Politics of Corporate Investment, Trade and Global Governance

Politics of Corporate Investment, Trade and Global Governance

This a Slideshare version of the slides provided by J. Harrod to the University of Amsterdam November 2012.

What is Global Political Economy?

• course is about power - therefore realist and critical

global political economy includes all sources of global power -the corporation -non-governmental organisations – civic, religious, social, political

• global political economy as the study of: …….the material the interface between nations, peoples, and societies

or…. the material underpinnings of international relations – conflict war and peace or … the joining of power and greed or … who gets what, when, how (at the global level) (H. Lasswell)

The material aspects permits the three key questions of hegemony and power:

Who benefits?why now?what’s missing

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The Structure of the Global Political Economy 2009 (1)

The Biggest Economies by GDP Energy Dependency: GDP Per Head Percentage of Energy Imported

USA 14.119 billion 29 45,990

Japan 5.069 82 39,740

China 4.985 7 4,986

Germany 3.330 59 40,670

Note

India 1.337 24 1,190

Netherlands .792 24 47,920

Italy 2,113 85 35,080

(1) Source: Economist Pocket World in Figures 2012

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3) Models of Political Economy

The transactions in global political economy are between often highly differentiated societies which adhere to designated models economy

At its most simple a model of a political economy is the specific manner in which production and distribution is organised within any one society.

But a model may be influence by culture, historic structures, geography and all the variables which make distinctive societies.

Currently discussion has been centered on :-

the Anglo-American Model, the European Model, the Asian Development Model And varieties as the Polder model (Netherlands)the Nordic Model (Sweden),

the core material aspects of a model can be considered as production, the manner, form and nature of it, and work the manner of it and the conditions of which it is undertaken

Dimensions of a Political Economy 1/4

The Four Great Transactions

What links these disparate entities?

the primordial linkage between them are the

four great transactions between societies

money, goods, people, and ideas

the linkage between the transactions and societies is one of the principal non-state actors in international relations - the multinational corporation

* international politics is affected or determined by corporate investment and trade

* the agencies of global governance, in the broadest sense, control or enhance the political role of mnc

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Session 2.

Corporate Foreign Direct Investment (FDI)

Session 2: Corporate Foreign Investment (FDI)

8 slides

1. Demystifying capital – capital easy to understand using a simple “workers in field” model

2. Preliminary Overview of Theories of Corporate FDI

3. Who Owns it? External Stocks of Multinational Corporate Investment 1985- 2011

4. Where Does it Go? Internal Stocks of Multinational Corporate Investment 2011

5 Example: USA-Headquartered Corporations Stock of Investment in the World - 2011 by country

6 Number of Global Corporations By Country and Economic Size

7 Investment and Politics – The Risk Connection

8 Conflict and Return to Capital - Oil in the Middle East

STABLE10 persons working a field

Produces

2 for reproduction (decline in women’s productivity around childbirth + provision for children during their unproductive years)

8 for consumption

Produces

2 for reproduction

7 for consumption Restriction of consumption for capital = making fork

1 for capital – making fork

Produces

2 for reproduction

8 for consumption (same as stable stage)

+ 2 surplus

INNOVATION10 persons working field andcreating capital - a fork

GROWTH10 persons + capital

DEMYSTIFYING CAPITAL J. Harrod

Save Finance?

Consume But by whom?

Invest but how?

Marx – capitalists use to produce more and acquire more for themselves

B&N No! – not only to produce but to make conditions for future returns

Neo-Classical – market use to produce more and distribute

Preliminary Overview Theories of Corporate FDI • Neo-classical – investment of profits and investment climate• Marxist version of neo-classical – vent for surplus • Institutionalist – (Hobson, Schumpeter) monopolies and oligopolies create

expansionist institutions• Imperialist – (Nkrumah) increasing economic and political power• Hegemonic – enhancing model imitation • Global realism – (Harrod, Strange) corporate power-seeking domestic and global

by sector and general • Capital as power – (Bichler and Nitzan) maximizing returns through power over

future conditions

Corporate FDI

portfolio and direct (difference = control or power)

stock = book value of investment held in a country in any one year

WHO OWNS IT?EXTERNAL STOCKS OF MULTINATIONAL CORPORATION INVESTMENTSStocks of Foreign Direct Investment 1985 and 2011Stocks and Country % of Total

