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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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 A Better Approach to Understanding Foreign Direct Investment and Multinational Corporations

 A Better Approach to Understanding Foreign Direct Investment and Multinational Corporations

Chapter:
(p.11) 1 A Better Approach to Understanding 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/9780195179354.003.0002

Abstract and Keywords

In addition to introducing the main integrating themes of this book, this chapter explains how they are distinct from those studied in the usual approach to analyzing multinational corporations (MNCs) and foreign direct investment (FDI), and why they can help to provide a more accurate, better balanced understanding of these increasingly important phenomena in the global economy. The core thesis is that a reconciliation of the two diametrically different assessments of MNCs and FDI requires that MNCs be recognized as heterogeneous entities and FDI as a heterogeneous process. The presence of hundreds of thousands of foreign subsidiaries inevitably mean an infinite variety of effects and cost-benefit ratios. Disaggregation becomes an essential analytic tool in the absence of homogeneity. Most generalizations are inaccurate or distorted. Appreciation for the dominance of perceptions in a subject area with few absolute truths is presented as an essential analytic approach. Another basic thesis argues that these international business phenomena are more effects, than causes of change. Finally, the argument is made that even accurate evaluations of MNCs and FDI tend to have a short life-span because they are dynamic and constantly changing, not static, phenomena.

Keywords:   heterogeneity, perceptions, disaggregation of data, global economy, foreign subsidiaries

In an old tale, six blind men have come into contact with an elephant for the first time. They are curious to know what it is like. The first blind man touches its side and says an elephant is like a hard wall. The second puts his hand on the trunk and disagrees, saying an elephant resembles a giant snake. The third blind man touches its tail and compares the animal to a fuzzy piece of rope. The fourth feels the legs and says the elephant is like four tree trunks. The fifth touches the ear and describes it as a soft carpet. The last blind man touches the tusk and proclaims an elephant to be sharp like a spear. Confused that they all had come to radically different conclusions, they seek a wise man to ask which one of them has it right. He tells them that they all are right. The reason, he explains, is that “Each of you has ‘seen’ only one part of the elephant. To ascertain the truth, you must see the whole animal.”

Speaking metaphorically, this book is about a better way to analyze the nature and impact of things that are having an increasingly important effect on our lives—things that receive much attention but are not easy to comprehend. More to the point, it is about using largely ignored analytical techniques to assess the nature and impact of the process of foreign direct investment (FDI) and the business entities known as multinational corporations (MNCs). It is intended to add to our far from comprehensive knowledge of what they are and how they really affect the domestic and international economic and (p.12) political orders. This is a deceptively difficult task for several reasons. Far more layers and variants of these international business phenomena exist than are commonly recognized. They are constantly assuming new shapes and permutations. Perceptions frequently substitute for facts in defining reality.

Subsequent chapters will show that consensus has been unable to extend much beyond agreement that FDI is growing in importance and that MNCs are growing in number, and like untethered elephants, they cannot be ignored. The clash of ideas centers on the questions of nature and effect. Do MNCs excessively exploit the majority to benefit the relatively few owners of capital and harm the environment? Or are they mainly a vehicle for enhancing the standard of living of workers and consumers while doing relatively little social and environmental harm? Returning to metaphor, should the multinationals be allowed to roam relatively freely in search of profit or be constrained by the chains of vigorously enforced governmental regulations aimed at ensuring they operate in what is defined as the public good? “Touching” one part of them produces not only the image of excessive concentrations of power in the hands of management and wealth in the pocketbooks of shareholders but a precipitous decline in the power of labor as well—all of which perpetuate social inequities. Touching another part of the FDI/MNC phenomenon produces the image of unprecedented efficiency, good jobs, and competitive prices for a constant array of new goods and services—all of which make people's lives better. Touching other parts reveals the possibility of neutral effects and the presence of unknown factors suggesting conclusions should be tentative.

“Foreign direct investment” and “multinational corporation” are composite phrases describing two separate but related phenomena. Both exist in many different forms, as will be spelled out in chapter 4. The number of valid generalizations that can be made about the approximately 70,000 companies that meet the definition of multinational dramatically declines when they are viewed in anything but the broadest terms.1 Plentiful exceptions exist to almost any specific rule about them. Patterns discerned in studies of all FDI in a single country or FDI by a single industrial sector in many countries may or may not be legitimately extrapolated to broader conclusions; it depends on specific circumstances.

