By the middle of the 1950s the wave of antitrust suits by the Justice Department against major industries with direct foreign investment had about run its course, although not all cases, such as the oil cartel case, had yet been settled. Furthermore, western Europe had largely recovered from the worst ravages of the war and in 1957 would form what became known as the Common Market. Great Britain, which would not be invited to join the Common Market, was moving toward full convertibility of the British pound. The "dollar gap," which had worsened because of the Korean War and European rearmament, was turning into a "dollar surplus" that would cause its own problems in the 1960s. Thanks largely to American spending in Japan as a result of the conflict in Korea, that country had also begun its long course toward becoming a major industrial power, one that twenty-five years later would make it the envy of much of the rest of the industrial world, including the United States. Following the death of Soviet leader Joseph Stalin in 1953 and the end of the Korean War that same year, there was even a short lull in the Cold War, as Moscow's new leader, Nikita Khrushchev, made new peaceful overtures to the United States that would lead to the Geneva Conference of 1957 between Khrushchev and President Eisenhower and the so-called "spirit of Geneva."
By the middle of the 1950s, in other words, economic growth had reached a point, and the world political situation had stabilized to such a degree, that many of the largest U.S. corporations were looking again to invest abroad. The country's foreign aid programs, which increasingly tied foreign loans and economic assistance to the procurement of American goods and services, also helped stimulate direct foreign investment.
The result was an expansion of MNCs in the middle of the 1950s that has continued largely unabated. Between 1950 and 1965 alone, the leading U.S. corporations increased their manufacturing subsidiaries in Europe nearly fourfold. In Australia, General Motors made significant investments. Even during the war GM had decided to manufacture and sell cars in Australia, where it had earlier purchased plants and established distributorships for its automobiles. In 1948 it still only manufactured and sold 112 vehicles. By 1950 production was up, but only to 20,000 cars. By 1962, however, GM was manufacturing 133,000 automobiles with expansion to a capacity of 175,000 already under way.
As the industrialized world recovered from World War II and as the United States built plants and factories and other facilities abroad, the nation's balance of payments turned into a deficit and gold reserves declined sharply. When he took office President John F. Kennedy responded by curtailing government spending abroad and encouraging American exports. President Lyndon Johnson established a program of voluntary— later made mandatory—restraints on direct foreign investment. Nevertheless the deficit continued to grow, and instead of being hoarded as they had been during the war, dollars in Europe began to be sold in what became known as the Eurodollar market. The selling of American dollars for other currencies and the inability of the United States to regulate the Eurodollar market led in 1971 to President Richard Nixon's decision to float the currency against other world currencies rather than to keep the dollar pegged to a fixed gold price as it had done since the Bretton Woods system of 1944.
While these measures had some immediate impact, in the long term they failed to prevent overseas investments by American firms. There were too many ways, for example, for these corporations to get around voluntary or mandatory controls, such as by downstreaming capital investments to foreign subsidiaries and by borrowing on the Eurodollar market. Furthermore, the opportunities abroad, the uncertain future of the dollar, the attraction of cheap labor in Third World countries, the growing importance of foreign oil and other raw materials, and the perceived need to be close to foreign consumers all encouraged the migration of American capital overseas.
Interestingly, while Washington was trying to limit direct investments in the world's largest industrial nations, it actually sought to promote such investments in the Third World, which through the Vietnam War of the 1960s and early 1970s was viewed as a battleground in the Cold War between the United States and the Soviet Union. In 1969 Congress approved the creation of the Overseas Private Investment Corporation, the mission of which was to encourage private investment in less developed countries. To help build the infrastructure needed to attract private investors, the World Bank increased the number of soft loans (loans with below-market interest rates and generous repayment schedules) it made to less developed countries. Even the IMF got into the soft-loan business despite the fact that this had not been part of its original mission.
As American-owned MNCs continued to expand abroad they met increased foreign resistance and growing competition from foreign rivals. The 1970s were a particularly troublesome decade for many of these enterprises, not so much in terms of competition as in overseas opposition to what many foreign nationals regarded as a form of rapacious American imperialism. Still operating in the poisonous world and domestic climate that was an outgrowth of twenty-five years of Cold War rhetoric and a highly unpopular war in Vietnam, MNCs were maligned as part of an American military-industrial establishment seeking world economic and political hegemony. Nor were these views limited to a radical left-wing fringe. Many respected national and international political officials, political theorists, international business leaders, and academics joined in the chorus against the MNCs. A spate of books appeared in the 1970s highlighting the world power of the multinational corporations and arguing that they had become states unto themselves beyond the control of any single nation.
A particular target, but certainly not the only one, of the critics was the oil industry. Drastic increases in energy prices resulted from huge consumer demand in the United States and the decision of the Organization of Petroleum Exporting Countries (OPEC), which had been formed in 1960, to use oil as a political weapon following renewed war between the Arab states and Israel in 1973. This led to a depletion of oil supplies, and prices for gasoline more than doubled in the United States.
Even respected authorities on the oil industry portrayed the multinational oil firms as a sovereign entity with its own form of government and with sources of revenue and influence that allowed it to dictate pretty much the terms and conditions under which oil would be produced and sold in the world. Although this was an oversimplified version of the power of the oil companies to control the production and price of oil, it resonated with the American public. Secret inter-industry correspondence and memoranda, much of it highly damaging and much of it revealed for the first time in 1974 by the Senate Subcommittee on Multinational Corporations, provided the basis for many of the charges made against the oil industry.
None of the charges made in the 1970s against the oil industry or, more generally, against multinational businesses prevented their further growth. In 1978 Congress passed legislation effectively deregulating most domestic commercial aviation, a process that had already been started by Alfred Kahn, head of the Civil Aeronautics Board. In the 1980s deregulation was expanded to include international aviation. By 1997 the United States had concluded agreements with twenty-four nations, thereby allowing U.S.-owned airlines to enter into operational and strategic alliances with foreign-owned airlines and in some cases even to partially own them. Deregulation of the telecommunications industry, concluding with the 1996 General Agreement on Trade in Services, allowed American Telephone and Telegraph (AT&T) and other American corporations in the telecommunications industry to enter into similar arrangements with their foreign counterparts. Between 1960 and 1965 assets of U.S. banks abroad grew from $3.5 billion to $458 billion. Fast-food chains and retailers like McDonald's, Kentucky Fried Chicken, the Gap, and Nike opened thousands of outlets overseas. So did firms in such industries as chemicals and heavy machinery. As a result, in the 1990s sales abroad of U.S. subsidiaries were, on average, five times larger than all of U.S. exports.
Nor were direct foreign investments limited to American-headquartered firms as they had been for most of the postwar period prior to 1980. Businesses in South Korea, Taiwan, and most of western Europe competed against the United States for foreign markets and, indeed, for the U.S. market as well. As a result, between 1980 and 1995 the total amount of direct foreign investment grew more than six times to approximately $3.2 trillion. Between 1975 and 1992 the number of persons employed by multinational firms also increased from about 40 million to 73 million. In 1977 U.S.-based firms accounted for about 69 percent of the U.S. gross manufacturing output; by 1994 that figure had dropped to 57.6 percent. During these same years foreign-owned subsidiaries in the United States increased their market share of U.S. manufacturing from 3.4 percent to 13.2 percent. As of 1996 western Europe actually accounted for $1.59 trillion (about 50 percent) of the world's foreign direct investment, while North America accounted for $905 billion (about 28 percent). Of the remainder, other developed countries, most notably Japan, accounted for about $402 billion (12.7 percent), while the rest of the world accounted for just $286 billion (or approximately 9 percent).