As I noted yesterday, last evening I accepted an invitation to speak on a panel…
The co-option of government by transnational organisations
Today, some more analysis of the debate about globalisation and the capacities of the nation-state. We consider the debates in the early 1970s about the power of transnational corporations and the claims that they undermined the capacity of the nation-state to further the interests of the population. On the one hand, the free-market liberals claimed that the emergence of the transnational corporation was a move towards increased global efficiency and the nation-state, which served narrower interests, would be swept aside, along with its regulative structures, by this trend. Global welfare (and solutions to international poverty) would be maximised by the demolition of national borders by transnational capitalism. This view considered the nation-state to be ‘dispensable’ – that it only served narrow interests and the global organisation of production no longer required national governments to operate in this way. The Marxist position was, understandably, at odds with this view. It considered the nation-state to be indispensable to the growing needs of international capital. This was in the sense that governments could provide essential stability to reduce the risk of transnational operations. My position is more in line with the latter view although it clearly recognises the relevance (and power) of the national governments in which they choose to operate. Further, these transnational corporations are typically very large firms within the nations they operate. it is hard to differentiate the political clout that being large exerted from the influence of being global. Certainly, the early literature was not clear on that issue.
The series so far:
1. Friday lay day – The Stability Pact didn’t mean much anyway, did it?
2. European Left face a Dystopia of their own making
3. The Eurozone Groupthink and Denial continues …
4. Mitterrand’s turn to austerity was an ideological choice not an inevitability
5. The origins of the ‘leftist’ failure to oppose austerity
6. The European Project is dead
7. The Italian left should hang their heads in shame
8. On the trail of inflation and the fears of the same ….
9. Globalisation and currency arrangements
The blogs in these series should be considered working notes rather than self-contained topics. Ultimately, they will be edited into the final manuscript of my next book due later in 2016.
The transnational organisation and the nation-state
Since the end of the Second World War, a common narrative has been that the nation-state is becoming increasingly restricted by the creation of supranational (multilateral) institutions and the accelerating growth of international capitalism.
In the 1950s, this thesis concentrated on the supranational institutions, which function either at the global scale (for example, GATT) or the regional scale (for example, NATO).
In the 1960s, as major advances in technology, transportation, and communication facilitated the growth of transnational corporations, the focus in the narrative shifted to these developments. These corporations were considered to be so powerful that no individual nation-state could control their activities.
A number of theories (for example, the ‘product-cycle theory’) were advanced to explain the rapid growth of transnational corporations. The specifics do not need to concern is here and are based on various versions of comparative advantage.
Free-market proponents (such as Raymond Vernon, 1971) argue that these developments override national political interests because they reflect market-driven processes, which create ‘world efficiency’ and maximise ‘world welfare’ by using all available real resources in their most productive way.
Market liberalism on a global scale thus becomes the model for economic development for all nations and narrow national interests give way to a larger frame.
Of course, this view was not uncontested.
Opponents of this emerging free-market rhetoric, counted by saying that the multinational corporation was just a manifestation of the dominant capitalist class pursuing its own interests at the expense of the productive class (that is, the workers).
Hymer (1972) argued that nation-states were compromised by the growing exploitation of the international division of labour in two ways: first, they lost sovereignty, and second, the traditional economic policy levers became less effective.
The result is that the state is less able to defend the interests of the workers (if it ever did), the workers become increasingly divided as firms exploit low-wage areas, and the international flow of capital provides new sources of return for the wealthy.
However, it’s not quite as simple as that. Hymer and Rowthorn (1970) argued that the transnational companies need stable polities in which to function. While it is in their interests to ensure the nation-state does not impede their activities they also rely on the nation-state for rule of law and economic and social stability.
So a new conflict emerged as capitalism became increasingly global because, on the one hand, the transnational corporations needed strong nation-states to protect their capital, but, on the other hand, these same corporations sought to undermine the regulative and tax structures that day were subject to in their head office locations.
Here we encounter a divergence in the literature between the conception provided by the free-market liberals of globalisation (for example, Vernon, 1971) and the Marxist argument.
The former considered that the power of the global market would see the state wither away.