Unambiguous black‐or‐white positions and generalizations tend to be the outgrowth of inquiries based on too few data and too much preconceived bias. Given its emphasis on objectivity and its tilt toward ambiguity, this study does not (consciously) take sides. It is neither an endorsement of the criticisms by detractors of FDI and MNCs nor an endorsement of the praise offered by their supporters. To play advocate for a single point of view would contradict and undermine the core thesis that depending on circumstances, these phenomena can be very beneficial, very harmful, neutral, or uncertain in their impact.

(p.13) Needed: A More Accurate and Productive Method of Evaluating FDI and MNCs

The most frequently asked question about FDI and MNCs (as defined in the next chapter) is whether on balance they are a positive or negative thing for the international community—and by extension whether governments should or should not tightly regulate them. A two‐tiered cottage industry exists to provide evaluations of both. One floor cranks out proof that their collective contributions to economic growth and efficiency comfortably outweigh the effects of their self‐aggrandizing oligopoly power and harm to society. The second floor generates proof that the situation is in fact the other way around. The popularity of the good‐versus‐bad question notwithstanding, this is not the most intellectually productive avenue of inquiry into this subject. To be blunt, this is the wrong way to frame the question. It typically leads to a very unrewarding least common denominator approach. The whole is composed of so many dissimilar and constantly evolving parts that generalizations about good and bad are superficial at best and inaccurate at worst. Placing a list of pros and cons on either side of a scale and then rendering a sweeping endorsement or condemnation of all FDI and MNCs is an oversimplified and all‐around unsatisfactory exercise.

A far more fruitful line of inquiry and the integrating thesis of this study is the inevitability of heterogeneity in FDI and MNCs and accordingly, the imperative of disaggregation. Nuance is too pervasive to permit many valid generalizations. This leads to the hardly earth‐shattering but surprisingly infrequently offered conclusion that FDI in the form of foreign‐owned or controlled subsidiaries is sometimes a positive thing on balance, sometimes a bad thing on balance, sometimes neutral or irrelevant on balance, and sometimes has an indeterminate effect. This conclusion results in the phrase “it depends” being the mantra of the approach taken in this study. Massive numbers of foreign subsidiaries operating in hundreds of different national and regional environments generate a sliding scale of economic effects that ranges from highly deleterious to highly beneficial. Facts and circumstances are seldom if ever identical and need to be considered on a case by case basis according to circumstances.

A disconcertingly large percentage of policy advocates and researchers of all ideological persuasions has failed to explicitly recognize the seemingly obvious: Different kinds of businesses produce different kinds of corporate activity and diverse results. Stated another way, the result of different input is different output. The nature, objectives, and effects of specific kinds of foreign subsidiaries are not applicable to others. This guideline applies within countries, within business sectors, and on a global basis. Even the notion that all multinationals are big (p.14) companies is a false generalization. No two MNCs are organized exactly alike, share the same production profile, have the same business culture, and produce identical effects on host and home countries. Some are genuinely socially enlightened, perhaps because they are based in countries that literally legislate the requirement that corporations serve the interests of the larger community of stakeholders (see chapter 2). Some are socially amoral with no discernible concerns beyond serving the interests of their executives and shareholders. Few MNCs find themselves in such a static business environment that their current management strategy is the same as it was twenty to thirty years ago. Furthermore, very few (if any) foreign subsidiaries, even of the same company, are identical in their output and impact on the local economy.

The concepts of heterogeneity and disaggregation are essential elements in providing a relatively objective and balanced explanation of the infinite number of combinations within and among three main variables: the nature and the effects of tens of thousands of individual foreign subsidiaries plus the conditions in countries where they are located. MNCs and FDI have genetic codes that, virus‐like, are able to mutate in response to new external threats and opportunities. Hundreds of variables create a complex, seldom (if ever) duplicated confluence of factors that shape the characteristics and actions of each of the world's estimated 700,000 individual foreign subsidiaries, the end product of FDI and the operating arm of MNCs.2 These foreign‐owned factories, service facilities, and natural resource extractive projects operate in dozens of different business sectors in more than 200 countries and territories, each of which has its own distinctive political, regulatory, and commercial milieu. Foreign subsidiaries are created for different reasons (see chapters 4 and 6) and pursue their goals differently. Among the diverse tasks they can be assigned are production of services, components, or finished goods; wholesale distribution; retail sales; and research and development. Different tasks and different locations mean that few, if any, subsidiaries have identical needs for labor skills and identical schedules of pay and benefits for workers.

