Multinational Corporations - Postwar investment: 1945–1955

Despite wartime criticism of the foreign operations of some American firms, including their ties with Nazi firms before the war, and notwithstanding the economic uncertainties that were bound to accompany the war's end, a few of the largest U.S. corporations, often with considerable assets seized or destroyed during the war, began to plan for the postwar period. Among these was General Motors. As early as 1942 the company had set up a postwar planning policy group to estimate the likely shape of the world after the war and to make recommendations on GM's postwar policies abroad.

In 1943 the policy group reported the likelihood that relations between the Western powers and the Soviet Union would deteriorate after the war. It also concluded that, except for Australia, General Motors should not buy plants and factories to make cars in any country that had not had facilities before the conflict. At the same time, though, it stated that after the war the United States would be in a stronger state politically and economically than it had been after World War I and that overseas operations would flourish in much of the world. The bottom line for GM, therefore, was to proceed with caution once the conflict ended but to stick to the policy it had enunciated in the 1920s—seeking out markets wherever they were available and building whatever facilities were needed to improve GM's market share.

Other MNCs, however, adopted more cautious positions. Significant investments were made in Canada and Latin America in the mining of iron, uranium, and other minerals that had been scarce during the war, but of all the major industries, only the oil industry, worried as it had been after World War I about a postwar oil shortage, invested heavily overseas after World War II. Between 1946 and 1954 the value of these investments grew from $1.4 billion to $5.27 billion.

Even then, the type of oil investments before and after the war differed significantly. Previously they had been largely market oriented, their purpose being mainly to eliminate market competition. After the war Exxon, BP, Shell, and Mobil shifted their emphasis from market control to control of supply. The companies found that the infrastructure called for by the Red Line and As Is agreements of 1928, with their elaborate system of local and national cartels and quotas, was inefficient and difficult to maintain; moreover, the Red Line agreement established geographical limits to oil exploration in the Middle East. Much more effective, they concluded, would be control of a few crucial petroleum sources in the Mideast.

The opening of new fields by Gulf, Texaco, and Socal also raised the possibility that the As Is structure might be undermined. Conversely, control of these fields would guarantee the dominance of all the majors for years to come. Therefore, while maintaining their hold over marketing, the companies became much more interested in the supply end of petroleum. Exxon and Mobil withdrew from the Iraq Petroleum Corporation, which would have prohibited them from investing in the Arabian Peninsula without their other IPC partners, and instead bought a 40 percent share of Aramco. Socal and Texaco were glad to have them as partners both for their infusion of capital in what was a still risky venture and for their vast marketing capacity. The multinational oil companies also established a system of longterm supply agreements and expanded the number of interlocking, jointly owned production companies. In effect, the era of formal oil cartels gave way in the postwar era to a system of longterm supply agreements and an expansion in the number of interlocking, jointly owned production companies.

For other industries, however, pent-up consumer demand at home, the scarcity of similar demand in war-ravaged Europe and elsewhere, the lack of convertible foreign currencies, the risks attendant upon overseas investments as illustrated by the experiences of two world wars, restrictions on remittances, and the fact that a new generation of chief executive officers with less of an entrepreneurial spirit and more of a concern with stability and predictability than many of their predecessors, all served to limit foreign investment in the years immediately after World War II. Although investments in manufacturing, for example, grew from $2.4 billion in 1946 to $5.71 billion in 1954, most of this increase was in the reinvestment of profits of existing corporations, either because host governments blocked repatriation of scarce currencies or for tax and other reasons not related directly to growing consumer demand. Investments in other industries such as public utilities ($1.3 billion in 1946 and $1.54 billion in 1954) scarcely grew at all.

In at least one respect, government policy discouraged overseas investment after the war, particularly in manufacturing. As never before, foreign economic policy became tied to foreign policy. As the Cold War hardened in the ten years following the war, Washington imposed severe restrictions on trade and investment within the communist bloc of nations. The Export Control Acts of 1948 and 1949, for example, placed licensing restrictions on trade and technical assistance deemed harmful to national security. During the Korean War (1950–1953) even tighter controls, extending to nonstrategic as well as strategic goods, were imposed on the People's Republic of China (Communist China).

It would be absurd to suggest that, absent these controls, American companies would have made substantial investments within the communist bloc. Nevertheless, the economic boycott of a vast region of the world contributed to the global economic uncertainty that normally inhibits direct foreign investment. According to the British, who were anxious to relax controls on the potentially rich markets of China, it also delayed its own economic recovery, another inhibitor to foreign investors.

That said, in the decade following the war the administrations of both Harry Truman and Dwight Eisenhower looked to the private sector to assist in the recovery of western Europe, both through increased trade and direct foreign investments. In fact, the $13 billion Marshall Plan, which became the engine of European recovery between 1948 and 1952, was predicated on a close working relationship between the public and private sectors. Similarly, Eisenhower intended to bring about world economic recovery through liberalized world commerce and private investment abroad rather than through foreign aid. Over the course of his two administrations (1953–1961), the president modified his policy of "trade not aid" to one of "trade and aid" and changed his focus from western Europe to the Third World, which he felt was most threatened by communist expansion. In particular he was concerned by what he termed a "Soviet economic offensive" in the Middle East, that is, Soviet loans and economic assistance to such countries as Egypt and Syria. But even then he intended that international commerce and direct foreign investments would play a major role in achieving global economic growth and prosperity.