the rate at which the organic composition of capital has risen has been accelerating. [6] Has this rise been compensated by a more than disproportionate increase in productivity and in the rate of exploitation? In the leading Western economies over the years 1964-1975, rises in manufacturing productivity have, with the exception of Japan, been fairly dismal. [7] As regards the rate of exploitation, one writer estimated that in the US, it had declined by 12% from the mid-sixties to the mid-seventies. [8] By using a similar method of calculation for Britain, it can be roughly estimated that the rate of exploitation declined from 39% in 1968 to 26% in 1976. [9]

The employers’ offensive in most Western countries (especially in Britain, Italy and the US) since the late sixties and early seventies would appear to have dented working class living standards. But it did not succeed in reversing the trend towards declining profitability. It thus testified to the continuing strength of trade union organization in the face of mounting attempts by the employers and the state to solve the crisis at the expense of the working class.

The case of US multinationals: three phases

Until roughly the early seventies, the term ‘multinational’, if not synonymous with ‘US corporation’, referred overwhelmingly to American-based parent firms and their global subsidiaries. In 1959, the world’s biggest company in eleven out of thirteen major industrial and commercial sectors was American. By 1974, this applied to only seven branches. In 1959, 63% of the 156 largest firms in these 13 sectors were American (98). By 1974, the figure had declined to 43% (67). [10] The British share rose from 15 to 17; continental Europe’s from 25 to 40 and the Japanese from 1 to 24. [11]

This indicates that it would be wrong to interpret the continuing expansion of American MNCs until 1974 as rooted in the uninterrupted hegemony of the US over the rest of the world. In fact, we can distinguish three separate phases in the post-war development of American direct foreign investment, the predominant features of each phase having a distinct economic and political basis. The first phase spans roughly the mid-fifties to the mid-sixties, the second the mid-sixties to the mid-seventies, and the third begins with the slump.

In 1946, American direct investments abroad were worth seven million dollars, a meagre amount compared with the levels they were to reach over the next thirty years: 49.5 billion dollars in 1965, 102.4 billion dollars in 1970 and 148.7 billion dollars in 1977. As percentages of US GNP, accumulated direct foreign investments rose from 4% in 1950 to 7.1% in 1965 and to 10.4% in 1970. By the end of the slump year 1975, however, they had declined to 8.1% of GNP and by 1977 they stood at 7.8%. [12]

The US emerged from the war as the world’s wealthiest and most powerful capitalist nation. To consolidate this dominance, the American government had hoped to create an interdependent, international economy based on multilateral free trade that would serve the interests of US capitalism in the way that free trade had fortified British capitalism in the 19th century. But at the end of the war, it was realized that the Western European nations were too weak to participate in a free market. Several had powerful pro-Moscow Communist parties, and if their economies became any weaker, they were in danger of gravitating towards Russia. The Americans were confronted by a similar situation in the Far East where a defeated Japan lay close to the rising power of Chinese Communism.

In order, therefore, to neutralize the threat of, first, Russian and then Chinese, military and economic competition, US governments opted to build up regional buffer zones and assist their economic regeneration. They introduced the Marshall Aid plan and encouraged the formation of the EEC even though its tariff barriers would mean discrimination against American exports. But the powerful corporations were aware of the potential of a large, unified West European market. Indeed, a condition of American support for the Rome Treaty was a guarantee that Common Market governments would treat American subsidiaries equally with their national firms. [13] With their export of commodities placed at a disadvantage in Europe’s protected market, American industry intensified their export of manufacturing capacity.

The increasing spread of US affiliates abroad was seen as necessary if the financial burden of maintaining American military hegemony were to be offset. The earnings generated by MNC investment abroad helped the US to finance her overseas military commitments. In addition, American MNCs maintained the US’ share of world markets by securing a strong position in foreign economies and controlling access to vital raw materials such as oil. [14]

The evidence suggests, however, that from the mid-sixties the objective and character of American MNCs began to change. From this period, US foreign direct investment became less and less an indication of economic strength and increasingly a sign of and a response to relative industrial decline. This second period, which lasted until the slump, was marked by a substantial erosion of the US share of world trade and investment and a glut of dollars. [15] By August 1971, when Nixon devalued the dollar and suspended its convertibility for gold, a shift had taken place in favour of Europe, especially Germany, and Japan. Throughout the fifties and sixties, Western Europe (except Britain) and Japan enjoyed higher growth rates than the US; throughout the sixties, the US had the lowest productivity growth of all the Western economies; and finally, the technological gap between the US and her chief rivals was narrowing, in part due to the transfer of technology made possible by the presence of American MNCs within competing economies.