Every overseas subsidiary faces a one‐of‐a‐kind mix of pressures from customers, headquarters, host governments, workers, and civil society. Each subsidiary responds to its total environment in a unique way. Some provide lasting benefits for the country in which they are operating, others exploit it and then leave. Some countries hosting incoming FDI are powerful, highly developed, and longtime practitioners of capitalism. Other host countries are just a few years removed from bloody civil wars or communist economies where the concepts of markets and private enterprise were alien. Companies founded in what are popularly dubbed less‐developed countries (LDCs) are now regularly becoming multinationals with subsidiaries in industrial countries, thus reversing the historical North to South direction of FDI (see chapters 4 and 8).

(p.15) Disaggregation also is an essential diagnostic tool to identify and measure the different levels of quality by which an individual foreign subsidiary can be assessed. As discussed in chapters 4, 12, and 13, certain kinds of FDI have a high statistical probability of providing a favorable impact on the country in which they are located, whereas other kinds have exhibited a high propensity for unfavorable, costly results. As argued throughout this book, the compatibility of MNCs with the welfare of the countries in which they operate and those in which they are headquartered is mainly determined by specific circumstances. A universally applied label of benevolence or malevolence is at best misleading, at worst inaccurate. So, too, is an operating assumption that all necessary data needed for evaluating FDI and MNCs are available and accurate. If one accepts the hypotheses of the dominance of heterogeneity and the need for disaggregation, no compelling economic or political logic exists to demand that an all‐inclusive guilty or innocent verdict be issued regarding the cumulative net desirability of all foreign‐owned or ‐controlled subsidiaries in all countries. Most of the important questions, such as “Do MNCs promote economic growth and employment?” “Do MNCs seek unconstrained market power?” “Does FDI promote exports and upgrade local labor skills?” and “Do MNCs threaten local companies and culture?” have only one thing in common. The appropriate answer to all of them begins the same way: “sometimes.” Whether these questions should be answered in the affirmative or negative depends on the nature of an individual subsidiary, the specific pattern of economic and social effects by a foreign subsidiary on its local surroundings, and the economic‐political conditions prevailing in the host country. The answer to the question of whether governmental policy should emphasize market forces or government regulation is: It depends on one's values.

The diversity of MNCs creates the opportunity for subjective research to find at least one or two examples of just about any kind of corporate behavior, from the most abhorrent to the most beneficial. The appropriate research question is and always has been whether the presence of one or two case studies is adequate to confirm existence of a larger truth as opposed to merely demonstrating isolated anomalies. The answer is that it depends on the circumstances. Even multiple case studies can strain credibility if the corporate behavior patterns cited no longer are in effect. It is all too easy to start from a preconceived notion and find at least some scattered examples for affirmation of a specific point of view. Accuracy is more likely to be forthcoming from a research strategy that starts with a blank ideological slate and no agenda, conducts a broad and deep examination of the many forms and behaviors of MNCs, and then reaches conclusions integrating both the charms, warts, and intangibles of heterogeneous phenomena.

Another guideline for a more accurate and productive line of inquiry is to appreciate that MNCs respond in large part to the larger business environment in which they operate; they are not exclusively proactive movers and “shapers.” Yes, (p.16) they are the proximate cause of major changes in the way that business is conducted throughout the world. But they are better described as the middlemen of change because they themselves are largely the effect of even larger phenomena. The two most important are technological changes that restructured the international economic order and the post–World War II relaxation of official barriers to international trade and capital movements. Multinational companies are mainly the offspring of the bigger, more powerful forces that rendered obsolete the concept of national markets, meaning that producers of sophisticated manufacturing and services products no longer can remain competitive if they produce and sell only in their country of origin (see chapter 6). A more specific cause‐and‐effect conundrum is whether incoming FDI is a cause of accelerated economic development or whether a country's success in achieving high rates of economic growth and development attract foreign companies/cause inward FDI (see chapters 8 and 14).

International business issues should be viewed in context, not as stand‐alones. MNCs long ago became a natural extension of corporate activity. The conflicting attitudes toward the costs and benefits of private enterprise are similar whether considering them on a global scale or in terms of a single country. Issues involving multinationals are derivatives of larger divisive issues, just geographically wider in scope and introducing the political/psychological variable of foreigners being involved. The optimal division of wealth between owners of capital and workers; the growing concentration of market power in fewer, increasingly large companies; business's influence on government policy makers; and environmental damage are as much national as they are worldwide concerns. The pros and cons of a handful of large nationwide retail chains driving out locally owned stores by charging low prices and skimping on employee benefits (the Wal‐Mart syndrome) have many similarities with the mixed message of a large, aggressive MNC amassing increasing market share on a country‐by‐country basis through low prices and excellent customer service.

