A.Z.ASTAPOVICH
__TITLE__ THE PROGRESS
PUBLISHERS
MOSCOW
Translated from the Russian by Jenifer Warren
CONTENTS
Designed by Victor Korolkov
A. 3. ActanoBHH
CTPATEFHJ! TPAHCHAUHOHAJIbHblX KOPOOPAUHH
Introduction............. 5
Ha amjiuucKOM nsbwe
Chapter One. The Emergence of Transnational
Corporations: Causes and Conditions . . 11
Driving Force and Growth Factors in International Expansion...... 11
Main Trends in the Export of Private
Capital........... 26
Scale and Character of Overseas Operations. Changes in the Ranking of Transnationals........35
Chapter Two. Global Investment Strategy ...
52
International Mobility of Capital ...
53
Intra-Firm Division of Labour ....
76
Financial Policy.........
95
Chapter Three. The Mechanism of External Economic Expansion.......116
Wholly-Owned Affiliates......117
Mixed Affiliates and Adaptation Strategy 125
© HaaaiejibCTBO «HayKa», 1978 New Aspects of Inter-Monopoly AgreeEnglish translation of the revised Russian text © Prog-
ments...........139
ress Publishers 1983 Chapter Four. The Internationalisation of Capitalist Exploitation........151
Printed in the Union of Soviet Socialist Repubha
Supranational Employment Strategy . . 152
Overseas Enterprises: Wage Comparisons . 166 11105-225
0604040000
Supranational Exploitation: Myths and
'
~^^173^^
Chapter Five. Relations between TNCs and the State: the American Example . . .
The State's Role in Developing Transnational Business........
Impact on the United States' Foreign Economic Position.........
Problems of Regulating Global Expansion
Chapter Six. Transnational Corporations and Neocolonialism .........
New Stage in Oppression of Developing
Countries.........
Monopoly Practices and the Preservation of Backwardness.....
Maintenance of Economic Inequality . .
193Introduction
208 224 241When serious changes first begin to mature in society, researchers may legitimately ask themselves whether the first prophecies of changes are no more than a sensation blown up by journalists with nothing better to do. The first books to be published on the problems of transnational corporations (TNCs), which appeared in the West in the second half of the 1960s, were, in fact, rather sensational. How many different names were given to the new phenomenon by the various authors! Assessments varied from the frankly apologetic which hailed the TNCs as the chief motor of modern civilisation to the pessimistic and simply alarmist which regarded them as a direct threat to national sovereignty, the freedom of the individual, etc. Gradually the first wave of publications subsided and the time came for trying to understand and make a serious analysis of the consequences arising from the growth of transnationals for individual economies and world economic relations. Marxist theory regards the emergence of TNCs as the natural outcome of capitalist development. Interest in this problem is increasing and gaining fresh stimulus year by year due to the great theoretical and practical importance of the subject which, far from being the latest sensation is a phenomenon which derives from the very heart of capitalism and reflects its most characteristic features and contradictions. The importance and urgency of finding a practical solution to many problems connected with the expansion of transnationals has attracted the attention of many international organisations. A wide-ranging discussion on how to control transnational operations has sprung up inside the U.N. This reflects the growing disquiet felt by world public opinion
257 264
at their harmful impact on trading relations and particularly on the position of developing countries.
Marxists have developed an exact scientific approach to defining the essential characteristics of transnational corporations. Its main features can be described as follows. Firstly, a qualitative evaluation of transnational which makes it possible to specify their new features and the forms of expansion and consolidation of their economic positions in the world capitalist system. Secondly, an analysis of their most general and typical characteristics and their regular pattern. Thirdly, Marxist researchers have firmly rejected the broad, unbounded classification of TNCs as firms with perhaps only one foreign subsidiary. In fact, they are modern international super-monopolies with a turnover of a thousand million dollars and more and with tens and even hundreds of factories and companies abroad. This forms the basis for their profound impact on the economy of many countries and on world economic ties.
Transnational firms are a type of monopolistic organisation of all the various stages of economic activity on an international scale. Unlike the previous monopolies, they have organised a dense network of manufacturing enterprises in different countries, which they operate on the basis of intra-firm specialisation and cooperation while taking advantage of the international division of labour. They regard the capitalist part of the world as a single area for the accumulation and investment of capital, and an enormous source of finance. Their foreign operations are so widespread that they have had to establish their own centres for carrying through a uniform policy on production, finance and credit, research and development and trade on all five continents.
As in the case of any new phenomenon, in the development of monopoly capitalism it is essential to look at the TNCs role in undermining bourgeois structures. This is an essential part of Marxist analysis. The purpose of the present book is to trace the principal trends and the nature of transnational firms and to explain their effect in sharpening contradictions within the capitalist system as regards the relationships between wage labour and capital, between monopolies and the
state, and between capitalist and developing countries. Every economic development must be examined in its historical context and continuity and in the light of changing circumstances. The technical discoveries that were made at the end of the 19th and beginning of the 20th centuries speeded up the emergence of monopolies owing to the enormous increase in the concentration of capital and production in various countries. Similarly, the modern scientific and technological revolution which greatly reinforced the internationalisation of production in the postwar period helped to transform major national companies into transnational ones. Under the impact of the scientific and technological revolution processes leading to the combination and diversification of production developed on a wide scale in the capitalist countries and became international in scope as the transnational continued to grow.
The scientific and technological revolution has had a considerable effect on the external expansion of firms and has led to a concentration of investment in industrialised countries and research-intensive industries. However, the West's growing demand for raw materials and fuel and the possibilities that exist for transferring labour-intensive and polluting industries to the developing countries will probably cause a rise in foreign direct investments in these countries.
Economic competition with socialism persistently compels modern capitalism to make more efficient use of the latest technological discoveries. Transnational firms are the best possible answer at this stage of capitalism's fight to safeguard its position. They number among them corporations with an extremely high level of expenditure on research and development. Because their factories, research centres and laboratories are located in many different countries they have access to the most up-to-date technology.
The transnational' main means of achieving their potential is their global investment strategy directed towards placing capital in the most profitable areas and fields of activity and switching it from country to country to gain immediate advantage from both long-term and short-term factors (favourable social and political situation, concessionary measures offered by the state,
changed economic prospects). This strategy also enables them to adapt to changing circumstances in the world and to economic instability. This may be done either by disinvesting from industrialised, chiefly West European countries or by switching to more mobile forms of expansion (joint ventures, agreements and contracts). Paradoxically, however, but quite naturally, the TNCs resolve the problem of the most efficient mobilisation of resources in their own interests and thereby help to increase the instability and contradictions of capitalism.
The TNCs have given a new perspective on the contradiction between wage labour and capital. The international character of this contradiction is becoming particularly evident at the present moment when the cosmopolitanised bourgeoisie simultaneously exploits workers of many different nationalities employed at transnational enterprises in various countries. In the interests of increased profit, the TNCs use new methods of exploitation previously unavailable to the monopolies. They include in practice lock-outs and the transfer of orders from factories on strike to plants abroad, refusal to recognise trade unions, relocation of production to lowwage countries or to where workers are not so well organised.
The development of TNCs has had a serious effect on the nature and the forms of inter-imperialist rivalry and the firms themselves have become vital instruments in the struggle between nationally distinct imperialisms. They have taken a direct part in causing fundamental shifts in the power balance among capitalist countries on the world market, in the export of capital, and in regard to science and technology. The foreign economic expansion of a bourgeois state rests on the power and enormous potential of its own transnational and is undertaken in relation to the global scale of their production activities and their ability to swallow up capitals in different countries and switch them around easily from one part of the world to another. In order to strengthen the position of their TNCs bourgeois states have developed and carry out a whole series of measures to encourage and support their expansion.
While it forms the main trend in the foreign economic expansion of imperialism, TNG activity serves as
a new source of internal conflicts and contradictions. One determinant outcome of TNC growth has been the development of their antagonisms as globally operating companies with the aims and policies of a bourgeois state which reflects the interests of the ruling class as a whole. During the 1960s and 70s not only did the negative consequences of transnational activities on the capitalist economies become strikingly obvious but the inability of bourgeois governments to regulate these operations effectively and prevent them having an adverse effect on the worsening economic situation, the growth of output, and the level of employment became palpably apparent. The 1974-75 crisis provided important proof that the conflicts had sharpened.
The development of transnational corporations is closely related to modern neo-colonialism and the emergence of new means of oppression of the newly independent countries. They play an extremely important role in restructuring the international division of labour, by which means imperialism tries hard to reinforce the subordinate position of the developing countries through the relocation of labour-intensive, energy-intensive and polluting branches of production onto their territory. Their restrictive business practices help to achieve these objectives by all manner of means by stifling competition, putting a brake on the transfer of necessary technology and curtailing their equal participation in world trade.
The growth of the national liberation struggle and more active measures of the young states to nationalise foreign property have forced the TNCs to adjust to the new conditions. This is shown by the active use of new forms of expansion unconnected with major investments of capital or the risk of significant losses. The transnational' current strategy is on the whole aimed at transforming the developing countries from capitalism's agricultural and raw material into an industrial and raw material periphery.
The data base for research into the development of TNCs is an important aspect of the problem. Despite the wealth of factual material, it is by no means all related directly to transnational, although the job of analysis requires the use of
comparable data. The author's main requirement in selecting data was to trace the main trends of transnational strategy and its social and economic consequences. Two remarks are appropriate here.
Firstly, U.S. transnational have in many cases been taken as the basis for research because information about them is more reliable and because they show most clearly the main lines of development of modern international monopolies. Naturally material on TNCs from other countries is also used whenever data allows.
Secondly, in writing this book the author relied mainly on U.N. documents, especially the two reports on the impact of transnationals on world events, and on the studies carried out as part of the Harvard University Multinational Enterprise Project. Although much of the data in these research studies relates to the mid- or even early 1970s, they reflect the principal trends in TNG development fairly adequately. Naturally, use has also been made of the very latest work on different aspects of their activity.
Thus, we are confronted with a new phenomenon--- giant industrial corporations on the eve of the 21st century which have already acquired enormous economic power. Only through understanding the mechanism and the socio-economic and political consequences of their activity is it possible to conduct a successful fight to establish democratic control over them in the interests of social progress and international cooperation.
Chapter One
THE EMERGENCE OF
TRANSNATIONAL
CORPORATIONS:
CAUSES AND CONDITIONS
In the postwar period there has been a rapid expansion in the overseas operations of the major industrial corporations. There has been a striking change in the nature of these operations undertaken by the leading monopolies, especially the American ones, and not just or even not so much as an increase in scale. This has been reflected in a switch from the traditional export of goods and small-scale overseas production, assembly and marketing operations to the development of vast industrial complexes based on intra-firm division of labour.
The export of capital forms an important means for the international expansion of monopolies. Any analysis of the evolution of overseas operations by monopoly concerns is therefore closely bound up with current trends in the export of private capital and its initial motivation, and must touch on the goals fixed by the modern corporation in extending foreign economic expansion.
DRIVING FORCE AND GROWTH FACTORS IN INTERNATIONAL EXPANSION
Profit has always been and still remains the main driving motive of capitalist production, regardless of whether it is restricted to national boundaries
11or is international in scale. However, this constitutes only a very general approach to the problem of capital export since the bases and the conditions for the profitable functioning of capital both at home and abroad change over time. The changes that occur are chiefly connected with the activities of the monopolies and the expansion and evolution of their international operations.
Under monopoly capitalism the export of capital has two very important results. The first is the increased role of international monopolies in the capitalist world economy. This has become particularly evident in the postwar decades when a large part of world trade, capital, technology, and natural resources has been concentrated in the hands of the international giants. Their importance increased sharply only when the industrially developed countries became their main sphere of activity and when the export of capital to these countries became typical and widespread. The transnational reached their full maturity and growth as the centre of gravity of their operations shifted to the industrialised countries.
The second outcome was that a handful of imperialist powers and monopoly alliances established their dominance over economically less developed countries and regions. Modern capitalism is currently trying to maintain this dominance by using new forms of economic penetration which conform to the present economic and political situation. Nevertheless, because of the collapse of the colonial system, its sphere of dominance has shrunk significantly. An ever greater number of newly independent countries is trying by some
means or another to resist the expansion of monopoly capital through nationalisation or restricting the TNGs share of their national economy.
Changes are also taking place in the external environment in which TNCs operate in the industrialised capitalist countries. Efforts are being made here too to limit the concentration of capital in the hands of foreign companies. Nevertheless, in conditions of the current scientific and technological revolution, the TNCs are compelled to expand their network of joint ventures and actively promote various kinds of cooperation.
Consequently, international corporate activity is now constrained by a whole complex of factors including those of a political character. Consideration must, however, be given to yet another aspect, i.e., the very mechanism of capital accumulation which affects the overseas activity of monopolies. The expansion of a transnational corporation and the direction of that expansion are subject to the general laws governing the self-expansion of capital which can best be explained by analysing the rate of profit. Does it also act at the international level as that force which, to use Marx's phrase, sets capitalist production in motion? With this question in mind, let us now look at the postwar relationship between the rates of profit on U.S. foreign and domestic investments for which the necessary data exists.
From the mid-1950s there were clear signs that the substantial gap which had till then existed between the average level of profitability within the United States and overseas was be-
13 12ginning to close. There is a fairly clear trend towards the convergence of profitability indicators for domestic and foreign operations.
It should be noted that it is extremely difficult to make a correct comparison of the profitability of domestic and foreign investments on the basis of official American statistics. Thus, there is no uniform approach to defining income in the accounts for operations in the United States and abroad. Moreover, in the statistics on domestic corporate activity there is no data which is identical in content to foreign direct investments in balance of payments terms. This corresponds most closely to the indicator of share capital which is published on a regular basis only for manufacturing industry. However, if figures that have been averaged out over a fairly long period so as to eliminate cyclical and other variations are compared, then it is possible to delineate the general trend.