Whereas, the latter, clearly understood that the spread of transnational capitalism required the role of the state to change from one of mediating the class conflict to one of supporting the interests of capital more closely (see also, Pitelis, 1991).
In this context, Huntington (1973) distinguished between an international organisation and a transnational organisation. The former is defined as an organisation where “the control of … is explicitly shared among representatives from two or more nationalities” (p.336).
An organisation is “transnational … if it carries on significant centrally-directed operations in the territory of two or more nation-states” (p.336).
The multilateral organisations, which Raymond Vernon (1971) considered to have compromised the independence of states, such as the United Nations or the World Banks, can only be created if there is “agreement among nation-states” to share or trade interests, which “puts an inherent limit on internationalism” (Huntington, 1973: 338).
In other words, “the extent to which they can become independent actors themselves is dependent on agreement among national actors” (Huntington, 1973, 338).
In the case of commercial organisations, Huntington said that while they are “very transnational in their operation” and “personnel” they are usually “almost wholly national in control”.
Another major difference pointed out by Huntington is that:
The international organization requires accord among nations; the transnational organization requires access to nations … International organizations embody the principle of nationality; transnational organizations try to ignore it.
For the Marxists, the nation-state was increasingly pressured to act in the interests of the transnational corporations. This is an important point of departure from those who argue that the nation-state was made impotent by rise of global capitalism.
What the early literature didn’t really discuss and, perhaps didn’t grasp, was that the nature of international capital flows by the 1970s was quite different to the early speculative type attacks on currencies that brought the fixed-exchange rate system down.
The multinational companies of the late 1960s, while influential in the nations where they invested, were typically very large companies in the nations where their head offices were located.
In that latter sense, they sought to exert significant influence in the formation of government policy in relation to trade, financial deregulation, and tax legislation.
In other words, the ways in which they attempted to co-opt national sovereignty, included this direct lobbying influence on the homenation-state.
That influence was also exerted by large companies, in general, irrespective of their transnational reach.
It is hard to differentiate the political clout that being large exerted from the influence of being global. Certainly, the early literature was not clear on that issue.
We might characterise the world in terms of a set of competing regulative environments managed by the national governments. The transnational companies, recognising that some environments are more favourable than others, strategically shift investment to increase their advantage.
This allows the corporations to exploit cheaper labour (which is both unorganised and unprotected by national laws) and differential tax structures.
But the fact that these corporations do scan the world for these niches of advantage reinforces the view that the nation-state remains potent.
It was no surprise that in the 1970s there was a major push by corporations (both transnational and national) to undermine the capacity of trade unions in the advanced nation. The attack on so-called ‘trade union power’ was well-organised and well-funded.
It was one of the early manifestation of the increased sophistication of the corporate lobbying machine intertwined with an increasingly concentrated media that served the narrow interests of capital.
The attack recognised that the nation-state had the power to change the legislative environment and shift the balance of bargaining power from labour to capital. That particular campaign exemplified the understanding within the corporate sector that their interests required them to reach settlements with the national governments in order to advance their interests.
So we see the beginnings of neo-liberalism in its modern-day form arising from the need of capital to divert government policy away from generalised welfare improvement towards the advancement of the more narrow interests of capital.
The social democratic governments of the Post Second World War period up until the 1970s had clearly mediated class struggle and the workers were successful in forcing the polity to act in their interests by creating full employment and the Welfare State.
This era clearly meant that the distribution of national income was such that real wages could grow more or less in proportion with productivity growth, which provided significant material improvement to the living standards of the population including reductions in poverty rates.
Without that successful class struggle, which worked through the government, profit rates and income inequality would have been higher. Government policy was very successful in this period of mediation in underpinning this trend. There is clear evidence that capital, through industrial organisations (peak bodies) etc consistently tried to undermine this broad consensus.
But the political process was such that the governments were clearly committed to broad goals of prosperity. Even Raymond Vernon (1971: 213) acknowledged that during this period the governments and corporations would “hold each other at arm’s length”, despite the latter continually seeking ways to alter the balance of power in favour of their interests.