One of the very few generalizations that accurately characterize FDI and MNCs is that their benefits have been exaggerated by advocates and their harm has been exaggerated by critics. The massive proliferation of foreign‐controlled subsidiaries cannot accurately be characterized in the aggregate as a zero‐sum game as its harsher critics argue, nor can it accurately be labeled a positive‐sum game as its most enthusiastic advocates do (see chapters 12 and 13). Both sides of the public debate have tended to oversimplify and share the same methodological deficiencies.

Shortcomings of Traditional Diagnosis

The approach to the study of FDI and MNCs advocated here is tantamount to arguing the need to take the tale of the blind men to the next level. To see the (p.17) whole elephant in front of you is a necessary but not sufficient means to achieve an adequate understanding of the full range of characteristics and behavior of an entity that exists in multiple forms. When the men in the story heard the one‐sentence explanation as to why each had a different experience when touching the animal, their curiosity was satisfied—but prematurely so. They still were far removed from becoming fully informed about the subject of their inquiry. This is the overlooked fallacy of the story. The men did not achieve full enlightenment about elephants simply because a sighted person told them that all descriptions of their individual tactile experiences had been correct, albeit limited in scope. They learned only that there is utility in aggregating data to resolve apparent contradictions. Errors of omission are still possible if some important parts of the elephant were not touched by the six sets of hands and therefore could not be entered into the equation. Seeing only a few aspects of FDI and MNCs similarly provides only partial, potentially misleading understanding.

The limited inquiry conducted by the blind men in the tale provides a second valuable lesson for students of the FDI/MNC phenomena: The specific object being observed may or may not be representative of the entire range of the object's forms and variants. Examining only one form of the object under scrutiny can result in inadequate data sampling that leads to inaccurate extrapolations rather than a genuine mastery of the subject. If sightless people seeking to learn about elephants touch only a three‐month‐old animal, their assessment of the physical dimensions of the species will be faulty. However, it would be the same situation if twenty people with perfect eyesight attempted to learn about elephants by looking only at a relative newborn.

In addition to the need to account for age as a variable, a full understanding here requires knowledge that the elephant family is composed of different species. Asian and African elephants are not physically identical. Hence, both need to be touched, if not visually examined, to assemble critical data on the different forms of these animals. In some cases, information gathering done solely by touch would be wholly inadequate. A rare strain of white elephant actually does exist, but its most distinctive feature would elude the touch of 100 highly educated blind people.3 Similarly, the heterogeneous nature and impact of FDI and MNCs cannot be fully understood by touching only one, two, or three of the many forms that they take.

The larger lesson of this classic tale goes beyond the virtue of information seekers combining several perspectives to provide broader insights. It is a lesson about the need to recognize the limits of partial knowledge and the need to pursue further lines of inquiry to attain larger truths. The story never suggested that after the blind men learned why each of their tactile experiences was different from the others, they realized the possibility that they were still missing key pieces of data, that is, they were still ignorant of certain physical attributes of (p.18) the elephant. Another lesson that is transferable to study of FDI and MNCs is that all six assessments by the blind men were equally valid because each correctly portrayed partial reality. None negated the accuracy or usefulness of competing descriptions.4 No one assessment could claim to have described the most important trait of the animal, that is, none could claim to be the definitive explanation of what they had touched. Additional fact finding and data analysis would be necessary to produce such an explanation. At times, it is appropriate that pursuits of a definitive study of elephants and a definitive understanding of the world of FDI and MNCs incorporate a Hegelian dialectic to seek synthesis between the valid points of numerous theses and antitheses.

A major shortcoming of most prior studies and discussions of FDI and MNCs is their failure to emphasize that neither is cut from a single mold. They defy all‐inclusive labels and need to be understood as generic terms encompassing a variety of formats. They are heterogeneous. A few studies have made this critical point, but regrettably only briefly, without emphasis, and no follow‐up. In an incisive observation made too quickly and with no fanfare, David Fieldhouse wrote, “Each corporation and each country is a special case. Individual examples can neither prove nor disprove general propositions.”5 Buried in the middle of a paragraph on page 450 of a well‐known 1978 book on the subject, the authors quickly noted in passing that one of their “principal findings is that foreign direct investment is an extremely heterogeneous phenomenon.”6 The need to emphasize diversity goes beyond academic methodology; it has an important implication for public policy as well. To the extent that systemic heterogeneity is recognized, national laws and international agreements can be designed to deal with specific contingencies and address specific infractions rather than regulate on a broadly indiscriminate basis. As the authors of the just cited book said, generalizations, including theirs, about the effects of FDI “must be treated with extreme care, as must calls for sweeping policy approaches.”7

