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Multinational Corporations and Foreign Direct InvestmentAvoiding Simplicity, Embracing Complexity$

Stephen D. Cohen

Print publication date: 2007

Print ISBN-13: 9780195179354

Published to Oxford Scholarship Online: May 2007

DOI: 10.1093/acprof:oso/9780195179354.001.0001

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 The Case against Foreign Direct Investment and Multinational Corporations

 The Case against Foreign Direct Investment and Multinational Corporations

Chapter:
(p.308) 13 The Case against Foreign Direct Investment and Multinational Corporations
Source:
Multinational Corporations and Foreign Direct Investment
Author(s):

Stephen D. Cohen

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780195179354.003.0014

Abstract and Keywords

Only the most rabid proponents deny the potential for MNCs and FDI to inflict costs and harm on large numbers of people and countries. This chapter is the equivalent of a law brief, this time one-sidedly expounding on the merits of the opposite side of the case and offering a totally different perspective on how to evaluate FDI and MNCs. Once again, no effort is made to replicate the emphasis in earlier chapters on the need for a balanced, objective approach to a subject dominated by heterogeneity, complexity, and subjectivity. The downsides of MNCs and FDI are discussed in terms of their demonstrable threat to a country's overall economic growth and prosperity as the result of the inherent conflict between their single-minded pursuit of profits and the interests of the host country's population. More specific costs such as intimidation of government officials anxious to promote and retain inward FDI, bribing regulators, tax avoidance, reduced competition in the marketplace including price collusion, diminished union and worker negotiating leverage, increased pollution, and increased capital outflows in the form of profit remittances, are also discussed.

Keywords:   monopoly power, profits, exploitation of labor, transfer prices, economic rent, cartels, job losses, offshoring, pollution

An objective and thorough evaluation of foreign direct investment (FDI) and multinational corporations (MNCs) must accept the qualification that neither phenomenon is in all ways and at all times economically and socially harmful in its impact. An unequivocally critical, thumbs‐down evaluation arrives at a different conclusion: The available evidence categorically demonstrates that the negative effects of these international business phenomena dramatically outweigh their very meager benefits. Perceived net costs to the global commons are so great that a clear‐cut policy recommendation easily follows. Governments should do what they are elected to do: run the country, promote the interests of the majority, and vigorously act to reduce if not eliminate the many harmful and inequitable effects of big multinational companies. What is best for society is to have the public sector ensure more equitable distributions of income and the benefits of globalization. The case against dismisses most of the arguments advanced in favor of FDI and MNCs as being either exaggerated, oversimplified, or factually inaccurate.

The principal purpose of this chapter is to distill the main arguments into a thorough and convincing case against MNCs and FDI as they currently operate. The objective is to showcase the many “reasonable” arguments supporting the view that society and governments are off‐course in believing that markets, if left alone, will work wonders in broadly increasing the material well‐being of the world's people and reduce poverty. As with chapter 12, this chapter has a subtle agenda. It is to implicitly advance the idea that when the one‐sided arguments that follow are weighed against the contradictory one‐sided arguments of the previous chapter, a relatively open‐minded reader again should encounter hesitation and equivocation. Such a reader should entertain the thought that because both make some sense, choosing one as representing the absolute, stand‐on‐its‐own version of (p.309) the truth is a flawed approach. Introduction of doubt is a preliminary step to suggesting the attractions of an eclectic middle‐ground analysis that emphasizes the need to appreciate the heterogeneity of the subject, the need to shun generalizations, and acceptance of the scarcity of absolute truths in an ocean of subjectivity.

As in the previous chapter, the contents of this chapter do not necessarily reflect the author's views, and individual assertions may or may not be backed up with what he regards as adequate evidence. The presentation should be considered the equivalent of a legal brief designed to interpret reality in a way that influences the opinions of those who read it. Although the most dubious, least substantiated condemnations have been excluded, this chapter as a whole is intended to be argumentative, not a demonstration of the scientific method at its most precise. The most important commonality of the individual arguments presented here is that each possesses sufficient credibility to preclude its being dismissed as patently untrue or irrelevant. The order in which the arguments are presented roughly follows a macro to micro sequence; order does not imply importance. Too much subjectivity and imprecision are involved to credibly argue that accurate weights can be assigned to each of the downsides cited.

The Inevitability of FDI‐Induced Harm

An UNCTAD report makes the case succinctly and convincingly: “Not all FDI is … always and automatically in the best interest of host countries.”1 The accuracy of this statement begins with the larger truth that irreconcilable differences between nation‐states and MNCs guarantee that their interests are not fully compatible. Profit maximization is inherently linked with maximization of efficiency but not necessarily maximization of national economic and social goals. Multinationals have no incentive to place the needs of host countries before their own. The inevitable result is that most FDI activity is either detrimental or of minimal value to the economic and social orders of the host. Furthermore, nothing in the relentless pursuit of growth and profits suggests that the majority of FDI activity is beneficial to home countries.

Companies, whether domestic or multinational, are not committed to treating any country as an equal partner in a common pursuit of financial gain. The people who run corporations are not hired and paid to be big picture–seeing altruists who put the public good of host and home countries ahead of the good of the company. Privately owned manufacturing corporations are neither charities, social services providers, nor regulated public utilities. They are established to reward the financial commitment made by their owner/investors by selling goods and services that the public needs and wants, not to champion social causes. An international consumer boycott and accusations of being baby killers were (p.310) necessary to get Nestlé and other multinational producers of infant formula in the 1980s to address the health problems their products were causing in less developed countries (LDCs). Contaminated water and the absence of facilities to sterilize and refrigerate turned what was a safe product in the North into a dangerous substitute for breast milk in the South—although it remained legal to sell.2 Press articles regularly report reluctance by automobile companies to issue voluntary recalls for defects not yet proven to be a dire safety risk. In the executive suite, the burden of proof is always on the employee who proposes doing something socially magnanimous but harmful to the bottom line.

Conscious commitment to putting the public good first is least likely to be found in corporations operating on a global basis. MNCs are not merely large versions of domestic corporations. They are huge organizations with unprecedented control over economic resources. They are not just business firms, but the most complex and most highly developed agents of world capitalism, operating in the most important branches and the most highly concentrated sectors of advanced economies.3 In the opinion of the late Raymond Vernon, a distinguished early scholar in the field, “The multinational enterprise has come to be seen as the embodiment of almost anything disconcerting about modern industrial society.” MNCs did not become magnets for criticism by chance or bad luck. As a rule, he felt they are “conspicuously well‐endowed with money and knowledge; they are entrenched in industries difficult to enter; and they are viewed as foreigners in the eyes of most governments with which they deal.” In Vernon's view, MNCs’ presence in LDCs “has drawn the hostility of those eager to develop a strong national identity free of outside influence, those repelled by the costs of industrialization, those at war with capitalism as a system, and those distrustful of the politics of the rich industrialized states.”4 These feelings can be fully justified.

