THE WORLD OF THE TRANSNATIONAL CORPORATION

Kondratieff Waves – cyclical patterns of growth & stagnation50-75 year periodicity

Nikolai Kondratieff (1892 - 1938)

Growth DeclineK1: 1770/80 1810/20 1830/40

K2: 1830/40 1870/75 1890/96

K3: 1890/96 1914/20 1930/40

K4: 1930/40 1967/73 1980/90

K5: 1980/90 1998/2000 2008/14

K6: 2014 ???????

High correlation with technological change

Explanation for the waves’ dynamism focuses upon contradictions between:

Short-term interests of individual capitalists

Long-term behavior of collective capital

Comparison of the US and world economies, late 18th century-present

Correspondence with political and economic changes

K1 leaders (late C18th): Britain, France, Belgium

K2 leaders (1840s): Britain, France, Belgium, Germany, northeastern USA

K3 leaders (1890s): Germany, northeastern USA, Netherlands

K4 leaders (1940s): USA (S. California), Japan

K5 leaders (1980s): USA (S. California), Japan, Taiwan, S. Korea, China

K6 leaders? (early C21st): USA (S. California), China, India, Brazil??

THE TRANSITION TO GLOBAL CAPITALISM

17th century: Internationalization of MERCHANT CAPITAL (trade)

mid-19th century: Internationalization of FINANCE

CAPITAL (loans and speculative capital) 20th century: Internationalization of PRODUCTION

CAPITAL (manufacturing)

Links to colonialism/ neo-colonialism:

Many of today’s TNCs have their origins in the colonial era Imperial Chemical Industries [ICI] Royal Dutch Shell Imperial Tobacco [British American Tobacco today], Lucky Strike, Rothmans, Kool, Dunhill, Benson & Hedges US insurance companies associated with slave trade (Lehman Brothers, Aetna, JPMorgan, Chase, New York Life, Wachovia, FleetBoston, AIG)

Use of colonies for RAW MATERIALS and as MARKETS Countries can GEOGRAPHICALLY OFFSET economic crisis by

diverting production elsewhere (flooding of foreign markets)

The Global Economy on the Eve of the First World War

The Global Economy at the Height of US Power

Little changeLittle Change

EVOLUTION OF U.S. TRANSNATIONAL CORPORATE ACTIVITY

Phase 1 (mid-19th century to 1940):

Early period dominated by foreign direct investment (FDI) to obtain raw materials (oil, minerals) for domestic mfg.; later, entry into Canadian & some European markets

Phase 2 (1945-1970):

FDI and overseas production to penetrate foreign consumer markets

Marshall Plan allowed US TNCs to penetrate W. EuropeEstablishment of $ under Bretton Woods as principal reserve currency gave the US immense power to shape the global economy; allowed the US to print money to fuel borrowing for industry or buying dollar-denominated goods (eg oil)

1957-67: 20% of all new US machinery plants, 25% of new chemical plants, and over 30% of new transport equipment plants were located abroad

By 1970: almost 75% of US imports were transactions b/w the domestic and foreign subsidiaries of US TNCs

Employment in overseas manufacturing plants of US TNCs, 1966 & 1977Source: N.G. Howenstein (1982) – Growth of US multinational companies, 1966-77, Survey of Current Business, 62, 4, Table 6.

Phase 3 (1970s ® ):

Collapse of Bretton Woods and increased strength of $

Growing imports from abroad; European and Japanese TNCs penetrate the US market

US TNCs redeploy capital to lower cost production regions (Europe & LDCs) – e.g. Nike Initially produced in US and UK ® Japan ® S. Korea and Taiwan ® Indonesia, Malaysia, China, Vietnam

Between one-third and two-thirds of global trade is now intra-firm trade between TNCs’ different subsidiaries

US TNC Employment, 1989-2009 (millions) www.economicpopulist.org/content/government-finally-shows-what-we-already-know-shipping-jobs-overseas-big-problem

