Multinational Corporations

Burton I. Kaufman

The influence of multinational corporations on U.S. foreign policy is complex, but, generally speaking, they have not played a major role in the formulation and execution of foreign policy. This may seem a surprising conclusion, because it is now widely recognized that for much of U.S. history, but especially for the period beginning at the end of the nineteenth century and continuing throughout the twentieth century, there has been a strong correlation between U.S. foreign economic policy and U.S. foreign policy. Simply stated, historians and others have shown, rather convincingly, that economic expansion—the search for foreign markets for U.S. surplus agricultural and industrial production—has played a key role in American foreign policy, particularly after President Woodrow Wilson (1913–1921) enunciated his concept of a new world order predicated on classical liberal and capitalist principles.

In writing about the role of multinational corporations on U.S. foreign policy, however, the following points need to be made: (1) the first multinational corporations were not established until the latter part of the nineteenth century; (2) most of the first multinational corporations became "multinational" by reinvesting their foreign profits abroad, not by making investments overseas; (3) large businesses invested abroad where and when their executives thought profits were to be made, not because of foreign policy concerns, and, with some exceptions, because they did not unduly seek to influence the formulation of foreign policy; (4) while there were certainly loud calls for expanding markets overseas, even to the point of permitting businesses to engage in joint combinations otherwise prohibited by the nation's antitrust laws, those business leaders advocating such policies were generally from smaller or midsize businesses and/or represented regional interests; and (5) to the extent that there was collusion or collaboration between public policymakers and business leaders (as in the case of the oil industry), it was just as often government that sought to use the nation's industrial giants to achieve foreign policy objectives rather than the other way around.

Multinational corporations (MNCs) are corporations whose home offices are in one country but have significant fixed investments in other countries. These investments might be in factories or warehouses, transportation or telecommunications, mining or agriculture. Businesses that merely maintain local or regional sales offices abroad are generally not thought of as multinational corporations.

Corporations invest abroad for a variety of reasons. Among them are to open new markets or to hold onto existing ones; to avoid tariffs or other trade restrictions; to tap new sources of raw materials and agricultural production; and to take advantage of cheap foreign labor. Although the history of American MNCs goes back to at least the mid-nineteenth century and a significant number of MNCs had been established by the turn of the twentieth century, their emergence as a key factor in international commerce is really a product of the post–World War II period.

Americans had, of course, been involved in world commerce ever since the founding of the colonies in the seventeenth and eighteenth centuries. Colonial merchants often employed agents abroad (frequently family members) to promote their interests wherever they conducted significant commerce, most notably in London and the West Indies. Following the American Revolution and through much of the nineteenth century, they expanded their stakes abroad by opening branches that sometimes included fixed investments like warehouses. Some Americans even opened small businesses overseas or inherited existing businesses through loan defaults and bankruptcies.

Until the latter part of the nineteenth century, however, American businesses had not made the types of direct investments abroad that would have classified them as multinational corporations. The reasons why were much the same as the reasons why even America's largest business enterprises sold mainly in local and regional markets. The United States lacked the transportation and communication facilities to allow businesses to operate on a national scale. American businesses also lacked the organizational structure and capital to compete nationally or internationally.

By the end of the nineteenth century all that had changed. With the establishment of transcontinental railroads and a network of branch lines that laced much of the nation together and a telegraph and telephone system that made nearly instantaneous communication possible, American business leaders could think in broad national terms. Other developments, including a single national currency and the expansion of capital markets, the mass production of consumer goods like food products and manufactured clothing, and major technological advances such as the manufacture of electrical generators, office equipment, and sewing machines, each requiring a specially trained sales force to sell and service them, made national expansion viable, even inevitable.

The same was true of the international marketplace. A dramatic increase in the speed of steamships plying the oceans between American and world ports, the completion in 1866 of the first transatlantic cable, the need or desire on the part of American business leaders to seek out new markets for increased U.S. industrial and agricultural production, and the need also to have reliable sources of raw materials and native agriculture, such as bananas from Central America, were only some of the supply-side forces driving U.S. economic expansion overseas after the Civil War. On the demand side were the attraction abroad of new U.S. industrial output and the importance of having a trained sales force able to explain and service the highly sophisticated technology that American manufacturers were producing.