As corporations go global, their growing competitiveness and financial power weaken the institutional base of national economies. “This inhibits equity and legitimacy.”5 The mistaken belief that domestic investment cannot be equally effective as a means to promote development and increase jobs has caused the majority of the world's governments to opt for the short‐sighted, quick‐fix strategy of urging foreign companies to open subsidiaries. In bending over backward to ingratiate themselves with MNCs, government leaders regularly place foreign corporations’ demands ahead of the needs of the citizens who elected them.

Because multinationals by definition move resources and do business on a global scale, they are “less concerned with advancing national goals than with pursuing objectives internal to the firm—principally growth, profits, proprietary technology, strategic alliances, return on investment, and market power.”6 “Stateless corporations have given rise to corporate states.”7 An inherent contradiction results from the desire of MNCs to integrate activities on a global basis with little regard for (p.311) national borders while the people and government of a host country seek to integrate foreign subsidiaries in the best way possible into their national economy.8 “If not adequately regulated, FDI can compound economic, financial, and social problems.”9 The problem is that adequate regulation is not always forthcoming. Many governments lack the ability to stand up to big foreign corporations and impose regulations compatible with national needs rather than the demands of these companies. If a government is too weak, out of touch, or corrupt to promote suitable policies, sovereignty will be no match for MNC power.10 Ultimately, an assessment of the probable impact of MNCs on host countries turns on how effectively the government of the host country performs its role as maker of policy and defender of what it is judged to be the national interest.11 Too often, that performance is ineffective.

Manipulation of transfer prices is a prime example of how corporate self‐interest can surreptitiously siphon off benefits due to countries in which they are doing business. Internal accounting legerdemain allows MNCs to engage in a kind of high‐tech tax evasion. Transfer prices refer to the prices that different units of the same business organization (for our purposes, a parent company and one of its overseas subsidiaries) charge one another for finished products, components, factory machinery, or services. Transactions between related parties do not typically follow the market‐directed rules of arm's‐length transactions between unrelated entities. Multinationals can establish internal costs that arbitrarily raise or lower transfer prices to minimize the amount of taxes or tariff duties owed to national governments.

Profits of a parent company can be enhanced simply by charging higher prices for goods and services sent to subsidiaries located in relatively high tax countries, thereby minimizing or eliminating the subsidiary's profits and thus reducing tax liabilities. If a subsidiary is operating in a low tax country, transfer price legerdemain would consist of charging it artificially low prices, thereby maximizing profits where they will be taxed least. National tax agencies are exercising increased vigilance to discourage manipulation of transfer prices, but outsiders probably will never be able to completely penetrate the caliginous haze that shrouds real costs within massive corporations conducting tens or hundreds of thousands of transactions annually among their subsidiaries in dozens of far‐flung countries. This problem might explain why a private study found that subsidiaries of U.S. corporations operating in four major tax havens (the Netherlands, Ireland, Bermuda, and Luxembourg) had 46 percent of their profits in these four jurisdictions in 2001, but only 9 percent of their employees and just under 13 percent of their plant and equipment.12

Artificially low transfer prices can also be applied to shipments to subsidiaries in high tariff countries, thereby depriving importing countries of another form of revenue. Artificially high transfer prices invoiced by headquarters can also serve (p.312) as a clandestine means of evading host government restrictions on the amount of profits that foreign subsidiaries can remit to their parents.

Corporate actions showing disdain for the interests of the host country are not always the subtle handiwork of the accounting department. The combination of anger, fear, and aggressiveness has led companies to intervene directly in the domestic political sphere. Information on the frequency of such behavior is hard to come by because shady activities involving political leaders and executives of foreign corporations are not conducted in public and not always exposed. One of the classic examples of this phenomenon, ITT's intervention in Chilean politics in the 1970s, is discussed shortly.

All things considered, questions are constantly and understandably raised about who controls MNCs and by what means. Their demonstrated capacity to harm the public's well‐being makes them too dangerous to be left to their own devices. The idea that MNCs can police themselves is illusory, and the relatively new concept of corporate social responsibility is disingenuous. As a study by Christian Aid concluded, “While there are some companies that act responsibly much of the time, and many companies that act responsibly some of the time, the [corporate social responsibility] landscape is uneven.” The organization has seen too many cases where the “rhetoric and the reality are simply contradictory.” Because corporate social responsibility “can become mere a branch of PR,” Christian Aid opined that self‐policing of corporate promises of responsible and ethical behavior is a “completely inadequate response to the sometime devastating impact that multinational companies can have.”13 Harvard Business School Professor Michael Porter characterized corporate social responsibility as “a religion filled with priests, in which there is no need for evidence or theory. … It is all a defensive effort, a PR game in which companies primarily react to deal with the critics and the pressure from activists.”14 Many people believe that enlightened corporate statements notwithstanding, the dominant philosophy of business executives was perfectly summed up by Milton Friedman in 1970: “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase profits so long as it stays within the rules of the game.”15

At the same time that harmful consequences of FDI and some of the duplicity by MNCs are part of the public record, the presumed economic benefits of concentrating production in the lowest‐cost locations are another cruel deception. These benefits exist only in economics textbooks and corporate press releases. The consuming public at large should take with the proverbial grain of salt the claim that the increase in our material well‐being over the past half‐century is mostly attributable to the spread of MNCs. The growing domination of world markets by fewer and bigger companies with increasing power to set or influence market prices is at best a mixed blessing. Unless one has sold an MNC's stock at a profit, there is no way to unequivocally demonstrate that MNCs have been indispensable in (p.313) raising living standards. Despite the efficiency hype from supporters of MNCs, no one has demonstrated that establishment of new foreign subsidiaries always or even mostly results in lower prices rather than bigger profit margins. Neither has it been proven that domestic companies on average could not have reached the same level of efficiency, or at least come close, as did incoming FDI.

MNCs Are Too Powerful and Inherently Anticompetitive

A common criticism of MNCs has always been that their very function is to make competition imperfect. By limiting the number of competitors in the market, they distort the economic process and obtain monopoly rents (excess profits) through dominant market shares. Their actions have made them “agents of a new mercantilism, which has historically tended toward some form of imperialism.”16 Big global companies may not have a conscious malign intent, but they cannot escape having a malign impact on the quest for greater economic good for the greater number. The outlook is for more of the same: increasing concentrations of market power in quasi‐monopolistic MNCs that grow progressively larger in size, in part through a continuous series of cross‐national mergers and acquisitions. Fewer MNCs “are gaining a large and rapidly increasing proportion of world economic resources, production, and market shares.”17 The most disquieting aspect of the bigness trend is the degree to which large and powerful MNCs increasingly dominate world markets in the strategic industrial sectors: telecommunications, information and software, electronics, machinery, automobiles, pharmaceuticals, mass media, and so on.