Table 1
Average Annual Rate of Profit of U.S. Manufacturing Companies in the United States and Overseas (in percentages)
Rate of Return on Rate of Return [on ForShare Capital in U.S. eign Direct Investments
As Table 1 shows, there was no substantial change in the rate of profit in the United States in the third quarter of the 20th century. Only one sharp increase was recorded in 1965-69 when the rate of return inside the country was even greater than that for overseas subsidiaries. The second half of the 1960s, however, has practically no significance for purposes of comparison because it was a special period in the development of the American economy---a time of economic upsurge artificially stimulated by the Vietnam war. On the other hand, the rate of return on foreign operations fell steadily right up until the end of the 1960s and it only improved slightly in the mid-1970s.
The tendency for profit rates to draw closer together is shaped by a whole number of factors. In the first place it is due to the closing of the technological gap between the United States and other industrialised capitalist nations* This has had an impact on the production efficiency of American companies chiefly in Western Europe and on their technological level, introduction of new technology, etc. Next should be noted the rise in production costs of American firms abroad. This was caused, firstly, by the overall inflationary rise in prices, especially in the 1970s and the resulting increase in the cost of the physical components of fixed and circulating capital; secondly, by an acceleration in amortisation rates in foreign countries; and thirdly by the rise in wages reflecting an increase in the value of labour power due to better qualifications and a higher level of training. Finally, growing competition from West European, Japanese and other produc-
1950-54
11.1
18.7
1955-59
11.0
11.9
1960-64
10.0
10.1
1965-69
12.3
9.9
1970-74
11.5
12.1
1975-81
14.2
15.2
Derived from Surveys of Current Business and Economic Report of the President, Washington, D.C., 198?.
14 15ers and a relative decline in the competitiveness of American monopolies played a considerable role. Does the convergence of profit rates in the United States and other industrially developed countries mean that profitability as an incentive to the large corporation to expand abroad is disappearing or growing weaker? Analysis shows that enormous differences in the rate of return on operations in imperialist and in developing countries lie hidden behind the overall figures.
This question regarding the significance of profit should help to explain not only the reasons for the export of capital but also any changes in its allocation to different regions of the world. An analysis based on political economy must bear in mind the principledly different role of the rate of profit and the mass of profit for capitals of different size. As Marx stressed, "the rate of profit, i.e., the relative increment of capital, is above all important to all new offshoots of capital seeking to find an independent place for themselves. And as soon as formation of capital were to fall into the hands of a few established big capitals, for which the mass of profit compensates for the falling rate of profit, the vital flame of production would be altogether extinguished.''^^1^^
The following proposition has been put forward in Soviet literature on the subject which develops this idea of Marx in relation to foreign investments. Doctor Belous has written, "In present conditions, an increase in profits is achieved not so much through increasing its rate as through increasing its mass. This is the primary reason why transnational and multinational corporations locate about two-thirds of their foreign direct
investments in the developed part of the capitalist world where less surplus value per unit of capital is created than in the developing countries but where on the other hand a far greater mass of surplus value is produced and realised.''^^2^^ This proposition really focusses attention on the growing role of the mass of profit in capital export at the present time. But does this fact provide a general and sufficient explanation of the reasons which today drive capitals overseas?
Since Doctor Belous' thesis describes only the current situation, it is unclear what was the initial incentive for concentrating two-thirds of the value of direct investments in the industrialised part of the capitalist world. There is even more need for an explanation of the reasons why the less developed countries retain a fairly large share capital exports, which moreover shows a clear tendency
Table 2
Average Annual Rate of Profit on U.S. Private
Direct Investments in Developed and Developing
Countries
Developed Capitalist Countries
Developing Countries
Profit ($000 m.)
Rate of return (per cent)
Profit ($000 m.)
Rate of return (per cent)
1950-54
0.8
11.5
1.3
18.3
1955-59
1.4
10.3
1.8
16.2
1960-64
2.1
8.9
2.2
17.2
1965-69
3.2
8.1
2.7
17.1
1970-74
7.4
11.0
4.8
22.7
1975-81
16.7
13.0
9.6
23.6
Derived from Surveys of Current Business. 2---1605
17
16to grow in future. It is extremely important to clarify the part played by the rate of profit and the mass of profit in the export of capital to developed countries, on the one hand, and to developing states, on the other.
The rate of profit on U.S. direct investments in developing countries is substantially in excess of the rate on similar investments in the United States and other industrialised countries. The reasons for the high level of profitability in developing countries are basically the same as at the beginning of the century: a shortage of capital, relatively cheap land, and low wages. Profitability in industrialised countries has fallen steadily and only in the 1970s again showed a slight rise. As a result, instead of closing, the gap between the two different rates of profit widened constantly in the 1950-70s. However the volume of U.S. investments in the industrialised part of the capitalist world grew significantly faster than in the less developed areas.
The reasons for this were undoubtedly the largely unfavourable investment conditions in the developing world and the objective need created by the scientific and technological revolution for the development of production which could best be achieved in the developed countries. Alongside this, however, the laws of capitalist accumulation also came into force. An increase in the concentration of imported capital was necessary in the ; imperialist countries in order to compensate for the low rate of profit on its mass and, more spe- ' cifically, to compensate for foregoing the chance to invest capital at a high rate of profit. This is why it is important to show the trend in relation
to the mass of profit that can be appropriated in different regions of the world.
Whereas throughout the postwar period the developing countries kept their firm advantage as regards the rate of profit, the situation was quite otherwise as regards the mass of profit. Only since 1963 has the total amount of profit obtained by American firms every year in industrialised countries begun to exceed the amount extracted in developing countries. In fact, U.S. direct investments in developed countries surpassed those in developing countries back in 1953. Thus, within the space of ten years under the laws of capitalist accumulation U.S. investments abroad have reached that boundary beyond which "a large capital with a small rate of profit accumulates faster than a small capital with a large rate of profit".''
Consequently the mass of profit is a decisive factor in stimulating the flow of U.S. investments to industrialised states. At the same time the rate of profit retains its importance not only for the functioning of smaller groupings of capital in developing countries but especially for new investments in hitherto ``unoccupied'' spheres of activity. The great importance of the rate of profit was very evident in the enormous growth of direct investment by U.S. firms in Southeast Asia and the Far East where it has stayed at between 16-18 per cent since the end of the 1960s.
Present-day trends in the export of capital may be largely explained by differences in die profitability of operations in the different capitalist states which are taken into account and used by the transnational corporations. The profit factor now
18 19plays a dual role in shaping the distributional trends of overseas investments. The objective grounds for moving capital from the imperialist to the developing countries remain as before the high rate of profit that can be earned in the latter, as a result of which the problem of overaccumulation can still to some extent be solved. The flow of large amounts of capital among industrialised countries, especially between the United States and Western Europe, is however decisively connected with the earning of an enormous mass of profit as a counterbalance to its rate of profit. These processes can only be fully understood if one takes account of the development of the transnationals and their economic strategy.
A monopoly corporation which groups together tens and hundreds of enterprises substantially modifies its objectives in the context of a national economy. It is interested in obtaining sufficient profit over a prolonged period of time during which both cyclical fluctuations and possible losses from launching new products and techniques are smoothed out. By expanding the market for its products and increasing its sales it manages to achieve a final increase in the mass of profit.
The industrial application of new technology lays the basis for a further expansion of the overseas market. The mass production of a wide range of manufactured products requires a similarly mass market such as exists in industrialised countries. Because of their size and growth potential American companies continue to invest as they have done in the past in such sectors as the motor, chemical and petro-chemical, electronics and computing industries. The capture of new mar-
kets enables the big corporations to further increase the mass of profit. Since under present-day imperialism market expansion is closely connected with the penetration of new spheres of activity including those overseas, one of the determinant means of achieving this is inevitably to export capital.
The export of capital has helped in the development of international monopolies for, as it has grown, so too have overseas contacts and spheres of influence broadened and all the necessary conditions been created for agreements and alliances among firms from different countries. In time monopoly combines have become the main channel for the relocation of capital abroad and this has had a decisive influence on the nature and the direction of this relocation. The export of capital is both the premise and the outcome of the growth of international monopolies. In this connection attention should primarily be given to the following facts.
The mid-1960s formed the starting point for both a significant reduction in the difference between the rates of profit on American private investments in the United States and abroad, particularly in the developed countries, and a first ever rise in the mass of profit obtained in those countries over and above the amount received in developing countries. During this same period the TNGs, on the whole, finally established themselves and through their activity laid the basis for those changes that occurred in the profitability of U.S. investments in different parts of the world. Today TNCs determine the principal trends in the export of private capital and its
20 21sectoral and geographic location both inside and outside its country of origin. Because of the objective conditions of development they no longer limit their objectives to achieving profitability of their operations in this or that part of the capitalist world.
Product diversity which frequently does not share a common technological base enables a corporation to operate simultaneously in several product markets. Foreign expansion when capital is invested in various sectors in a large number of different countries, is in the final analysis also aimed at the search for new markets. Over the last 15 to 20 years there has been a rapid increase in the number of monopolies which have come to need foreign sales markets to achieve further growth. Access to world markets has been dictated by the obvious narrowness of the national market. Because of the growing strength of West European and Japanese competitors and the introduction of collective tariffs by the EEC (Common Market), American companies have come up sharply against the problem of exporting. It has proved necessary to overcome the trade barriers that have been put in the way and ``smash'' them from within by organising production overseas. In this connection it is interesting to note that for more than 90 per cent of the 187 firms studied the first subsidiaries were established "as a defensive reaction to changes in export markets".^^4^^ They manufactured the company's major product line.
A strengthening of its positions on the world market is one of the most important attributes of an international monopoly whether it takes the form of a cartel, trust or combine, an agreement
on technology or production cooperation, etc. The methods used differ and are constantly improved as imperialism develops. The organisation of production overseas was a significantly more efficient way of capturing new markets than foreign trade. Competition for a share of the world market does not represent the full essentials of TNCs development. Indeed it forms only part of their unceasing struggle for the economic partition and repartition of the world. The scale of their participation and their role in the fight for those shares that had already been divided up depended on the efficient exploitation of natural, material and human resources in many different countries. The TNCs organise this system in a principledly different way to the previous types of monopoly association. Herein lies the qualitatively new characteristic of the transnational corporation.
The trend towards the internationalisation of capital and production and the expansion of the productive forces beyond narrow national limits lies at the roots of the development of transnational firms. But what distinguishes the present stage of development and how is it linked to the preceding stage of development of international monopolies? As a matter of fact, even international cartels were a vivid expression of internationalisation of economy.
At the beginning of the present century international trusts began to develop which, unlike cartels, controlled not only trade but certain sectors of production in foreign countries. "The British capitalists," wrote Lenin, "are exerting every effort to develop cotton growing in their colony, Egypt; . .. the Russians are doing the same in
22 23their colony, Turkestan, because in this way they will be in a better position to defeat their foreign competitors, to monopolise the sources of raw materials and form a more economical and profitable textile trust in which all the processes of cotton production and manufacturing will be `combined' and concentrated in the hands of one set of owners.''^^5^^ Lenin was pointing out the efforts made by monopolies to locate enterprises combining a single production cycle in a number of different countries. But there were few monopolies of this type at the beginning of the 20th century and the overwhelming majority of them operated in industries based on raw materials. The phenomenon of internationally organised production within a single company developed fully and on a significantly wider scale after the Second World War. This quantitative spread naturally gave this phenomenon a new quality.
At the present time the scientific and technological revolution determines the nature, scale and depth of the internationalisation of capitalist production. It has given rise to a re-orientation of the overseas activities of monopolies towards the developed countries and manufacturing industries especially those that are technologically advanced and dynamic. It was in fact the need to develop the productive forces in conditions of the scientific and technological revolution that formed the objective basis for the evolution of transnational corporations. There was a need for specialisation and cooperation and combination and diversification beyond the boundaries of national states and for an increase in the optimal size of enterprises. Typically in the case of transnationals there is a
direct link between the results of overseas subsidiaries' operations and the corporation as a whole. Economies on scale and greater specialisation by individual overseas subsidiaries improve the TNG's efficiency and competitiveness as a whole including the parent company which was not the case with the previous international monopolies comprising trusts.
By the mid-1960s more than 200 giant capitalist monopolies organised their operations in such a way as to take advantage of the capitalist international division of labour. Intra-firm specialisation and cooperation spread across a great number of countries became the norm. The emergence of TNCs as the dominant type of international monopoly can be fixed to the time when the division of labour inside many companies reached international proportions and when practically all branches of industry were affected. Later on we shall see how in the new conditions the operations of monopolies in the extractive industries were transformed in such a way as to allow us to classify them too as transnationals.