Although the issues surrounding FDI and MNCs are numerous, difficult, and not conducive to easy answers, they ultimately are about the two most complex policy issues in political economy. The latter can be stated succinctly and clearly: (1) what is the optimal trade‐off for society between fairness and efficiency in the economic order, and (2) where in economic policy is the optimal dividing point between government regulation and free markets on both a national and global basis? The wording of these two mega‐questions never changes, but countless responses over the years have failed to provide answers simultaneously satisfactory to the opposite ends of the political spectrum. All of the chapters that follow directly or indirectly touch on these questions. They are not intended to provide definitive answers one way or the other but to analyze the two sides of the argument in a way that helps point the way for a mutually acceptable common ground between two clashing perspectives.

(p.19) Thousands of articles, books, and reports, together with uncountable speeches and debates, collectively provide a vast body of information on the many facets of our subject. Large quantities, at least in this case, are not synonymous with complete, accurate, and up‐to‐date data. Though this is a personal opinion, the combined written and oral efforts of practitioners, advocates, and researchers do share at least one demonstrable failing: They have been unable to change a measurable number of preexisting attitudes—pro, con, and noncommittal—regarding FDI and MNCs. Scant progress has been made toward reaching consensus on what kind of public policies should be applied to them. Closure has been blocked in part because so many opinion makers, scholars, and casual observers on both ends of the political spectrum either embrace international business as a whole with open arms or attack it with a clenched fist. The standard rhetoric of the opposing sides exudes the erroneous belief that the generic terms FDI and MNCs are compatible with a one‐size‐fits‐all set of government regulations, lenient or restrictive as the case may be. In fact, these terms are holding companies for infinite variations of economic and business situations.

That relatively few people have switched from being favorably disposed to opposed and vice versa seems to be a function of the continued paucity of uncontestable universal truths, real and perceived. New arguments have not come along that were convincing enough as to be capable of changing people's perceptions. This is part of the explanation for a forty‐year‐old public debate about the virtues and implications of FDI and MNCs that is better known for its intractable, occasionally strident inconclusiveness than for its intellectual acuity. Given their present and future importance to a growing percentage of the world's population, this is an unsatisfactory state of affairs. FDI is an important variable in determining economic growth, employment, incomes, and international trade flows. By dominating global production of many key capital and consumer goods, MNCs have become the most important nonstate actors in the international political order, so much so that legitimate but not necessarily accurate concerns have been raised about their ability to diminish the sovereignty of nation‐states (see chapter 10).

Another basic shortcoming of many of the words written and spoken on this subject is failure to explicitly recognize how important perceptions, value judgments, ideology, and sometimes self‐interest are in shaping discussions by both advocates and critics. When “attitude” fills a vacuum caused by a shortage of incontrovertible data, a contest between diametrically different positions is likely to provoke and perpetuate disagreement and crowd out objectivity. People tend to view the FDI/MNC phenomena through differently configured lenses that have been individually molded by the unique mix of values and experiences that shapes our thinking. Greek philosopher Epictetus said some 2,000 years ago, “Men are disturbed not by things, but by the view which they take of them.” (p.20) Assessing what one sees when considering FDI and MNCs is somewhat akin to taking a Rorschach test made up of concepts instead of ink drawings. Evaluations of FDI and MNCs are prime examples of perceptions defining “truth.” (Full disclosure: The text of this book is largely a manifestation, sometimes subconsciously, of the author's values and preferred methods of processing information.)

When the need to make choices takes place in the absence of proven fact and in the presence of perceptions, a political process is at work. Blanket condemnation and praise of MNCs and FDI stem from divergent personal philosophies and ideological beliefs (see chapter 5) that are subjective in nature. They cannot definitively be proved or disproved by controlled laboratory experiments that, as might be possible in the natural sciences, produce exactly the same result after hundreds or even thousands of replications. Only a few things about these phenomena can be deemed factual or be precisely quantifiable, such as corporate sales, profits, and assets and the most popular country destinations of overseas subsidiaries. The exact amount of annual worldwide FDI flows and the total value of cumulative FDI outstanding are unknown due to data collection shortcomings and different definitions in national statistics (see chapter 14).