The downside of an international economic order dominated by large MNCs was first recognized in the 1960s by Stephen Hymer, a pioneer scholar in the field (see chapter 6). He foresaw what indeed has materialized: increasing worldwide asymmetries in the distribution of economic power and benefits. A system based on powerful global companies enjoying monopoly rents centralizes high‐level corporate decision‐making positions “in a few key cities in the advanced countries, surrounded by a number of regional sub‐capitals, and confine the rest of the world to lower levels of activity and income. … Income, status, authority, and consumption patterns would radiate out from these centers along a declining curve, and the existing pattern of inequality would be perpetuated.”18 More recently, a labor union official suggested that the “benefits of the global economy are reaped disproportionately by the handful of countries and companies that set rules and shape markets.”19

A large‐scale MNC entering an average‐sized host country market usually is able to parlay its financial and technological power and its management and marketing skills into an oligopolistic if not a monopolistic position in the local mar (p.314) ket. A highly competitive and ambitious MNC expands, structures, and confines the development of the host economy. It introduces new production, but may by this very act permit no other introduction of competing production. “Thus the normal constraints … of competition in products and prices may not be present.”20 Crowding out of domestic producers is a risk whenever incoming direct investment is in head‐on competition with locals (i.e., when a foreign‐controlled subsidiary is market‐seeking rather than an efficiency‐seeking export platform). Local firms have been driven out of business and new firms discouraged as the results of MNCs’ being more efficient, having better access to financial resources, engaging in anticompetitive practices, or all three.21 Crowding out can also occur when cash‐rich MNCs offer higher salaries to lure the most productive workers away from locally owned businesses.

Another aspect of the anticompetitive bent of MNCs is their propensity to cartelize. The apex of international cartel behavior existed during the Depression years of the 1930s when sales and profits shrank and most governments looked the other way. Corporate efforts to control output and prices on a worldwide basis were concentrated in those raw materials and manufacturing sectors, for example, steel, chemicals, and aluminum, where the products were similar and the number of competing producers was limited. Collusion extended to mutual agreements on market share allocations and exporters charging the same prices in foreign markets as those agreed on by domestic producers.22 In today's world, formal understandings are not an absolute prerequisite limiting competition across national borders. If three MNCs dominate the world market for a given product, three unilateral, uncoordinated decisions not to aggressively compete for market share through low prices become the economic equivalent of a cartel.

Low‐Quality FDI Can Be Worse Than None at All

Advocates of multinationals like to talk about high quality incoming direct investment (see chapters 8, 12, and 14) that create good jobs and produce high‐tech goods. By ignoring the (allegedly) greater preponderance of low quality direct investments that are more harmful than beneficial to host countries, advocates are telling only partial truths. First of all, a significant proportion of new FDI since the 1990s has been in the form of mergers and acquisitions, in which the initial effect is simply a transfer of ownership from a domestic to a foreign company. A capricious absentee landlord and a drain on the host country's foreign exchange holdings can easily negate the few to nonexistent positive effects of a foreign takeover. Second, foreign‐owned subsidiaries often function as islands cut off from the mainland of the domestic business sector and devoid of linkages and knowledge spillovers. (p.315) Third, many jobs in foreign subsidiaries, especially in LDCs, are relatively dead‐end, involving unskilled, low‐paid, and monotonous work with no hope for advancement.

If incoming direct investment was guaranteed to produce positive externalities (for example, spillovers of technology and enhanced worker skills, and extensive linkages with local businesses), the prospect of anticompetitive tendencies and other negative effects would, in most cases, be a risk worth taking. That these externalities may never materialize can be seen in the case of the Irish economy, one of the great success stories from inward FDI. The links between foreign subsidiaries and local businesses were virtually nonexistent until the government came to the realization in the 1980s that indigenous high‐tech export‐oriented firms were not emerging and there was no indication that the presence of growing FDI would inspire creation of any in the foreseeable future. All signs pointed to the government giving too much preference and assistance to foreign MNCs and ignoring indigenous businesses.23 Today, spillover and linkage effects are better, but still limited mainly to low‐end support industries. By way of example, locally owned printing plants have increased in great number in response to the demand by U.S. software firms for instruction manuals. “On the whole, the belief that competition would whip native industries into shape has not been sustained. Instead, it has snuffed them out.”24 Ireland is at risk for becoming overly dependent on the kindness of foreigners.

The lack of a spillover effect by foreign‐owned automobile assembly plants in Mexico further demonstrates how MNCs and local business can live in two separate worlds. Despite being in Mexico for forty years, foreign automobile plants reportedly have generated relatively little business for local suppliers and have not transmitted much technological know‐how. The Volkswagen plant there stresses the point that it buys 60 percent of its parts domestically, but the “local” suppliers are virtually all foreign‐owned and import most of the materials they use. “In spite of the fact that Mexico has been host to many car plants, we don't know how to build a car,” said a local academic.25

To dramatize the potential for low quality FDI to unleash massive harm, let us imagine a bad news scenario of a new foreign‐owned manufacturing subsidiary whose multiple deleterious economic effects so clearly exceed its benefits that the host country clearly would have been better off without it. This hypothetical investment from hell is born as an acquisition of a local producer of toiletries and cosmetics, so no net increase in production results. The takeover is financed by borrowing from a local bank, the parent company having been able to get favorable loan terms on the basis of its excellent global credit rating. No foreign exchange flows in. Less capital is available for lending by the banking system to indigenous businesses and entrepreneurs.

(p.316) No new jobs are created. In fact, many existing ones are lost. In connection with implementation of the parent's lean production techniques, up to one‐third of the acquired company's labor force is summarily dismissed. Most if not all senior executives and top managers are replaced with expatriates from corporate headquarters. Workers who remain are told that if they do not meet higher assigned production quotas, they will also be heading out the door—and that they should not even think about trying to unionize. Those that stay may be taught to use more sophisticated machinery, but their job skills are not significantly enhanced. They remain assembly line workers knowing only how to turn out endless batches of bath soap and lipstick.

Pricing strategy finds the “sweet spot” that allows output to be sold below the prices of domestic competitors but still earn a modest profit. This is only a temporary business strategy. The foreign company's long‐term plan is to become a quasi‐monopolist, raising prices after a sufficient number of local competitors are driven out of the market by the combination of clever advertising of a world‐class brand name and low prices. Marketing will be aggressive enough to discourage local entrepreneurs from entering the market and providing new competition.

Profits notwithstanding, the new foreign subsidiary differs from the domestically owned company that was acquired in that it pays no corporate income taxes. This is the result of its being granted a tax holiday by the host government as an inducement to make the investment. Once this exemption ends, the MNC plans to use transfer prices (see previous discussion) to produce paper losses for its subsidiary in the host country. Profits earned by the subsidiary in question will be booked to a subsidiary in a country with lower taxes. At least one of the newly retooled plants will increase water pollution levels. Contingency plans call for any efforts by the host government to tighten regulation of the subsidiary to be rebuffed by a carrot‐and‐stick strategy. Campaign contributions to influential politicians will be made simultaneously with threats to close the local plant(s).

Further economic harm comes in the form of adverse effects on the host country's balance of payments. Although no capital flowed in to pay for the initial investment, the foreign company regularly remits profits to headquarters in lieu of reinvesting to expand or upgrade the subsidiary. It regularly imports raw materials, intermediate goods, assembly line machinery, and business services, having determined that local suppliers cannot meet its demanding requirements. The subsidiary does not export. The aggregate result is a drain on the host country's limited foreign exchange earnings that might otherwise have been spent on imports needed to meet basic human needs and promote economic development. A low‐income country should not be forced to freeze or cut back on imports and internal investment to export capital to cash‐rich parent companies in affluent industrialized countries.

