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7 am convinced that during the last quarter of this century, ecopolitics will replace geopolitics as the prime mover in the affairs of nations . . . While politicians and diplomats still argue over the same old tired political issues, businessmen and bankers are rearranging the basic nature of relations between states and peoples. While the generals still busy themselves with planning their war games and maneuvers, increasing commerce between the East and West, and the growing internationalization of production, are making the ideas of a major armed conflict in Europe an absurdity.
"The activities of multinational corporations... are crossing frontiers and erasing national boundaries more surely and swiftly than the passage of armies and the conclusion of peace treaties.”
—Senator Abraham Ribicoff
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™ As might be viewed either from the perch of the Belgian ' painter atop the smokestack of this Antwerp refinery, or in Che pages of the world's business journals, the enormous proliferation of America’s industry and influence is astonishingly evident in the totems and trademarks that, increasingly, mark the progress of multinational enterprise.
Today, one-sixth of the gross world product is created by multinational corporations. Before this century ends, the proportion is forecast to exceed one-half. The manner in which this change occurs will influence the life style of mankind and is inexorably intertwined with ideological, political, and economic relationships within and among the world’s nations.
Most striking, from the strategist’s point of view, is the fact that multinational enterprises are unique instrumentalities of the developed nations of the Free World—particularly of the United States whose multinational corporate operations account for nearly three- fourths of the world’s total and whose aggregate overseas corporate sales equate to the world’s third largest gross national product.
Communist and Marxist/socialist economic systems, dedicated to the principle of centralized government ownership and control, will be obliged to undergo major systemic evolution in order to compete with the multinational corporation. Meanwhile, the United States must take cognizance of the strength and opportunity created by multinational enterprise. It must adjust strategies and provide governmental leadership not only to achieve the maximum of direct economic benefits but to take advantage of longer range indirect effects as well.
There are numerous definitions of multinational enterprise and corporate structures. Practically all incorporate a measure of equity ownership by foreigners (25% being a popularly accepted proportion). Some also recognize a distinction between "multinational” (integrated in terms of ownership, management, operations, and orientation of allegiance) and "transnational” (merely having operations in a number of countries).
Multinational enterprise is diverse; it has a corporate form of private ownership and control, and it has a combination of the following characteristics: (1) access to large capital reserves; (2) technological and/or marketing leads in one or more extractive, manufacturing,
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or service sectors; and (3) the willingness and ability to take necessary risks. It proliferates by virtue of an incessant quest for profit and feeds on technology, capital, and managerial ability. Multinational enterprises seek broader markets, tax havens, escape from home government regulation and control, and prospects for business flexibility in the face of uncertainties at home.
U. S. corporations have been in the vanguard of the multinational movement because of the worldwide demand for U. S. technology and entrepreneurship (sometimes attributed to manpower and production disequilibria resulting from World War II), reaction to the challenge of local foreign production in export markets, and the lure of cheaper labor.
Multinational enterprise is expanded by establishment of branches and wholly owned subsidiaries overseas, by entry into joint ventures, by "takeovers” of existing local business, and through concessionary arrangements favoring majority ownership and control by the host nation. Portfolio investment, another method used mainly by Europeans investing in the United States, is relatively passive in that management and control do not accompany ownership and holdings may be liquidated on short notice.
Regardless of the reasons for multinational expansion and the methods used, corporate executives and bankers are developing a truly global concept of business management.
The magnitude. There were approximately 100 foreign subsidiaries of U. S.-controlled multinational enterprises overseas at the beginning of this century. Counting all separate subsidiaries and branches, the Department of Commerce identified over 23,000 foreign affiliates of American companies in 1966. American multinationals now have $70-$80 billion of overseas investment assets (three times the level of the early 1960s), and the annual rate of growth is climbing past $15 billion per year. Estimates of aggregate sales of U. S. corporations abroad range from $140 billion to above $200 billion per year and are equivalent to the world’s third largest gross national product (ranking immediately below the United States and the U.S.S.R. but ahead of Japan and Germany). To illustrate, in 1970, General Motors had a relatively "bad year,” but still had sales larger than the GNPs of 123 of the world’s 146 sovereign nations.
Trends. If there is one point of agreement, it is that multinational enterprise will continue to grow. Few observers are willing to make specific projections, but those who do present imagination-stretching forecasts. Author Richard Barber, for example, says:
"A good guess is that by 1980, three hundred
large corporations will control 75 per cent of all the
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world’s manufacturing assets .... Within a decade every firm of consequence will operate extensively in twenty or more countries, guided by efficiency and the quest for profit and paying little but formal attention to national boundaries.”