Characteristically transnational firms subordinate the operations of all their various national subsidiaries to common objectives and the pursuit of a global economic strategy. This gives rise to a new content for the criterion of profitability: it is not the profit of one or other enterprise or subsidiary which is first taken into account but its potential for ensuring the steady growth of revenue throughout the corporation. The location of labour-- intensive industries to developing countries enables local enterprises to increase their rate of profit by exploiting cheap local labour. Capital-intensive
24 25and research-based industries are retained in the developed countries where there is a concentration of technology and finance, skilled labour and large markets whereby a large volume of output and mass of profit can be created. A high level of exploitation and opportunities for producing and selling new products can only be reached simultaneously through an intra-firm division of labour within a TNC. For this reason a decision to invest capital in different areas of the world only indirectly depends on the level of profitability in one or another country. The situation in certain countries may attract the attention of transnational firms but the final decision as to whether to invest there or not will be determined by whether the most effective use can be made of the local subsidiary within the corporation according to a full range of indicators---transport costs, the level of infrastructural development, availability of the right kind of labour, etc.
training and skills of their workforces improved. The major West European, Japanese, and Canadian monopolies took active steps to internationalise their production in order to increase their profits and strengthen their own competitiveness. The prediction of French journalist and politician J.-J. Servan-Schreiber about U.S. subsidiaries in Western Europe becoming a "third industrial power in the world", which created quite a sensation at the end of the .1960s in face of the very rapid expansion of U.S. capital, has now to some extent lost its original force.^^0^^ The situation has changed considerably since then. Events in the 1970s have shown convincingly that TNCs are by no means a specifically American phenomenon but the main means of expansion for all leading capitalist firms. In present-day conditions their foreign economic activities are underpinned by the export of functioning capital in the form of direct investments which make it possible to exercise direct control over the operations of enterprises located abroad. Despite a certain slackening in the rate of growth of foreign direct investments it still stands at a high level---from 1967 to 1971 it stood at 10.7 per cent and from 1971 to 1976 at 12.7 per cent, at a time when GNP in the capitalist world showed an average annual increase of 9.1 per cent and 13.5 per cent respectively. Foreign direct investments also increased as a proportion of GNP from 6.7 per cent in 1967 to 6.9 per cent in 1976.^^7^^
As shown in the table, practically the total amount of foreign direct investments is concentrated in the hands of a few of the richest industrialised countries. This is a very high level
MAIN TRENDS IN THE EXPORT OF PRIVATE CAPITAL
Although the United States is still the main exporter of capital, there was a gradual weakening of its dominant position in the 1970s. With assistance from the state, the leading monopolies of Western Europe, Japan, and Canada turned into multi-sectoral companies and significantly broadened the scope of their accumulation. Their economic, scientific and technological potential grew, there was a more rapid application of the latest innovations to the modernisation and renewal of production, and the general level of
26 27Table 3
Foreign Direct Investments of the Major Capital-Exporting Countries
1967 1973 1979$000 m.
per cent
fOOO m.
per cent
$000 m.
per cent
USA
56.6
50.3
101.3
48.9
192.6
45.7
United Kingdom
17.5
15.6
26.9
13.0
46.9
11.1
West Germany
3.0
2.7
11.9
5.7
36.4
8.6
Switzerland
3.7
3.3
10.2
4.9
31.0
7.4
Japan
1.5
1.2
10.3
5.0
29.7
7.1
Netherlands
11.0
9.8
15.4
7.4
26.0
6.1
France
6.0
5.3
8.8
4.2
16.9
4.0
Canada
3.7
3.3
7.8
3.8
15.4
3.7
Sweden
1.7
1.5
3.0
1.5
6.6
1.6
Belgium & Luxembourg
1.3
1.2
2.2
1.1
6.0
1.4
Italy
2.1
1.9
3.2
1.6
3.8
0.9
Total
108.1
96.1
201.0
97.1
411.2
97.6
All other countries (est.)
4.4
3.9
6.1
2.9
8.8
2.4
Grand Total
112.4
100.0
207.1
100.0
420.0*
100.0
* Author's appraisal
Source: Salient Features and Trends in Foreign Direct Investments. ST/CTC/14, pp. 58-60, 80-81.
of monopolisation if one takes account of the fact that there are 24 capital-exporting countries which belong to the industrialised nations. Moreover in the 1970s a number of oil-producing countries which had amassed large amounts of money from the rise in oil prices joined the ranks of major capital exporters.
Significant changes had also occurred in the balance of forces in the field of capital exports. First of all the share of the major exporters of the mid-1960s---USA, Britain and France--- had shrunk due to the relative slackening in the growth of overseas investments by their monopolies. West Germany and especially Japan had strengthened their position as a result of their firms switching actively from the export of goods to the export of capital and expanding their production abroad. As a consequence their share in total foreign direct investments increased substantially.
Too much importance should not however be attached to the declining share of U.S. companies in capital exports. As previously the United States beats all its competitors for the absolute size of its investments which are greater than all the rest taken together. It retains its leading position in the advanced science-intensive industries and is still the chief exporter of technological know-how. Thus it is still important to make an analysis of U.S. capital exports so as to identify the general trends as well as to pick out a number of specific features.
Postwar trends in U.S. capital exports reflected the new conditions in which world capitalism was developing. The flow of capital from the
29United States to Western Europe in particular was due to the fact that its area of domination had been narrowed by a strengthening in the position of the socialist countries and the national liberation movement as well as to the fact that its foreign competitors were relatively weakened in the early postwar years. The formation of the EEC (Common Market) had a similar effect. Changes in the foreign economic field of modern capitalism and the expansion of production and technology ties between countries constituted another important factor. As a result the export of functioning capital took on primary importance. Direct investments became the main form of U.S. private investments abroad comprising roughly 65 per cent of the total in the 1950s to 1970s and this reflected a general trend during these years. According to an estimate by Professor Dunning, direct investments as a proportion of private long-term investments abroad by all capitalist countries rose from 10 per cent in 1914 to 75 per cent by the end of the 1960s.^^8^^
In the postwar period trends in U.S. private investments abroad and their geographical and industrial allocation coincide with the trend of TNCs development, exactly in the same way as the conditions for the export of capital at the present stage are linked directly with these firms' goals. There are two facts which give grounds for presenting the question in this way. The first is the exceptionally high degree of monopolisation of exported capital. In the late 1960s and early 1970s as few as 187 corporations (out of the 500 ``top'' American firms) concentrated in their hands over 70 per cent of U.S. foreign di-
rect investments if Canada is included and more than 80 per cent excluding Canada.^^9^^ The second fact is the setting up by the biggest American monopolies of the bulk of their overseas subsidiaries: in the period between 1946 and 1964 the same 187 corporations acquired or set up 60 per cent of their foreign manufacturing subsidiaries.10 By the mid-1960s single production complexes were formed within companies from enterprises located in many different countries which based their operations on an international specialisation and cooperation of production.
The chief characteristic of direct investments today is their bias towards the industrialised capitalist countries. In the mid-1970s three-- quarters of all such investments or about $200,000 m. in value were located 'there. Moreover, 41 per cent of all foreign investments were concentrated in only four countries---Canada, USA, Britain, and West Germany.^^11^^
After the war the proportion of U.S. foreign direct investments located in developed countries rose steadily and reached 73.5 per cent of the total in 1981.^^12^^ What was remarkable was that only 11 countries accounted for such a large part of this high percentage.
This group (see Table 4) comprises the largest and most powerful capitalist countries which are the principal exporters and importers of capital. Modern large-scale production is firmly established in these countries, they have a highly trained and skilled labour force, and a big concentration of science and technology. Finally, their financial and credit institutions are largely able to meet the demand for funds of the monopoly groupings.
30 31This whole range of factors explains the constantly growing importance of these 11 countries as the main area of U.S. investment. The main aim of the U.S. monopolies is to create an economic mechanism capable of reaping the fruits of the present-day scientific and technological revolution and using it as their strongest weapon in the fight between monopolies. Capital is invested in this part of the world precisely because of the concentration of technology in the leading
Table 4
Area Pattern of U.S. Private Direct Investments (in percentages)
1950 1960 1965 1970 1975 1981
Table .5
Average Annual Rates of Growth of U.S. Direct Investments by Area (in percentages)
1950-60 1960-70 1970-81
All Countries
10.5
9.4
10.5
Developed Capitalist Countries
13.1
10.6
11.2
of which
11 countries
13.5
10.4
11.0
Developing Countries
6.1
6.9
10.3
of which
Other Asia
12.2
16.2
11.2
Derived from Surveys of Current Business.
imperialist countries. Thus trends in the geographical distribution of American private investments are linked in the most direct way with the activities of their transnationals. This is confirmed not only by the actual share but also the dynamic increase of that share in certain years and in certain regions (see Table 5).
U.S. investments in the industrialised capitalist economies are showing high and steady rates of growth which over the whole postwar period have been consistently higher than those for total U.S. foreign investments and in the developing countries alone. Moreover in the 1950s and early 1960s the pace has been most dynamic in the same 11 leading countries.
There are however no grounds for asserting categorically that the future share of developing countries in U.S. private investment abroad will inevitably drop. On the contrary, the facts indicate that the major American monopolies are increasingly interested in investing in developing
Industrialised
capitalist countries 48.6 59.2 65.3 68.0 73.2 73.5
of which
11 countries^^3^^
44.4 58.0 61.2 63.6 67.1 66.8
Developing countries 48.4 36.5 30.7 27.4 21.1 24.7
of which
Other Asia"
0.9 1.0 1.2 1.9 2.3 3.3
a Comprises the principal capital-exporting countries: Australia, Britain, Belgium, Italy, Canada. Netherlands, West Germany, France, Switzerland, Sweden, Japan.
b Comprises Southeast Asia and the Far East.* Derived from Surveys of Current Business.
* U.S. statistics on foreign investments intentionally do not separate out the countries of Southeast Asia and the Far East. There is a catch-all group "Other Asia" not comprising the countries of the Middle East, India, the Philippines and Indonesia (shown separately). Thus, with the exception of Pakistan, Bangladesh and some small countries, where U.S. investments are relatively insignificant, the heading "Other Asia" actually comprises the states of Southeast Asia and the Far East.
323---1605
33countries. Although the rates of growth of U.S. direct investments in developed countries are for the present higher than in the developing ones, the gap between them is closing rapidly owing to a relative slackening in the former and acceleration of the latter.
The TNCs are trying hard to draw the newly independent countries more closely into the capitalist international division of labour by locating on their territory labour-intensive and `` pollutant'' industries. This can be clearly seen in the growth of U.S. capital in Southeast Asia and the Far East. Various economic and socio-- political factors stimulating the flow of foreign capital are closely interwoven in this situation: the low value of labour power, its availability for labourintensive assembly work, the absence of strong trade unions, concessionary tax systems, and the relative stability of the regimes in power. The international corporations have expanded their operations in Southeast Asia at a fairly advanced stage of their own development when they are improving the organisation of their intra-firm network through the partial integration of new enterprises in developing countries. In the 1960s and 70s U.S. investments in this part of the world grew much faster than elsewhere (see Table 5). This is a sign of a partial relocation from developed to developing countries under pressure from the "optimal combination" of production conditions and the wish to make the best use of these conditions wherever they may be.
Manufacturing now accounts for the bulk of American investment abroad. Since the 1950s it has amounted to more than 50 per cent of U.S.
34direct investments in developed countries, while in the developing states it has increased considerably from 14.9 per cent in 1950 to 34.4 per cent in 1981.^^13^^ The advanced and dynamic industries with high research and development expenditures occupy a prominent place in the expansion of transnational firms in the industrialised countries. This is particularly true of American TNGs. In 1981 four industries (chemicals, non-electrical machinery, electric and electronic equipment, transportation equipment) accounted for 27.4 per cent of such investments.^^14^^
At the present time the export of capital in the form of direct investments represents a process regulated by a small group of monopolies which enables them to strengthen their role in the world capitalist economy. The relocating of functioning capital to highly developed areas of the capitalist world and to dynamic researchintensive industries is a natural expression of the emergence and growth of transnational corporations.
SCALE AND CHARACTER OF OVERSEAS OPERATIONS. CHANGES IN THE RANKING OF TRANSNATIONALS
A number of factors need to be taken into account in making a quantitative and qualitative assessment of the character of transnational. The first though not most important factor is the current relative strengths of TNCs belonging to different countries and the scope of their activity beyond the boundaries of their own state. The second factor is the type of activity undertaken
35by these firms overseas which gives grounds for speaking of a qualitatively new impact by the monopolies on world economic relations. Finally, the third factor is linked with the problem of where their capital originates, of its national identity.
A capitalist firm cannot be regarded as multinational simply because it has overseas operations in the field of production and not only in circulation. A TNG is a multinational monopoly which controls a substantial part of the world market through its internationally organised production. The export of capital has led to the creation within the corporation of a broad production base located in many different countries.
In defining a TNG attention should first of all be paid to its absolute size. Large monopoly firms are far more orientated towards foreign expansion than small- and medium-sized firms especially in production because of the need to extend the scale of enterprises, introduce mass serial production of goods, etc. Only a large company can be a monopolist in the markets, including the labour markets, of many different countries at one and the same time and undertake large-scale research and development and financial operations as well as production abroad. The conclusion drawn by many researchers that, particularly in American conditions, the concepts "large corporation" and ``transnational'' are substantially identical is a correct one.^^15^^
In the 1970s serious shifts occurred in the relative strengths of TNGs from different countries and there was a further increase in their uneven growth. This was evident in a noticeable weaken-
ing in the role played by U.S. monopolies. The American business magazine Fortune even published an article entitled symbolically "Why the Multinational Tide is Ebbing?".^^16^^ Its well-known economic commentator Sanford Rose pointed with some justification to the worsening competitive position of U.S. TNGs as shown by their declining share of foreign direct investments and curtailment of part of their foreign operations. In the first half of the 1970s they liquidated 10 per cent of their foreign subsidiaries.
The position of U.S. TNCs weakened not only because they lagged behind their competitors in rates of investment growth but, in a number of cases, in mastering new technology, making products in great demand, and modern ways of capturing markets. As a result they have yielded leadership in a number of industries.
A characteristic feature of present-day interimperialist rivalries is the significant levelling out that has occurred in the positions of the leading monopolies. In some industries in which previously one or two companies held uncontested sway now both dornes>tic and foreign rivals have caught up with them. In other industries competition has grown even stronger and has caused definite shifts among the leading firms. (See Table 6.)
A comparison of the six largest capitalist corporations in the main branches of industry in which TNCs are concentrated is revealing. In il968 the US monopolies held first place in five industries and ranked second in four industries. Thirteen years later, in 1981, they lost second place in two industries. The position of the American TNCs weakened in the chemical industry,
36 37where they were squeezed by the three leading West German companies-successors to I. G. Farbenindustrie. They also lost their dominant position in the rubber industry. Firmly entrenched here are the French Michelen, which has developed a fundamentally new type of radial tyre, Pirelli (Italy) and Dunlop (United Kingdom).
The motor industry has witnessed a considerable regrouping of firms although the Americans are still the leaders. Chrysler is no longer among the leading motor industry firms. Along with the
Table 6
Relative Position of Leading Transnational and Their
Main Competitors in Major Industries (as percentage
of leader's turnover)
5. Hoechst (FRG) 6 Dow Chemical (USA)
54 49
ICI
Dow Chemical
58 52
Rubber
fOOOm.
1. Goodyear (USA) 2.9
per cent
2. Firestone (USA) 72
3. Uniroyal (USA) 48
4. Goodrich (USA) 38
5. Dunlop (UK)
38
6. Pirelli (Italy) 33
Goodyear
Michelin (France) Pirelli (Italy) Firestone
Goodrich Dunlop Holdings (UK)
$000 m.