(p.317) As harmful and unappealing as a manufacturing subsidiary with this profile would be to a host country's economy, it is not an absolute worst‐case scenario. A more definitive version of the ultimate undesirable incoming direct investment would be an amoral foreign mining company truly adroit at bribing government officials (a profile that a cynic would say excludes only a very few multinational mining and petroleum companies). On day one, it begins secretly depositing vast sums in the offshore bank accounts of the host country's top leaders. In return, the foreign company's subsidiary is allowed to pay well below‐market value royalties for the ores or oil it recovers. It also receives quiet assurance that environmental protection laws will not be vigorously applied to its local mining or oil drilling operations. After denuding the countryside of its mineral riches, the MNC quickly removes its equipment and personnel, leaving the locals to deal with the negative spillovers of land ravaged from open pit mining, water pollution, depleted natural resources, and so on. Spillovers of knowledge and technology to the host country are nil, as are lasting benefits.

Neither Fairness nor More Efficiency

Workers have waged an uphill, largely unsuccessful battle since the Industrial Revolution for an equitable share of the income generated from their physical efforts. As noted in chapter 5, the estimated gap has grown to the point where the average U.S. corporate president earns in just one business day what the average rank‐and‐file worker earns in an entire year. The globalization of production has dealt a serious setback to this struggle by further shifting the balance of power in favor of the corporation. For many years, the average manufacturing company has enjoyed greater mobility in moving across national borders than labor. More recently, progress in technology, reduced communications and transportation costs, and the knowledge‐intensive nature of the information technology sector have made it even easier and less expensive for medium and large corporations to relocate factories and service facilities to lower cost countries. Another recent trend is the increasing ease with which MNCs that become dissatisfied with wage rates or governmental regulation in one country can find qualified labor in another country willing to do the same work for less money, another government willing to impose fewer restrictions, or both.

The MNC has corrupted the core dilemma of economic policy: finding the optimal trade‐off between pursuit of fairness (equity) and efficiency. The growing trend to transferring production to subsidiaries in lower cost/lower wage countries reduces labor's share, already too small in the eyes of most people, of the economic pie. However, the new workforce will be less, or at best equally, (p.318) productive compared to the workers they replaced. Efficiency in the narrow sense of the term has not been increased; instead, the reduction in salary outlays exceeded the decline in productivity in the newly opened foreign subsidiary. A huge question is how the MNC responds to the bonanza it gets from reduced production costs. It has two options: lower prices or generate higher profit margins and greater rewards to shareholders (through higher stock prices and increased dividends). The consensus answer is that in most cases, prices remain unchanged and profits rise.

The growing propensity of production lines being shifted to lower cost countries, sometimes in connection with financial incentives being provided by the new host country, is best described as a “ratcheting down to the bottom.”26 As a result of their denouncing a race to the bottom that does not literally exist, some of the more strident critics of globalization are often summarily dismissed; this does a disservice to the genuine plight of relatively well‐paid production line workers. Attention is diverted from the fact that the negotiating position of factory workers at MNCs is deteriorating badly. They face unprecedented threats to job security, salaries, and retirement benefits as companies use their mobility advantage to find ever cheaper labor in the far corners of the world.

Sometimes a company does not physically transfer an assembly line to another country, but workers still suffer economic setbacks. De facto ratcheting down occurs when a company demands that its production workers “voluntarily” agree to givebacks in the form of lower wages, increased hours worked, stricter work rules, or all of the above. This demand is backed up by management explaining how increasing competitive pressures leave it no alternative to move production to another country unless it can reduce labor costs.

The increasing frequency with which manufacturing companies move their subsidiaries to another country is eroding a classic argument about the relative attractiveness of FDI inflows as long‐term commitments. Permanence is no longer a sure thing, and their longevity premium over shorter term, more volatile capital flows like bank borrowing and foreign portfolio investment has started to erode. Prosperity based on the presence of MNCs has become hostage to a self‐absorbed movable beast. A global jobs auction is now under way. MNCs “are, in effect, conducting a peripatetic global jobs competition, awarding shares of production to those who make the highest bids.”27

The full human toll from MNCs’ increasing mobility is unknown because a complete count cannot be made of instances where production continued uninterrupted after workers quietly capitulated to management ultimatums and accepted reduced incomes and benefits. Even if the percentage of workers hurt by this trend is a relatively small percentage of the total workforce, the absolute numbers appear to be growing, and little or nothing is being done to give comfort to or diminish the injury of the many workers whose jobs and earning power have (p.319) been and will be adversely affected.28 The intensifying need to placate the demands of MNCs is curtailing government's ability to respond to the plight of the unemployed with increased spending. “Just when working people most need the nation‐state as a buffer from the world economy, it is abandoning them.”29

Workers in the more industrialized countries of Western Europe have achieved the highest average levels of salaries, job security, vacation time, and social benefits ever measured. The quality of life attained by skilled workers in the industrial sectors of those countries has come to symbolize the magnificent possibilities of capitalism with a heart. The bounty of the economic system tipped in favor of the working majority. However, believers in the Marxist view on exploitation of the masses may yet have the last laugh. The writing on the wall becomes clearer every day: Labor's share of national income and its leisure time appear to have peaked and regressed well into the early stages of decline. The main cause: the ratcheting down syndrome. Europeans feel no guilt for enjoying the good life and believe they deserve to retain it. The fact is that they “have gained politically and socially what many Americans say they want … but have been unable to achieve politically. Americans, too, would like to have employment security, more flexibility, more leisure, fewer worries about health care and pensions.”30

Germany is the best example of globalization's tightening squeeze on European labor. Absorbing what are widely regarded as the world's most expensive labor costs has not prevented the country's major manufacturers from continuing to be world‐class competitors and the backbone of the country's long‐running trade surplus. Despite its much smaller economy, Germany passed the United States in 2003 to become the world's largest exporter of goods. The workers’ skills and relatively high productivity notwithstanding, time seems to be running out on the quality of life achievements of the German labor movement. Large employers are avidly exploiting new opportunities for reduced costs and increased profit margins in Central Europe. The average cost of wages and benefits paid to relatively skilled labor in Hungary, Poland, the Czech Republic, and Slovakia is estimated to be as low as one‐sixth of the equivalent German rate when longer work weeks are included in the comparison. Now that these countries are members of the European Union, they have become ideal locations for efficiency‐seeking FDI, more specifically export platforms for industrial shipments to Western Europe.

Central Europe is to German workers as Mexico is to American workers: They are the lower wage neighbors whose workers are highly productive when placed in a foreign subsidiary with state of the art technology and managerial supervision from the parent company. Factory workers in Germany and the United States have been hard hit, more than in any other country, by domestic corporations building a growing percentage of their new plants in other countries and switching existing production to a subsidiary in a lower cost country. “All (p.320) new [automobile] plants built in Europe will be built in Central or Eastern Europe,” the chairman of French auto giant Renault was quoted as saying.31 The setbacks suffered by German workers are easily demonstrated by the series of concessions made by their unions in 2004 in return for job security. Across‐the‐board givebacks to the electronics giant Siemens by the powerful union IG Metall were the most dramatic. In return for the company's agreement not to shift mobile phone production for at least two years from two German plants to Hungary, the workers in these plants will work an additional five hours a week (from thirty‐five to forty hours) at no increase in pay, which equates to a cut in the hourly wage rate. In addition, downward adjustments were made in Christmas bonuses and vacation pay.