Just as British capitalism responded to the beginnings of industrial decline at the end of the 19th century by a steady growth in the export of capital, so there seems to have been a parallel with US capital. American MNCs, particularly in capital-intensive sectors such as chemical products, electrical goods, non-electrical machinery and in consumer goods such as cars and food-processing, increased their proportion of investment abroad as a means of offsetting the decline in the American rate of profit and diminishing competitiveness on world markets.

The European and Japanese challenge

From the mid-sixties, American enterprises became increasingly threatened by competition from European and Japanese firms. The growing economic strength of these countries made it both necessary and possible for them to move from exports to production abroad. Their ability to generate rising surpluses made them more and more able to meet the “American challenge” by expanding their manufacturing capacity in those industries and markets until then dominated by US firms, e.g. in chemicals, electrical goods and motors.

With the decline in the permanent arms economy and the emergence of powerful new economies, world competition for markets began to intensify after the mid-sixties. But survival in such rivalry depended upon size. The minimum threshold necessary for effective competition was raised, simply because larger capitals achieve greater economies of scale through higher capital-intensiveness and therefore a lower cost of output. American MNCs had pioneered innovations in products and processes that depended on high technology. European firms thus had no choice but to go beyond their national boundaries in search of resources that could not be found in one country alone.

The second half of the sixties was also a period in which the centralization of capital through mergers and take-overs was accelerated throughout Europe. It was a process greatly encouraged by governments who regarded it as essential if they were to create national enterprises capable of standing up to American competition. But this further added to the size of capitals and meant that these new European giants could only be profitable if they produced and sold in more than one country.

Hence, by the early seventies, the growth rate of, e.g., German and Swiss foreign investments was of the order of 20% to 30% per year – at least twice as high as the American 10% or the British 7%. [16] By 1971, the 85 largest continental MNCs had 781 subsidiaries in the EEC countries compared to the 758 affiliates of 187 American parents in 1968. [17] The peak period of US multinational expansion was 1959-1961 when American corporations set up 901 foreign manufacturing subsidiaries. The equivalent period for continental European firms was 1968-1970 when 1,030 subsidiaries were established abroad. By 1970, the US had 4,836 foreign affiliates compared to 2,529 for the UK and 3,023 for continental Europe. [18] The European MNCs had by 1971 located the majority of their subsidiaries in their neighbours’ territories, i.e. in other, mostly developed, European countries. [19]

We can thus appreciate the degree to which European multi-nationality as it developed after the mid-sixties reflected a growing ability on the part of large European enterprises to compete with the US in their own and their neighbours’ home markets. (At this stage, the Japanese were still able to rely overwhelmingly on exports to enhance their economic power, having established by 1970 only 521 foreign affiliates.)

American firms were driven to resist this growing challenge from Europe and Japan, one that also manifested itself in a rise in the value of continental assets within the US market from 2,690 billion dollars in 1962 to 5,724 billion in 1972. Moreover, even British direct net investments rose from 4% of total UK gross domestic fixed capital formation in 1967 to 7.1% in 1972. [20]

Between 1966 and 1970, total domestic assets of US MNCs rose from 247.4 billion dollars to 350.5 billion while their overseas assets increased from 66.2 billion to 102.4 billion. Thus, in 1966 the market value of their assets abroad was worth 26.7% of their domestic assets while by 1970 the figure had risen to 29.2%. [21] By the early seventies, a large proportion of the total assets of vital industries were located abroad – about one third of the chemical industry, 75% of the electrical industry, one third of the pharmaceutical industry and about 40% of the consumer goods industry. [22] In 1970, capital expenditure by American MNCs abroad was 14.1 billion dollars compared to total business expenditure of 79.7 billion at home – 17.6% of the domestic total. By 1974, the comparative figures were 112.4 billion dollars at home and 25.7 billion overseas, 22.8% of domestic expenditure. [23] But the world-wide rate of return on total US direct investments in manufacturing abroad declined from 15.9% in 1973 to 13.5% in 1974. In the developed world, the rate of return in manufacturing declined from 16.5% in 1973 to 13.6% in 1974. Total profits declined by 157 million dollars as the world economy fell into slump. [24]