1985 Millions $

% of Total

2011 Millions $

% of Total

World 707,786 210,168,489

USA 251,034 35 4,499,962 21

Japan 43,970 6 962 790 4.5

Germany 59,909 8 1,441 611 6.8

UK 100,313 14 1,245 038 5.8

Netherlands 60,731 8.5 943,068 4.4

South Korea 526 0.07 159,339 0.7

China 15 .002 365,981 1.7

Malaysia 414 0.06 106,207 0.5

Brazil 5,826 0.7 202,586 0.9

Poland (1990) 109 na 68.061 0.32

Nigeria 8 0.001 5,865 0.03

Developed Economies

663,456 97 17,055,964 80

Source: UNCTAD World Investment Report 2012 Annex Table 1.2 pp. 173-176

WHERE DOES IT GO? INTERNAL STOCKS OF MULTINATIONAL CORPORATION INVESTMENTS 2011

Developed economies 13,055,903 63%

Developing Economies 3,705,410 32%

Selected Countries GDP

Japan 225,782 5,869

Germany 713,706 3,557

Ireland 243,484 217

Malaysia 114,585 287

Sources:UNCTAD World Investment Report 2012 Annex Table 1.2 pp 173-176 GDP: CIA World Fact Book 21012 (estimations 2011 official exchange rate)

Source: U.S. Bureau of Economic Analysis: K. B. Barefoot and M. Ibarra-Caton

“Direct Investment Position for 2009: Country and Industry Detail” July 2012, p19

Example: USA-Headquartered Corporations Stock of Investment in the World - 2011 by country

Corporation per US$ 100b GDP

Number Corporations

Switzerland 2.3 15

United Kingdom 1.5 38

Canada 1.4 25

United States 1.1 173

Netherlands .9 8

Australia .9 14

France .8 23

Japan .6 36

Germany .5 19

Italy .3 8

BRICs

China .08 10

India .7 12

Brazil .05 12

Russia .5 10

Number of Global Corporations By Country and Economic SizeTop Ten Headquarter States and BRICs

Notice 1) Small countries with large corporations puts up size per capita. 2) Low position of Germany and high position of UK .

Sources: Corporations Financial Times 500 (FT500) global corporations 2012 by market capitalisation GDP: CIA World Fact book 21012 (estimations 2011 official exchange rate except China = PPP)

POLITICAL RISK FOR INVESTMENT (sample from internet (2006)Country Risk Guide (ICRG) The PRS Group, New Yorkcontains data from 1984 to the present.

A = Government Stability G= Military in PoliticsB= Socioeconomic Conditions H= Religious TensionsC= Investment profile I= Law and OrderD= Internal Conflict J= Ethnic TensionsE= External Conflict K= Democratic AccountabilityF= Corruption L= Bureaucratic Quality

CountryRnk A B C D E F G H I J K L

Max. score

12 12 12 12 12 6 6 6 6 6 6 6

Norway 1 6.5 10 11.5 11.5 11.5 5.0 6.0 5.5 6.0 4.5 6.0 4.0

Netherlands

13 8.5 10 12 10 12 5 6 2.5 6 4.5 6.0 4.0

USA 10 10 8 11.5 10.5 8.0 5 4 5.5 5 5 6 4

Mexico 65 6.5 8 11.5 10 11 2 4.5 5.5 3 3 6 3

Taiwan 19 7.5 9 11.5 10 8.5 3 5 5 5 3 5 2.5

Notice: political factors are given – but how far are they created?

Investment and Politics – The Risk Connection

Conflict and Return to Capital - Oil in the Middle East According to this chart and authors every time the oil corporations returns go down there is a conflict in the Middle East which makes the returns go up.

