Nonstate Actors: The Future of IPE(?) Lecture 23 – Tuesday, 6 December 2011 J A Morrison 1 British East India Co BP (formerly Anglo-Persian Oil Company)

Nonstate Actors: The Future of IPE(?)

Lecture 23 – Tuesday, 6 December 2011J A Morrison 1

British East India Co

BP (formerly Anglo-Persian Oil Company)

“In recent years, students of international relations have multinationalized,

transnationalized, bureaucratized, and transgovernmentalized the state until it has

virtually ceased to exist as an analytic construct. Nowhere is that trend more apparent than in the

study of the politics of international economic relations. The basic conventional assumptions have been undermined by assertions that the

state is trapped by a transnational society created not by sovereigns, but by nonstate actors. Interdependence is not seen as a

reflection of state policies and state choices (the perspective of balance-of-power theory), but as the result of elements beyond the control of any

state or a system created by states.” 2-- Stephen Krasner (1976)

“Changing material conditions, however, and the continued variety of

political ideas have also made it difficult to secure any general

agreement on the scope of sovereign authority. While universal institutions

have dramatically weakened, the prerogatives of sovereign states have

been constantly contested…The actual content of sovereignty and the

principle of exclusive control have been, and continue to be, challenged.”

3-- Stephen Krasner (1993)

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Notice any differences between Krasner 1976 and

Krasner 1993?

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-- Attributed to JM Keynes

“When the facts change, I change my mind. What do you do, sir?”

Lec 23: Actors of the Future

I. Multinational EnterprisesII. Transnational Advocacy

NetworksIII.The Media & MarketsIV.Exam Overview

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“The multinational enterprise (MNE) is defined here as an enterprise that

controlsand manages production establishments - plants - located in at least two

countries.” (Caves, 145)

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Note about Terminology

• MNCs: multinational corporation– Older term– Less accurate

• MNEs: multinational enterprise– Newer term–More accurate, but less widely used

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I. Multinational Enterprises

1. Why MNEs? (Caves)2. Are MNEs good or bad?3. A Tale of two MNEs

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The obvious explanation for the existence of MNEs is

that specific firms find it in their interest to

internationalize production.

But we should be more precise: why is it in their

interest?9

This is a major question for economists in the “industrial

organizations” subfield.

How do we explain firms’ decisions about which

production processes they undertake internally and those

they leave to other independent firms?

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And it has considerable bearing on IPE: should firms trade with foreign firms for their inputs or should they

acquire those firms and directly control that

production themselves?

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Let’s work through this using a simple example…

(This is actually pertinent since Guinness merged into

the international conglomerate Diageo in

1997.)

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Types of Integration• Horizontal: same process

in multiple countries– E.g. Guinness brews and

bottles beer in more than 50 countries worldwide

• Vertical: different parts of production in different countries– E.g. While the barley is

Irish, the hops come from all over (including the US)

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So, Guinness must ask:

(1) Should we buy the foreign production facilities or just

subcontract the stout’s production?

(2) Should we own the farms that grow our barley, malt, and hops or just buy it on the open

market? 15

Caves: Transaction Costs Drive Integration

• Proprietary Assets Horizontal Integration– E.g. Guinness might not want to give

out the secret recipe!

• “Impacted Information” Vertical Integration– Impacted information: Primary

producers possess incentives to deceive downstream dependents

– E.g. Producers of special hops might inflate price Guinness pays

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These are just some of the motivations for

transnational integration.

The key point is that firms often possess incentives to

“multinationalize” their production.

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We can apply the same logic to consider empire as well:

Should Britain trade with the Indians or should they

acquire India?

Should Japan trade with China for raw materials or

just acquire China?18


1. Why MNEs? (Caves)2. Are MNEs good or bad?3. A Tale of Two MNEs

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First, we ask this question with respect to the host

countries.

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Benefits of MNEs for Hosts

• Investment: money!!!!• Intellectual property:

trademarks, patents, production techniques

• New Products: (Guinness!)• Technological Spillover Effects• Training• Infrastructure

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Costs of MNEs for Hosts

• Disproportionate bargaining power: threat of exit

• Bring “dirty” industry (e.g. waste disposal)

• Profits are repatriated• Competes with domestic industry

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What do Strange & Fieldhouse say?

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Second, we ask this question with respect to the

home countries.

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Benefits of MNEs for Home Countries

• Lower production costs• Access to new markets• Benefits of economic

interdependence: peace!