9.2 per cent
6749 48
35 33
Electrical Engineering and Electronics
$000 m.
fOOO m.
I. General Electric
8.4
IBM -----
29.0
(USA) 2. IBM (USA)
per cent 82
per General Elect-
cent 94
ric
3. ITT (USA)
49ITT
604. Westinghouse
39Philips
59Electric (USA)
5. Philips (Netherlands) 6. Hitachi (Japan)
32 27
Siemens (West Germany) Matsushita
55 54
(Japan)
1968 1981Motor
$000 m.
1. General Motors 22.8 General Mo(USA)
per cent tors
2. Ford Motor
62 Ford Motor (USA)
3. Chrysler (USA) 33 Fiat
$000 m.
62.7 per cent
61 314. Volkswagen
13 (FRG)
5. British Leyland 10
Volkswagenverk 27 Daimler-Benz 26
1. Exxon (USA)
2. Royal DutchShell (UK/Neth.)
3. Mobil Oil (USA)
4. Texaco (USA)
5. Gulf Oil (USA)
6. Standard Oil of California (USA)
Oil
f 000 m.
14.1 per cent
65Exxon
Royal DutchShell
Mobil Texaco
British Petroleum (UK) Standard Oil of California (USA)
«000 m.
108.1
per cent
76(UK) 6. Fiat (Italy)
Nissan Motor (Japan)
26Chemical
fOOOm.
$000 m.
1. Du Pont (USA) 3.5
Du Pont
22.8
per cent
per cent
2. ICI (UK)
86
Hoechst
67
3. Union Carbide 77
Bayer (West 66 (USA)
Germany)
4. Montedison
66
BASF (West 60 (Italy)
Germany)
44 39 33
2660 53 48
41 38 391.
2. 3.
4. 5. 6.
Food
Unilever (UK/Neth.) Swift (USA) Procter and Gamble (USA) Nestle ( Switzerland) General Foods (USA) Beatrice Foods (USA)
and Household Goods
$000 m. 5.5 Unilever per cent 51 Nestle 46 Procter & Gamble 35 Dart and Craft (USA) 33 Beatrice Foods
20 General Foods
$000 m. 24.1 per cent 59 11
10 9
7Derived from Fortune, May, August 1969, 1982.
British Leyland it has been pushed far down by Japanese, French and West German car firms.
There has, however, only been a relative weakening in the position of U.S. transnational since they still surpass all others in the scale and diversity of their foreign operations and network and in their level of activity on internationv al capital markets. They make far greater use of foreign credit and financial institutions. The scale of corporate global activity is in general exceptionally important in evaluating the relative strengths of different states in the interimperialist struggle.
The distribution by country of the 422 top corporations almost entirely coincides with the share of these countries in total foreign direct investment. A different picture emerges, however, if an analysis is made of companies which locate over a quarter of their business operations in foreign subsidiaries. The point in singling out this group of companies is that, precisely because they have relocated a significant part of their production abroad, they form the nucleus of in-
40Number and Relative Size of National Companies Among the Top Capitalist Corporations, 1976
USA
Japan
Qreat
FRG
Other Developed
Developing Countries
Total
Countries
All Corpora-
223 49 41 27 72 10 422tions
(52.8)
(11.6)
(9.7)
(6.4)
(17.0)
(2.5)
(100.0)
Corporations
82 5 29 4 32 1 153with Foreign
(53.6)
(3.2)
(19.0)
(2.6)
(20.9)
(0.7)
(100.0)
Content over 25 per
cent
Note: 1) Percentages are given in brackets.
2) Foreign content is defined as proportion of sales, assets or employment of foreign subsidiaries in total corporation data.
Source: Transnational Corporations in World Development..., 1978, p. 213.
ternational business. Seen from this perspective the position of British and French TNCs appears much more favourable than that of Japanese and West German firms. All seven Swiss companies included among the total of 422 belong to the ``elite'' of leading TNGs with significant operations abroad.
It would appear that the first grouping of firms in Table 7 gives a fairly accurate reflection of the current situation of finance capital of a particular country regarding the export of capital. After all capital is exported even by firms which do not have many production plants abroad. This is now typical for most large West German and Japanese firms. At the same time the second grouping, according to foreign content, gives a true direct indicator of -the relative strengths of TNCs. In recognition of this fact, it should be realised that the role played by U.S. TNCs in the capitalist world economy still remains extremely weighty and tangible.
In 1950 TNGs produced 8 per cent of gross national product throughout the capitalist world, in 1967 this figure had risen to 17 per cent, and in the mid-1970s to 22 per cent. Over the same period the top U.S. TNCs accounted for 17 per cent of total U.S. sales of manufactures in 1950, 42 per cent in 1967, and 62 per cent in 1974.1T Foreign manufacturing subsidiary sales (excluding intra-firm sales) by the 422 companies with a turnover in excess of $1,000 m. amounted to $410,000 m. in 1976.^^18^^ In that same year capitalist world trade was valued at $898,000 m.,19 i.e. only double the turnover of the giant monopolies from their "foreign empire''.
42Besides the growing scale of activity there have been important changes in the nature of this activity. The centre of gravity of the TNC foreign operations has shifted over to the side of production. This enables them to penetrate and strengthen their position in leading sectors of the economy of other countries.
In 1978 the following firms were to be found among the top 30 manufacturing firms of each country included: in West Germany Exxon held 10th place, ITT 13th, Ford 17th, General Motors 19th, Mobil 21st, Texaco 22nd, IBM 25th, in Britain Exxon subsidiary held 7th place, Ford 10th, Xerox 27th; in France Exxon held 6th place, IBM 14th, Mobil 19th, Honeywell 24th; in Canada General Motors occupied second place, Ford 4th, Gulf Oil 6th. Texaco 7th, Chrysler 16th, General Electric 28th. Of the 850 largest capitalist firms 37 were subsidiaries of transnational corporations. Almost all these subsidiaries are owned by U.S. firms. TNC production abroad has reached such proportions that 32 foreign subsidiaries are to be found among corporations with a turnover of more than $1,000 m. The value of sales made by General Motors' and Ford's subsidiaries in Canada is now greater than those of British Leyland and BMW of West Germany. In electrical industry the West German subsidiary of IBM is bigger than Olivetti (Italy) and ICL (Britain), major electric companies in their own countries.^^20^^
As the monopolies have expanded their operations in other countries, their foreign subsidiaries have changed from being dispersed autonomous units into an integrated intra-corporate system bound together by production, research,
43financial and trading ties. General trends in the development and interdependence of the various subdivisions of TNGs are reflected in the structure of their sales.
The foreign trade turnover of a transnational comprises both the export of goods from the base country (traditional export business) and sales of foreign subsidiaries. In turn the trade conducted by TNG subsidiaries in another country comprises local sales which are not transported across national boundaries and thus do not form part of that country's exports and goods exported to third countries and to the base country. A considerable part (more than a quarter) of foreign trade done by TNGs is made up of intracorporate deliveries between enterprises located in different countries. This kind of analysis of the structure of trade shows clearly that its different constituents do not have an identical impact on world capitalist trade as a whole nor on the foreign trade of individual countries. In order to solve the methodological problems of defining this impact it is necessary to ascertain the economic nature of the goods produced and sold by TNGs.
One of the problems is connected with the character of intra-corporate exchange and its place in world trade. The Soviet economist P. Khvoinik has put the question correctly: To what extent "exchange activities among subsidiaries of a single corporation, located in different countries, may be viewed as international trade in the generally accepted meaning of that term".21 We share his opinion that the object of this trade is often not a commodity, while intra-firm sales
as part of technological cooperation can not be fully equated with traditional exports or imports. Intra-firm trade occurs when the seller trades with himself, when seller and purchaser are one and the same person. Nothing essentially changes even if sales are made across national frontiers since this is merely a formal act for a capitalist commodity. Marx frequently stressed this fact in his writings. He showed that a product only becomes a commodity in the process of market exchange, on its transfer from one owner to another. It is through being exchanged at a price that the social value of something that has been produced is revealed and its usefulness and necessity for society shown. All these components are missing within the TNG structure. A product entering into intra-firm exchange does not change ownership. The production of a certain quantity and quality of goods is decided beforehand and is destined for a particular consumer. In this case exchange is effected not on the market but according to an established plan as part of the intra-firm division of labour. And the product is sold at so-called transfer prices which are set fairly arbitrarily and are only partly aligned with world market prices.
A transnational which exports a considerable portion of its raw and semi-processed materials, parts and components to certain consumers (its own divisions in many different countries) thereby removes these goods from ``pure'' trade. It should be noted that all intra-firm deliveries, including those intended for resale by foreign affiliates, drop out of foreign trade since they display all the attributes mentioned above and they only become
45 44a commodity when they are sold by the subsidiary and not when transferred from the parent company. Consequently the market mechanism ceases to regulate the flow of a huge mass of products at the level of the private monopolies not only within a particular country but internationally as well. This serves as yet another striking piece of evidence of the further disruption of commodity production and exchange under imperialism.
Another problem is directly linked with TNG commodity production which forms an integral part of world trade. The question here is whether the value of goods produced at foreign subsidiaries should be included among the exports of the base or of the host country. Definition of the foreign trade position of a capitalist state depends on the answer.
Both labour and the substance of value become international within the TNG framework. The socially necessary labour expenditure creating this value is carried out in the geographically scattered ``plants'' of the giant transnational `` enterprise''. The value of a particular commodity is affected by a whole number of production factors. The particular function of a transnational is its ability to carry on the labour process creating value behind national frontiers while leaping over them. As a result there occurs an internationalisation of all the elements of production used by one and the same monopoly. They are international in origin: the technology may come from the United States; raw and semi-processed materials from the developing countries; buildings, machinery and plant may be made in Western
Europe; while the financial resources flow partially from the United States but chiefly from foreign countries. The final product is made by combining material resources pooled together from different parts of the world usually with labour from just one country. On the other hand, the location of a TNG's industrial enterprises is also internationalised, i.e. the gradual stages of manufacture may take place at factories in different countries on the basis of specialisation and cooperation within the corporation regardless of state frontiers. Among the mass of goods produced by TNGs the factors of production lose their national "birth marks" for they have become the vehicle of internationally produced value.
A certain level of development of trade, commodity circulation and commodity production in general laid the basis for the formation of capital and the subordination of production to that capital. A significant level of development of international trade, the world capitalist market and the division of labour among capitalist countries laid the basis for the emergence of transnational firms. In the postwar period production ties within the capitalist world economy became extremely widespread and mis increased the interdependence of its separate parts.
To an important extent transnationals level out differences in production conditions in different countries, in the level of national productivity and in the structure of costs. These differences cannot however be abolished completely. Thus the internationally created value of each separate commodity within a TNG tends to a large extent towards the particular national conditions of
47 46production and conditions for the exploitation of wage labour. Because of this it is statistically correct to include the output of foreign subsidiaries in the export of countries in which the transnational commodity is given its final form.
Before turning to a more concrete analysis of TNG activities, there is still another important methodological problem to be looked at. It can be formulated as follows: what impact does the internationalisation of economic operations within a single corporation have on the national identity of the capital it controls? This problem is directly connected with the nature of the TNG and its political-economic characteristics.
The emergence and development of the transnational phenomenon is shaped by the interweaving of capital from a number of countries, indicating the international socialisation of production. In principle the concept of the international interweaving of capitals presupposes the existence of companies of different nationality, a certain uniformity of these companies and their capitals and a coming together of their activity.
The organisational combination of companies and their capitals from different countries is based, firstly, on take-over by a transnational from one country of firms in other countries and their conversion into its own property as fully controlled foreign affiliates; and, secondly, on the merging of two or more national companies into a single corporation which is international corporation as regards the scale of its operations and multinational as regards its control. Either the capital of the firm that has been absorbed becomes part of the capital of the TNG that has
purchased it or different national capitals merge with each other in roughly equal proportions. Both the absorption and the merging processes combine capitals from different countries. There results not only the organisational combination of the capital-owing companies but also a single general circuit of different national capitals.
Moreover, TNGs attract loan capital for financing their operations from banks, the state, and international capital markets in the countries where their subsidiaries are located. While taking advantage of the capitalist international division of labour, they constantly seek cooperation with companies from many different countries in the field of production, research, and finance. They subordinate formally independent small-scale producers of the inputs they need for their business and even some dealers. Finally, they set up joint ventures in which they hold a number of the shares together with foreign monopolies.
As a result of this type of relationship a close interdependence arises between different circuits of transnational capital and the firms and enterprises connected with it. An international corporation can only function if it manages to attract and employ abroad foreign capital and foreign companies. In this case the movement of capital belonging to a TNG remains formally independent and control over it remains in the hands of capitalists of a single country. Nevertheless, in its different phases it grows close and merges with the movement of capitals from other countries. This is evidence not of the organised unity of different nationally-owned companies but
484---1605
49of the unity of the movement and circuit of the capital owned by these companies.
Joint ownership of shares on an international scale had already occurred in the early days of imperialist development and is not connected with a particular sphere of investment of capital. It could occur, has occurred and is even now occurring in trade, banking, and industry. The interweaving of industrial capital belonging to different countries at all its stages and in all its functional forms, as distinct from a common ownership of shares, has, however, only become feasible with the emergence and spread of the TNCs. Ties between different national capitals have only become stable and enduring in production and circulation because TNCs have set up their own industrial complexes which operate in many different states. The interweaving of capital not on the basis of control or the common ownership of shares but on the basis of associated production and economic activity is especially typical and characteristic for TNGs, especially American ones. This implies the functioning of closed economic complexes on an international scale in which the capitals of many countries are pooled together under the control of a single corporation.
REFERENCES
1) Karl Marx, Capital, Vol. Ill, Progress Publishers, Moscow, 1974, p. 259.
2) The Political Economy of Contemporary Monopoly Capitalism, Vol. II, Mysl, Moscow, 1975, p. 96 (in Russian).
3) Karl Marx, Capital, Vol. Ill, p. 259.
