Multinational Corporations - World war i and its aftermath

The outbreak of war in Europe in 1914 offered MNCs both danger and opportunity at the same time. On the one hand the belligerent powers had to be fed and equipped. Furthermore, the war opened to the United States the opportunity to move into markets in Latin America and the Far East hitherto dominated by Europe's two major industrial powers, the United Kingdom and Germany, each of which had to concentrate its attention on winning the war for its side. Furthermore, the opening of the Panama Canal in 1914 afforded new opportunities for increased trade between ports along the East and Gulf coasts of the United States and the west coast of South America and the Far East. In the Mississippi Valley it also kindled plans among the region's business and financial leaders to redirect some of the nation's largely east-west commercial traffic to such Gulf ports as New Orleans, Mobile, and Galveston.

The war turned the United States from a debtor to a creditor nation. Despite tremendous losses as a result of Germany's on-and-off submarine campaign, the United States supplied Britain and its allies with the goods and credits necessary to sustain the war effort before America's own entry into the war in 1917. The United States was even able to make substantial gains in Latin American markets at the expense of the European belligerents, more so, however, in mining and ore processing than in manufacturing.

After the war Washington passed two measures designed to strengthen the nation's position in foreign trade, especially in Latin America. The first of these was the Webb-Pomerene Act (1918), which exempted business combinations from the provisions of the antitrust laws. Congress approved the measure as a way to help small businessmen enter the foreign field by being allowed to form joint selling agencies engaged in business abroad. But the measure had also been pushed by larger business concerns interested in organizing more complex vertical combinations (that is, combinations performing more than one function in the chain of production, extending from the acquisition of raw materials through the manufacturing process and ending with the distribution and sale of the finished product). Although fewer than two hundred associations ever registered under the act, a number of supporters of the measure, including the Department of Commerce, continued to seek ways to strengthen it.

The second measure approved by Congress after the war was the Edge Act (1919), which provided for federal incorporation of long-term investment and short-term banking subsidiaries doing business abroad. Like the Webb-Pomerene Act, the measure was intended to encourage small banking firms to compete successfully against more established British firms and a few American financial institutions like the National City Bank, which had established foreign branches throughout Latin America, more in order to attract accounts at home than to make profits abroad. The Edge Act was also part of the government's program for meeting Europe's capital and banking needs and President Woodrow Wilson's larger program for economic expansion.

Also like the Webb-Pomerene Act, the Edge Act never lived up to its promise. In the two years after its passage only two corporations were established under its provisions. As late as 1956 there were only three Edge corporations. The simple fact was that, despite government encouragement to foreign investment and a brief flurry of activity in the two years immediately following the war's end, too much uncertainty about world economic conditions existed to sustain this level of effort.