Moreover, the areas to which US multinational investment flowed in this second phase continued in the main to be other industrialized economies. In 1970, the advanced countries accounted for 71.6% of US direct foreign investment compared to 23.4% going to less developed countries (LDCs). By 1975, this had hardly altered, with 70.1% invested in the industrialized world and 23.9% in the LDCs. [25] In general, the accumulation of direct investments by advanced countries in LDCs declined as a percentage of their total world investment stock from 31% in 1967 to 26% in 1975. [26] But the small increase in the rate of investment by American MNCs in LDCs in the first half of the seventies can be explained by three factors:

  1. Increased investment in the OPEC countries (US investment in the Middle East rose from 0.2 billion dollars in 1970 to 1.3 billion in 1975).
  2. Continuing investment in the high-income markets of the more developed LDCs such as Brazil, Mexico and the developing LDCs of S.E.Asia.
  3. The creation by US MNCs of “export platforms”. Declining profit rates and the increasing cost of high technology drove American corporations to seek out areas of cheap labour in an attempt to cut down the overall cost of production. They first devised this strategy in the early seventies, particularly in response to increasing Japanese penetration of the US market. Japanese firms operated then at substantially lower labour costs and could surpass American levels of productivity. They were thus more and more able to undersell US firms in their own home market. The American response was to try and recapture lost home markets by investing in areas of very low wages, e.g. Hong Kong, Taiwan, Singapore and the Mexican-American border zone. In these areas, cheap TVs, cameras, computers, calculators, stereos, etc., could be produced and re-exported to the US at competitive prices. [27]

The American revival after 1975

In the third, phase in the development of US MNCs, a period beginning with the end of the 1974/75 slump, the main indicators suggested, at least until 1979, a relative shift in economic power back to the US. Although the American economy has now moved back into recession, US capitalism did emerge from the 74/75 slump less bruised than the other Western economies, none of which have been able to stage significant recoveries.

Whereas the European and Japanese economies have stagnated since 1975, until a few months ago that of the US grew relatively faster than those of her rivals. [28] The growth of exports slowed everywhere since 1974/75 but those of the US fell less sharply than those of her competitors. And since the W. European and Japanese economies are far more dependent on exports than the American, they have been bearing the lion’s share of the slowdown in world trade. [29]

Unit labour costs have been rising more slowly in the US than in any other industrialized country. In Germany and Japan, real wages have been rising faster since 1973 than in the US. [30] Indeed, according to two observers, real living standards of American workers declined between 1974 and 1976. [31] Despite higher productivity growth rates in Germany and Japan, their ruling classes have been seriously worried that their wage levels would reach or even surpass that of the US in a period of slow economic growth. [32]

Even more important, since the quadrupling of the price of oil in 1973, the cost of capital – plant, equipment, raw materials – has risen substantially faster than that of labour. [33] This has led to stagnation in domestic investment in the developed world since 1974. The best performance was in the US where investment rose by an annual average of 9% between 1975 and 1978, compared with 6.4% for Japan and 4.5% for Germany.

Moreover, the growing economic strength of the more advanced LDCs, increasingly able to undercut certain exports of the Europeans and the Japanese, has aggravated their problems more than those of the US which is less dependent on exports. Moreover, Europe (apart from Britain) and Japan are far more dependent on oil imports than the US which, despite much higher levels of consumption, has substantial indigenous reserves. In 1977, oil imports accounted for 47.5% of total US consumption, 91.7% of EEC consumption and for 99.7% of Japan’s. [34]

The main “beneficiary” of the slump, relatively to other countries, was, at least until 1979, the US. Following 1975, it was the US, with its lower energy costs and more quiescent labour force, that emerged as the safest and largest market in the world.