Less dramatic concessions (effectively wage freezes) were granted later in the year to DaimlerChrysler and Volkswagen, in both cases to defuse their threats of shifting production eastward. Workers at a GM Opel plant in Germany agreed in early 2005 to reductions in scheduled future wage increases and more flexible working hours; this was the price of convincing GM to build new models of Opel and Saab in the German plant rather than at its subsidiary in Sweden. An educated guess about future labor‐management trends in Germany and elsewhere in Western Europe is that the givebacks of 2004 are the wave of the future.

Second‐tier wage countries in Europe enjoy no immunity from the FDI ratcheting down process. When Volkswagen announced in late 2002 that it intended to lay off 500 of the 5,000 workers at its assembly plant in Pamplona, Spain, the five unions representing workers at the plant initially took a hard‐line position in opposition. They soon became more conciliatory in response to the advice of a senior union official at the carmaker's main plant in Germany. Wages for workers at the Spanish plant were well below their German counterparts but more than double those in Slovakia, where the company had been expanding manufacturing capacity. An overly rigid position, the union official warned, would likely result in management shifting significant production from Spain to the east. Several weeks later, the Pamplona workers accepted a 5 percent pay cut, and VW canceled the layoffs. In the age of globalization, the union official later lamented, “one has to be willing to go in a different direction.”32 Only a few years earlier, winning this sort of concession would have been unthinkable for most Western European companies. European unions had long waged a bitter fight against even modest givebacks to employers while demanding and winning pay raises and shorter work weeks.33

The ratcheting down process started in the high‐wage countries but is now in full swing in moderate‐income countries. Foreign subsidiaries have already begun abandoning Mexico and Central Europe in the continuing move down‐market to still lower wage countries. In the process, Hungary and the Czech Republic have (p.321) become giant intake and outtake conduits for FDI. At the same time that MNCs are being attracted to Central Europe, others are closing subsidiaries they established just a few years earlier and heading east, mainly to China, in search of even lower wage/lower cost locations.34 Flextronics, a multinational electronic manufacturing services company under contract to assemble the Microsoft Xbox game player, originally opted to assemble it in Hungary. Not quite a year into production, it shut down the production line and moved it to southern China, where the wages were considerably lower. In yet another example of the need to avoid overgeneralization and look at facts on a case‐by‐case basis, employment in Flextronics’ Hungarian plant remained steady in the early 2000s. Ironically, it was partly due to a new contract for final assembly of TV sets made by a Chinese company, presumably for sale in Europe.35

A prime example of ratcheting down is the automobile wire harness industry, which binds wires that deliver electrical current to accessories like headlights and power windows. The first stage of production migration went from the United States to Mexico. Then, as automobile assemblers intensified demands on their suppliers for periodic price reductions, the labor‐intensive assembly of wire harness in Mexico began looking expensive to some of the companies that had relocated there. The second wave of migration commenced when they began moving subsidiaries to lower wage Honduras and still lower wage China; the result has been a decline in Mexico's share of exports of the product to the U.S. market.

Declining wire harness production is only one small part of the larger trend of foreign companies abandoning Mexico for a lower rung on the international income hierarchy. In 2002 alone, an estimated 200,000‐plus manufacturing jobs were lost in that country. The principal cause was the departure of more than 300 plants, mostly U.S.‐owned export platforms known as maquiladoras that had been engaged in labor‐intensive work. Once again, the most frequent destination was China, where total production costs were low enough to offset its greater distance from the American market.36 “Mexican workers are in the untenable position of not earning enough for a good life, but too much for job security. It's a treadmill that's trapping developing countries as they struggle to keep what had been Americans’ jobs.”37 Another strain on the already inadequate social safety net in Mexico will result from the multiyear staged reductions in corporate income tax rates that began in 2005, part of an effort to make the country more business‐friendly.

Ultimately, the effect of ratcheting down is to further reduce labor's share of total income and further increase the already unequal distribution of income. “A world in which the assets of the 200 richest people are greater than the combined income of the more than 2 billion people at the other end of the economic ladder should give everyone pause,” wrote a U.S. union official.38

(p.322) An Open Door to FDI Can and Does Threaten Self‐Determination

MNCs are the main reason that a globalized economy distributes most of its benefits to a small, already wealthy minority, leaving the majority helplessly to cope with the harm and disadvantages inherent in MNCs. At some point in every country, incoming FDI becomes excessive—it crosses a line at which point it begins inflicting an unhealthy loss of economic autonomy on the host and begins handing foreign investors an unhealthy degree of influence over the country's economic future. The excessive power accruing to the big multinationals inevitably comes at the expense of the public good and democratic principles. Critics have warned that gigantic corporations, answerable only to themselves, are pushing societies into an amorphous, disenfranchised mass in which individuals and groups lose control over their own lives and are subjugated to these firms’ exploitive activities.39

Western Europe and Canada became sensitive in the 1960s to the possibility of suffering an intolerable and irreversible loss of control over their economic destinies after watching waves of American MNCs enter and become critical components of their domestic economies. Both went through long periods of angst in an unsuccessful effort to find cost‐effective ways of capping this growing dependence. Although they never imposed formal barriers, their disquiet persists today, especially in sectors like mass media that are perceived to threaten a nation's cultural heritage.

Japan and Korea took a far more restrictive stance against incoming FDI in the post–World War II period. In a word, they effectively banned it in the belief that it came with too many harmful strings attached. Neither suffered significant economic harm by doing so, relying instead on domestic saving and borrowed foreign capital to finance very high rates of domestic investment. Industrialization was successfully carried out by national champions, members of keiretsu groups in Japan and chaebols in Korea.

Japan expressly excluded majority‐owned foreign investment, with only a few exceptions until the 1970s, when intense pressure from the United States led to a reluctant, gradual easing of barriers to FDI. Japanese economic planners worried that the presence of foreign companies would interfere too much with their grand design for economic recovery. The consensus view was that foreigners could never understand and accept the unique rules of the Japanese version of capitalism, especially the unwritten but rigid mutual obligations of the government–business relationship. If foreign companies wanted to profit from Japan's economic recovery, they were required to do so in a passive manner that did nothing to interfere with economic self‐determination. They had to team with a local partner owning (p.323) at least 50 percent of a joint venture or license their technology to a Japanese company.

Prior to an about‐face in attitude in 1998 forced by the Asian financial crisis and its aftermath,

The general fear of Korean industries being dominated by foreign entities—a fear deeply rooted in memories of Japan's colonization from 1910 to 1945—was too widespread inside Korea for the government to accommodate foreign management. Even today, there is a lingering suspicion that FDI is really just a means for foreigners to control Korean industries.40

Americans long viewed this foreign trepidation and resentment as overly emotional, unsophisticated xenophobia. By the late 1980s, however, many Americans familiar with FDI issues had adopted the same stance, never mind the large size of the U.S. GDP relative to the inflow and the continuing U.S. status as the largest outward direct investor by a wide margin. The catalyst triggering the sudden outbreak of not unfounded American fears of excessive loss of economic autonomy was the surge in FDI by Japan, much of which consisted of acquisitions. The country was widely viewed as unfairly having tens of billions of dollars to invest in the United States by virtue of being an adversarial trading partner that restricted imports, aggressively pushed exports, and did not allow foreign takeovers of Japanese companies. The Japanese encouraged further resentment by developing an infatuation with trophy acquisitions (Rockefeller Center, two Hollywood movie studios, Pebble Beach Golf Club, and so on).