US-based Share of Employment by US TNCs for selected years (%)

www.economicpopulist.org/content/multinational-corporations-are-hiringabroad

Change in US TNCs’ Domestic vs. Foreign Employment (%)

www.economicpopulist.org/content/multinational-corporations-are-hiringabroad

Understanding TNCs’ Dynamics – the Product Life Cycle

Understanding TNCs’ Dynamics – the Product Life Cycle

Lowell, MA New England US South Global South

Paths of TNC evolution

The product life cycle as an evolutionary sequence of US TNCs’ development

1900-1920s 1920s-1940s 1950s 1960s-1970s 1980s-present

TNCs as networks within networks

HOW DID THE US ECONOMY WORK PRIOR TO 1970?

1. Destruction of pre-war competitors Þ US emerges as world’s “economic hegemon”

US pushes “laissez faire” policies

2. Aid packages to Europe and Japan encouraged US economy to expand

Marshall Plan for Europe economic benefits to US companies political implications for world geopolitics

3. Importance of BRETTON WOODS AGREEMENT

1944 conference in NH; Set the US $ as the world’s “reserve currency” – Value of the US $ set at 1 oz gold = $35

Stimulus to US banking sector

• constant demand for US currency as traders must hold $ to access commodities priced in dollars – oil, gold, wheat, cattle, coffee etc.

Mfg. sectors benefitted because US lent money to other nations so they could buy US goods.

Allowed US to enjoy benefits of “seigniorage” – acquiring resources through the printing of money.

Allowed US to print dollars to cover any trade deficit

Established new key international organizations

Established new key international organizations

i) International Monetary Fund (IMF)

Ensure convertibility of currencies & fixed exchange rates linked to price of gold

ii) International Bank for Reconstruction and Development (IBRD –“World Bank”)

Ensure international flow of capital Foster “development” in LDCs

iii) International Trade Organization (ITO)

Designed to reduce barriers to world trade (soon failed) Replaced in 1948 w/ General Agreement on Tariffs and Trade

(GATT)

GATT: Operated under aegis of UN; periodic “negotiating rounds”

4 principles to reduce barriers in mfg realm:

Reciprocity: mutual reduction of tariffs Non-discrimination: Members not to grant preferential treatment

to one country over others

• “Most-favored-nation rule” -- all members to be treated as favorably as the most favored

Transparency: Members expected to replace non-tariff barriers

(whose effects are hard to detect/ measure) w/ tariffs (which are more open to scrutiny)

Developing Countries: LDCs were to be granted favorable trade

treatment under a special set of provisions

4. Role of the central (federal) state dramatically changed relative to pre-1930s

Greatly expanded role of federal govt as result of FDR’s NEW DEAL; followed KEYNESIAN POLICIES

Fed govt stimulates CONSUMPTION Þ stimulation of

PRODUCTION

Defense spending (“Military-industrial complex”) Investment in infrastructure (e.g., Interstate Highway System) 1949 Housing Act Þ stimulate suburbanization

Emergence of Fordism

Role of federal govt was to REGULATE relationship b/w PRODUCTION and CONSUMPTION

MASS PRODUCTIONMASS CONSUMPTIONINTERVENTIONIST CENTRAL STATE

Geographic reorganization of US industry Much industry moved from urban to sub-

urban areas Much industry moved to the South and

SouthWest (“SNOWBELT TO SUNBELT SHIFT”)• Cheap labor• Anti-union “Right To Work” laws

THE US ECONOMY, 1945 TO LATE 1960s

Economy performing fairly well in 1940s & 50s (growth stage of 4th Kondratieff)

“Golden age” of US post-war capitalism

Real Wages rising until 1970swww.thestreet.com/story/11480568/1/us-standard-of-living-has-fallen-more-than-50-opinion.html

1960s: GNP grew 4.1% per yr (50% for the decade)

Productivity grew 3.3% per yr Ave. family disposible income increased

30% in real terms The “Affluent Society” (John Kenneth

Galbraith)