This provides context for appraising the ideas of Vivien Schmidt who argued (1995: 76) that the most significant consequences of globalisation are the “strengthening of business, with the transnational corporations less tied to nations and national interests, and a weakening of the nation-state overall, in particular of the voice of the people through legislatures and nonbusiness, societal interests”.
She wrote (p.76) that:
By liberalizing their trade policies, by deregulating their economies, and by privatizing their enterprises, national governments have much less control over what goes on in their own territory or what their own multinationals do elsewhere, and they no longer have the resources they had in the past to solve social problems.
She argues that as governments lose their discretionary capacity to serve domestic policy, “democracy is at risk” (p.77).
The processes or changes she is describing here are the product of legislation within a nation-state. The process of privatisation clearly transferred resources from the public sector to the private sector and reduced the public bureaucratic control of the organisations in question.
Those processes are reversible. If we want a demonstration of that reversibility, then we need not look further than what happened to the banking sector in the early days of the GFC when many national governments effectively socialised the losses from the failed corporate strategies, protected depositors and nationalised the organisations.
There was no hint then that the nation-state had lost its power or discretion to act to advance the national interest and largely disregard the interests of the private shareholders of these large transnational, financial entities.
Schmidt also lumps together “multinational corporations” who “are less bound economically, politically, and morally to nation-states” with “supranational bodies such as GATT, NAFTA, and the EU” which “have given scant attention to the social spillovers” (p.77).
The can be no doubt that the former corporations cannot be relied on to serve national interests and in that sense need to be regulated. But, inasmuch as their decentralised, bureaucratic nature is, in one way or another, inherently national (their legal form has to be located somewhere) and they have to bring resources across national boundaries, then they become subject to legislative intent should the relevant sovereign government have the required will.
In the case of the supranational bodies, these are all voluntary constructs of nation-states as Huntington clearly points out.
Conclusion
And this discussion will be continued.
REFERENCES:
Bhagwati, J. (ed.) (1972) Economics and World Order: From the 1970’s to the 1990’s, New York, The Macmillan
Co.
Cooper, R.N. (1968) The Economics of Interdependence, New York, McGraw-Hill.
Gilpin, R. (1975) U.S. Power and the Multinational Corporation: The Political Economy of Foreign Direct Investment, New York, Basic Books.
Haas, E.B. (1964) Beyond the Nation-State, Stanford, Stanford University Press.
Hirst, P. and Thompson, G. (1996) Globalisation in Question, Cambridge, Polity Press.
Huntington, S.P. (1973) ‘Transnational Organizations in World Politics’, World Politics, 25(3), 333-68.
Hymer, S. (1972) ‘The Multinational Corporation and the Law of Uneven Development’, in Bhagwati, J. (ed.) (1972) Economics and World Order: From the 1970’s to the 1990’s, New York, The Macmillan Co., 113-140.
Hymer, S. and Rowthorn, R. (1970) ‘Multinational Corporations and International Oligopoly: The non-American Challenge’, in Kindleberger, C. (ed.) The International Corporation: A Symposium, Cambridge, Mass., MIT Press, 57-91.
Kindleberger, C. (ed) (1970) The International Corporation: A Symposium, Cambridge, Mass., MIT Press.
Kozul-Wright, R. and Rowthorn, R. (1998) ‘Spoilt for Choice? Multinational Corporations and the Geography of International Production’, Oxford Review of Economic Policy
Pitelis, C. (1991) ‘Beyond the Nation-State?: The Transnational Firm and the Nation-State’, Capital and Class, 43, 131-52.
Schmidt, V.A. (1995) ‘The New World Order, Incorporated: The Rise of Business and the Decline of the Nation-State’, Daedalus, 124(2), 75-106.
Vernon, R. (1971) Sovereignty at Bay, New York, Basic Books.
That is enough for today!
(c) Copyright 2016 William Mitchell. All Rights Reserved.
“The can be no doubt that the former corporations cannot be relied on to serve national interests”
They can’t, and their desire to form and maintain supranational structures that hog-tie national legislatures is part of that process.
Essentially what they want to create is a world with low cohesion and high coupling. A spaghetti mess where nobody can get in the way of their decisions.