Incentives which prompted these forecasts are not apt to change rapidly. Transportation, communications, market opportunities, tax inducements, the appeal of global flexibility, and the prospects of imbalanced labof costs appear favorable for the future.
Problems. The strategist concentrates his concern ofl the maintenance, control, and use of the power of multinational enterprise (in combination with othel elements of national power) to attain national objectives. But what could be more elusive than an attempt to channel the power and influence of numerous privately-owned multinational corporate entities in orde< to serve the national interest? Moreover, what could be more of an anathema to multinational business than to have its multinational character threatened by public officials who would seek to use it in pursuance of national policy aims?
Multinational corporate executives are committed to a delicate balancing act. They must operate at a profit to maintain solvency, act as good corporate citizens to maintain their welcome in host nations, and comply with home and host government regulations to sustain their charters. Furthermore, they must reckon with labor’s growing international collective bargaining power. Their interests are transnational in character, bu< they operate subject to national sanctions.
There have been numerous proposals for "codes ol good conduct” or "government policy standards” fo* multinational corporate behavior. But these reform* must be buttressed with international convention* guaranteeing some universality of governmental per formance, nondiscriminatory treatment, commonality of law, and insurance against uncompensated nationalization. Preliminary work in these areas is ongoing but, unless and until substantive progress is made- enterprise will continue to find ambiguity of identity advantageous and ambiguity of allegiance necessary t<J survival.
The possibility that two or three hundred gian1 corporations could control over half the world’s productivity has staggering implications. Those who subscribe to the idea of business and banking combine* becoming governments unto themselves are overimag1- native; nevertheless, because multinational corporation* are relatively unencumbered by ideological and political constraints, they can be factors for stability that provid£ supplementary (and less volatile) channels for probing new and broader intersocietal relationships. A concom1’
tant aspect of the concentration of economic power is the prospect of using the world’s resources more efficiently in the interest of global economic welfare. This too would be stabilizing. Conversely, we could witness occasional destabilizing reversions to exploitative practices and economic colonialism. Factors which render this increasingly unlikely will be discussed below.
A second general observation concerns interdependency among nations linked by multinational enterprise. Like a spider web, each is related to the whole and disturbance of one affects all others. Entrepreneurial interdependence is closely related to the concept of functional integration as a catalyst for eventual political integration. This idea rests on the assumption that nations will incrementally yield sovereignty to one or more specialized supranational bodies because of compelling economic, technical, or social benefits to be derived. The result goes beyond international cooperation in that the commitment would be of a permanent nature and would include renunciation of the right to opt out of the limited union. If, in fact, business continues to internationalize at the present rate, it is conceivable that nations will be under increasing pressure to follow suit. But supranational business federations or "cosmocorporations” will become the wave of the future only as fast as political preconditions will permit. For the present, interdependency resulting from multinational corporate operations mainly serves as a damper on precipitous unilateral actions. It encourages consultation and cooperation.
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Third, multinational enterprises are purveyors of peace. They need international cooperation and a tranquil environment for production and marketing of their goods. Political and economic instability spell uncertainty and increased risk. War introduces barriers to mobility of goods and people and threatens the vital lines of communication between and among highly interdependent corporate units. Multinational enterprise has much to lose and little to gain from disharmony, tension, and war. Although business cannot be expected to prevent armed conflict among nations, it is a growing force for discouragement of hostilities in an increasingly interdependent world.
A fourth broad implication of the growth of multinational enterprise is the proclivity for political tension as a consequence of heightened economic interaction. In foreign direct investment, an inherent contradiction exists between the need for capital and technology on the one hand, and the fear of domination on the other. Nationalization of U. S. firms in Latin America, resentment over actions of U. S. corporations to elevate the status of blacks in their employ in South Africa, and the many nationalistic outcries produced by our strong
investment position in Canada and Europe are but a few manifestations of this implication. Business, in its own self-interest, attempts to limit escalation of issues to the political level; but passions of nationalism and independence run high. Problems flowing from the spread of corporate influence will be the rule rather than the exception. The challenge for business and government alike is to minimize their scope and magnitude and to control associated instability.