Source: Bichler, S. and Nitzan. J. 2004 “ Dominant Capital and the New Wars.” Journal of World-Systems Research 10(2) p.311

Session 3. The Politics of Trade and Corporate Traders

The Politics of Trade

• In global political economy trade is not seen as a politically neutral economic transaction

There are winners and losers in every trading transaction- the government and state in terms of security, alliances

hegemony - the groups, corporations involved in the transaction

• multinational corporations control directly or indirectly 75% of global trade

• trade as an extensions of headquarter state power- trade dependency – indebtedness

As a determinant of social/political structure and processes

- which income group receives main benefit? - which income group consumes goods ?

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Traditional Trade Theory: Comparative Cost

•. Ricardo and Comparative Cost - static - dynamic problem - Ricardo writing 1817 of UK - Portugal trade - but Treaty Methuen 1703 fixed trade of wine for textiles - 1790 slave-produced cotton - 1810 UK industrial export cotton cloth

• political assumptions of comparative cost

- labour market - determined by supply and demand for labour

- product market/industrial interest - rational choice of production

- military/international relations not involved

• power model of trade pattern development

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Propensity to produce

Propensity to consume

Propensity toconsume

Propensity to produce

Dominant Power over Both Political Economies

Political Economy A Political Economy B

A Power Model of Trade Pattern Creation 10/5

The Ideological Power of the “Free” Trade Argument

- “free trade” promotes, open society and exchange of ideas

- protectionism means authoritarian rule - “free trade” and internationalism

Director-General of World Trade Organisation, Pascal Lamy, in a lecture at the University of California, Berkeley, 29 October 2008 said "I would only say that restoring citizens' confidence in trade requires governments to ensure that sound domestic policies are in place. It is reassuring, however, to see that both Presidential candidates have indicated that concluding the Doha Round is an important economic priority and that both reject protectionist solutions to US economic difficulties.“

http://www.wto.org/english/news_e/sppl_e/sppl105_e.htm

So… he admitted citizens were not confident of the benefits of free trade . Why? Because free trade is not free and under current corporate concentration simply transfers wealth from one people to another as in the power model.

Power model of international trade

• Thus combining created production with created demand • consider: colonial trade was largely in mildly addictive drugs , that is to say consumption would tend to continue whatever the price

- tea, coffee, sugar, chocolate, opium – failed

• How Free is “Free” Trade today? Examples

• Sector concentration by multinational corporation

- commodity trade – for example banana’s and oligopoly (see slide)

• subsidized and promoted – see for example the increase in Vietnams coffee production after support from international agencies and other subsidies (see slide)

• Corporate weight- Wal-Mart and China Trade

- 8th largest “trading entity” greater than Russia

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World market shares of banana companies 1966 1972 1980 1992 1995 1997 1999 2007

Chiquita 34 30.5 28.7 34 >25 24-25 25 25

Dole 12.3 18 21.2 20 22-23 25-26 25 26

Del Monte 16 1.1 5.5 15.4 15 15-16 16 15

Top 3 47.4 54 65.3 69 62-64 65-67 65 66

Fyfes 2-3 7-8 6-7 7-8 8

Noboa 12 13 11 12

Top 5 70 80 82 86 84 86

Source: The World Banana Economy, 1985-2002, FAO (data from 1966 to 1999), Banana link (for 2007 data)

The whole process, Sir Leon Brittian, then EU Trade Commissioner, told BBC2’ s the Money Programme. “Is being driven by politics in the United States. It is driven by the fact that Chiquita is a company that gives money to the political parties, that the president of Chiquita is very close to Senator Trent Lott.” (1999) http://www.newsdominica.com/articles/articles.cfm?Id=1884

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Coffee Exporters 1990-2000With World Bank help Vietnam went from 2% to 10% of total world exports in 10 years

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• “Wal-Mart is the largest single U.S. importer of Chinese goods,

accounting for 15 percent of our total imports of Chinese consumer products. The numbers are huge: over $30 billion in annual imports from China, representing about 80% of the company’s total imports. It would almost be accurate to say that China doesn’t have a trade surplus with the United States; it has one with Wal-Mart.”

http://www.emergingmarketsoutlook.com/?p

•

•the state-corporation problem in multilateral trade agreements

Trade Dependency 2010

1 (selected countries – calculated from US$ values)

% Exports to GDP (2004)