BUT: by early 1970s significant economic changes

GNP increasing only 2.9% per yr Productivity increasing at 1.3% per yr Unemployment increasing

• early 1970s: 5%

• mid-80s: › 10% Inflation increasing

• 1960s: 2-3% per yr

• Mid-70s: 10% per yr

• 1980: 13.5% per yr

THE NEW INTERNATIONAL DIVISION OF LABORGrowing Deindustrialization:

Usual scapegoat is OPEC oil price hike in 1973 (quadrupled price of oil) -- BUT, evidence is questionable

• based on business cycle, US should have gone into recession in 1960s;

markets for consumer durables becoming saturated • recession delayed by govt spending (Vietnam War, space race, War on

Poverty) • Govt spending stimulated inflation • purchasing power of the $ declined; $ no longer worth in real terms what

Gold Standard says it is • Nixon ends direct convertibility of $ into gold (abandons Bretton Woods)

OPEC price rise can be read as a defensive move; related to deeper structural problems in US economy

Having the dollar as the world’s central currency during Bretton Woods era had advantages:

US could run chronic trade deficits and still maintain a strong currency – it could print money to make up the shortfall.

US consumers benefitted (cheap foreign goods).

US investors in overseas markets benefitted ($ buys more foreign currency/ goods)

US military could maintain foreign bases more cheaply.

BUT: US workers engaged in tradable goods industries (primarily manufacturing) were hurt because imports were cheap and exports expensive.

By the late 1960s/ early 1970s things had changed:

• WW2 competitors had rebuilt their economies

• Ideology of “free trade” Þ reduced protection from cheap imports

• Time-space compression Þ TNCs could more easily coordinate offshore activities Þ capital flight

CHARACTERISTICS OF THE POST-BRETTON WOODS ECONOMY

1. Shift from AGRICULTURE & MANUFACTURING to SERVICES

Mfg as % of total emploment:1947: 33%1977: 24%1997: 16%2012: 9%

Mfg as % contribution to GDP:

1947: 26%1977: 22%1997: 15%2012: 12%

Manufacturing absolute numbers

Manufacturing job loss in recent decadeshttp://economistsview.typepad.com/economistsview/2005/10/the_decline_in_.html

2005

2. Shift from more LABOR INTENSIVE forms of work to more CAPITAL INTENSIVE forms (automation, robotics) (1948-2011)

3. Trend towards OLIGOPOLY among corporations Age of acquisitions and mergers; huge though diversified corporations

4. Redeployment of capital by corporations in search of NEW MARKETS and

LOWER PRODUCTION COSTS

growing economic internationalization as TNCs exploit “Time-space compression”

As the pace of economic life has increased, TNCs “need” to have flexibility

• growing use of contingent workers who are easily hired and fired• growing use of just-in-time inventory control and delivery by some

Export Processing Zones (EPZs) in the Global South (2003)

Overseas investments are a growing source of profit for US corporations

Source: Moody (1988: 112), An Injury to All; US Statistical Abstract

US Private assets held abroad

Proportion of profits made abroad by US TNCs

1950 $ 19b

1960 $ 49b

1970 $ 119b

1980 $ 701b

1994 $2,233b

1950 3.4%

1960 5.9%

1970 9.4%

1980 15.6%

1994 18.4%

Worsening of workers’ situationsNYT Aug 28, 2006

Growing inequality

Emergence of a low-wage economy for many workers Falling real wages and minimum wage Of the 25 million jobs created in the US in the 1990s

“boom”, only 18% paid more than the national average.