Subjectivity, the stuff of politics, is also deeply rooted in our subject matter because of the totally hypothetical nature of the “what if” scenario. Definitive assessments of the gains or losses that would have accrued to a host country from nonexistent FDI that might have been established, or of the net effects of not introducing foreign subsidiaries that were in fact established are not possible. Counterfactuals by definition are hypothetical statements and pure guesswork. Irrefutable impact assessments could be achieved only by the science fiction device of freezing time, turning back the clock, then either creating new foreign subsidiaries that were not established or eliminating those that were, and finally restarting time. The results of the new chain of events could then be definitively compared to the original version of history.

Reduced to its essence, different perspectives in this case equate to a referendum on big capitalism. Persons with very liberal or very conservative political views are likely to process information in such a way that they perceive domestic and international business operations mainly with skepticism or enthusiasm, respectively. It is yet another case of honorable people looking at the same abstract phenomena and seeing two mutually exclusive albeit completely legitimate versions. Both sides remain dogmatic and dug in for the long haul even though neither can offer irrefutable proof that its position is the most accurate and equates to first‐best public policy strategy.

In the introductory lecture of my course on MNCs, the potential ambiguity of perceptions is illustrated by showing students optical illusions in which two images are entwined in an especially clever manner. When one looks at the classic (p.21)

                       A Better Approach to Understanding Foreign Direct Investment and Multinational Corporations

Figure 1.1.

illusion in figure 1.1, the initial perception most likely will be the profile of an old woman; a second look eventually will reveal the profile of a young woman. It's all a matter of perspective, not unlike viewing MNCs and FDI.

Scholarly Inquiry Needs to Keep Up with a Rapidly Changing Business World

Finally, studies of FDI and MNCs should avoid a common error of commission in the debate: failure to explicitly assert that these are not static phenomena. Their dynamic properties have been clearly demonstrated historically in two opposite ways. The first is the multinationals' nonstop ability to adapt to and then exploit changing economic and market conditions. The second face of dynamism is big companies' tendencies to restructure, fail outright, or be bought out by bigger, more successful companies. To revert to cliché, the only constant has been change. The new economics of high‐technology production and the advent of the information and telecommunications revolution have helped fuel an accelerated flow of new products and new forms of international business operations since the 1980s. The continuing pace of change also reflects the overlapping rise in the need for a successful multicountry business strategy and the decrease in the difficulty of establishing foreign subsidiaries. The bottom line is that relentless change in international business operations has reduced much of what (p.22) has been written about them to an interesting but somewhat outdated snapshot of a particular point in time (a fate awaiting at least parts of this book) rather than an accurate reflection of present‐day conditions.

The start of a new millennium is a propitious time to suggest that more persons and organizations on both sides of the pro/con argument need to recognize the wide gap between conventional wisdom and changing real‐world conditions. MNCs have changed at a far faster rate than is commonly recognized. Several of the contending arguments' most cherished, longest used images and allegations date back to the early 1970s and before. Continuing to repeat them without modification has become more a reflex action than an intellectually sound analytical exercise. Several long‐running allusions now qualify for antique status and are badly in need of updating—if the objective is to construct timely and accurate characterizations. The forecast of an operatic drama featuring apocalyptic struggles between gargantuan, avaricious, unaccountable, monopoly‐seeking, amoral‐exploit‐the‐workers commercial baronies and altruistic protectors of the people but overmatched government officials has not quite materialized. Neither have the promises that MNCs could work wonders in reducing poverty and economic backwardness and that a new age of enlightened corporate executive embraced the practice of responsible corporate behavior.

The accumulated literature seldom highlights the extent to which the continuing evolution of FDI and MNCs impedes formulation of a permanently accurate analysis or critique of how they behave, what their objectives are, or what effects they have. A good example of this syndrome is Global Reach—The Power of the Multinational Corporations, a book Richard J. Barnet and Ronald E. Müller, published in 1974. It became a major source of grist for the mills of an entire generation of skeptics and critics who saw a dangerous if not disruptive and harmful trend in the making. When examining this much‐quoted book three decades later, one finds a largely accurate description of the unprecedented scale and scope of MNCs, the implications of which had not previously been articulated in such a detailed manner.