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Costs of MNEs for Home Countries

• “Footloose” capital: change in bargaining power

• Cost domestic jobs and/or change in terms of trade

• Loss of tax base• How to keep firms accountable

overseas?– Environment– Labor standards

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1. Why MNEs? (Caves)2. Are MNEs good or bad?3. A Tale of Two MNEs

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MNEs are not new!

They are at least as old the medieval joint-stock trading

companies.

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So, we have lots of history and examples to consider.

Here, we’ll look at two interesting multinationals…

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British East India Co.

United Fruit Co.

British East India Company

• Charted in 1600 to compete for access to India

• 1612: Defeats Portuguese• 1670: King grants Co. power to mint

money, conduct foreign policy, command troops, enforce justice

• 1700-1850– Co. expands territorial influence– Parliament continuously exerts

sovereignty over Co. 31

Indian Mutiny of 1857• Sepoy Mercenaries object to

treatment, begin uprising• Civilian rebellion follows—“First Indian

War of Independence”• Rebellion put down; but Co. falls into

disfavor• Government of India Act of 1858– Transfers governance & property to Crown– End of “Company Rule” in India

• 1876: Queen Victoria becomes “Empress of India of the British Raj” 32

United Fruit Company• 1899: United Fruit created (in

Boston) to grow and trade tropical fruits from Latin America

• 1900-1930– UFC acquires companies and territory

throughout Latin America– UFC takes on quasi-governmental role in

“banana republics”

• By 1930, UFC is largest employer in Latin America

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The Banana Wars• US military frequently intervened on

behalf of MNE’s interests– Nicaragua occupied 1912-1933– Haiti occupied 1915-1934– Veracruz Mexico occupied in 1914

• 1928 Banana Massacre: Colombian government kills 1000s of striking workers

• United Fruit may have orchestrated coup d’éta in Honduras– CEO of United Fruit: “In Honduras, a mule

costs more than a member of parliament.” 34

These two cases show the close affinity between global politics

and the global economy.

But, arguably, they tell different stories:

The East India Company was more often subordinated to political

interests.

United Fruit, by contrast, dictated policy to both its home and host

countries.35




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In addition to entities organized to secure

economic ends (MNEs), international political

economy is also influenced by nonstate actors

dedicated to achieving non-economic goals…

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Keck and Sikkink (and others!) call these actors Transnational Advocacy

Networks (TANs).

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K&S argue that these “complex global networks carry and re-

frame ideas, insert them in policy debates, pressure for regime

formation, and enforce existing international norms and rules, at

the sametime that they try to influence particular domestic political

issues.” (199)

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But how are TANs able to achieve their objectives?

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The Strategies of TANs• Information– Gather and report reliable information Analogous to int’l regimes!

• Symbolism– Use events to focus attention, build

movement

• Leverage– Link issues– Use powerful friendly governments

• Accountability– Couple behavior with consequences

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The “information revolution” has dramatically increased and

perhaps transformed the influence of the media on markets.

Today, the media has the power to influence actors’ political and

market behavior like never before…

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The 2009 Iranian Election Apple’s Environmental Campaign

Grand Theft Auto

And, of course…

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Speaking of Apple…

http://www.thedailyshow.com/watch/thu-march-12-2009/jim-cramer-extended-interview-pt--2

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--> I’ve changed the exam deadline. You now get 1 extra day!

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Final Exam Timing

• Distributed: 5:30 PM, Friday, 9 December– http://ipe.jamesashleymorrison.com/

exam/

• Due: 10:00 PM, Wednesday, 14 December

• Tardiness– Exams marked late if received after

10:30 PM– Normal penalties apply!

• Upload to Moodle, as usual 49

Final Exam Format• Format: – Q1 (400 words): Select 1 of several

questions– Q2 (650 words): Everyone answers

same question– Q3 (650 words): Select 1 of several

questions

• See course site for old exams

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Final Exam Preparation

• Get all materials now: slides, notes, readings

• Audio from last year:– http://

ipe1011.jamesashleymorrison.com/podcast/

• Organize notes on readings• Review discussion questions and

notes from discussions

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Nonstate Actors: The Future of IPE(?) Lecture 23 – Tuesday, 6 December 2011 J A Morrison 1 British East India Co BP (formerly Anglo-Persian Oil Company)

Documents

multinational enterprises

accurate mnes

foreign firms

firms decisions

specific firms

independent firms

multinational enterprise

existence of mnes