Implications for developed nations of the Free World. Within the Free World multinational enterprise can become a powerful force for unity, strength, and prosperity—or a source of divisiveness and hostility. American corporations are capturing larger segments of the economies of Canada, Western Europe, and Australia. So far, Japan has held us at bay with stringent controls. But the recent trend in Japanese policy—the latest evidenced in the discussions between President Nixon and Prime Minister Tanaka in Japan—is toward increased receptiveness to U. S. investment.
There is little likelihood of achieving an "allied” strategy toward the nonmarket nations and the lesser developed countries (LDCs) in the era of multinational enterprise unless and until we can more closely agree on common objectives and mutual interests for this new era. Such agreements would have to face squarely the relationship of government, enterprise, and labor. Until the unique problems of multinational enterprise are attacked in an appropriate forum (the Group of Ten or the 22-nation Organization for Economic Cooperation and Development, for example), the United States and its allies will be engaged in economic firefighting and crisis management. The price of neglect will be protectionism, trade and investment war, discrimination, and resurgent economic nationalism—all of which bear on national and collective power. In such an environment, foreign policies would be jeopardized by cutthroat economic competition among allies. Each would see its trading and investment partners as adversaries and prospects for a widespread and Western- oriented Cold War would be manifold. Multinational enterprise would be exposed on the front lines of such a battle. The anachronistic political lust for complete independence and self-sufficiency needs to be replaced with policies which take cognizance of the growing reality of interdependence.
U. S. government and commercial leadership can and should de-emphasize our dominant image and provide a sense of direction toward goals of further internationalization of Free World trade and investment. Economic harmony and equilibrium among Free World nations would provide the strength and resolve to deal with nonmarket countries and build bridges with coordination and confidence. The lesser developed countries
Multinational Corporations 59
would profit from the instability incurred and could realistically expect a dedication to development spearheaded by the great capacity of internationalized corporations bridled to serve the public need. The alternatives are focalization or frustration.
Implications for the lesser-developed countries. The LDCs are pawns in a game of giants. They are faced with the prospect of satisfying incessant demands of needy populations with resources which are commanded by colossal governments and multinational businesses whose sales exceed their own gross national products.
For LDCs, the growth of multinational enterprise is both a blessing and a threat. Multinational corporations can mobilize, organize, and apply their resources to the vexing task of modernizations1 or they can overwhelm local competition, remit (refuse to reinvest) profits, upset customary wage patterns, relocate facilities if the going gets uncomfortable, refuse to cooperate with national economic plans and social goals, capture key growth sectors, and exert political influence arising from their economic stature. Within the host country, opposition power groups and the liberal intelligentsia often amplify the threat image by charging that local distribution of profits from multinational corporate operations serves to strengthen and sustain unpopular and repressive regimes.
Technology, capital, managerial talent, and market control remain foremost in relationships between foreign enterprise and the LDCs. As long as business has something the LDCs need, its relative bargaining position is favorable. As the transfer progresses[1] (as in the case of many extractive industries), business becomes increasingly vulnerable and the host government is faced with the dilemma of improving its position with fair and adequate compensation to the foreign corporation (costly in terms of current assets) or without fair compensation (often more costly in political tension and in discouragement to further foreign investment).
LDCs have a number of options in this ongoing process. They can: (1) bargain with multinational corporations (MNCs) on a case-by-case basis; (2) attempt to pit one MNC against another competitively; (3) apply discriminatory controls favoring local government and
'Modernization in this sense equates to industrialization, satisfaction of the desire to accrue "add-on” values and to create import substitutes through local production-and processing, providing employment for growing urban populations, and creating export products (and markets) which can ameliorate chronic foreign exchange deficits.
business; (4) unite with other countries to maximize benefits (e.g., the Andean Group, which requires all potential investors to plan for eventual divestiture—or the Organization of Petroleum Exporting Countries (OPEC) which has developed a united bargaining front); (5) restrict access to local capital; and (6) reduce or withdraw investment incentives.
In the long range, many LDCs are in an increasingly favorable position to capitalize on their natural resource wealth. There is little doubt that, as the 7% of the world that consumes 40-50% of its resources becomes more dependent on raw materials from the developing countries, the leverage of certain countries (or groups such as OPEC) will increase. This is a fragmented picture, however, because there is no way to forecast the discovery of new reserves, new processes for economic extraction of lower grade reserves, and development of substitutes through new scientific techniques.