USA 8.76

Japan 14.1%

Germany 38%

France 20%

UK 18%

Netherlands 63%

Italy 21%

Ireland 57%

India 15%

China 26%

Venezuela 17% Kenya 16% Hungary 72%

Main Export Destination

Canada 19.4%

USA 19.4%

France 9.5%

Germany 15%

USA 10.4 Germany 10.1

Germany 30% Germany 13 France 11%

USA 21%, UK 15.3%

Un. Arb. Emir. 11.6%

USA 18% USA 40.2%

Uganda 10%

Germany 25%

Source: Economist Pocket World in Figures 2013

Main Import Imported EnergyOrigin as % Total

China 20% 23%

China 22.4.4% 80%

Netherlands 13.4% 60%

Germany 19% 49%

Germany 12.6% 19%

Germany 18% 19%

Germany 15.9% 84%

UK 37.4% 89%

China 11.7% 26%

Japan 12.6% 8%

USA 28% -204 %

India 14.7% 17%

Germany 24% 56%

Country Consumption per head(kg oil equivalent)

USA 7.0

Japan 3.8

Germany 3.9

China 1.7

UK 3.2

France 4.0

Italy 2.7

Brazil 2.3

India 0,5

Netherlands

4.7

Kenya 0.5

Hungary 2.5

Chile 1.7

Source: Economist Pocket World in Figures 2013

Resource Dependency: Energy (2010)

Towards Managed Trade

The reciprocity principle in multilateral trade agreements WTO - TRIPS and TRIMS - the elephant and mice problem

Bilateral Free Trade Agreements - again elephants and mice

Thus combination of:-

multinational direct and indirect control sector concentration, international financial institutions assistance/demands bilateral free trade agreements regional arrangements

results in a “managed trade”

reality is now power bargaining in which state and corporation use the free trade ideology

Law, Trade and Politics: Vocabulary and Relationships

Source: J.Harrod, Lectures, University Amsterdam, 2009

Session 4: The Modern Corporation

The Corporation in a Political Framework

• In this session the subject is “the corporation” rather than a multinational corporation

• The politics surrounding the corporation must deal with three entry point – power of the corporation in relation to headquarter state, power of the corporation in relation to host country in foreign corporate investment and power over populations (media, values, institutional patterns etc)

• different size and distribution of large corporations

absolute numbers consult previous data slides and/or FT Global 500itzerland

• corporate size – for political scientists revenue/sales/turnover the key indicator for power

Corporation Turnover Country Budget

Shell 454 Netherlands 420

Wal-mart 446 India 376

Merk 48 Hungary 19

Japan Tobacco

29 Malawi 12

Boeing 68 Poland 100

Lukoil 101 Russia 308

Pepsi 66 Mexico 672

Deutsche Telekom

75 Germany 1,588

Danone 25 France 1,535

Corporations Turnover compared with Government Budget Billions US $

Sources: Turnover = FT Global 500 2012 (Turnover figures 2011): Government expenditure: CIA World Factbook – compiled in Wikipedia “Government Budget by Country” figures from 2011

The Modern Corporation

The modern corporation is a large productive organisation usually holding a dominant position in the sector in which it operates

Transformation by Concentration

• concentration in the different sectors has transformed the corporation in the last 30 years

- concentration accompanied by market-fundamentalist ideology

-sustained perception of corporate as a creature of the market and competitively sanctioned

• Levels of concentration

•From 90% control of global “market” e.g. Microsoft and disc-operating system to - “only” 20% for Michelin in car tires

•Monopoly, duopoly ,oligopoly and monospony – the 4-40 concentration ration

•Speight “oligopoly… better analyzed in terms of military strategy than in profit maximization and the marginal principle” (1960)

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• concentration almost alone has transformed the corporation from an enterprise to an organisation

• Impact of this transformation

1. Classical theories of capitalism become outmoded • - Smith and maintenance of competition • - Marx and the organic concentration of capital

2. Competition v. market share maintenance and acquisition• -oligopoly price theory and market share maintenance

3. from profit-making to rent-seeking• - crucial to understand the political actions of the multinational• - economists use rent in relation to manipulation of prices in monopoly• - political economist emphasizes seeking changes in political legal

environment • - changing the investment climate

From profit-making to rent-seeking

if market-based theories of corporate behaviour insufficient what are the Alternatives?