The opposite philosophy are nations with high cohesion and low coupling to other nations. The floating rate exchange mechanism is an effective way of decoupling an area and making it more internally cohesive, and therefore it is interesting to see the academic and speculative attacks on the mechanism – ably assisted by a banking structure with completely the wrong view of the world.
There is a fascinating video (and transcript) on the Corbett report ‘How big oil conquered the world’ more or less suggesting that these multinational corporations came into being as a direct result of the early monopolies in the oil industry that generated such huge revenues which were then used to effectively create the pharmaceutical industry (petrochemical by-products), the Agri-food monoliths (fertilisers GM crops etc) whilst at the same time effectively also creating the PR industry and directly intervening in educational and medical roles in order to pursue profits for those industries using philanthropy to get their guys on the various boards of medical schools and universities as well as buying up politicians.
I always thought I was a bit of a conspiracy theorist but this came as a surprise even to me. I’d be interested to know the views of others on this. Here is the link. How big oil conquered the world
Help needed.
I am starting a discussion group with some UK Labour Party members on politics and economics. I would like to introduce the group to Modern Monetary Theory. Can anyone recommend an article/blog post (need electronic version) for the group to read a head of the discussion. The angle I would like to take is one that challenges the deficit/austerity narrative prevalent in the UK right now.
Thanks
Nell
By far the most succinct and easy to understand writing is “Seven Deadly Innocent Frauds of Economic Policy” by Warren Mosler which is free from his website, a link to which is included in this blog. I am trying to write a thesis in plain language and will publish it as a Kindle book. It isn’t quite ready yet but may be within a week or so if I can resolve a couple of issues. Can you please say where the discussion group is taking place as I will try to attend if not too far away. London is okay.
“Help needed.
I am starting a discussion group with some UK Labour Party members on politics and economics. I would like to introduce the group to Modern Monetary Theory. Can anyone recommend an article/blog post (need electronic version) for the group to read a head of the discussion. The angle I would like to take is one that challenges the deficit/austerity narrative prevalent in the UK right now.
Thanks”
The topic is somewhat complicated to newcomers, so I would sugest Warren Mosler’s Seven Deadly Innocent Frauds because it is probably easier to read for these people. http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
Bill, It seems that the modern Marxists don’t like the nation state idea at all. I might be wrong, they could be just fake Marxists and neoliberals believing in global capitalism. This certainly was the case in Greece, they didn’t want to anger the global capitalists because they believe that Greece benefits from globalization.
Dear Bill
A company can only be called American, Dutch French, etc if most of its employees are American, Dutch, French and if it also favors its American, Dutch, French employees. It is irrelevant where its head office is located and who the top managers are. The head office of McDonald’s may be located in the US and all of its top managers may be Americans, but there is no reason to believe that it gives priority to its American employees. It therefore can’t be called an American company but should be called a transnational one.
A company can become multinational by investing abroad or by importing immigrants. In both cases, it employs foreign labor. If an American fruit grower located in California employees only Mexicans, then it might as well be located in Mexico. In the seventies, the labor force of some Dutch and German companies consisted mainly of “guest workers”. They may have been located on Dutch or German soil, but they were in fact foreign companies, even though its owners were Dutch or German. To say that a company is Dutch because most of its shareholders and top managers are Dutch is like saying that South Africa in 1990 was a white country because most of its wealth and power was in white hands.
Regards. James
testing
Nell
After reading Warren Moslers book as suggested by Nigel Hargreaves, I would also recommend the MMT primer from the University of Missouri Kansas City website:
http://neweconomicperspectives.org/modern-monetary-theory-primer.html
Bill’s weekend quiz on Saturday’s with detailed answers on Sunday’s are a great way to test your developing knowledge of MMT. Many of the answers take you right back to the basics of MMT so they are immediately helpful.
There are lot’s of good books to be found on the websites.