All things considered, some thoughtful Americans felt the volume of FDI inflows in the 1980s was excessive even for the world's largest national economy. For example, there was the warning, “The heaviest price paid by Americans is the loss of a measure of political independence. The political activity generated by foreign investors becomes more visible daily.”41 The presumably internationalist associate editor of the journal Foreign Policy worried that

Foreigners with fistfuls of devalued dollars now comb America for banks, businesses, factories, land, and securities. … The most pervasive concern about foreign investment is that it will reduce America's economic and political autonomy. … Particularly worrisome is the growing reliance of American high‐tech start‐up companies on foreign partners for cash and manufacturing expertise. The quid pro quo is usually a transfer of new technologies to the foreign investors, creating future competitors.42

Those who believe history repeats itself were in their element in June 2005, when two closely timed announcements from China triggered a visceral American (p.324) reaction poignantly encapsulated by the Wall Street Journal headline “China Inc. Looks Set to Outdo Old Japan Inc.”43 A Chinese appliance maker announced a cash bid for Maytag, and a Chinese oil company (partly owned by the Chinese government) announced its intention to take control of Unocal Corporation, an American oil company. The latter takeover proposal created the image in many Americans’ minds of the new owners diverting petroleum from American SUVs to Chinese military vehicles. Public opinion was further agitated by the (correct) belief that increased FDI inflows from and acquisitions by China were facilitated by its enormous bilateral trade surplus with the United States. Furthermore, many Americans believed the bilateral surplus to largely be the result of China's unfair trading practices and maintenance of an undervalued exchange rate to enhance its already formidable competitiveness. Even more serious, some Americans worried that Chinese outward FDI would help finance its long‐term foreign policy agenda of diminishing the U.S. role as an Asian power.

MNCs are the cat's paw of globalization's threat to cultural autonomy. Mass media, food, clothing, and restaurant companies, mainly from the United States, have bulldozed a lot of people from other countries into adopting tastes and lifestyle preferences of an alien, highly materialistic society. National cultures and values are being diluted on a worldwide basis to an unprecedented extent. Simmering resentment to the perceived Americanization of the planet was demonstrated by José Bové, a French farmer‐activist whose anger (and flair for publicity) impelled him to wreck a local McDonald's restaurant. His actions were wrong, but he spoke for a rising frustration abroad when he denounced the company as a symbol of the “standardization of food” and a general indicator of what was wrong with the world. To him, the Golden Arches “represents globalization, multinationals, and the power of the market. Then it stands for industrially produced food bad for traditional farmers and bad for your health.”44

Case Studies: Extractive MNCs Are Still Masters of Bad Corporate Citizenship

Not even the most ardent supporter of FDI and MNCs can excuse the malodorous record of harm these companies have inflicted on host countries by natural resource–extractive companies. These kinds of subsidiaries have been caught in unethical, illegal, and harmful acts in numbers far greater than their share of total global direct investment. With geology dictating where they invest overseas, they do not have the option of shopping for a pleasant investment climate as do their relatively refined counterparts in the manufacturing and services sectors. To protect their mining and cultivation rights, they have frequently intimidated and bribed relatively weak, inexperienced third world governments. If bribes are used (p.325) to secure sweetheart deals consisting of below‐market royalty payments and reduced corporate taxes, the inhabitants of poor countries are denied the full benefits of what usually are nonrenewable sources of national wealth. The public good is also harmed if MNC payments to officials’ offshore bank accounts buy exemptions from compliance with local environmental protection laws.

The long historical record of misdeeds by primary sector subsidiaries inspired and sustains the criticism that MNCs make no effort to promote democracy or protect human rights. They rebuff this criticism with the hollow claim that they need to respect national sovereignty and follow the rules of operation laid down by governments, whether democratically elected or authoritarian regimes of the right and left. Though literally true, this defense omits reference to their efforts to topple governments when respect for the sanctity of national sovereignty is inconvenient.

In an admirably dispassionate historical study of MNC operations in developing countries, Daniel Litvin is less critical than resigned to what he views as something akin to congenital misconduct by foreign‐owned extractive companies operating in LDCs. He writes that the complexity of the relationships suggests a systemic problem, an apparent outgrowth of the “inherent limits to the capacity of large multinationals to manage social and political issues in developing countries effectively.” Repeatedly and in a pattern “too pronounced to be coincidental … multinationals have exercised their power in unplanned, unsophisticated, or self‐defeating ways.”45

Historically, extractive MNCs have been the ones most frequently caught contravening local laws and interfering in the domestic political affairs of the host country. The United Fruit Company was an indirect participant in the 1954 overthrow of the democratically elected president of Guatemala, Jacobo Arbenz. Fearful that some of the company's vast property would be expropriated as part of a land reform program, senior executives of United Fruit fanned the flames of fear in the U.S. government that the overtly left‐leaning Arbenz administration would lead to the spread of communism in Central America. The company then quietly aided and abetted a CIA operation that culminated in a successful military coup restoring right‐wing leadership. United Fruit won the battle but lost the war. Over the long term, its power over the Guatemalan government waned. Disclosure of its role in the toppling of the government permanently tarnished the company's reputation, and it is still linked to the decades of low‐intensity civil war in Guatemala that were unleashed by the coup.46

Another example of MNC interference with national sovereignty unfolded in 1960 shortly after the country then known as the Congo received its independence from Belgium. Union Minerè literally financed the brief secession of Katanga, the province where its massive mining operations in copper, uranium, and cobalt were located. Fearful of an upsurge in nationalism and the spread of (p.326) political chaos in a country ill‐prepared for a smooth transition to statehood, the company diverted its considerable tax payments from the national government to the much friendlier and protective provincial government.47

A more recent case study of an MNC plotting the overthrow of a government it found inconvenient involved ITT Corporation, a U.S.‐based services conglomerate. The drama began in 1970, when the company decided it needed to protect its Chilean telephone business from the perceived threat of nationalization. It first actively sought to thwart the election of Salvador Allende, a Marxist, as president, and then after he was elected, to engineer his ouster. In the process, ITT not only engaged in a variety of illegal and unethical in‐country activities on its own against Allende the candidate, but also urged the Nixon administration to impose economic sanctions against Allende's administration and the CIA to engage in disruptive clandestine activities against the regime.48 Later, an internally inspired military coup resulted in Allende's death. ITT may have won the battle but it lost the war. The company never fully dispelled suspicions in the United States, Chile, and elsewhere that it was involved in Allende's demise.49 Once again, it was a case of corporate malevolence creating a situation in which all concerned parties were hurt.