A) capital theories- classical theories

rational location and profit maximization - neo-capitalist theories modes of accumulation labour control focus, - monopoly capitalism – still “vent for surplus”

- new capital theories Bichler&Nitzen, financialisation

Theories of Corporate Behaviour

B) organization theories- core of management literature

Weberian bureaucracy in private sector? Veblen and managerial capitalism

-organizational systemic Michel's iron law and goal displacement

- corporate governance models Anglo-American, European Japan, China

- stakeholders and distributional battles employees, shareholders, management

The corporation as an organisation: corporate social responsibility v “the business of business is business”

Theories of Corporate Behaviour (cont.)

Session 5: Multinational Corporations

Intro: Multinational Global Power

• now dealing with multinational corporations rather than corporation although some aspects of power are not different

• multinational corporation versus transnational corporationthere is more to a nomenclature

• transnational corporations = border dissolving• multinational corporations = border exploiting

• differences between corporations - relative size to each other relative to headquarter state - sector concentration

Rank CorporationRevenue$ Billion

85 Nokia 74,224

86 Marathon Oill 73,504

87 Hyundai Motor 72,542

88 Costo Wholesale 72,483

89 Rwe 71,851

90 Home Depot 71,288

91 AmerisourceBergen 70,594

92Industrial & Comercial Bank of China

70,568

93Archer Daniels Midland

69,816

95 Munich re Group 67,515

94 Vodafone 69,138

96 Nippon Life Insurance 66,621

97 Toshiba 66,239

98 Robert Bosch 66,052

99China Mobile Communication

65,015

100 Target 64,948

Source: Fortune 500 2009 http://www.business.com; Budgets CIA World Factbook 2009

Fortune 100 Top and Bottom 15 by Revenue

Rank Corporation Revenue$ billion

1 Royal Durch Shell 458,361

2 Exxon Mobile 442,851

3 Wal-Mart Stores 405,607

4 BP 367,053

6 Total 234,674

7 Conoco Phillips 230,764

8 ING Group 226,577

9 Sinopec 207,814

10 Toyota Motor 204,352

12 General Electric 183,207

13China National Petroleum

181,123

14 Volkswagen 166,579

15 State-Grid 164,136

Compare Government BudgetsNetherlands $372b; Colombia $72b; Indonesia $97b; Kenya $9b:

Selected Corporations Sales and Employment

Corporation Sales/Revenue $ billions

Employees

Pharmaceuticals

Bayer 48,149 108.000

Hoffman-La Roche

43, 970 78,000

Novartis 41,460 98,200

Food

McDonalds 22,140 400.000

Tires/Rubber

Michelin 16,540 117,000

Bridgestone 29,700 133,000

Goodyear 19,600 70,000

Sources: Fortune 500: Wikipedia Corporation Profiles,2009

Top 100 Multinational’s Foreign Sales by Headquarter Country (2007)

HeadquarterCountry

No. MNC's inTop 100

GDP$ billions

Foreign Sales$ Billions

% Foreign Sales to GDP

Netherlands 6 776 241 31

United Kingdom 16 2,772 678 24

Switzerland 4 424 186 22

Germany 12 3,317 642 19

Japan 10 4,384 507 12

USA 20 13,751 1,212 9

Italy 2 2,102 136 2

MNC data = The World's Top 100 non-financial TNCs, Unctad: World Investment Report 2009, p. 225GDP = Economist: Pocket World in Figures 2010 Note: headquarters Netherlands/UK divided 50/50%; headquarters Australia/UK divided 30/70%; headquarters USA/Germany divided 50/50%:

Multinational Corporate Power – Domestic Level

• relationship to state crucial for both headquarter global power

• the corporation as an institution of the 21 century (recap) the institutions of in state/society - the church – material power via spiritual service - the state – taxation and enforcement - the modern corporation – rent and manipulation • rationalities, ideologies and transformation

formal relationship with state/government

- private entity in “market” - production - civil society – state administration - importance of civil society as corporation free political space?

(cont) Power relationship with state/government

• how far does corporation, influence, control or dominate governments?