Finally, as an alternative to dealing with multinational corporations, LDCs have the option of turning to the nonmarket socialist countries for their needs. But this poses political as well as economic problems. Where do these nonmarket countries fit into the era of internationalized production?
Implications for East-West relations.
There could scarcely be more of a theoretical gamble than speculating on the future of East-West relations in light of growing multinational enterprise. Two factors make this difficult. The first is the absence of a basis for comparison in the fundamentally antithetical economic systems of the East and West. Multinational enterprise, based on private ownership, international markets, and convertible exchange is unique to the Free World. Second, we appear to be witnessing the dawn of a new era in, East-West relations. Indications of detente— summit meetings, SALT talks, Bonn-Moscow and Bonn-Warsaw treaties, Berlin accords, trade increases, truck-manufacturing deals, visions of European Security Conferences, and Mutual and Balanced Force Reduction negotiations—herald the possibility of substantive change in world ecopolitical relationships. Such changes could have a profound impact on the scope and magnitude of multinational corporate operations.
From a purely Cold War stance, one could observe and postulate the Free World position as follows: we produce well over two-thirds of the estimated three- trillion-dollar gross world product; the growth rate of our multinational enterprise exceeds that of the Soviet Union, its satellites and other nonmarket countries; and although the idea of a controlled economy like that of the U.S.S.R. has appeal from a structural point of
view (particularly for countries in the early stages of development), the historical record is not convincing. Moreover, its associated cost in civil liberty does not make it a particularly attractive model. To complete the picture, it would be necessary to assume that the Free World would maintain a strategic deterrent posture sufficient to preserve and protect our free enterprise system and that our adversaries would use their strategic military power in a rational way. In such a scenario, long-range prospects for the Free World seem quite favorable. Multinational enterprise, if properly guided and controlled, would contribute to more efficient use of human and material resources and realization of economies of scale. Its growth could only serve to reinforce our already strong position (politically, militarily, economically and psychologically). No Communist state could seriously contemplate "burying” us.
Essentially, this scenario is not wholly implausible. The strategic military stalemate is likely to continue into the foreseeable future. But the economic aspect involves both maintenance of solidarity in the West and bridge-building to the East. Trans-national use of the factors of production can be a powerful tool if—and only if—it is collectively nurtured and guided by its Free World creators and sponsors.
Should recent diplomatic (and business) engineering actually produce bridges to the East, the Free World would have greater opportunity to penetrate technology and product-hungry Eastern nations with its strongest weapon—economic competition.
The real world. On balance, prospects for enactment of the "penetration” scenario appear to be improving. As Samuel Pisar said recently, in his article, "Nobody Here But Us Marxists?” in the 15 July 1971 issue of Forbes, ", . . for the first time in 25 years East-West trade is a rational debate.” Recent overtures to Western business by Hungary, Romania, the People’s Republic of China, and the Soviet Union are encouraging. So, too, are renewed invitations from Egypt and the Sudan which indicate a lack of Soviet success in challenging Western influence in the LDCs who might, after all, prefer doing business with a profit-oriented multinational corporation than with an ideologically oriented socialist foreign trade ministry.
Nevertheless, problems are profuse. In addition to thawing the Cold War, we are faced with: an endemic ideological obstacle; a systemic barrier that prohibits either foreign or private ownership; a lacuna of convertible currency and foreign exchange reserves as a basis for commerce beyond simple barter; lack of a common pricing system; satellite governments which are not fully autonomous; and demands for "turn key” plants for local ownership and control in lieu of partial or complete ownership and control from the Free
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World orbit. Prospects for the United States to folio" the lead of its West European allies aimed at liberalize tion of economic ties with the East (e.g., the broa^ range of actions recently recommended to the Presided by the Commission on International Trade and Investment Policy) —the July 1971 Williams Report—art fraught with political pitfalls.
Implications of the growth of multinational enterprise for East-West relations are mainly associated wid1 collective enhancement of the relative econorrn1 strength of the Free World. The opportunity to exerci# this strength by shifting from political to econom^ competition vis-a-vis the Marxist/socialist camp is delicate and complex. Recent initiatives notwithstanding this eventuality is not likely to materialize quickly When it does, we should seize upon the opportunity Until it does, we must be extremely careful lest v# allow our source of economic power to be weakened by divisiveness in our own camp. What then is th£ position of the United States in this era of multinational enterprise? What are key advantages and disadvantages and what strategy should we follow to achieve security, peace, and prosperity for ourselves and the changing world around us?