Since 1974, American total direct foreign investment has slightly declined. It dropped from 22.8% of domestic capital expenditure in 1974 to 20.7% in 1978. In manufacturing, US overseas direct investment declined from 25.2% of domestic investment in 1974 to 22.4% in 1978. [35]

The reversal of the pre-1974 trend towards increasing US direct foreign investment in other, especially developed, economies is one of the key changes in the pattern of multinational investment since the slump. By contrast, the total value of foreign direct investment into the US rose from around 28 billion dollars in 1975 to 34 billion in 1977, and by a further 5.7 billion in 1978. [36] As a percentage of domestic capital expenditure, it rose from 24.5% in 1975 to 25.5% in 1976 and 25% in 1977. [37]

The reason for the reversal of the pre-1975 trend is not hard to discover. The greater strength of the US market compared to the other developed economies between 1975 and 1979 is revealed in an apparent trend towards slightly higher profitability. The after-tax rate of return on total US capital overseas declined sharply from 23% in 1974 to 14% in 1975. [38] By contrast, the US after-tax domestic manufacturing rate of profit on equity (including petroleum) rose from the slump figure of 11.6% in 1975 to 14.2% in 1977. [39]

Because US profit rates have withstood the 74/75 slump better than in other countries, the US market has thus exercised a stronger magnetic pull than other Western markets. [40] For example, in W. Germany, the net rate of return on capital declined from 9% in 1976 to 8% in 1977. [41] In Britain, the pre-tax rate of return on trading assets in 1976 was 4.7%. [42] In Japan, the ratio of net profits to sales was 2.8% in 1976 and 2.9% in 1977 compared with 6% in the pre-recession peak quarter (last quarter of 1973). [43]

The overall balance of market strength was recently described by one observer: “The United States remains the largest mass market of high-income consumers in the world; its margin of primacy has shrunk, but the gap that remains is still very large. As for industrial products, US leadership has continued in most branches of the computer industry and industrial equipment, and with some important exceptions in large-scale machinery over a very wide range of industries.” [44]

The continuing relative superiority of American technology was underlined by a recent analysis of the 1973 British census of production. In that year, US MNCs in Britain, although accounting for only a tenth of manufacturing employment, made about a sixth of manufacturing investment and produced about a seventh of net output. Their gross value-added per head was a third higher for all industry. [45]

Moreover, since the slump, there has been an intensifying trend towards protectionism in all Western countries. No less than 800 complaints were presented to the GATT conference in 1977. There is currently a danger that growing protectionism could lead to a contraction in the volume of world trade on a scale approaching that of the thirties. Europeans and Japanese MNCs, faced with shrinking markets in their own continents, have been buying or setting up firms in the US much as American enterprises did in W. Europe in the late fifties and early sixties. Since 1975, the leading investors in the US market have been such powerful MNCs as British Petroleum, Volkswagen, Siemens, Fiat, GEC, Unilever, Phillips, British Oxygen, Hoffman-La Roche, Mitsubishi Electric and Honda. [46]

Multinational banks

One of the most significant effects of the 1973 fourfold increase in the price of oil and the ensuing slump has been the spectacular increase in the wealth and power of multinational banks. This resurgence of finance capital occurred as a result of the recycling of petrodollars paid by the oil companies to the oil-producing states through the multinational banks in the Euromarkets. Since 1974, there has been a huge increase in the money capital flowing into the coffers of this vast, integrated global banking system. It is outside the control of any government and is dominated by a few dozen giant banks that transact business in every corner of the world. The offshore Eurodollars, Euromarks and other ‘stateless’ currencies that they are able to hurl across national boundaries 24 hours a day amount by now to at least 400 billion dollars – in money terms, ten times more than a decade ago and four times more than in 1972. The borrowers are mainly LDC governments and other corporations. [47]

The slump and the slowness of the recovery resulted in a contraction in the demand for capital in the advanced countries. The multinational banks were presented with the opportunity to greatly expand their lending to LDCs whose exports of raw materials were severely curtailed. American, German, British and, more recently, Japanese banks either launched themselves as MNCs or else tremendously increased their overseas lending transactions. [48] One observer stated that “in 1967 some 28% of the total debt (i.e. of LDCs) – about 12 billion dollars – was owed to private sources; by 1976, an estimated 40% was owed to private sources – about 75 billion dollars, of which 45 billion was owed to US banks.” [49]

Apart from US banks, German banks have risen to prominence in the period of vast expansion of the Eurocurrency market. Of the top ten banks in the Eurobond market in 1978, the two leaders were both West German, each responsible for 27.6% and 12.7% of international debt issues brought to the European capital market. [50]

Why investment is becoming more international

The value of the world-wide stock of foreign investment grew from 158 billion dollars in 1971 to 287 billion in 1976, an increase of 82%. Its rate of growth was in line with that of the combined GNP of the developed economies where all but a fraction of overseas investment originates. Between 1971 and 1976, the share of US direct investments in the total world stock fell from 52.3% to 47.6%. [51] Since that time, the US share has continued to decline and major investments are being undertaken from a wider range of home countries than in the early seventies.