A corporate public relations offensive continues to trumpet the theme that big business has accepted the need to act in a more socially responsible manner—because it is the right thing to do, and a negative public image is bad for business. The image of kinder, gentler CEOs has created a widespread impression that the insensitive, swashbuckling mindset epitomized by extractive MNCs is over. This image is inconsistent with the facts. Despite learning from history that efforts to topple host governments tend to be bad for business and despite sincere efforts by some companies to be guided by the corporate social responsibility ethic, reports of injurious and/or callous behavior continue unabated. The prolonged pollution in Indonesia traced to Newmont Mining Corporation was described in chapter 8. Shell oil company in 2005 was still dealing with a public relations disaster created by the widespread perception that it has been a co‐conspirator, along with the government of Nigeria, in the persecution of people living in the oil‐rich regions of that country. Indigenous peoples have been brutally suppressed by the Nigerian army when complaining about the water and land pollution caused by oil drilling and about their not receiving an equitable share of the royalties paid by the oil companies. After investigating the situation, a nongovernmental organization (NGO) concluded, “Acknowledging the difficult context of oil operations in Nigeria does not … absolve the oil companies from responsibility for the human rights abuses taking place in the Niger Delta: whether by action or omission they play a role.”50

Turning to Latin America, a question can be raised: Are multinational mining companies helping reduce poverty in Peru? Not according to a study by Christian (p.327) Aid. The economic benefits currently being provided to Peruvians by FDI in mining often accrue to the already well‐off and “are easily outweighed by the high costs borne by the poor. Rather than reducing poverty, the evidence suggest that mining many be entrenching it” through greater pollution, land seizures, and reduced education and health care services in the remote villages where mining is concentrated. Policy changes, including reduced corporate taxes, over the past decade have been successful in attracting multinational mining companies to Peru, but they “have not led to improvements in the lives of the rural poor who have to live near the mines.”51

Oil and other natural resource–producing MNCs can indirectly contribute to economic malaise in a host country even if they are paying a fair price for extracted natural resources. The ultimate benefits of resource‐seeking FDI are only partially determined by the monetary value of the hard currency royalties generated by exports. The principal variable is how effectively the government spends the revenues generated. The record here is not good. Some observers have suggested, with only slight exaggeration, that oil and other valuable raw materials have been a curse to those countries receiving large amounts of royalty payments for them. The inflow of financial riches seems to encourage national laxity and overconfidence, insufficient financial controls, corruption, and wasteful spending in these countries far more than economic development and poverty reduction (see chapter 8).

Offshoring: The Newest Phase of the Disenfranchisement of the Majority

The latest socially disruptive by‐product of the twin trends of constant change in technology and the constant ratcheting down of working‐class leverage in dealing with management is offshoring.52 This term does not yet have a single, universally accepted definition. It is used here to describe the business strategy of transferring the work done by relatively high‐skilled, high‐paid service employees in industrialized countries to workers with comparable skills and education in LDCs whose salaries are significantly less. The new workers can be employed at an overseas subsidiary of the MNC doing the layoffs or at a locally owned business services firm, most likely located in India or the Philippines.

Technological progress in computing power and telecommunications has transformed an increasing number of service jobs from nontradable sectors to tradable ones; in short, a steady array of service jobs are joining manufactured goods in becoming vulnerable to foreign competition. With an ever‐increasing amount of business activity being digitalized and with the growing availability of well‐educated, English‐speaking, relatively low‐wage workers overseas, hundreds of millions of new workers have been added to the global labor pool. In (p.328) some respects, the growing offshoring of jobs is merely another phase of companies concentrating economic activity in the lowest cost location as they seek an ever‐increasing level of efficiency in using the world's limited resources. Offshoring might have remained just a footnote in the larger trade policy debate if the movement of jobs from the United States and Western Europe had stopped at what might be described as its first phase. No big political backlash resulted from the initial overseas transfer of lower skilled services jobs, mainly rote data entry of credit card and mortgage applications, the writing of long, elementary software code, and call centers answering customer questions. The political firestorm began as the quantity and quality of services jobs being exported increased.

The real meaning of offshoring is that the relatively few owners of capital and corporate executives have reached another milestone in their efforts to give themselves more money by giving less to the working majority. In the services sector as in manufacturing, if a company switches production to a lower cost locale overseas, it has the choice of increasing its profit margin or passing the savings on to consumers via lower prices. When it comes to allocating the financial gains from offshoring, look for corporate greed, especially among U.S. MNCs, to select the profit‐enhancement option. Offshoring is just another way for international business to communicate the message to workers that they are losing the right to rising incomes and job security. Only executives and shareholders are guaranteed benefits from the globalization of production. When the high‐skill jobs of software engineers, radiologists, architects, legal and financial researchers, accountants, and tax professionals can be done more cheaply overseas and with no precipitous drop in quality, incomes and standards of living in relatively affluent countries are at greater risk than ever before. New York Senator Charles Schumer coauthored an op‐ed article in the New York Times in which he expressed concern that the United States might be “entering a new economic era in which American workers will face direct global competition at almost every job level. … American jobs are being lost not to competition from foreign companies, but to multinational corporations, often with American roots, that are cutting costs by shifting operations to low‐wage countries.”53

One of the reasons that long‐term predictions about the number of service jobs moving offshore are especially tricky is that a small self‐correcting element may come into play. If and when offshoring begins to destroy the jobs of economists, corporate public relations flacks, and general purpose intellectuals, the ranks of supporters for a hands‐off approach to MNCs and liberal trade will be decimated, and the ranks of opponents will swell in number. Sooner or later, a broad‐based political backlash against job insecurity will rebalance the corporate‐dominated economic order.

(p.329) Postscript

The reader is reminded that this chapter, like the previous one, is designed to present the most convincing, credible case possible for one side of an ambiguous and contentious issue. Although no factually untrue statements were knowingly made, the arguments presented herein do not necessarily represent the author's views. The data advanced in support of these arguments do not necessarily meet the author's standards of full academic rigor.

(p.330) (p.331)

Notes:

(1.)  UNCTAD, World Investment Report 1999, p. 155, available online at http://www.unctad.org; accessed November 2004.

(2.)  Kathryn Sikkink, “Codes of Conduct for Transnational Corporations: The Case of the WHO/UNICEF Code,” International Organization, autumn 1986, pp. 820–21.

(3.)  Volker Bornschier, “Multinational Corporations in World System Perspective,” in Wolfgang Mommsen and Jurgen Osterhammel, eds., Imperialism and After—Continuities and Discontinuities (Boston: Allen and Unwin, 1986), p. 243.

(4.)  Raymond Vernon, Storm over the Multinationals—The Real Issues (Cambridge, MA: Harvard University Press, 1977), pp. 19, 27, 145–46.

(5.)  Dani Rodrik, “Governance of Economic Globalization,” in Joseph Nye Jr. and John Donohue, eds., Governance in a Globalizing World (Washington, DC: Brookings Institution Press, 2000), p. 348.

(6.)  U.S. Congress, Office of Technology Assessment, Multinationals and the National Interest: Playing by Different Rules (Washington, DC: U.S. Government Printing Office, 1993), pp. 1–2.