Some advantages. Our overwhelming economic si# and relative dominance in the field of foreign direct investment place us in an enviable position—but on£ having grave responsibilities. An increasing proportion of the world’s production is flowing from foreign-based output of American corporations. As our investment* accumulate, so do returns in the form of interest, dividends, earnings, fees, and royalties. Annual earnings o‘ nearly eight billion dollars are, as the Williams Repo# pointed out, ", . . about twice the annual capital outflow involved in U. S. direct investments abroad. The# earnings have become a major positive factor in oU( balance of payments.” These in-flows already exceed the cost of our military expenditures overseas by mo# than 50%.
Aside from the financial aspects, multinational corporate operations place the United States in a favorabl£ position to retain its technological lead. The outwa£d transfer of American technology is a common targ£[ for criticism, but the inward flow is seldom heralded- Author Raymond Vernon reckons that our "bigness is rewarded not only through production advantage* (economies of scale) but, more importantly, by enabling mobilization and application of the diverse scientific and technical elements needed for productiv£ innovation in today’s world. This capacity to tu#’ discoveries into marketable products is paramount. Bu1 great importance should also be attached to the related capacity of our foreign-based companies to locate and capture unique ideas and processes on a global scale-
Multinational Corporations 61
in practically all sectors—petroleum, chemicals, machinery, pharmaceuticals, advanced electronics—the lot. Technological superiority is a cornerstone of national security. Implications of this inward transference reach far beyond the economic realm.
Another manifest advantage of our position in corporate internationalization is that it enhances the possibilities for acquiring raw materials. Given our declining position with regard to mineral self-sufficiency, this could be critical. Peter G. Peterson, the President’s Assistant for International Economic Affairs, cites a projection that, within 30 years, we shall be importing 30% to 50% of our total mineral and raw material requirements. He concludes that the United States is self-sufficient in only 10 raw materials, while the Soviet Union is self-sufficient in 29. While it cannot be stated as an enduring certitude that nations having the most far-reaching business operations will have an assured resource base, there can be little doubt that American corporations engaged in petroleum and mineral extraction overseas contribute significantly to the overall power and prosperity of this country. Those engaged in manufacturing and services abroad indirectly accomplish the same end through comparative advantages of lower cost foreign labor markets and through expanded sales. Both contribute to the overall national economic and capital balance.
Political and psychological advantages are both significant. The vastness of our enterprise not only gives unquantifiable diplomatic clout but it benefits the economies of host countries, thereby improving their living standards and their capacity to contribute to Free World collective security arrangements. In a more abstract,'but nonetheless important, sense, multinational businesses contribute to the exchange of ideas, complementing achievement of common appreciation of world problems—and the possibility of common agreement on solutions.
American multinational corporate activities could provide an invaluable reservoir of knowledge, strength, and control should it become necessary to shift gears from protracted economic competition to all-out economic warfare. The extent of their contribution would be contingent upon the nature and scope of the crisis or armed conflict, the alignment of belligerent and neutral powers, and the quality of study and contingency planning accomplished to ensure maximum use of this source of power to complement other diplomatic, military, psychological, and economic efforts.
The economic warfare potential of parents and overseas subsidiaries and branches of American enterprises is vast and complex. Should circumstances provide the will, American policies of economic pressure and coercion could play a major role in the outcome of a
conflict. At the outset, political alignments could be effected in our favor. Strategic and critical material and human resources could be obtained for allied purposes or denied to the enemy through export and re-export embargoes, pre-emptive buying, or control and manipulation of financial assets, transportation and communication avenues and facilities, and food supplies. Base, ports, and overflight rights of allied and enemy commercial and military operations might be substantially affected through multinational corporate activities exclusive of, or in concert with, political and military pressures.
The potential contribution of American multinational corporate activities is enormous, but using this potential advantageously presupposes a high degree of policy planning and coordination. A compartmentalized view of strategy will not suffice if peacetime planning for wartime use of this powerful adjunct to other forms of national power is to be effective.
Some disadvantages. Unfavorable implications of multinational enterprise involve both economic and political considerations. In the economic area, organized labor deprecates the loss of U. S. jobs to foreign labor markets and importunes Congress to quell the rise in overseas production by American multinationals. In a letter to the President of the United States written in October 1971, from Representative Thomas E. Morgan on behalf of the Pennsylvania Congressional Delegation, Union leaders cite unemployment and ailing industries as effects directly related to ". . . multinational corporations which are undermining the American economy and unfairly eliminating the jobs of American workers.” In the Williams Commission Report to the President, the minority statement of labor leaders I. W. Abel and Floyd E. Smith recommends tax and capital flow measures to arrest "the global runaways” which export American production, technology, and jobs.