- conclusive evidence difficult - by corporate resistance to investigation

- the political divide – anti-corporate v pro-business

• gradual merger of corporate and government elites - ex-corporate leadership examples: USA, Mexico, Italy, etc - increased interchange between corporate and government personnel • corporation has dramatically increased power over state policy starting in the last quarter of 20th century

A) l capital theories

- classical theories rational location and profit maximization

- theories of imperialism Hobson – Marxist-Leninist

- new capital theories dominant capital and – Bichler&Nitzen

B) technological and resource theories - product cycle theory (Vernon) shift from labour to capital intensive

- geo-political-materialist – resource seeking - resource dependency and resource curse

Theories of Foreign Involvements, Power and Consequences

Definition: Any model, institution or arrangement or an order, command, policy derived from one circumstance may not function as expected or desired in another

• two types

(1) – imposition of a model

it has been noticed historically and currently that any hegemon, be it state, corporation, non-governmental organisation, or church, acting globally tends to attempt to replicate itself

2) - dysfunctional/inappropriate demands

the insistence that procedures and practices should follow the pattern of distant the power-holders produces dysfunction and stress

• Contemporary rise of the corporation, regionalism, global economic governance and regimes change raises same problems

Imperial Dysfunction

“…: he (the Prince of Orange) introduced into England the system of Dutch finance. The principle of that system was to mortgage industry in order to protect property; abstractly nothing can be conceded more unjust: its practice in England has been equally injurious. In Holland, with a small population engaged in the same pursuits, in fact, a nation of bankers, the system was adapted to the circumstance which had created it ... All shared in the present spoil and therefore could endure the future burthen but applied to a country in which the circumstances were entirely different .... it has ended in the degradation of a fettered and burthened multitude.”

B. Disraeli Sybil ,or: The Two Nations (1845) (Penguin 1954) p.30

Imperial Dysfunction example 1:

Disraeli and Dutch Financial System 1689

"Opel's organisational structure is very dysfunctional. It loosely combines a design and' developmnent centre, a gearbox production, a car assembly operation and a sales unit," says Christoph Sturmer, analyst at IRS Global Insight.

In the past, local managers often did not have much to say when it came to product decisions. One example is GM's decision a few years ago to sell in Europe the Antara - a sports utility vehicle built at the GM Daewoo joint venture in South Korea.

Opel managers look back with anger at this decision, as they favoured reviving the German carmaker's Frontera, a sports utility vehicle that was sold until 2004. "The Antara does not fit the regional needs in Europe and was not accepted by many Frontera customers. Its driving quality bears too much resemblance to a pure off-road vehicle," one manager said. Opel's financing structure is another matter. Before March this year, the various European units did not even have their own cash management. "Every country unit was always on the verge of liquidation, as they depended on getting the cash needed to operate from Detroit each morning," Mr Sturmer says…

Imperial Dysfunction: Example 2: from the Financial Times 14.11.2009 p.12

News Analysis, OPEL FIGHTS TO KEEP SEAT OF POWER

Despite GM's vows,I fears remain that authority will stay in Detroit, writes Daniel Schafer

Multinational Corporate Power in Global Political Economy

Direct exercise of Power

• corporation to country via direct investment

• corporation in unilateral, bilateral or triangular diplomacy • corporation in a regime

a regime is a global political space in which a number of globally operating organizations and persons interact and produce practices, rules, norms, and information

a sector regime involves corporations, sector associations, non-governmental organisation (ngo’s) , international governmental organisations (ingo’s), governments and governmental agencies, organised crime

- dominant corporations in sector usually most powerful

an issue regime typically involves corporations, advocacy groups, ingo’s, ngo’s, governments and governmental agencies, inter-state organisations, powerful individuals

(Cont.) Indirect Exercise of Power:

• through globally operating organisations

International Employers Association International Chamber of Commerce Round Table of Industrialists “Clubs” and “meetings” Sector and Trade Organisations

• in alliance with headquarter state or subsidiary state

- corporate interest and national interest (FDI)

- state-corporate alliance for strategic issues – resources

- state-corporate alliance for global state expenditure defense development reconstruction destruction reconstruction cycle