(7.)  Maude Barlow, as quoted in Robin Broad, ed., Global Backlash (Lanham, MD: Rowman and Littlefield, 2002), p. 43.

(8.)  Stephen D. Krasner, Structural Conflict: The Third World against Global Liberalism (Berkeley: University of California Press, 1985), p. 179.

(9.)  Oxfam International, “The Emperor's New Clothes,” Briefing Paper no. 46, 2003, p. 8, available online at http://www.oxfam.org; accessed January 2005.

(10.)  David Fieldhouse, “A New Imperial System? The Role of the Multinational Corporations Reconsidered,” in Wolfgang Mommsen and Jurgen Osterhammel, eds., Imperialism and After—Continuities and Discontinuities (London: Allen and Unwin, 1986), p. 234.

(11.)  Ibid.

(12.)  Steven Rattner, “Why Companies Pay Less,” Washington Post, May 18, 2004, p. A19, quoting a study conducted by Tax Notes.

(13.)  Christian Aid, “Behind the Mask—The Real Face of CSR,” 2004, available online at http://www.christian‐aid.co.uk; accessed May 2005.

(14.)  European Business Forum, “CSR—A Religion with Too Many Priests? Michael Porter,” EBF Debates, 15, 2003, available online at http://www.ebfonline.com/at_forum/at_forum.asp?id=421&linked=418; accessed June 2005.

(15.)  As quoted in Michael Hoffman and Jennifer Moore, eds., Business Ethics: Readings and Cases in Corporate Morality (New York: McGraw‐Hill, 1984), p. 157.

(16.)  Fieldhouse, “A New Imperial System?,” p. 236.

(17.)  Martin Khor, “Globalization and the South: Some Critical Issues,” UNCTAD Discussion Paper no. 147, April 2000, p. 4, available online at http://www.unctad.org/en/docs/dp_147.en.pdf; accessed September 2004.

(18.)  As quoted in Fieldhouse, “A New Imperial System?,” p. 228.

(19.)  Jay Mazur, “Labor's New Internationalism,” Foreign Affairs, January/February 2000, p. 80.

(20.)  Henry J. Steiner and Detlev F. Vagts, Transnational Legal Problems, 2nd ed. (Mineola, NY: Foundation Press, 1976), p. 1185.

(21.)  UNCTAD, World Investment Report 2003, p. 105.

(22.)  Geoffrey Jones, The Evolution of International Business (London: Routledge, 1996), p. 124.

(23.)  Eileen Doherty, “Evaluating FDI‐Led Development: The Celtic (Paper?) Tiger,” 1998, p. 6, available online at http://www.ciaonet.org; accessed November 2004.

(24.)  Ibid., pp. 9, 12.

(25.)  Tina Rosenberg, “So Far, Globalization Has Failed the World's Poor,” New York Times Magazine, August 18, 2002, p. 32.

(26.)  I learned this term from Steven Beckman, director of the Governmental and International Affairs Department, United Automobile Workers.

(27.)  William Greider, One World, Ready or Not—The Manic Logic of Global Capitalism (New York: Simon and Schuster, 1997), p. 82.

(28.)  Lori G. Kletzer, “Globalization and Job Loss, from Manufacturing to Services,” Economic Perspectives, Federal Reserve Bank of Chicago, Second Quarter, 2005, p. 45.

(29.)  Ethan B. Kapstein, “Workers and the World Economy,” Foreign Affairs, May/June 1996, p. 16.

(30.)  Peter Meiksins and Peter Whalley, “Should Europe Work More, or America Less?,” International Herald Tribune, August 11, 2004, available online at http://www.iht.com; accessed August 2004.

(31.)  “Detroit East,” Business Week, July 25, 2005, p. 49.

(32.)  Neal Boudette, “As Jobs Head East in Europe, Power Shifts away from Unions,” Wall Street Journal, March 11, 2004, p. 1.

(33.)  Ibid.

(34.)  See, for example, “A Chill Wind Blows from the East,” Business Week, September 1, 2003, p. 44.

(35.)  “Hungary Eager and Uneasy over New Status,” New York Times, March 5, 2004, p. W1.

(36.)  See, for example, Asian Development Bank Institute Discussion Paper no. 17, November, 2004, p. 3, available online at http://www.adb.org; accessed February 2005; and Business Week, July 26, 2003, p. 35.

(37.)  “Jobs Don't Pay Enough to Loosen Poverty's Grip,” Detroit News, November 21, 2004, available online at http://www.detnews.com, accessed December 2004. Another business executive was quoted elsewhere as saying that unrelenting pressures to move production out of high‐cost countries is a rat race. He might have added that in a rat race, the winner is always a rat.

(38.)  Mazur, “Labor's New Internationalism,” p. 80.

(39.)  Robert Gilpin, Global Political Economy—Understanding the International Economic Order (Princeton, NJ: Princeton University Press, 2001), p. 291.

(40.)  Kim Wan‐Soon and Michael Jae Choo, “Principal Barriers to Foreign Direct Investment in Korea,” in Korea's Economy (Korean Economic Institute, May 2003), p. 28.

(41.)  Martin and Susan Tolchin, Buying into America—How Foreign Money Is Changing the Face of Our Nation (New York: Times Books, 1988), p. 17.

(42.)  Thomas Omestad, “Selling off America,” Foreign Policy, fall 1989, pp. 119, 125, 135.

(43.)  June 24, 2005, p. C1.

(44.)  As quoted in Joe L. Kincheloe, The Sign of the Burger—McDonald's and the Culture of Power (Philadelphia: Temple University Press, 2002), p. 3.

(45.)  Daniel Litvin, Empires of Profit—Commerce, Conquest and Corporate Responsibility (New York: Texere, 2003), pp. xii–xiii.

(46.)  Ibid., pp. 113–40. Another good source of information on this incident is Stephen Schlesinger and Stephen Kinzer, Bitter Fruit—The Untold Story of the American Coup in Guatemala (Garden City, NY: Doubleday and Company, 1982).

(47.)  Litvin, Empires of Profit, pp. 155–67.

(48.)  Joan E. Spero and Jeffrey A. Hart, The Politics of International Economic Relations, 5th ed. (New York: St. Martin's, 1997), pp. 259–60.

(49.)  ITT subsequently ran into a series of management mishaps, some related to excessive diversification and acquisitions; it effectively disappeared in 1994 after being split into three separate companies.

(50.)  Human Rights Watch, “The Price of Oil,” January 1999, available online at http://www.hrw.org; accessed January 2005. For additional information on Shell and Nigeria, see Litvin, Empires of Profit, pp. 249–63.

(51.)  Christian Aid, “Unearthing the Truth—Mining in Peru,” February 2005, p. 15, available online at http://www.christian‐aid.org.uk; accessed April 2005.

(52.)   Outsourcing is a more frequently seen term, but it is not used here because it is too broad; it can apply to purchases of goods or services from either another domestic company or a foreign one. Vertical supply networks, whereby companies buy intermediate goods from other companies, has existed for many years.

(53.)  Charles Schumer and Paul Craig Roberts, “Second Thoughts on Free Trade,” New York Times, January 6, 2004, p. A23.