Political arguments against the multinational corporations are widespread. First is the criticism that the American economy is too dominant, creating resentment because we are less dependent than our Free World allies and prone to act unilaterally or extra- territorially without due consideration for their welfare. The sum of this position is that our gigantism constitutes a threat which engenders political liabilities outweighing economic benefits. A second criticism involves protection of the rights of U. S. investors against nationalization, expropriation, and discrimination. Some critics level their sights on the Hickenlooper Amendment, which encourages the President to cut off foreign aid to any country which expropriates American investments without fair compensation. (A recently introduced amendment would remove the Chief Exec-
utive’s prerogative and make the curtailment of aid mandatory.) Such critics, obviously, are concerned about any foreign policy repercussions which could trap us in a series of diplomatic crises or gunboat diplomacy commitments. Others lament the fact that American taxpayers incur liability if victimized firms are insured by the U. S. Government’s Overseas Private Investment Corporation (e.g., the Chilean debacle). Third is the classic "anti-trust” argument which appeals to opponents of big business and monopolistic practices (at home as well as abroad). Fourth is the argument that multinational enterprise is the main conduit for technological leaks. Some view this as an economic problem, while others see it as a harbinger of our strategic downfall. Finally, there is developing concern that multinational enterprise is becoming "supranational” in character. Apprehension centers on the idea that global businesses might escape governmental jurisdiction, thus becoming governments unto themselves, free from legal obligation to serve the public interest.
Militarily, disadvantages center on the possibility of yielding weapons-oriented technology to the enemy and fear of diminishing industrial self-sufficiency. Those responsible for our national security quite naturally oppose the idea of dependency. Our eroding position in capital shipbuilding is no secret—nor is the Army’s rescue of the old Hamilton Watch Company as the last American producer of military fuse mechanisms.
Internationalization of production is a natural and ongoing phenomenon which spells improved efficiency and better use of the world’s scarce resources for the benefit of mankind. There is no area in which the United States has such clear dominance as in the strength of its economy and its globe-straddling technological and production base. This strength should not be frittered away by failing to employ it or by complacently allowing it to decay. Its use (and safeguards against its misuse) will require creation and implementation of a new and multifaceted segment of our grand strategy for the age of "ecopolitics.”
A strategy tailored to accommodate the growth of multinational enterprise could be passive or active in character, and direct, indirect, or both in structure. Extremes of alternative approaches would approximate the following:
► A passive approach. On the matter of initiative, we could follow along the path of passivity which would mean: undue emphasis on a laissez faire environment; government reaction to problems rather than coordinated government, business, and labor action in a predictive sense; the absence of a composite and cohesive strategy from the summit; problem solving on a piecemeal, case-by-case basis; no serious attempts to ally key
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domestic branches, departments, institutions, and inter est groups; and no clear "team” position for U. S envoys negotiating in international forums.
► An active approach. Alternatively, we could elect a” activist mode and assume the international leadership role on an as yet uncharted course. This would involve: an ongoing effort to study and understand multi national enterprise and its consequences; formulation of a grand strategy to guide foreign economic policies and tie the activities of American multinational corporations more directly to national objectives and interests; renewed efforts to achieve substantial agreemen1 among contending domestic factions; isolation of area* of disagreement and recognition of the need to min imize their effect at home and in international negotiations; equitably funded ancillary programs to mitigatf domestic economic and social turbulence and facilitate difficult adjustments associated with internationalization of production; acceptance of an acti'* governmental role and a new model of government business, banking, and labor cooperation on the Amen can scene; an ongoing and critical review of constitutional provisions relating to responsibilities for regt1' lation of foreign commerce and the capacity of existing legislative and executive bodies to fulfill their pervasi'( obligations; an evolving attitude toward the merits o> Free World multilateralism and the limits of the con cept of self-sufficiency; concentration on the nature an<l size of the American "economic pie” rather than divisive argument over how the pie is to be sliced; an<l sustained high productivity coupled with main tenant of our lead in technological research and developmen1 and open competition for our fair share of the globs1 benefits of multinational enterprise.