Average hourly earnings, 1964-2008 (2008 $)

FEDERAL MINIMUM WAGE, ADJUSTED FOR INFLATION

A quarter of jobs in the US pay below the federal poverty line for a family of four ($23,050 – $10.60 per hour for a full-time worker)

5. Changed role for the central state

Shift from DEMAND MANAGEMENT “stimulator

of the economy” to SUPPLY SIDE “pursuer of deregulation” – Milton Friedman (Univ of Chicago) • Replacement of “bottom-up” economic

policies of New Deal w/ “trickle-down” policies

Decentralization – “New Federalism”

Individual states playing a greater role in economic development

Allows TNCs to play states against each other for incentives

Company, state, date subsidies per job created

Nissan, TN, 1980 $11,000

Saturn, TN, 1985 $13,000

Toyota, KY, 1985 $50,000

BMW, SC, 1992 $68,000

Mercedes-Benz, AL, 1993 $169,000

Nissan, MS, 2000 $73,750

Searchable data base at: www.nytimes.com/interactive/2012/12/01/us/g

overnment-incentives.html

6. New international organizations, e.g. WORLD TRADE ORGANIZATION

By 1980s GATT becoming increasingly irrelevant; GATT had dealt w/ mfg but did not cover agricultural commodities and services

WTO came into being on Jan 1, 1995

Unlike GATT, WTO treaty created permanent organization to enforce trade rules and assess penalties

CRISIS AND RESTRUCTURING POST-1970s1. Economic slow down in core industrial countries and FALLING

PROFIT RATES Rates of economic growth in OECD countries:

1963-1973: 5-6% per yr 1973-1978: 2-3% per yr 1979-1982: ‹ 1% per yr

Associated w/ decline phase of 4th Kondratieff Falling levels of demand for BUILDING, MINING, FACTORY EQUIPMENT

(eg ships, vehicles, machinery, machine tools) and hence for STEEL

2. Growth Of InflationFinancing for Vietnam war stimulated inflation in late 1960s Inflation reduced profits ® increased problems of capital accumulation

® CAPITAL INVESTMENT financed not by profits but by BORROWING

ROLE OF FEDERAL RESERVE SYSTEM

“The Fed” can EXPAND or CONTRACT the MONEY SUPPLY to control MONETARY POLICY

(different from FISCAL POLICY)

ELEMENTS OF THE FRS:

12 Regional Reserve Banks – these operate the DISCOUNT WINDOW

Federal Open Market Committee (located at

NY Fed Res Bank)

Regional Reserve Banks:

Commercial banks borrow from the RRBs to make up temporary shortages in their required reserves

By loaning money to commercial banks, RRBs expand the money supply

Interest rate (“Discount rate”) charged by RRBs to commercial banks affects how much money the latter will borrow and at what price

Federal Open Market Committee:

Expands the money supply through buying govt. securities (e.g. Treasury bonds)

Buying govt securities creates money in a dealer’s account

Contracts the money supply through selling govt securities ® takes money out of the system

Fed moved against INFLATION by increasing the PRIME RATE to 21.5% (by June 1982) to cause a RECESSION (known as the “Reagan recession”)

This was a calculated decision to favor FINANCE

CAPITAL over MANUFACTURING CAPITALworst recession since the Great Depression.

Unemployment peaked at 9 million and 17,000 businesses failed

Why? If inflation is running too high relative to interest rates, lenders lose out

But, debtors do well

Loan Amount Interest 5% Inflation 10%$100 $105 $110

Loan Amount Interest 10% Inflation 5%

$100 $110 $105

Implications? Makes borrowing much more expensive, especially as firms have become

more reliant on borrowing to finance investment Retarded TECHNOLOGICAL INVESTMENT ® Hindered COMPETITIVENESS But, simultaneously, inflation increased some LABOR COSTS RECESSION in both:

CAPITAL-INTENSIVE industry e.g. steel, shipbuilding, automobiles, consumer durables

LABOR INTENSIVE industry e.g. textiles, clothing, footware

Boom for FINANCIAL SECTOR as foreign investors buy $

3. Increased International Currency Instability i) End of Bretton Woods ® FLOATING EXCHANGE RATES Issue of Over/ Under-valuation of currencies

If currencies are STRONG (eg $, £) industrial production is RETARDED because EXPORTS are expensiveEqually, IMPORTS from abroad are relatively CHEAPER