The available evidence suggests that since 1975, the trend has been towards an increase in the internationalization of production. Firstly, the flow of foreign direct investment by MNCs from the leading investor countries has continued to rise in absolute terms. But secondly, most clearly in the case of the US’ leading rivals, Germany and Japan, there has been an increase in the rate of foreign direct investment (measured by overseas direct investment as a proportion of domestic investment). It is MNCs in those countries that emerged from the slump weakened relatively to the US that have felt the strongest pressure to internationalize production. This is all the more remarkable given the fragility of the world recovery since 1975.

There are five main reasons why today, beyond a certain point, the rate of profit tends to be higher overseas than at home:

  1. The enormous cost of research and development is largely borne by the parent company. Products are produced and marketed abroad after they have been tried and tested in the home markets. As The Economist put it: “typically, innovations are tried out first in multinational companies’ home markets”. In the obvious example of IBM, which spends 1 billion dollars a year world-wide on research, only 7 of its 35 laboratories are in Europe although about 40% of its turnover is there. [52]
  2. Host governments throughout the world have been increasingly competing with one another in offering benefits to attract investment by MNCs. The ‘persuasion costs’ that governments are willing to pay have been rising. They include such inducements as 100% depreciation allowances, tax holidays, regional subsidies and cheap interest rates on government loans.
  3. MNCs can make important savings through their employment of foreign labour, not only in the case of cheap labour in the ‘export platforms’ but even in the case of skilled labour. For example, when US MNCs first began setting up subsidiaries in Europe, “labour costs were low, yet (Europe) had the industrial skills that even low-cost Taiwan or Korea do not”. [53]
  4. Important savings on transport costs can be made by establishing subsidiaries close to the market instead of supplying it through exports from the home country. “Even today, freight can add 5–10% to cost, a whacking lump to lift out of your profit margins”. [54]
  5. MNCs are able to redistribute costs and thus profits through ‘transfer-pricing’. International trade in recent years has increasingly come to mean intra-group trading, i.e. one section of an MNC producing goods, components or raw materials and selling to another section in another country. It has been estimated that one third of world trade now consists of MNCs trading with themselves. According to the recent UN report, in 1970 around 50% of US exports were within MNCs and in 1973 30% of UK exports were on an intra-firm basis. [55] But where the same organization is both buyer and seller, market mechanisms cannot apply as the corporation can charge itself internally what it likes for its own products. Apart from minimizing taxation, transfer-pricing enables MNCs to avoid exchange-controls, making available additional capital abroad. It also provides opportunities to circumvent tariffs, to ease repatriation of profits from countries which impose limits and to take advantage of differential exchange rates. [56]

The failure of the post-slump recovery

In the past, slumps fulfilled a crucial role for capitalists since they resulted in a collapse in the value of capital. This occurred through a cheapening of the elements of capital and labour power. Slumps thus laid the basis for a restoration of the rate of profit which in turn provided an incentive for enterprises to resume investment. The 1974/75 slump, however, failed to restore the rate of profit. The giant monopolies, especially the less efficient and weaker ones, were able to weather the storm either through the direct aid of the state as in the case of British Leyland or else through the continuing supply of credit by central banks. In addition, big business in the advanced countries was able to shield itself from the worst effects of the crisis by raising prices to compensate for declining profitability.

The result, however, has been to put an even greater premium on size. In the past, capitalists would cut investments in order to reduce the over-capacity that resulted from slump. But given the contemporary structure and capital-intensiveness of industry and its concentration in the heartlands of capitalism, rival capitals are driven to undertake larger and costlier investments than before. This objective cannot be attained within the confines of national boundaries. It can best be met by enterprises either expanding their international investments, launching themselves as MNCs or else pruning their obsolete operations on the basis of a global perspective.

Inevitably, the huge investments required to retain or enlarge an MNC’s market share entail enormous risks. This is no doubt part of the explanation for the increasing use since 1975 of ‘non-equity’ arrangements by MNCs. This type of cross-border enterprise includes a wide variety of provisions such as joint ventures, the leasing of plants or contract manufacturing. One of the most widely-publicized contracts earlier this year was the licence granted to the Chinese government to produce Coca-Cola. But the most frequently practised form of industrial co-operation has been co-production. Considerable publicity was given last April to the negotiations between British Leyland and Honda for the British firm to assemble a Japanese-designed car.