Elements of a direct strategy. There are various poss>' bilities for symbiotic union of the power of mult1 national enterprise with our ecopolitical strategy bn1 these do not include using multinational corporation' as weapons of economic warfare.3 If vigorously efl>' ployed in a direct strategy, our strong lead in the fieU of multinational enterprise could yield short-term ec° nomic gains; but at a high cost in political tensiof among our allies and those adversaries we wish t” penetrate and engage in competition. Clearly, th>- would be a counterproductive approach. Pragmatical^ such a concept is precluded by, inter alia: a lack contemporaneous government control and influent over multinational corporate plans and operations;
3 Except during periods of crisis and armed conflict affecting national sgr vival—whereupon our multinational enterprises would, to the extent po*'1 ble, be committed in conjunction with other elements of national and all’e power to reinforce collective security and to weaken the enemy by deny'11* it resources and disrupting its external commercial and industrial assets a<*- operations.
Multinational Corporations 63
necessity for multinational corporations to maintain ambiguity of identity and allegiance to survive in the present foreign investment environment; and the related and predictable negative reaction of host countries. Our long-range ecopolitical strategy may be "direct” insofar as it applies to cultivation of the international investment climate but not to the extent of engaging in economic coercion. Such a strategy might include the following elements:
► A solid foundation properly proclaimed. The good and sufficient reasons to encourage proliferation of multinational enterprise should be clearly enunciated. Domestically, consensus is needed on the contribution multinational enterprise can make to national power, prosperity, and national interests. Broad popular support is essential before the various branches of government, organized labor, and business can begin to work in concert to aid its growth and to engender support for inevitable adjustments which must be made in the process. Overseas, we should emphasize virtues inherent in multinational corporate operations such as public ownership, participatory management, diffusion of technology, efficiency and economies of scale, comparative advantage in international production, and shared rewards. Among industrially advanced nations, we should manifest co-production possibilities (e.g., for military hardware, space projects, and ecological systems) which contribute to collective allied power, prosperity and comfort. Among developing countries we should stress the capacity of multinational corporations to mobilize resources for development and to attack world poverty. These are continuing and largely psychological tasks to be undertaken both at home and abroad.
► Promotion of multilateralism. The success of multinational enterprise is predicated on recognition of its benefits by host countries. Invitation for its operation must remain extant. In the words of the Nixon Doctrine, the emphasis is on "partnership.” Multinational corporations can operate most efficiently within the context of a Free World economic community. This concept demands closer-than-ever harmonization of international economic policy with overall foreign policy objectives.
► Maintenance of a firm but fair posture. We must have empathy for our allies’ apprehension about "sleeping with an elephant.” Our size, technology and management advantages render us much less vulnerable to economic turbulence. Every healthy elephant has to twitch occasionally, but a low-as-possible profile is essential if American-based multinational enterprise is to endure and prosper.
.
► Provision for continuous assessment of our relative cost/benefit position. It is essential that we develop and
maintain measurement systems to insure continuous awareness of the relative cost/benefit balance with respect to multinational enterprise. Within the United States, a plethora of executive departments, agencies, councils, and commissions compile statistics and conduct studies contributing to such an assessment. So too do legislative committees, university economists, corporations, associations, and labor organizations. What is lacking, however, is a framework wherein views of this multiplicity of public and private interest groups can be exposed, analyzed, and reconciled in the light of overriding national strategic considerations. With suitable arrangements, statistical representations of multinational parent firms, labor, and government could be collated and weighed against important public interests and national security considerations. Broad participation in this process would serve to encourage resolution of differences and isolate key areas of disagreement for action by policy makers and legislators.
Improved assessment of the relative costs and benefits of U. S. multinational corporate activities would facilitate decisions on international concessions (which will be required more frequently as internationalization progresses) and help to clarify policies affecting domestic adjustment programs and regulation of corporate and labor activities.
These few generalizations may seem somewhat mundane to those who would argue for a more forceful direct strategy and more rapid capitalization on the strengths of our economic advantage in the era of multinationals. But the direct strategy is mainly a conciliatory proposition aimed at creating and sustaining a favorable climate for international investment. Its imperatives are internal coordination, external statesmanship, and application of the golden rules of commerce. Its rewards are augmented power for the United States and its Free World allies. The payoff comes from protracted application of the indirect approach.