Nell: “I am starting a discussion group with some UK Labour Party members on politics and economics. I would like to introduce the group to Modern Monetary Theory”
Thank God for this! For a fairly basic intro, from a few years ago and with a UK anti-austerity perspective, you might try:
http://think-left.org/2012/09/25/the-fundamental-deceit-of-theres-no-money-left/
By Alex Little, an MMT advocate and former economics student, residing in Bradford. He’s also, I think, the guy who first noticed the BBC article (soon taken down) about persuading Steven Doughty to resign from Corbyn’s shadow cabinet live on-air just before PMQs. He’s an excellent resource for MMT resources, both basic:
https://alittleecon.wordpress.com/2014/06/03/the-basics-of-modern-monetary-theory/
and advanced:
https://alittleecon.wordpress.com/academic-mmt/
I can think of plenty of articles, but I need some more background info on the group’s likely composition/your exact requirements. The literature on MMT is voluminous once you start lookng, but selecting a single intro that covers all MMT in a basic way is not so easy. How simple do you want it? Is there an upper limit in terms of word count? Would it help if the language was more activist or more academic? Do any group members have any economics background knowledge? This could both help and hinder the process: those with an economics background may already be familiar with concepts like fiscal multipliers, aggregate demand etc but also bring to the table preconceptions like the financial sector operating on a loanable funds basis that requires more advanced MMT material to allay their lkely initial scepticism?
I’ll look through my MMT resources and see if I can find more good on-line introductory material that meets your specifications; I really would like to assist with this in any way I can. Do you mind if I mention this on my twitter feed? I don’t have many followers but most of them seem to have some interest in MMT and many are UK-based. I don’t know if it would help, but I can try if you like.
Nigel Hargreaves: “By far the most succinct and easy to understand writing is “Seven Deadly Innocent Frauds of Economic Policy” by Warren Mosler which is free from his website, a link to which is included in this blog.”
Indeed, this is one of the things that first got me interested in MMT. I must admit, I was initially (perhaps unfairly) sceptical about the resource, given Mr Mosler’s background in the financial markets and the slight (but understandable) USA focus of the text, but by the time I finished it I was hooked.
“I am trying to write a thesis in plain language and will publish it as a Kindle book. It isn’t quite ready yet but may be within a week or so if I can resolve a couple of issues.”
– that sounds really interesting! I really look forward to reading this Nigel. I think we in the UK are hampered by a lack of MMT academics available for media comment, so anything on MMT from more UK-based sources (I think I’m correct in describing you as UK-based ?) should be really helpful in getting the word out.
“Can you please say where the discussion group is taking place”
I would really like to know this as well, Nell. I mean, I don’t live very close to London, but I’d still like to know. Even if the initial meeting is in London, I hope subsequent meetings could be held more widely. Alex (mentioned above) and Neil Wilson, both with a great grasp of MMT, appear to live closer to my area, so while obviously I can’t speak for them (I don’t even know them personally), I would imagine logically it might be easier to get them to attend if the meeting’s geographival proximity was further North (just a guess).
” A number of theories (for example, the ‘product-cycle theory’) were advanced to explain the rapid growth of transnational corporations. The specifics do not need to concern is here and are based on various versions of comparative advantage.”
Where is the comparative advantage in dispossessing large groups of people within any given nation of their only source of livelihood? I’m getting tired of hearing the “comparative advantage” tropes from neo-liberals who walk around in Liberal clothing. I once heard a Liberal MP spouting this nonsense with respect to small family owned local farms in front of a first year business class; “we should be buying our lettuce from China” he said. The same political parties that subsidized large agribusiness and fossil fuels. This is leadership by lies.
National economies exist to serve the broader public good. It only works when people are involved in the production of that which they are able to consume as needed. This is were the “fallacy of composition” comes in to play. When government takes a back seat and lets the large corporations drive, it’s that public good the economy supplies that suffers as corporations fail to view net gain correctly, from the narrow perspective of their own bottom line. Our politicians seem not only to have taken a back seat but have fallen asleep back there as well.
“The angle I would like to take is one that challenges the deficit/austerity narrative prevalent in the UK right now.”
My government super platinum credit card article tends to get a good hearing – at least amongst those who are open minded enough to entertain the premise.
And it nicely deals with the ‘maxed the credit card’ rhetoric.
I would also recommend Alex Douglas’s article on how all political parties in the UK have an implicit policy requiring 1.8 million people to be out of work.