4) J. M. Stopford, L. T. Wells, Managing the Multinational Enterprise, Basic Books, Inc. Publishers, New York, 1972, p. 37.
5) V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Collected Works, Vol. 22, Progress Publishers, Moscow, 1974, p. 262.
6) J.-J. Servan-Schreiber, Le Defi Americain, Editions Denoel, Paris, 1967, p. 17.
7) Transnational Corporations in World Development: a Re-Examination, U. N. New York, EK. 10/38, 20 March, 1978, p. 36.
8) The Multinational Enterprises, ed. by J. H. Dunning, George Allen and Unwin Ltd., London, 1971, p. 16.
9) J. M. Vaupel, J. P. Curhan, The Making of MultiNational Enterprise, Harvard Business School, Boston, 1969, p. 4.
10) L. Franko, The European Multinationals, Harper and Row, London, 1976, p. 94.
11) Transnational Corporations in World Development. .., p. 237.
12) Survey of Current Business, Aug. 1982, p. 22.
13) Survey of Current Business, Nov. 1954, p. 11; Aug. 1982, p. 22.
14) Survey of Current Business, Aug. 1982, p. 22.
15) See, for example, R. Vernon, Sovereignty at Bay, Longman-New York, London, 1971, p. 113; I. D. Ivanov, Multinational Corporations in the World Economy, Moscow, 1976, p. 27 (in Russian).
16) Fortune, Vol. 95, No. 8, August 1977.
17) R. Vernon, Storm over the Multinationals, Harvard University Press, Camb., Mass., 1977, pp. 13-14.
18) Transnational Corporations in World Development. .., p. 35.
19) Monthly Bulletin of Statistics, Vol. 33, No. 5, May 1979.
20) Fortune, May, August 1982.
21) P. Khvoinik, Trade Among Capitalist Countries. Trends and Prospects, Progress Publishers, Moscow, 1982, p. 156.
50Chapter Two
GLOBAL INVESTMENT STRATEGY
only over the last ten to fifteen years---a greater degree of product diversification overseas, better use of the advantages offered by the international division of labour through general specialisation and cooperation among enterprises, growing transfer of R & D work to design offices and laboratories abroad, and the financing of foreign operations virtually without the use of parent-company funds. At the same time these are all new means of struggle for the economic partitioning and re-- partitioning of the world which is a typical TNG trait.
The internationalisation of all phases and functional forms of the circuit of capital and a struggle for a share not only of product markets but also capital and labour markets in many different states are both characteristic features of transnational corporations. A new type of international monopoly began to take shape as the export of functioning capital increased and the giant corporations expanded their foreign ties with local firms and credit and financial institutions. It is not simply based on an absolute quantitative increase in production abroad. The concentration of by far the greater part of U.S. TNGs foreign trade turnover in the hands of their affiliates reflects deep-rooted qualitative changes in their foreign operations. Their enterprises and affiliates located in many different countries are incorporated as major specialised production units into the intra-firm division of labour which is no longer confined to a single state but develops and becomes more extensive regardless of national boundaries. At the same time the requirements of internationally organised production have led to a growth of their research and financial operations abroad.
Certain new features of the foreign economic activities of capitalist monopolies have emerged
INTERNATIONAL MOBILITY OF CAPITAL
Transnational corporations are a typical product of the period of finance capital which, as Lenin emphasised, "is particularly mobile and flexible, particularly interknit at home and internationally, and particularly impersonal and divorced from production proper".^^1^^ TNCs first developed on the basis of an interweaving of capitals from different countries at all stages of the circuit of capital and the internationalisation of its accumulation and investment. The unusually high degree of capital mobility has become a characteristic feature of TNGs which distinguishes them from previous international monopolies.
Formerly monopolies, while retaining the bulk of their investment capital in their own countries, concentrated their overseas investments in literally only a few places where they had located their foreign operations. With the emergence of the TNCs the situation changed considerably. Firstly, the amounts of capital exported grew immeasurab-
52 53Jy. Secondly, the proportion of foreign investments in the overall total increased. In the case of many TNCs it has reached half and even more. At oneand the same time they disperse their capital in different countries, showing no strong preference for any one. And yet the size of their investments is so large that their affiliates are numbered among the largest firms in their host countries and have a considerable impact on the development of the local economy.
Moreover, the capacity of present-day monopolies for a mobile relocation of capital enables them to go primarily for highly profitable investment areas. Under the impact of the scientific and technological revolution this means the most developed countries and regions of capitalism and advanced science-intensive industries, since it is in these areas and sectors that there is fast access to technological innovations and their effective application in production. The TNCs locate the bulk of their foreign investments in the industrialised capitalist countries and dynamic sectors in order to increase their product diversification. By the mid1970s some fairly clear new trends had begun to emerge in the concentration of production by the international monopolies. Under postwar capitalism the concentration of capital and production did not only take the form of larger-sized production units. Its principal form was the concentration of an ever wider and more varied group of factories within a single major combine. The practice of running a monopoly had shown that the degree of company diversification had become one of the key conditions for ensuring competitiveness. For the TNCs this process is linked with
penetration and consolidation in new sectors of a foreign economy.
Certain questions naturally arise in this connection: how and by what means is the international structure of linkages established within a TNC, and what relationship exists between national and foreign operations within the same company? With regard to production these questions concern the effect that the level of TNC diversification in the United States has on the sectoral investment of capital abroad, and the principles that are adopted in locating its enterprises in different parts of the world. The monopoly domination of international corporations depends closely on inter-sectoral expansion and the choice of preferable areas for the organisation of production in a number of different countries.
Competition and the inter-sectoral migration of capital as described by Marx was characteristic of pre-monopoly capitalism. As a result of competitive struggle, capital flowed from less profitable to more profitable industries. In this way there was a tendency for the rate of profit on capitals invested in sectors with a different organic composition to level out and for an average rate of profit to be formed on a national scale. By concentrating vital factors of production which form the basis for a monopolisation of the market and the extraction of monopoly superprofit, the monopolies have substantially modified both the law of average profit and the general movement of capital between sectors. One of the most important signs that this ~was happening in the postwar period was the dispersion of monopoly capital and the diversification of production. The capitalist corporation
54 55reached such an enormous size that it became possible for the inter-sectoral migration of capital to develop within its confines. Whereas previously individual capital (meaning capital belonging to a private or joint-stock company) ``moved'' intact from one sector to another, nowadays capital belonging to a single corporation may be invested simultaneously in many different industries.
Beside this inter-sectoral relocation, capital ``flows'' abroad in vast quantities, to the most varied parts of the world. On this point the Soviet economist Yu. Shishkov has noted that differences in regional rates of profit underpin this geographical dispersion of capital within a single industry.2 Indeed, the level of the organic composition of capital, the rate of surplus value and aggregate production costs all continue to differ depending on the climatic, natural, socio-economic and political conditions in the various countries and regions. The differences are greater in extractive industries and agriculture and less in manufacturing industries, but they always exist for one and the same international corporation. The foregoing analysis has shown that divergencies between the rate of profit on investments in the United States and on those abroad have practically vanished but this does not alter the persisting difference in regional (national) rates of profit.
Transnational expansion is not, however, limited to intra-sectoral flows of capital between countries and regions. In fact, profit rates in different sectors in different countries (regions) diverge more than those within a sector. In this case differences in the level of the organic composition of capi-
tal are predetermined by two sets of factors: on the one hand, by the conditions of production in a particular sector (extent of mechanisation and automation, newness of technology, scale of application of innovations) and, on the other, by natural and climatic and socio-economic conditions. The simultaneous operation of both these factors explains why capital tries to exploit intersectoral differences in profit rates at the international level. As a result the flow of capital between sectors within national boundaries is supplemented by the inter-sectoral migration of capital across state frontiers.
TNCs have become the main vehicle for these interconnected processes because their increased size has made possible the intensive and multilateral transfer of capital on an international scale. Through product diversification within a single country the monopoly corporation has merely ``extinguished'' the differences between profit rates in different industries. By taking advantage of the most profitable conditions for its investments wherever its enterprises are located, the TNG levels out geographical as well as sectoral divergencies in the rates of profit. What relationship exists between diversification and the export of capital in the managerial practice of the largest American companies?
The French expert on foreign investment, G. Bertin, has studied the activities of 139 companies (of which 111 were American). His purpose in writing his book was to find out what changes had occurred over a five-year period (1963-1967) in the policy of these firms towards expanding their operations. He noted that the
56 57most common situation was one in which no decrease could be observed either in the company's overseas expansion or in its degree of diversification.^^3^^ The results of Bertin's analysis are as follows (we give data only for U.S. firms): 19 firms held the same position in 1967 as in 1963, i.e. their capital was not transferred either abroad or into different industries; 32 firms had developed during these five years primarily as a result of expansion overseas; 26 firms registered an expansion of their foreign operations alone, without any inter-sectoral transfer of their capital. The majority of these firms were completely undiversified but two of them were highly diversified. Twenty-three companies diversified their production inside the United States more than they transferred it abroad. Finally, 6 companies used both forms of expansion to a differing extent.
Thus in the mid-1960s it was much more typical for American corporations to transfer their production abroad than to penetrate new sectors of industry. Over a half of the firms studied were geared to foreign expansion. During this period they were actively transformed into transnationals whose production was sited throughout the world. It is an interesting point, however, that Bertin regards diversification within a country and the expansion of foreign activities as different, alternative directions for the growth of a monopoly corporation. In fact, in the case of many U.S. companies product diversification at home preceded their emergence as transnationals and served as its basis. The facts and figures given below indicate that, on the whole, the ex-
port of capital by American TNCs is accompanied by the inter-sectoral investment of capital inside the United States. The expansion of production abroad and the diversification of operations at home are not an obstacle to each other for present-day supermonopolies. Such a combination of investment tendencies is only feasible for a very large firm with enormous financial resources. It is not therefore surprising that only representatives of the ``elite'' of private monopoly business can enter the TNG ranks.
According to the above criteria there are three linkages between a TNG's domestic and foreign production operations (Table 8). Firstly, the growth in the international activity of a corporation is closely linked with the level of diversification of its domestic production. Multi-- sectoral companies are far more active in their efforts to establish themselves abroad. Out of 162 U.S. TNCs (all of them included in the Fortune's list of the top 500 firms), only 26 were specialised companies. At the same time 71 firms--- the largest group in the list---made investment in many different branches of industry.
Secondly, a definite relationship can be traced between the kind of production activity carried on by a TNG inside the United States and outside it. Specialised corporations restrict their investments to a single industry even on an international scale. They include primarily TNCs which manufacture computers (IBM, Honeywell, Control Data, Burroughs, National Cash Register) and various electronic goods (Texas Instruments, Fairchild, Motorola, Zenith). On the other hand, firms which have a clearly inter-sectoral
59distribution of capital go in for intensive diversification of their overseas operations. For example, International Harvester manufactures abroad construction equipment, various types of tractor and excavator, lorries, diesels, spare parts for agricultural machinery, and iron castings. The nature of a TNC's foreign investments reinforces and strengthens its production bias within a national economy.
Table 8
Product Diversity of U.S. Transnational in the United States and Abroad (number of firms)
while the remainder developed only specialised production there.
Consequently, the geographical expansion of the investment sphere has not so far led to any increase in the level of product diversification by the largest U.S. corporations. For the majority of them inter-country differences in profit rates within a single industry remain the important factor. This does not, of course, exclude the possibility that some TNGs may operate abroad in industries which they do not operate in in their home country. Thus, Du Pont has started up the production of electronic couplers which it does not make in the United States in the Netherlands, Britain and Taiwan, besides manufacturing various types of chemical goods in its foreign plants. The Firestone Tire and Rubber Go. makes textiles and metal goods in a number of countries while the Goodyear tyre company makes chemicals. On the whole though such examples are rather the exception than the rule. It should, however, be stressed that diversified corporations are much more likely to cross over national boundaries than firms with a more limited range of products. The fact is especially important in connection with the point of view put forward in economic writings that monopolies have recourse to foreign expansion because they cannot diversify their operations in their base country.
Diversification and the export of capital are not only interconnected as a means of eradicating differences in profitability. They also represent different ways of solving the problem of the over-accumulation of capital which confronts the
61Domestic Product
Total
Classified by foreign
Diversity
Number
product diversity
of Firms
None Low High
None
26 26 0 0Low (several pro-
ducts with one
major)
65 28 37 0High (many pro-
ducts but none
major)
71 3 31 37Total
162 57 68 37Source: 3. Stopford, L. Wells, Managing the Multinational Enterprise, Basic Books, Inc. Publishers, New York, 1972, p. 37.
Thirdly, U.S. TNGs are less active in penetrating completely new sectors of industry abroad than they are in the United States itself. Only 37 of the 71 highly diversified corporations had a similar indicator of inter-sectoral expansion abroad as they did at home. Of the 65 corporations with a low level of product diversity again only 37 ventured outside a single industry abroad
60large corporations. On this point, it is particularly important to emphasise that this problem has now to be solved not only for the whole of social capital. The specific feature of the present stage of monopoly concentration and the internationalisation of production lies in the fact that diversification does not abolish the need for foreign investment for individual capital, for the individual corporation. The TNGs have succeeded in combining the export of capital and its intersectoral migration into a single flow and have merged them together, thus partially solving their problem of over-accumulation. In this way capital tries to overcome the restricted boundaries of its own self-expansion which persist even in giant, global monopoly combines.
The diversification of TNG production undoubtedly reflects the rapidly growing international mobility of capital. It occurs as part of their overall strategy and takes shape under the impact of both long-term factors and short-term motives. This is strikingly obvious in present-day forms of mobility---the ``desertion'' of production and disinvestment of capital.
``Desertion" means the transfer abroad of whole sectors of industry as well as a part of the production of certain corporations. The developing countries and the less-developed parts of Western Europe (Portugal, Greece, Southern Italy, Malta, Cyprus) are the recipients of the traditional industries which are no longer profitable in the industrialised countries (clothing, textile, footwear, bottling industries). The TNCs also transfer to these peripheral areas of modern capitalism enterprises producing labour-intensive
components for advanced-technology industries, assembly factories, and polluting metallurgical and chemical plants.