Elements of an indirect strategy. Used indirectly, with the goal of proliferation of the American system of values and way of life, U. S. multinational enterprise could at once: (1) serve the national interest and; (2) function as a catalyst for gradual internationalization through the medium of increased understanding and commonality of interest flowing from a broad range of political, economic, and cultural contacts. The obvious potential of the indirect approach is that an element of national power (American-controlled multinational enterprise) is applied over a long period of time in order to achieve national objectives (economic strength and prosperity or other security interests related to economic capacity) in consonance with the overall national interest (preservation and perpetuation of the American culture, institutions, and territory). A less obvious aspect is that
embodied in the realization that all societies and cultures on this shrinking globe are engaged in an inevitable competition for preeminence and survival. Those that can project their image (and exert the predomi- nante influence and control over the long range) will shape the world of the future. If we wish our values and life styles to prevail, we are obliged to compete with other culture and power centers. Multinational enterprise offers a tremendous lever toward this end. Its growing arsenal of foreign-based business operations is working for us around the clock. Its osmotic action transmits and transfuses not only American methods of business operation, banking, and marketing techniques; but our legal systems and concepts, our political philosophies, our ways of communicating and ideas of mobility, and a measure of the humanities and arts peculiar to our civilization.
The end result of this indirect projection is difficult to forecast but, if and when nation-states yield to increasing sentiment for supranational federation, our free and democratic way of life, based on the practice of individual liberty and respect for human rights and the dignity of man, would be better understood, respected and among the leading contenders.
Multinational enterprise is a significant element of power of the United States and its Free World allies— and one for which there is no direct equivalent in the Marxist/socialist world. Its potential for this nation and for mankind is contingent upon broad appreciation of its value, domestic cooperation in its development, and diligent exploitation of its power in the world arena.
Given the proper strategic framework, the phenomenon of growing multinational enterprise, preponderate^ American, can play a major role in improving our overall political, military, and economic strength in the short—and intermediate—range future. Discre
tionary use of this strength is dictated by the hetei genetic nature of its composition and its vulnerabiliti in the world environment. With proper plannir however, multinational enterprise can be employed a coercive sense to supplement diplomatic, econom military, and psychological elements of national ai allied power during periods of crisis and armed conflii The caveat to be observed in engaging multinatior corporations in a direct national or allied strategy that associated with the possibility of "killing the goo that lays the golden egg.”
In the longer range, our pervasive corporate opei tions could become the primary element of an indire strategy aimed at perpetuating and projecting our pri ciples and values as we cooperate in the creation ■ new political units and a world society.
The challenge is, and will remain, for our leade to give such ideas effect. The recently established Pres dential Council for International Economic Policy a beginning step in the right direction. So, too, is tl proposal for a Department of Economic Affairs whic would help resolve the dilemma of atomization at tl economic policy level. But until we are able to achies closer unity within the Executive and between tl Executive and Congress and to design a framewot wherein top authorities from business, labor, and go' ernment can plan and treat problems in a predictiv sense, we are destined to diversity and an unfulfille leadership role at the international level.
Colonel Bowen has had operational flying assignments with the Strateg Air Command and, in Southeast Asia, with the Tactical Air Comman He served as an operational staff officer at Headquarters, Strategic A Command and with the U. S. Delegation to the NATO Military Commit!* in Brussels, Belgium. A graduate of the Naval War College Command ar Staff Course and the National War College, he was also a Senior Rcsearc Fellow at the latter institution prior to assuming his present duties in tl European Region of the Office of the Secretary of Defense, Internation Security Affairs.
Suspicion Confirmed
We were en route from the eastern Mediterranean to Newport, and the skipper wanted to make the several time zone changes as convenient as possible for ship’s routine. His memo to the navigator, chopped through the exec via one of the ship’s yeomen, evoked the spontaneous exclamation, "Now I know he thinks he’s God!”
The memo read simply, "Subj: Sunrise. I would like to have sunrise at about 0545 on Tuesday, Thursday, and Saturday. Please arrange this.”
—Contributed by Lt. Cdr. Peter A. Hutchinson, USN
(The Naval Institute will pay $10.00 for each anecdote published in the Proceedings.)
[1]Thc overall position of the LDCs vis-a-vis the multinational corporation is enhanced as national planners become more sophisticated and as the quality of local labor and management is upgraded. This contributes to more egalitarian bargaining and prospects for greater local benefits at reduced costs. This is often manifested by demands for increased local ownership and management or outright nationalization of the indigenous subsidiary.