Some of its arguments, however, invite an update or a disagreement. In response to the statement that “Driven by the ideology of infinite growth, a religion rooted in the existential terrors of oligopolistic competition, global corporations act as if they must grow or die,”8 one should begin by noting that big corporations are anything but immortal. Any company faced with aggressive, smart, and persistent competitors will eventually confront financial death if it is too incompetent or self‐assured to innovate, cut costs, and serve customers in a way that allows it to protect and increase its profits. It is common for those who criticize large corporations and markets to downplay the degree to which changing conditions in the latter can render summary judgment on the former. Permanence is not a fringe benefit that comes with a company growing in size and (p.23) profitability; “here today and gone tomorrow” is the more prevalent syndrome. One‐third of the corporate giants listed in the Fortune 500 in 1980 were not there in 1990 because of decline, acquisition, or bankruptcy; another 40 percent of the 1980 class was gone by 1995.9 The constant change in the composition of the Dow Jones Industrial Average is additional testament to the ebbs and flows of business success. Sometimes the cause is management mistakes, for example, they ignore what Andrew Grove called inflection points—full‐scale transformational changes in a business sector that can provide a responsive company with an opportunity to “rise to new heights” or signal the demise of a nonresponsive one.10 At other times, hot‐selling products fall by the wayside, victims of new technology or fickle consumers.

When the authors of Global Reach offered a list of firms in support of their argument that a global company is by definition an oligopoly,11 they unintentionally demonstrated the fallacy of overlooking the fact that only a select few companies remain dominant in their product line for extended periods of time. The list began with IBM, who in the 1970s was the prototypical mighty MNC. No one could have guessed then that a few years later it would have to rush to reinvent itself after it suffered a nearly fatal disregard during the 1980s for the shift away from its one‐time core product, mainframe computers. More recently, as part of its transition to becoming a business services company, IBM sold its personal computer division to, improbably, a Chinese company.

Ford and General Motors, two other companies cited in the Global Reach list of market‐dominating oligopolists, remain huge global corporations, but they have become symbols of American manufacturing giants in distress. A steady erosion in their domestic market share, high fixed costs (especially for workers' health benefits and retiree pensions) relative to their foreign competition, slim‐to‐nonexistent profit margins, and lack of confidence in management's ability to turn the situation around resulted in credit ratings agencies downgrading their debt (i.e., bonds) to “junk” status in 2005. No outside financial analyst could rule out the possibility of either or both of these one‐time corporate icons needing to seek protection under U.S. bankruptcy law. Other companies listed as examples of big oligopolists included the seemingly omnipotent international oil companies known as the seven sisters. They would later have to adjust to nationalizations of their oil concessions and respond to the rising costs of oil exploration by engaging in a spate of mergers, which reduced their number to four. Of the four remaining firms on the list, National Biscuit was acquired by a cigarette company, and Du Pont, Dow Chemical, and Bayer no longer command the status of market‐dominating, rapidly expanding kings of the universe.

Barnet and Müller's claim that “The global corporation is the first institution in human history dedicated to centralized planning on a world scale” is an oversimplification. It can be countered with the observation that many MNCs (p.24) prefer decentralized, that is, subsidiary‐by‐subsidiary decision making by executives of various nationalities who are closer to and more knowledgeable about local market conditions and changing tastes of customers throughout the world. Successfully standardized “world products” have proven to be the exception rather than the rule. Elsewhere, the authors raised a two‐part question as to whether the rise of “world managers” would lead to “a new golden age or a new form of imperial domination,” and whether MNCs represent “mankind's best hope for producing and distributing the riches of the earth” or “an international class war of huge proportions, and, ultimately ecological suicide?”12 Offering only these diametrically opposite, black‐and‐white choices incorrectly ignored what unsurprisingly, subsequently occurred: a large gray area of mixed, sometimes ambiguous results that falls between the extremes.

There was and is no good reason for the world not to be vigilant against allowing excessive power to accrue to MNCs. Still, a better assessment of the major changes then under way in the international order and the role of multinational firms in these changes can be found in a 1968 book by renowned management guru Peter Drucker:

Genuinely new technologies are upon us. They are almost certain to create new major industries and brand‐new major businesses and to render obsolete at the same time existing major industries and big businesses. … We face an Age of Discontinuity in world economy and technology. … The one thing that is certain so far is that it will be a period of change—in technology and in economic policy, in industry structures and in economic theory, in the knowledge needed to govern and to manage, … While we have been busy finishing the great nineteenth‐century economic edifice, the foundations have shifted under our feet, … Imperceptibly there has emerged a world economy in which common information generates the same economic appetites, aspirations, and demands—cutting across national boundaries and languages and largely disregarding political ideologies as well. The world has become, in other words, one market, one global shopping center. (emphasis in original)13