This ``desertion'' of production is underpinned by TNCs desire to use the capitalist international division of labour to their advantage and thus achieve a long-term increase in profit. The relocation of labour-intensive industries to less-- developed countries with a ``surplus'' of labour enables the monopolies to lower the costs of production and raise their profits thanks to the use of cheap labour.
The mobility of transnational capital is also apparent in the policy of disinvestment, the withdrawal of some investments through the closure or sale of existing enterprises. This disinvestment process has become a new factor in sharpening the antagonisms of contemporary capitalism and increasing the unevenness of its development.
Clearly, monopolies continually close down firms and enterprises which cease to be compet-
Table 9
Establishment and Disappearance of Foreign Affiliates of 180 U.S. TNCs (average annual total*)
1951-66 1967-69 1970-72 1973-75
Newly established
456
954
801 Disappeared** 50 256
266
563 279
* At the end of 1950 there was a total of 2,196 affiliates. •• Excluding affiliates which disappeared as a result of mergers.
Source: 3. P. Curhan, W. Davidson, R. Suri, Tracing the Multinationals, Ballinger Publishing Company, Camb., Mass., 1977, pp. 19, 166.
63 62itive or to respond to the new techno-economic conditions and they make no exception for their foreign operations. The 1970s have witnessed an unprecedented intensification of this process which has primarily affected TNG investments in the industrially developed countries.
Investment policy over the last decade shows a number of special features. Firstly, there has been a significant increase over previous years in the number of disinvestments. Secondly, there has been a drop in the number of newly established subsidiaries. Finally, arising from the first two features, there has been a steady increase in the number of disinvestments in relation to the number of subsidiaries that have been set up. The ratio for the TNCs included in Table 9 was 10.9 per cent in 1951-66, 27.0 per cent in 1967-69, 33.3 per cent in 1970-72, and as much as 49.9 per cent in 1973-75.
The same trend is confirmed by a survey which covered 432 of the 500 largest corporations in the United States. The number of disinvestments a year rose steadily between 1967 and 1975, from 50 to 335. Most of them were in the developed countries: in Western Europe they increased by between 39 per cent and 62 per cent a year and in Canada by between 8 per cent and 17 per cent. Typically, U.S. investments abroad did not decline in number because of nationalisation or expropriation (which accounted for only 4-5 per cent of all closures) but because they were sold off or closed down.^^4^^
The following also deserves attention. In the period from 1972 to 1975, 65 per cent of all disinvestments affected firms which were wholly-
owned by transnational. In 90 per cent of these cases the parent company's share in the foreign enterprises was liquidated in full.^^5^^ Consequently when TNCs withdraw their investments they try to disengage themselves completely from the enterprise and transfer their capital to more profitable operations.
Capital disinvestment is undoubtedly a longterm tendency in TNC activity and has a serious effect on the capitalist economies since it causes a redistribution of investments from some countries and sectors to others and thus causes further disproportionality in the world capitalist economy. Even bourgeois economists, drawing on their own research and business opinion, note this fact with alarm. "The businessmen we talk with," observed the president of the American consultancy firm Booz, Allen and Hamilton International John B. Rhodes, "see what is happening in Europe as more of a long-term trend. I think we're definitely seeing a downturn from the tremendously active rate of investment of the 1960s.''^^6^^
Monopolies from all the capitalist countries have begun to disinvest their foreign capital. Over the period from 1967 to 1975 as a whole U.S. TNCs liquidated 30 per cent of their gross investments in the EEC countries, while EEC countries liquidated 26 per cent of theirs. In Belgium two-thirds of all disinvestments were made by companies from other EEC member states, chiefly the Netherlands which accounted for half the total number of cases.^^7^^
The transnationals are able to switch their capital to more profitable areas of activity with a
645---1605
65fair degree of mobility. This explains why the disinvestment process is chiefly marked by a restructuring of the TNG itself: by the transfer of investments to the principal dynamic sectors and the "squeezing out" of traditional, non-- researchintensive lines of production from their operations in industrially advanced countries.
The TNGs owe their rapid growth primarily to the development of technologically advanced, research-intensive industries in the industrialised part of the capitalist world. In the latter part of the 1970s the trend towards the concentration of capital became significantly stronger in those sectors of industry which have been most affected by the scientific and technological revolution. Most closures of subsidiaries in Western Europe took place in metal manufacturing, textiles and leather, footwear and clothing, food and drink, and fertilisers. Among others General Foods, Gulf Oil, W. R. Grace, Goodyear Tire and Rubber Co., and Reynolds Metals have all cut their investment programmes. In Belgium 40 per cent of all disinvestments in industry were concentrated in the textiles and clothing industries and 30 per cent in the metallurgical and metal manufactruring industries. British and West German subsidiaries withdrew respectively 70 per cent and 55 per cent of their total investments in industries engaged in the production and processing of metals.^^8^^
Relatively few subsidiaries have been sold in science-intensive industries such as various branches of mechanical engineering, computers and electronic goods, and pharmaceuticals. Transnational which operate in these industires have
considerable advantages over firms in traditional lines of production in maintaining their competitiveness.
Thus, in a number of countries monopolies with help from the state are exerting pressure on General Electric to compel it to increase the proportion of share capital held by local partners in enterprises producing technologically advanced and complex goods (diesel locomotives, electro-generators). General Electric for its part is trying hard to avoid diis because, if these kinds of goods are produced in joint ventures, they are inevitably associated with a flow of information, the sharing of technical secrets and, consequently, a loss of monopoly advantage.
The position held by the company strengthens the broad-ranging multi-sectoral character of its operations. "Most of our overseas affiliates produce a full line of G. E. products," commented its manager of international strategic planning C. Springer. "So when the local people ask us for more ownership, we are prepared to split up the company, if need be, giving the locals the low-technology products, while retaining effective control over the more advanced ones. Five years ago,, most U.S. multinationals would have treated the entire local enterprise as an indivisible entity. Today that approach is no longer possible or profitable.''^^9^^
This is a notable admission by the manager of one of the largest U.S. corporations since it reflects the changes that have taken place in overall TNG strategy and their retreat from a strict policy of maintaining 100 per cent ownership. While accepting conditions which previous-
5*
67
66ly were regarded as absolutely unacceptable, the principal international monopolies nevertheless try to find room for manoeuvre. They are able to "pay off" the local capitalists and take a share of ownership only in those enterprises which produce simple or technologically obsolete goods. TNCs which produce a standard product (for example, Phelps Dodge Copper which makes metal goods) are compelled to reduce their number of shares in a subsidiary in response to the demands of participant countries. By concentrating the production of research-intensive goods in their hands, the TNCs are thus able to keep foreign countries to some extent dependent on them in the field of technology.
Changes in the socio-economic and political situation in West European and other developed capitalist countries have a very tangible impact on TNC activities. The proletariat makes broad use of new forms of class struggle, showing a growth in international solidarity. The strike movement is activated in response to the TNCs anti-- working class and anti-trade union policy. In Britain, for example, the number of strikes and the number of working days lost at foreign-owned transnationals is l'/2-2 times greater than in nationally-owned firms.
Thanks to the coordinated struggle of the working class on an international scale and solidarity strikes and disputes the transnational monopolies are far less able to employ such specific methods of exploiting the workers as lockouts and the transfer of orders from plants on strike to other countries, sharp wage differentials or the refusal to recognise trade unions. "The
high wages with actual or potential restrictions on management's freedom to hire and fire workers, are discouraging U.S. foreign investments," estimated vice-president of Sperry Rand A. Moccia, "while at the same time encouraging local firms to move to the U.S., where the labor climate is much more congenial.''^^10^^
The fight for the democratisation of state and society and for restrictions on the power of international monopolies which is taking place in a number of West European countries has created an unfavourable investment climate and a resulting reduction in TNC operations. Bourgeois observers have remarked how unnatural it is when a slowdown in corporate expansion in Western Europe appears in the form of a mass flight of capital. In 1976-77 U.S. subsidiaries in Italy, France, and Spain reduced their expenditures on plant construction and equipment by an aggregate total of $150-200 m. in comparison with 1975.n
The trends in TNC investment policy are on the whole determined by long-term factors. It is however extremely important in describing these trends especially their specific impact on the situation in bourgeois countries to note such an important factor as the world cyclical crisis of the mid1970s which, despite its short-term nature, has had a profound influence on the whole course of capitalist reproduction. The contradictions that exist between the criteria of profitability and the global efficiency of transnational activity and national interests and measures of state regulation have become particularly evident during this period of crisis. It is also important to explain the role played by this latest crisis because of its spe-
69 68cific characteristics compared to previous postwar crises.
Previously when the economic situation has become much worse, the international monopolies have tried to use to their advantage the well-known asynchronism of different phases of the cycle in different capitalist countries. As soon as there were any signs of overproduction, a rise in interest rates, or a credit squeeze in a particular country (or group of countries) where their subsidiaries were located, the TNGs offset their losses by expanding their business operations in countries which were still experiencing an upsurge of activity. By adapting to the changes in the world economic situation through shifting their investments and altering the volume of production and sales in different parts of the capitalist world, they maintained their overall profitability and competitiveness at a high level, at the inevitable sacrifice of certain subsidiaries' interests.
Because it hit the main centres of imperialism synchronically, the 1974-75 crisis restricted the TNGs room for manoeuvre and their ability to transfer orders from one country to another or to switch currencies and profits in the way they have become accustomed to do. They were forced to adapt to the changing situation by getting out of low-profit industries and running down factories in many, chiefly West European countries all at the same time. They began to step up the relocation of their business activity in the United States, which had passed through the crisis more easily and quickly, and in the developing countries. In 1976, for the first time in a decade U.S. subsidiaries in Western Europe not surprisingly cut their
70production expenditures by 11 per cent over the preceding year.^^12^^ Real outlays were much lower in view of the galloping inflation that occurred in the 1970s.
It is also important to note that the crisis exposed the weakness of even the giant capitalist corporations if they had fallen behind in applying the new technology. The case of Chrysler mentioned in the previous chapter is striking from this point of view.
At a time of inflation, a worsening energy crisis and changes in the nature of consumer demand for cars Chrysler continued to produce large expensive models. It was very slow to increase R&D expenditures on developing new low-- petrolconsumption models which responded to new market demands and accorded with the government standards introduced in the 1970s. It was only in 1978 that two new mini-models were launched but it was already too late. The corporation was on the verge of bankruptcy due in no small part to the unhappy situation in which its overseas affiliates found themselves. In fact its British company virtually collapsed and was only saved because the British government gave it subsidies.
By the end of the 1970s Chrysler's losses reached a record level of roughly $1,000 m. The number of unsold cars mounted up to a value of $700 m. In order to improve its financial position the Chrysler management began to curtail production and initiate mass redundancies: two major plants were closed down in the United States and 30,000 workers lost their jobs.
In an attempt to salvage what it could of its business, Chrysler took the extraordinary step of
selling off practically all its foreign affiliates. It now has factories only in Canada, South Africa and Peru. Its other subsidiaries were all bought up by Peugeot-Citroen in Britain, Volkswagen in Brazil, General Motors in Venezuela and Colombia, and Mitsubishi in Australia. Once it had liquidated most of its enterprises abroad which accounted for up to 30 per cent of its total sales and profits, Chrysler ceased to exist as a transnational corporation. The basic reason for this was its loss of competitiveness because of its poor use of technology, although the final push was given by the crisis after which the position became critical. After it had received a large injection of finance from the U.S. government, Chrysler managed to avoid total collapse but its record shows that corporate expansion which is not backed up or only poorly backed up by new technology now entails enormous losses for the whole of society.
The crisis measures taken by the TNCs hit the national economies much more than the individual corporations. The greatest number of affiliates (581) of the 432 American firms previously mentioned were closed down in the two crisis years of 1974 and 1975. They comprised 38.2 per cent of all affiliates sold or closed down over the period 1967 to 1975.^^13^^ While in 1971 3.3 affiliates were set up for each one closed down, in 1975 only 1.4 new affiliates were established for every closure.^^14^^
The TNC policy of disinvestment during the crisis caused a far greater reduction of investment in the economy and a growth of unemployment in a number of countries than was true for national companies. Thus, in Belgium 45 per cent of
the drop in investment and employment in foreign firms over the period 1960-77 occurred in 1975 and 1976, while in the case of Belgian firms the figures were 31 per cent and 26 per cent respectively. The majority of jobs were lost in Dutch and American firms.^^15^^
Attention should been paid to those industries which suffered the highest levels of unemployment. The Dutch companies sacked workers chiefly in the textile and clothing industries while American firms cut jobs in the food, drink and tobacco industries and in textiles and metallurgy.^^16^^
The specific task of transnationals is to ensure that the latest technological innovations are applied in industry through the international mobility of capital. This is mainly done by concentrating on science-intensive industries which serve as the technological base of TNC development. In the United States TNCs account for about twofifths of the shares and over 85 per cent of the sales of companies in these industries. The very largest of them, however, have also established their R&D centres abroad alongside their production plants. As a result, their global investment policy is fully integrated in regard to production and science and technology.
Their tremendous financial resources enable the TNCs to maintain a high level of R&D expenditure in both absolute and relative terms, i.e. as a percentage of total sales. In 1981 as few as 26 firms out of the top 100 transnationals in the United States spent less than 1 per cent of their turnover on R&D. In 36 firms the percentage ranged from 1-2.9 per cent, in 21 from 3-4.9 per cent, and in 17 it was 5 per cent and more.^^17^^
72 73The relative size of the R&D budget is extremely high in the case of 20 leading U.S. transnationals (see Table 10). In almost all of them it is higher than the 1981 average of 2.0 per cent for all private U.S. firms. All those firms included in the table have a production bias towards research-based products.