If currencies are WEAK (eg DM, ¥, Swiss Franc) industrial production is STIMULATED because EXPORTS are cheaperEqually, IMPORTS from abroad are relatively MORE EXPENSIVE

Assume the Japanese Yen (¥) exchanges at ¥100 = $1

For an American to buy a Japanese car priced at ¥2000,000 = $20,000

For a Japanese to buy an American car priced at $20,000 = ¥2000,000

Situation 1: the dollar strengthens against the yen ($1 = ¥200 instead of ¥100 )

For an American to buy a Japanese car priced at ¥2000,000 = $10,000 (instead of $20,000)

For a Japanese to buy an American car priced at $20,000 = ¥4000,000 (instead of ¥2000,000)

Japanese imports become cheaper; US exports become more expensive

Situation 2: the dollar weakens against the yen ($1 = ¥50 instead of ¥100 )

For an American to buy a Japanese car priced at ¥2000,000 = $40,000 (instead of $20,000)

For a Japanese to buy an American car priced at $20,000 = ¥1000,000 (instead of ¥2000,000)

US exports become cheaper; Japanese imports become more expensive

The value of the dollar over timeJune 1982: interest rates hit 21.5%

Strong dollar ® loss of international competitiveness & significant import penetration

Proportion of sales accounted for by imports (%)

1980 1985

Clothing & textiles 34 55

Shoes 50 81

Computers 7 25

Autos 35 40

US Exports and Imports, 1970-1998www.census.gov/statab/freq/99s1323.txt

Deficit in mfg

Agricultural goodsManufactured goods

The loss of export competitiveness and competition from cheap imports affected different parts of the US in different ways

Import-vulnerable & export-oriented sectors

Share of regional Mfg accounted for by export-oriented, import-vulnerable, and non-traded goods in 1985

Decline in share of production workers in mfg employment, 1978-1985, by region

ii) Problem of INTERNATIONAL DEBT CRISIS

1973 OPEC oil price increase ® PETRO-DOLLAR surpluses

US and Western Banks flooded w/ $

Many Global South countries borrowed heavily in 1970s PROBLEMS:

Financial instability in 1980s as Global South countries defaulted on debts

Strong incentive for Global South countries to increase EXPORTS to earn foreign exchange

Structural Adjustment Programs (SAPs) imposed on defaulting Global South nations

IMPACT: Many LABOR INTENSIVE industries in Global North countries

faced INTENSE COMPETITION

4. RESSURGENCE OF POLITICAL VOLATILITY (“NEW COLD WAR” of 1980s)

Reduced possibilities for trade b/w EAST and WEST, and trade involving CENTRAL AMERICA, MIDDLE EAST, SOUTHEAST ASIA

US Govt efforts to stabilize regimes ®

encouragement of OVERSEAS INVESTMENT by US TNCs (e.g., Philippines)

5. GROWING INTERNATIONAL COMPETITION FOR US

post-1970 stagnation of world markets aggressive role played by govt in NICs US losing role as economic hegemon Growing industrialization of some LDCs

GLOBAL RESTRUCTURING HAS RELIED ON 3 ELEMENTS

1. Transformation of political and economic relationship b/w capital and labor

Introduction of robotics and labor saving technology ® loss of high

wage mfg jobs Threat of capital flight has allowed corporations to play workers and

communities against each other

•undermines bargaining power of workers •encourages states and communities to compete for investment

2. New roles for central government and public sector

Deregulation of economies and markets has

made capital flight easier shift from investment in COLLECTIVE

CONSUMPTION (schools, hospitals, community services) towards PRIVATIZATION

3. Creation of a NEW INTERNATIONAL DIVISION OF LABOR as TNCs exploit TIME-SPACE COMPRESSION

TNCs searching for new markets and labor sources Reduction of relative distances b/w places Pace of social life has increased Need for TNCs to be able to be “flexible” ® growing use of

contingent workers

Emergence of low wage mfg economy