MMT proposals ensure those 1.8 million people earn the living wage, and a Labour party worth of the name should be endorsing them.
“Can anyone recommend an article/blog post (need electronic version) for the group to read a head of the discussion. ”
Yes. Use this:
https://alittleecon.wordpress.com/2014/06/03/the-basics-of-modern-monetary-theory/
@ Nell
I can second the recommendation for the Warren Mosler pamphlet. There are also some good videos on youtube by Stephanie Kelton, as an “educated layman” I found the MMT-MCT Fields Institute one very good introduction on money and tax from an MMT perspective.
Good luck with the group, I’d be interested if you are doing it nationally (Houghton and Sunderland South CLP)
@ Neil Wilson
I’ve used L. Randall Wray — MODERN MONEY: the way a sovereign currency “works” as a starting point. Really we could do with a UK version because as you know the UK and US are ‘two nations divided by a common language’.
https://www.youtube.com/watch?v=i35uBVeNp6c
Nell
-Also, if videos are acceptable as well as files, I highly recommend this presentation by Steven Hail and Phil Lawn. It goes over everything MMT-related but fairly quickly and simply.
https://www.youtube.com/watch?v=qBpm5sVmGYc
Please see also this joint presentation by Mosler, followed by Stephanie Kelton. Mosler is excellent at explaining how tax + spending works according to MMT. Kelton is great at explaining Sectoral Balances.
https://www.youtube.com/watch?v=ba8XdDqZ-Jg
Help needed,
start with the accounting framework neil,
very hard to argue against the bleeding obvious of the accounting.
bills, deficts 101 , is about as good a starting point as any, or perhaps scot fulwilers functional finance stuff
@ Nigel Hargreaves,
Thanks for the suggestion. The discussion group is tiny and will take place in my house in Hull. Not worth a trip at this stage. Let me know when your book is done, I would like to read it (can you make it epub format?).
Nell,
Yes it will be in epub format as all Kindle books are. However, I’ve been having a problem with my Kindle for PC reader which no longer works. I have a suspicion it is something to do with Windows 10 which has all sorts of problems. Now trying it on my W7 laptop.
The book is finished and I have sent it to an author friend who will proof-read it before publication.
As you sy, Hull is rather a long way.
@A.J.Miles
Thanks for the suggestions. I don’t know what the composition of the group is in terms of background knowledge (I am a new Labour member and have only been to 3 meetings). I would like to start the discussion off with something simple, easy to understand, but surprising, which will lead to lots of questions. This might motivate their own learning on the topic. It certainly motivated mine.
@ Stewart,
Great advice thanks. No plans for anything national, yet. Just a group of people who want to discuss ideas in Hull. Tiny stuff, but we have to start somewhere.
@Neil Wilson
Great post and I like the analogy. Thanks
Thanks to everyone for their incredibly helpful advice and links to sources. I am hoping that the discussion group finds the topic so engaging I get more than one chance to to present on MMT.
Nell
Thanks for the info re the group. I don’t know if I’m too late, but I just thought I’d show you these excellent posts published at Think Left. They act as basic intro’s to MMT from a UK-based anti-austerity perspective. I especially recommend the first 2:
http://think-left.org/2012/09/25/the-fundamental-deceit-of-theres-no-money-left/
http://think-left.org/2015/08/03/austerity-is-a-political-choice-not-economic-necessity/
http://think-left.org/2012/10/03/labours-deficit-problem/
http://think-left.org/2013/02/15/why-we-cant-spend-more-than-we-bring-in-but-government-can/
http://think-left.org/2015/08/22/neoliberal-tina-economics-is-flat-earth-thinking/
I’m a new (joined October) Labour member too! Best of luck with the meeting.
Also, if they’re willing to read a slightly longer article, try this
http://www.thenation.com/article/beyond-austerity/
from Prof. Mitchell himself in the American progresive magazine “the Nation”. It explains the folly of austerity in a straightforward but comprehensive way. I think it serves as a good overview of most MMT points without getting too bogged-down in detail on any one of them, so it should be a good, thought-provoking intro. I was able to access the article without being a member but I don’t know if the magazine has some sort of limit on free views of its content.