The Paradigm to Be Examined

An opening exists for an even‐handed, “no attitude” analysis that connects more dots than its predecessors and illustrates more clearly how irregularly shaped pieces relate to the larger picture. In seeking new clarity and more accuracy, this study is distinctive from the mainstream by virtue of emphasizing diversity and presenting a menu of answers, not definitive conclusions. Instead of searching for (p.25) a uniform, predictable set of behavior patterns, it stresses the nature and implications of heterogeneity in the subjects being analyzed. Hence, the emphasis placed on the use of disaggregation and the avoidance of generalization. No attempt is made to pursue the arguably unattainable quest to formulate unified theories about the nature and net welfare effects on countries of FDI and MNCs. The “anti” theory presented in this study is that there is no provable, all‐encompassing hypothesis capable of synthesizing the aggregate character, relative merits, and overall impact of FDI and MNCs. The already large and still growing numbers of foreign‐controlled subsidiaries share too few specific, nonobvious characteristics to justify stereotypes.

This new methodology is actually a throwback to one of the first academic books written specifically on FDI and MNCs. In the introduction to his 1969 work, Charles Kindleberger advised his readers, “We shall encounter a variety of attempts to prescribe general precepts, and I will find it possible as a rule to suggest circumstances in which they are not appropriate.”14 This is also my intention. Some readers of this book will dismiss such an approach as a cop‐out lacking in intellectual vigor and appreciation of theory. Their numbers will be reduced to the extent that subsequent chapters are convincing in their arguments as to why it is the best and most accurate assessment, or at worst, the least imperfect.

In sum, the integrating theme of the chapters that follow is that our cumulative knowledge about FDI and MNCs is still inadequate and the heterogeneity of corporations and countries is too great to permit generalized conclusions that can be defended as accurate and enduring. The subjects being observed are too dissimilar, fluid, and ambiguous to permit more than a handful of “correct” analytic answers and “optimal” government policies to regulate FDI and MNCs at any given time. In the past, most of the judgments made about international corporate behavior have had to be revised and expanded as MNCs continuously adapted to relentless forces of change. Extrapolations have amassed more of a record of medium‐term obsolescence than sustained accuracy. The forces of change will continue to manifest themselves, and the results cannot be predicted with any more certainty than upcoming patterns in a turning kaleidoscope.

Notes:

(1.)  Data source: United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2005, p. 13, available online at http://www.unctad.org; accessed November 2005.

(2.)  Ibid.

(3.)  In theory, the potential for pachyderm heterogeneity goes further. Drunks reportedly have seen pink elephants, though no scientific evidence exists to confirm their exis (p.26) tence. Furthermore, ever since 1941, the movie classic Dumbo has implanted the image in the imaginations of successive generations that given sufficiently large ears, an elephant could fly. After the blind men, the second most famous fictional collective to contemplate the characteristics of an elephant was a group of talking crows in Dumbo. They, too, fell short in their elephant IQ when they initially dismissed Dumbo's chances of taking flight.

(4.)  George J. Marshall, “Hegel and the Elephant,” available online at http://www.bu.edu/wcp/Papers/Inte/InteMars.htm; accessed October 2004.

(5.)  David Fieldhouse, “ ‘A New Imperial System’? The Role of the Multinational Corporations Reconsidered,” in Jeffry A. Frieden and David A. Lake, eds., International Political Economy, 4th ed. (Boston: Bedford/St. Martin's, 2000), p. 176.

(6.)  C. Fred Bergsten, Thomas Horst, and Theodore H. Moran, American Multinationals and American National Interests (Washington, DC: Brookings Institution, 1978), p. 450.

(7.)  Ibid.

(8.)  Richard J. Barnet and Ronald Müller, Global Reach—The Power of the Multinational Corporations (New York: Simon and Schuster, 1974), p. 364.

(9.)  “The World's View of Multinationals,” The Economist, January 29, 2000, p. 21.

(10.)  Andrew S. Grove, Only the Paranoid Survive (New York: Currency Doubleday, 1996), pp. 3–4.

(11.)  Barnet and Müller, Global Reach, p. 34.

(12.)  Ibid., pp. 14, 25.

(13.)  Peter F. Drucker, The Age of Discontinuity (New York: Harper and Row, 1968), pp. ix, 10, x; emphasis in original.

(14.)  Charles P. Kindleberger, American Business Abroad (New Haven, CT: Yale University Press, 1969), p. 36.