The new technology can be used most effectively only on the basis of the international intracorporate specialisation and cooperation of production. This requires a continual expansion of foreign manufacturing investments and an intensification of intra-firm linkages. This explains why there is a direct relationship between the level of R&D expenditure by companies and the scale on which they export capital. According to the British economists P. Buckley and M. Casson, the level of R&D activity increases a firm's `` multinationality'' or the share of overseas production in the total by an average of 7 per cent.^^18^^ For researchintensive firms the index of foreign content (the ratio of companies with a high level of foreign sales, shares, and profits---25 per cent to the total number of firms in the industry with a turnover exceeding $1,000 m.) far exceeds the average index for all giant corporations which equals 40. In Pharmaceuticals it equals 94, scientific instruments---83, and general engineering---54.^^19^^
The TNCs seek not only to ensure a high level of investment in R&D but also its active transfer to plants, design bureaux and laboratories abroad. Out of a total of 141 companies of which 107 are American, 25 per cent carry on R&D work in between 5 to 10 foreign countries, and more than 50 per cent of them in between 2 to 4 countries,^^20^^
Nowadays most new technology can only achieve the required economic benefit if it is applied on an international scale. A monopoly corporation strives to reinforce its dominant positions in world markets by setting up its own research centres and laboratories abroad and drawing on the material and intellectual resources of different countries. In the final analysis the transnational' global investment policy has strengthened the connection between the growth of international production and the intensification of R&D work.
Table 10
R&D Expenditures as a Proportion of U.S. Transnationals* Turnover, 1981
Total R<eD _
pirms
Expenditures Percentage of
llrms
$000 m.
Turnover
General Motors
2,250
3.6
Ford
1,718
4.5
IBM
1,612
5.5
General Electric
8143.0
Du Pont
6312.8
Exxon
6300.6
Eastman Kodak
6156.0
Xerox
5266.1
ITT
5032.9
Dow Chemical
4043.4
Honeywell
3696.9
Hewlett-Packard
3479.7
Sperry
3376.2
Minnesota Mining &
Manufacturing
3064.7
Johnson & Johnson
2835.2
Merck
2749.4
Procter & Gamble
2532.2
Chrysler
2502.3
International Harvester
2453.5
Deer
2404.4
Note: Ranked according to total R&D expenditures. Source; Business Week, July, 5, 1982, pp. 58-72.
74 75INTBA-FIRM DIVISION OF LABOUR
Development of the intra-firm division of labour is accorded a central role in the general strategy of transnational corporations. It is aimed at selecting the best places for locating enterprises abroad and combining the various elements of production on a global scale. TNCs differ from previous multinational and present-day national monopolies because they take account simultaneously of economic conditions in many different capitalist countries in the course of expanding their production. While using the international division of labour in their own interests, they make a very active impact on it.
Marx regarded the social division of labour as an unceasing process in which the various spheres of human activity first appear and then "separate off" and become isolated one from the other and in which a particular section of the population specialises in a particular kind of activity. He distinguished three basic types of division of labour: general, particular and individual: "If we keep labour alone in view, we may designate the separation of social production into its main divisions or genera---viz., agriculture, industries, etc., as division of labour in general [im Allgemeinen], and the splitting up of these families into species and sub-species, as division of labour in particular [im Besonderen], and the division of labour within the workshop as division of labour in singular [im Einzelnen] or in detail.''^^21^^
The determinant factor in the internationalisation of economic affairs at various stages of world social development is sometimes the first, sometimes the second, and sometimes the third type of
76division of labour. Thus, prior to the period of imperialism international ties affected only the sphere of exchange and developed mainly by means of the world market which at that time was chiefly connected with the development of the general and to a certain degree the particular division of labour. The export of capital by capitalist monopolies also bound national economies together through production linkages. It served as the economic means for assisting the international spread of capitalist relations of production. In the pre-monopoly period, as Lenin observed, colonies were drawn "into commodity exchange but not into capitalist production. Imperialism changed this. Imperialism is, among other things, the export of capital.''^^22^^
The growth of TNGs gave rise to a dominant tendency for production and technological linkages to develop within the world capitalist economy. The productive forces of capitalism reached a level of development at which not only the general and particular, but also the individual division of labour became restrictive within national boundaries. Modern capitalism draws both industrialised countries and former colonies into the individual division of labour through the transfer of separate links in transnational production.
Production units belonging to the same corporation but located in different countries are turned into the ``workshops'' of a single giant enterprise. Through this type of specialisation the monopolies internationalise the economic development of the capitalist world. At the present stage the individual division of labour not just of a single enterprise but of a giant monopoly com-
77bine has become the determining factor in this, process.
As a result the intra-corporate and the international division of labour which differ in their socio-economic nature intersect and are as if superimposed on each other. This creates an entirely new situation in capitalism's world economic relations.
Under capitalism the international social division of labour is "a spontaneous and jree division within society taken as a whole, a division of labour which reveals itself as the production of exchange values"^^23^^ and occurs between nations and between sectors and sub-sectors of the economy of all capitalist states. It is chiefly marked by spontaneity, the singling out of particular countries as independent producers of a certain type of output, and the commodity nature of separate types of production.
Marx's distinction between the social and the manufacturing (technical) division of labour forms the basis for defining the nature of intrafirm linkages and their relationship with linkages between countries: ". . . In spite of the numerous analogies and links connecting them, division of labour in the interior of a society, and that in the interior of a workshop, differ not only in degree, but also in kind.''^^24^^ Thus, Marx first of all singled out the technical division of labour inside a workshop---and at the present time it has developed into the intra-corporate division of labour--- as an independent, separate type and, secondly, regarded it as substantially distinct by its socioeconomic nature from the social division of labour.
The intra-corporate division of labour fully
accords in its socio-economic content with the Marxist criterion of the division of labour inside a workshop. The division of labour on an international scale within a multinational monopoly no longer occurs spontaneously, as the result of separate, sporadic contacts between independent producers in different countries, but as the result of intentional policy conducted by a single economic combination of international dimension. Even though they are located in different countries, the specialised enterprises belonging to this type of monopoly are no longer nationally distinct producers. Moreover their production loses its commodity character to a significant extent and this is reflected in the high proportion (25-50 per cent) of intra-corporate deliveries in the TNCs total foreign trade turnover. As previously remarked, although exports supplied by their own affiliates in a wide range of countries cross national frontiers, they do not pass through the traditional channels of international trade.
All three types of division of labour may coexist within a TNG, most of which are multi-- sectoral corporations. However, the general ownership and management of all the corporation's subdivisions and the technological unity of most of its production plants chiefly favours the development of the individual division of labour as the most promising form at the international level.
Like the national, so the international division of labour takes shape primarily and chiefly through the specialisation of production and research. Through the specialisation of their divisions and affiliates in different countries, the transnationals are able to incorporate units pro-
79 78ducing a particular type of product and at the same time combine the various elements and conditions of production according to country, region, raw material source, etc. Capital flows abroad in search of the labour, technology, and natural resources it requires. At the same time the principles governing the specialisation of production within a TNG offer striking proof of its avant-garde role in modern neo-colonialism which strives to reinforce the developing countries' subordinate position in the capitalist international division of labour.
Although all TNCs are in some way drawn into this kind of international specialisation, they adopt different forms to suit their actual type of operation. For example, vertical integration is particularly common in the fuel and energy industries where the primary materials are extracted, processed and made into a final product on an international scale. Aluminium companies, the biggest in the capitalist world, are a good example of this general tendency in the international intra-firm specialisation of production.
As can be seen from Table 11, the developing countries account for a large share of production capacity only at the stage of extraction but for far less at the processing stage. Because the primary materials receive their final processing in the developed capitalist countries the TNCs derive the chief benefits arising from a large market, developed infrastructure, and skilled workforce. They act chiefly in the interests of maximising profit in the long term and with a view to minimising risks which may result from socio-economic reforms in the newly independent states.
Table 11
Distribution of Production Capacity at Different Stages of Aluminium Production, 1975 (per cent)
Bauxite Alumina
Aluminium Extraction Processing
Production _________________A B_____A B
A
B
ALGAN
9 91 55 45
93 7
ALCOA
31 69 72 28
94 6
Alusuisse
73 37 85 15
100 0
Kaiser
40 60 89 11
83 17
Pechiney-Ugine
Kuhlmann
84 16 91 9
95 5
Reynolds
16 84 86 14
97 3
A---industrial capitalist countries B---developing countries
Source: Controlling Multinational Enterprises, Boulder, Colo, 1976, pp. 116-17.
Today, on the whole TNCs operating in the extractive industries specialise throughout the production cycle---from the raw materials they obtain from different countries of the world, they all manufacture not only semi-finished materials but finished products as well (pipes, cables, fibres, bars, synthetics, etc.).
Vertical specialisation calls for greater use of complex, highly mechanised and even automated equipment at all stages of production and requires a small number of well-trained and qualified workers. This is why TNCs use only very small quantities of labour from the developing countries.
Product specialisation which is the second type of international intra-firm specialisation is chiefly adopted in the chemical industry and is based on the use of petrochemicals as a feedstock on
806---1605
81an international scale. In this industry enterprises operating a complete technological cycle in a particular country can easily be established. Under this system factories in developing countries which are drawn into the intra-firm division of labour through product specialisation are assigned the job of making simple products which are not as a rule connected with the parent company's main product line. While the most polluting industries are dumped in the developing countries, factories producing the main petrochemicals (plastics, synthetic fibres, etc.) are usually located in the developed capitalist countries. As a striking example of this, Union Carbide's West European and Japanese subsidiaries produce various kinds of plastics, chemicals and molecular filters while its affiliates in Latin America, Asia and Africa make only dry batteries, graphite and carbon electrodes, and plastic sheeting, and are also engaged in the mining and metallurgical industries.
A third type of component (operational) specialisation by transnational enterprises located in different states is prevalent in the motor and agricultural machinery industries as well as in electrical engineering and electronics. This type of specialisation rests on a common technological base for the production of parts and components and most clearly illustrates the principles of the global optimisation of combination. It presupposes multilateral cooperation linkages between different countries.
The characteristic features of component specialisation are as follows. Foreign enterprises operate in accordance with the principles of optimal allocation and use of resources and of transport
and marketing networks in order to secure the maximum profitability of the transnational as an entity. This means drawing into production those elements which can be used to greatest advantage in one particular country. The general principles governing the location of production by a TNG and its neo-colonial character appear most strikingly and tangibly in the case of component specialisation. Thus TNGs either retain the production of complex equipment, parts and components in their own countries or transfer it to other industrially developed countries. The main type of output is both capital- and research-intensive. It forms part of the final product and requires a large capital input, the latest types of materials and technology, and highly skilled specialists and workers. On the other hand, assembly work of a labour-intensive kind is now being shifted out to the developing countries. Most frequently this comprises the intermediate assembly of a complex product or the final making-up of household goods and appliances. In the first case this means electronic equipment, cars and tractors and in the second radio and TV sets and cameras.
The intra-firm division of labour in research and development, that is, scientific and technological specialisation and not just specialisation in the field of production has now become a typical feature of the present stage of TNG development. It is motivated by a desire on the part of the monopolies to increase their competitiveness, and strengthen their leading positions in the capitalist world. The intra-firm division of labour and R&D specialisation undertaken by TNG affiliates enables them to improve their efficiency and
82 83Table 12
General Motors Corporation Subsidiaries
Export and Import Data,
&M Continental GM Strasbourg
GM Canada
Category
Vauxhall
Opel
Exports
Cars and trucks Cars and trucks
Products
Cars, trucks, Automatic
Cars, trucks en-
and radiators transmissions gines, automotive
components
Volume
37% of total Unit 58% of total Unit
Sales
Sales
Substantial
100% of total 25% of total car
majority of car
unit production and truck Unit
and truck pro-
Sales, substantial
duction, very
amount of engines
small number
and components of radiators
Markets
48% of car exports and 32% of truck exports sent to Western Europe; Canada is major single export market
25% of vehicle exports sent BU to U.S., 40% to other EEC countries, automotive components sent to Mexico and South Africa
Supplies approximately half of Opel cars exported to U.S., Bedford trucks export to GM Deutschland, radiators ( occasionally) exported to Opel
Sole supplier of Substantially all
of car and truck exports sent BU to U.S., some cars sent CKD to India and Venezuela, engines and components to U.S.
three-speed automatic transmissions to Vauxhall and Opel
Imports
All three-speed All three-speed auautomatic trans- tomatic transmis-
CKD car and Special compo- All car and truck units nent parts from stamplings from Vauxhall GM France and Opel respectively
truck from
otive otive from
m
sions from Strasbourg; small amount of special engines from U.S.
Strasbourg
U. S.
Notes: Market percentages refer to car and truck export vol when received at import points; Completely Knocked Source: D. Kujawa, International labor Relations Management York. 1971, p. 137.
uine only. CKD and BU refer to condition of units Down and Built-Up, respectively. in the Automotive Industry, Praeger Publishers, New
speed up the application of new technology throughout the world.
The level of efficiency of R&D work has become a particularly important problem for the monopolies because of the increasing interconnection between science and production and the changing role of science in the development of the productive forces. On the one hand, the latest developments in technology (the whole field of information technology and computers) have made possible a vast improvement in the organisation and management of the large modern corporation. Accordingly the operational frontiers of a private monopoly group have been pushed out even further and its structure and internal linkages and the scale of its production units have been optimised.
On the other hand, R&D work is stimulated by the very process of production which presents increased demands on science from the point of view of developing new materials and types of fuel, technology, and a wide range of equipment. For the multinational, especially U.S., monopolies the development of science and technology is increasingly connected with the division of labour and the specialisation of their affiliates in undertaking certain operations within the general framework of their R&D work. Typically, however, this process has in the main extended only to the industrial capitalist countries. Enterprises in the developing countries have not been caught up in the shifts that have been taking place in TNG activity in science and technology.