Multinationals and the state

A number of writers have claimed that the growth of MNCs has fundamentally altered the world economic system. Global corporations, it is argued, have steadily been able to break loose from the territorial ties that bind nation-states or capitals that are purely national in their scope. Their sole loyalty is to their world-wide balance-sheet and they roam freely across national boundaries in search of bargains in productive facilities and of markets. To quote an extreme version of this position, C. Kindleberger stated starkly that “the nation-state is just about through as an economic unit”. [57]

At the other end of the theoretical spectrum stands Mike Kidron, for whom MNCs are no more than extensions of the national capital. For him, the overriding trend within the world system is towards state capitalism, i.e. the total unification between a country’s private capitals and the state. [58]

It is arguable, however, that MNCs and the power of both home and host states have both simultaneously increased. As we saw, host governments everywhere welcome foreign MNCs as sources of fresh investment, technology, employment and exports. Mutual dependence between host governments and MNCs, in particular US ones, has been especially pronounced in European regional development and in the more developed LDCs such as Brazil.

On the other hand, MNCs can damage the economies of host countries. Their need to protect the value of their huge liquid assets drives them to try to keep debts owing to them in ‘hard’ currencies and liabilities in ‘soft’ ones. Often, in anticipation of a devaluation, they will undertake a massive shift out of one currency and into another. If one thinks that MNCs in recent years have at times controlled from one and a half to twice the total world reserves in the hands of governments, such moves can become self-fulfilling prophecies. In this way, they threaten currency stability and can undermine the balance of payments of their host economies. There is, of course, nothing in this that makes it qualitatively specific to the post-slump years. However, a period of deepening crisis and intensifying international competition is one in which exchange rates fluctuate more wildly than before. Under such conditions, MNCs have the power to wreak greater havoc than under conditions of growth and stability.

But in the final analysis, MNCs are dependent on host states to fulfil the whole series of social and economic functions without which giant enterprises cannot operate profitably under ageing capitalism. Also, increasingly since the slump, foreign subsidiaries depend on host states to bail them out at times of crisis, e.g. Chrysler UK in 1976.

It is also arguable that since the slump, MNCs have become even more dependent than before on the support and sponsorship of their home states. The American Chrysler Corporation recently turned to the US government for 1 billion dollars’ aid after revealing that it expected a loss of at least 400 million in 1979. MNCs also look to their home governments for protection from competition by foreign MNCs in their own home market. When Ford were projecting an investment of 700-950 million to set up an assembly plant in job-hungry Lorraine, the French government expressed willingness to grant the firm a subsidy said to have been one third of the entire capital cost. The government was faced with vigorous protests by Peugeot-Citroen for whom such an investment posed a severe threat to their substantial share of the French market. [59]

Moreover, MNCs continue to depend on their home government providing economic and military back-up to safeguard their overseas investments. But the cost of such protection is mounting: the US could do nothing to save the Shah but they are spending 15 billion dollars to bolster the Israeli and Egyptian economies so as to protect the position of the oil MNCs.

Thus although MNCs have interests distinct from those of the home state and can often frustrate the achievement of its policy aims, this does not entail the conclusion that MNCs are more powerful than the state and can dispense with its protection. Indeed the growth of the power of the MNCs has contributed to the growth of the power of the state and the increasing role of state capital as a counterweight. Both have gained as the non-state non-multinational sector has declined. Ageing capitalism, by internationalizing production, has created a world-wide division of labour. But it has also concentrated ownership and control into fewer and fewer hands. The tendency towards state capital and towards multinational capital are therefore in reality part of the same tendency.


1. C. Tugendhat, The Multinationals, 1971, p. 21.

2. William D. Norhaus in The Falling Share of Profit. Brookings Papers on Economic Activity, 4 : 1974, edited by A. Okun and G. Perry.

3. Bank of England Quarterly, December 1978, p. 517.

4. OECD: Council Towards Full Employment and Price Stability (McCracken Report), Paris, June 1977.

5. OECD, Economic Survey: Germany, June 1978, p. 63.

6. See M. Fisk The Heart of the Beast in International Socialism, series 1, no. 98, May 1977; Bank of England Quarterly, Dec. 1978, p. 517; OECD, Economic Survey: Germany, 1976.