The following facts throw light on the growing role of foreign affiliates in R&D work and
the growing division of labour in this field. Firstly, U.S. TNG affiliates undertake all kinds of R&D work. The share of fundamental ( theoretical) research in total R&D work averages 1.4 per cent which is only slightly less than the 1.9 per cent share in parent companies' R&D.25 Secondly, there is a clear tendency for affiliates to increase their share of aggregate TNG expenditures on R&D---from 4.5 per cent in 1966 to 7.3 per cent in 1972. It should, moreover, be realised that, whereas the U.S. government finances part of these expenditures only in the case of the parent companies, their affiliates obtain only 2 per cent of their total spending on R&D from the ``host'' governments. If corporate funds alone are included in the calculation, which is methodologically more correct, then the share of foreign enterprises and laboratories would have been 12.6 per cent in 1972.^^26^^ Thirdly, there is a reciprocal though unequal exchange of technology between the parent companies and their affiliates. Thus, in 1972 TNCs transferred $837m. worth of technical know-how to their affiliates and received in return $125m. worth.^^27^^
R&D work is carried on both by overseas production divisions and subsidiaries and by specially established laboratories and research centres chiefly in Western Europe. In recent years they have switched from improving the consumer characteristics of goods and technical services to specialising in new product lines. For example, Ford has combined the work of its three centres in Britain and West Germany in order to standardise parts and components, improve their
87,
86quality and most importantly to eliminate duplication in developing new products.
As the international intra-corporate division of labour in R&D work becomes more extensive, foreign affiliates develop increasingly into research and production centres. They operate as part of TNG global economic strategy which in a centralised way decides the main lines of development for their research policy, functions and tasks in areas of key importance to the corporation.
Just as in production the activity of American TNCs in the U.S. and abroad is tightly organised and coordinated, coordination in the R&D field has also reached a fairly high level in a number of corporations. Plants, laboratories, design offices, and research centres abroad serve not only local output but the corporation as a whole. The innovations and technology which the affiliates have at their command are to a large extent the result of intra-firm division of labour on an international scale.
The division of labour in R&D reaches its greatest extent in specialisation in the electronics industry which produces perhaps the most important type of product for the present monopolies (telecommunications equipment, different types of computer) without which it is practically impossible to manage international corporate activity. Thus, International Business Machines (IBM) which controls about 60 per cent of the capitalist world computer market has two research centres in the U.S. and one in Switzerland as well as nine laboratories in eight countries, each of which employs between 500 and 800 scientists and experts. The new technology
and computer models are developed and launched by all the affiliates under a single programme. For example, the Paris laboratory works on developing integrated circuits, those in Amsterdam, Stockholm and Vimercate work on input devices and peripheral equipment, while the one in Greenock develops the memory for one of the models. However, some computer models, mainly those at an early stage, are developed only in the United States. IBM takes all its major decisions concerning its technological policy at its American research centre. It has a permanent cable link with Paris and through it with all its foreign laboratories.
IBM practice provides striking proof of an important feature of TNG R&D activity. It shows that the international division of labour in R&D work is an inevitable stage in TNG evolution and is objectively determined by the need to develop and apply the latest type of equipment and technology in conditions of the scientific and technological revolution. "Until 1961 IBM used its overseas laboratories to support the local market," wrote the well-known specialist on technological progress E. Mansfield. "But finding it difficult to make optimal use of these laboratories when their mission was limited in this way, the firm decided, when it developed the 360 line of computers, to bring the European laboratories into the world-wide development programme. In the case of the 360 line, which consisted of six basic computers, each laboratory, whether American or European, was given a specific mission."28 The latest generation of computers currently under production is based on the same principles.
89The practice adopted by other companies indicates that this is an increasing tendency. Honeywell commissioned a new production line for five computer models. The French and Italian affiliates developed two models. Model 64 was developed jointly by the U.S. and French laboratories though its programming devices were produced at its American and British plants. The work of coordination was done in the States.29 The Eastman Kodak company brought together a team of a thousand experts in Western Europe and the United States to work on a new kind of super-sensitive film. A special emulsion was developed at its British laboratory, while quality control was undertaken by the French laboratory.
These practices show that the internationalisation of science has passed on to a much higher level than previously in the capitalist world. It should, however, be noted that this tendency only exists within the narrow confines of individual corporations. This gives rise to the question of how the international monopolies' R&D specialisation correlates with the development of research in the host countries?
In reality, TNG research and development activity emerges as a new kind of "brain drain" in the capitalist world. Previously scientists and engineers were enticed abroad with the main flow being from Western Europe to the United States. Although this is still important it is nonetheless an indirect means of monopolising the new technology. The acquisition of patents and licences for the latest discoveries and innovations also provides limited opportunities in this sense.
In view of current conditions the TNCs have therefore started to organise the R&D specialisation of their divisions in such a way as to have direct access to sources of innovation in a number of different countries. ". . .One of the reasons for our success," affirmed G. Jones, chairman of the board of directors of IBM World Trade, "is our closely integrated multinational research and development effort. We have access to overseas technology and talent through our laboratories outside the United States, and we receive a steady flow of new ideas from all over the world.''^^30^^
The TNCs use different methods of regulating the "brain drain" in the course of R&D specialisation. In the first place they attract the best graduates from universities and colleges to work wherever they have their laboratories. At the present time only 6 per cent of those employed on R&D work in U.S. affiliates overseas are American by origin.^^31^^ In this way, many states train scientists for work in foreign-owned corporations rather than the national economy.
Research know-how is also transferred through contacts between the TNCs and local research centres attached to universities and research institutes. For example, IBM's laboratories cooperate with Heidelberg University's oncological centre in developing equipment for cancer diagnosis.^^32^^ Hewlett-Packard's laboratory in West Germany concentrated its research on acoustic equipment in view of the fact that theoretical work on acoustics is more advanced in Western Europe than in the United States. As in its earlier work on pulse generators it has worked in close
91 90contact with Stuttgart University, many of whose graduate engineers work for it. Many of the instruments have been designed by graduates of Edinburgh University in its technology department.^^33^^
Cooperation with research centres overseas enables the international monopolies not only to gobble up know-how and talent but to utilise the host country's financial resources as well. This is done by firms taking part in state-financed projects, and through their contacts with the governments in question using the resources of local universities, research organisations, etc.
At the present time many large-scale R&D projects can only be carried through efficiently on the basis of an international division of labour. Because of this a monopoly corporation tries to overcome its narrow national base for combining research with production by setting up its own research centres and laboratories abroad, organising the flow of highly qualified foreign engineers and scientists to those centres, and using the financial and research resources of foreign universities and colleges.
Bourgeois theorists present the division of labour within a TNG as a new stage of development in the existing capitalist international division of labour and one at which the contradictions and disproportions between different parts of the capitalist world economy will disappear (sharp disparity in levels of economic and technological development, subordinate position of the former colonial periphery, despoliation of developing countries' natural resources). The limited amount of planning associated with this
new stage is supposed to help establish a new system for the division of labour and international economic linkages responsive to all nations' interests, while a "global optimal combination" within the framework established by these monopolies is presented as a prototype for the future organisation of the world economy. This view of things by the apologists for the transnational is as false in this instance as was their deceptive and untenable ``impression'' regarding the elimination of capitalism's crises and contradictions as a result of the growth of monopolies.
Whether in production or in R&D work the intra-firm division of labour and specialisation between divisions can only be regarded as international in scale and scope but in reality simply express a trend towards the application of new technology to production which is restricted to the narrow bounds of the supermonopolies and contradicts the interests of individual countries.
Since the division of labour within a TNG is different in principle to its other types of division, one should not speak so much of the deepening division as of the deformation of presentday supermonopoly capitalist international division of labour. The TNCs are only able to develop firm and stable linkages between certain sectors of the economy, enterprises and research centres in different countries on the basis of their specialisation and cooperation. The distinctive parts of these sectors, however, no longer exist simply as parts of a national economy but as component parts of another economic entity---the international monopoly. The work carried on in the factories it has established as part of an incomplete pro-
92 93duction cycle depends on the head offices in several capitalist states, in particular, the United States, while the countries in which these `` auxiliary'' enterprises are located become to some extent economically dependent on the policy of the international monopolies. Thus, the division of labour within their framework exists alongside the international, or rather the inter-state, internation division of labour and constitutes a different system which destroys the existing one.
Another crucial circumstance must be taken into account. An increasingly large share of capitalist world trade, capital exports, and new technology is taken up by the TNGs. They also control the extraction and processing of by far the major part of fuel and raw materials. This all relates to their foreign economic activity in both the industrial capitalist and the developing countries. It would therefore apppear correct to say that the capitalist international division of labour is not only and not simply deformed in the interests of the transnational but that it is in fact they which are the determinant factor in its further development. The technical division of labour inside the major capitalist firms is changing into the social division of labour on an international scale.
The situation in the developing countries and in the industrial countries of the West has been affected by the way that the TNGs have broken up the existing system of capitalist international division of labour and relocated a number of industries from some regions of the world to others. The depth, scale and nature of this impact varies but without doubt the newly independent nations have felt the consequences of re-arranging
the intra-firm division of labour most sharply. The monopolies develop on their territory only certain branches of production which are essential to their own operations, while the national economy and, in particular, industry remain largely undeveloped or rather developed only to the extent necessary for what they regard as ``key'' sectors. (For further detail, see Chapter Six.)
FINANCIAL POLICY
In the 1960s the transnational corporations began to attract a steady flow of capital from different countries for financing their overseas operations. This was a direct consequence of the substantial increase in their foreign production and was due to the limited capacity of national capital markets. Even the U.S. market was no exception, since the needs of industrial corporations which had started to locate their production capacities outside the country on a massive and geographically-dispersed scale far exceeded its funding capacity. It became difficult to obtain credit for expanding foreign operations which were qualitatively different from those previously undertaken. Funds that could be mobilised inside the country for financing exporting and marketing facilities were clearly insufficient for such a broad expansion of production. This was due to increased expenditures on new technology and the need for rapid renewal of the growing stock of plant and machinery in foreign affiliates. Research work, the development and application of the latest technology, and the transfer of patents from pa-
94 95rent companies all had a great need for large amounts of foreign finance.
Another important reason for the TNCs to start raising capital abroad was the increasing instability of the capitalist economy. This was reflected, in particular, in the weakening of the dollar as a key Western currency. When no single national currency can be obtained in sufficient quantities without the fear of a depreciation in its value, the monopolies try to use ``favourable'' currencies. It is much easier and simpler to do this directly on foreign capital markets by establishing close contacts with local credit institutions.
The financial policy of TNCs has been determined by the sharply expanded international dimensions of their production and simultaneous change in its nature; this policy affects all aspects of their activities. TNG strategy which is directed towards using the most profitable locations for investing capital rules out any static form of intrafirm production organisation but instead presupposes constant reorganisation and change in the courses of expansion. For this reason the TNGs not only establish factories in many different capitalist countries but also liquidate them in some places and set them up again in others. The main purpose of TNG financial policy is in fact to ensure the mobility of production through the mobility of capital, and this is largely achieved through the intra-firm mechanism for mobilising funds.
The TNGs possess colossal financial resources of their own through the capitalisation of surplus value, amortisation charges, etc., though this is true of any monopoly. The TNGs have gained privileged access to money markets throughout
the capitalist world and their power is based on the internationalisation of sources of finance for their expansion. They possess both financial power and flexibility and therefore try to control the whole process of capital formation and to ensure a quick reaction to changing circumstances for the investment of capital in any particular country.
If one wishes to understand the substance of TNG financial activity it is extremely important to study the intra-firm mechanism for moving money flows and the external financial relationships between the corporations. Financial transfers across national frontiers within the corporation are a specific kind of capital export which can best be observed in the following cases:
---the setting up of special subdivisions responsible for international financial operations;
---radical changes in the structure of financing international activity, chiefly, in the area of production;
---a new global approach to capital investment and accumulation, taking account of existing opportunities for starting up production in different areas of the capitalist world;
---the creation of a special mechanism for intrafirm allocation of investment and profit;
---the use of methods to protect TNGs from exchange rate changes, etc.;
---an unprecedented expansion of ties between the giant industrial corporations and banks in many different capitalist countries.
Present-day international monopolies, particularly American ones, have established special finance companies which are wholly owned by the
967-1605
97parent firm. New subdivisions specialise in mobilising funds for financing TNG operations in various countries. Medium-term and long-term funds are mobilised through the issue of loans and bonds on international money markets. The finance company acts also as investor acquiring bonds as a way of placing the TNG's liquid assets profitably. Through intra-corporate loans the finance company sends the capital that has been acquired to production affiliates abroad. It also has the task of developing ties with banks to secure better access to necessary lines of credit.
By setting up a finance company the TNG is able to concentrate a large amount of capital in one place and a significant part of its credit operations. In this way it can obtain cheaper credit thanks to lower taxation since finance companies are chiefly located in countries offering tax havens---for example, Switzerland, Liechtenstein, Monaco, the West Indies, the Antilles, the Bermudas and the Bahamas. Tax havens are a typical product of the modern international financial system of which the TNGs form an integral part. They offer low rates of tax, complete secrecy of tax records, and an almost complete absence of currency control along with complete freedom of international financial deals.
For example, Commercial Credit which is a finance company belonging to the U.S. TNG Control Data undertakes a wide range of operations but mainly credit insurance. According to U.S. classification, it is one of the largest of its kind. After it had been re-organised in 1972 it comprised two subdivisions, one of which was responsible for the long-term leasing in Western
Europe of computers made by the parent company, while the other financed investments in developing computer technology and software programmes.
In the most typical cases finance companies acquire the characteristics of commercial banks with regard both to their functions and the scale of their operations. This has been reflected in the emergence of special banking firms within a TNG structure. Banking subsidiaries have been established in Switzerland by Dow Chemical, Firestone Tire and Rubber Co. and Cummins Engine. "We have acquired so many money-market investments in the past few years that IBM is now in effect the twenty-seventh largest bank in the country," declared the treasurer of IBM World Trade, C. Townsend.^^34^^ These banking firms' principal functions within the TNCs are to mobilise loan capital on national and international markets and to carry out currency operations with available liquid assets. As The Banker magazine observed, "Some companies increasingly view the establishment of a bank as a normal development for a sophisticated corporate treasurer's department--- the next step on from a specialist financing subsidiary.''^^35^^
Because many TNCs have subdivisions which are practically indistinguishable from banks, they enjoy greater mobility of capital and can undertake their own expansion more effectively. Moreover, their top managers have control of substantial cash balances. Owing to the international scale of expansion it is particularly important to have rapid access to the necessary funds and to be able to redistribute them freely from one place to
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