7. Fortune, August 1976, p. 131, quoted by A. Szymanski in New Left Review, no. 101–102, Feb.–April 1977, p. 146.

8. M. Fisk. op. cit.

9. National Income and Expenditure 1978 (Blue Book), tables The rough estimate of the rate of exploitation is obtained by dividing the net profits of private manufacturing companies (after depreciation but before tax) by the total of wages and salaries in the same sector. This is. of course. very rough, but it gives some indication of the direction in which things are changing.

10. See E. Mandel. The Second Slump, 1978, pp. 51–60.

11. The Economist, 4th February 1978.

12. R. Gilpin, US Power and the Multinational Corporation, 1975. p. 16; Statistical Abstract of the United States 1977, tables 688, 920; Survey of Current Business, August 1978, p. 16.

13. R. Gilpin, op. cit., p. 108.

14. Ibid., p. 147.

15. Business Week, 24th July 1978.

16. The Economist, 4th February 1978.

17. See Comparative Multinational Enterprise Project, Harvard Business School, quoted in L. Franko. The European Multinationals, 1976, p. 136.

18. Ibid., p. 10.

19. Ibid., pp. 80–81.

20. National Income and Expenditure 1978 (Blue Book), table 10.8: Trade and Industry, 9th June 1978, p. 562, table 2.

21. Statistical Abstract of the United States, 1977, table 920.

22. R. Barnet and R. Muller, The Global Reach, 1974, p. 17.

23. Statistical Abstract of the United States, 1977, tables 909 and 922.

24. Survey of Current Business, October 1975, pp. 43 and 48.

25. Statistical Abstract of the United States, 1978, table 945.

26. United Nations, Transnational Corporations in World Development: A Re-Examination, May 1978, table 111–33, p. 237.

27. R. Barnet and R. Muller, op. cit., p. 132.

28. Business Week, 24th July 1978, p. 68.

29. Ibid., p. 69.

30. Ibid., p. 74.

31. J. Petras and R. Rhodes, The Reconsolidation of US Hegemony, New Left Review, no. 97, May–June 1976, p.49.

32. Business Week, 24th July 1978, p. 74.

33. Business Week, 17th October 1977.

34. Business Week, 24th July 1978, p. 71.

35. Survey of Current Business, October 1978 and December 1978.

36. Survey of Current Business, August 1978; Business Week, 9th July 1979, p. 52

37. Survey of Current Business, August 1978, p. 39; Statistical Abstract of the United States, 1978, table 951.

38. Survey of Current Business, August 1976, p. 44 and August 1978, p. 22.

39. Statistical Abstract of the United States, 1978, table 954. These figures do not take into account inflation and the devaluation of the dollar both of which would increase dollar earnings relative to the direct investment position which is valued at historic cost. Nor do they allow for transfer-pricing (the geographical re-distribution of costs within the enterprise through intra-firm pricing).

40. Business Week, 9th July 1979, p. 52, notes, however, continuing US investment in the more backward parts of Europe (Spain, Eire, Greece, &c).

41. OECD, Economic Survey: Germany, July 1978.

42. Bank of England Quarterly, 1978.

43. OECD, Economic Survey: Japan, July 1978.

44. R. Vernon, Storm Over the Multinationals, 1977, p. 48.

45. The Economist, 7th October 1978.

46. E. Mandel, op. cit., pp. 101–104.

47. Business Week, 21st August 1978.

48. See Nigel Harris, World Crisis and the System, in International Socialism, series 1, no. 100, July 1977.

49. H.M. Wachtel, The New Gnomes: Multinational Banks in the Third World, Transnational Institute, 1977, p. 11.

50. The Financial Times, 26th January 1979.

51. United Nations, op. cit., table 111–32, p. 236.

52. The Economist, 10th September 1977.

53. Ibid.

54. Ibid.

55. United Nations, op. cit., p. 43.

56. Counter Information Services, Anti-Report on Ford, p. 8.

57. See C. Kindleberger, American Business Abroad, 1969, quoted by R. Murray in H. Radice (ed.), International Firms and Modern Imperialism, 1975, p. 107.

58. See Michael Kidron, Two Insights Don’t Make a Theory, in International Socialism, series 1, June 1977.

59. The Economist, 31st March 1979, p. 54.

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