Barnet, Richard J., and Ronald E. MĂĽller. Global Reach: The Power of the Multinational Corporations. New York, 1974. This indictment of multinational corporations argues that MNCs constitute a state within a state. Well-researched but not entirely persuasive.

Doremus, Paul N., et al. The Myth of the Global Corporation. Princeton, N.J., 1998. Persuasively argues against the widely held view that multinational enterprises are able to act autonomously in international economic matters.

Ferguson, Niall. The House of Rothschild: The World's Banker, 1849–1999. New York, 1999. The second of a two-volume history of one of the great international banking houses of the nineteenth and twentieth centuries.

James, Harold. The End of Globalization: Lessons from the Great Depression. Cambridge, Mass., 2001. Argues that, while there are parallels between today's situation and the end of the movement toward globalization following the Great Depression, one of the essential developments of the 1930s—economic nationalism tied to two of the major powers of the era, Nazi Germany and the Soviet Union—is not in evidence in the early twenty-first century.

Kanter, Rosabeth Moss. World Class: Thriving Locally in the Global Economy. New York, 1995. Points to the difficulty of multinational corporations blending in with the local communities of their host nations.

Kapstein, Ethan B. "Workers and the World Economy." Foreign Affairs 75 (May–June 1996): 16–37. Argues that the global economy, with its implicit promise of a better life for the working class, has not lived up to that promise primarily because the institutional structure established after World War II to support economic growth and development has forced many governments to follow stringent fiscal policies at labor's expense.

Kaufman, Burton I. The Oil Cartel Case: A Documentary Study of Antitrust Activity in the Cold War. Westport, Conn., 1978. A history in which the author argues that Washington used the oil companies to achieve its foreign policy objectives.

Moran, Theodore H. Foreign Direct Investment and Development: The New Policy Agenda for Developing Countries and Economies in Transition. Washington, D.C., 1998. Emphasizes the positive role that foreign direct investment can play in developing countries and those nations moving toward a free market economy.

Nathan, John. Sony: The Private Life. New York, 1999. Fascinating history of one of Japan's great success stories after World War II.

Rangan, Subramanian, and Robert Z. Lawrence. A Prism on Globalization: Corporate Responses to the Dollar. Washington, D.C., 1999. Argues that multinational corporations have worked to assure currency stability rather than the flexible rates characteristic of the 1980s because that is what their customers prefer.

Rodrick, Dani. Has Globalization Gone Too Far? Washington, D.C., 1997. Argues that globalization, including the expansion of the multinationals, may indeed have gone too far and that governments need to be more sensitive to the domestic ramifications resulting from economic globalization.

Sampson, Anthony. The Sovereign State of ITT. New York, 1973. Maintains that, through ruthless and sometimes illicit practices, ITT, one of the largest conglomerates of the 1960s and 1970s, became a worldwide business empire that defied control by any sovereign nation.

——. The Seven Sisters: The Great Oil Companies and the World They Shaped. New York, 1975. Adopts the argument that multinational corporations have had excessive control over the formulation of American foreign policy, but an important study and a solid history.

Spar, Debora L. "The Spotlight and the Bottom Line." Foreign Affairs 77 (March–April, 1998): 7–12. Maintains that, instead of exploiting foreign workers with low wages and unsafe working conditions, multinational manufacturers of consumer goods have actually helped to promote human rights because of the impact of the public spotlight and human rights activism.

Vernon, Raymond. Sovereignty at Bay. New York, 1971. Classic study of multinational corporations that traces their growth and the challenge they pose for sovereign nations.

——. In the Hurricane's Eye: The Troubled Prospects of Multinational Enterprises. Cambridge, Mass., 1998. Maintains that multinationals are facing increasing efforts by host and home governments to regulate their operations as a result of an increasingly hostile domestic environment.

Wilkins, Mira. The Emergence of Multinational Enterprise: American Business from the Colonial Era to 1914. Cambridge, Mass., 1970. The first of a two-volume study; deeply researched and thorough and comprehensive in coverage.

——. The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970. Cambridge, Mass., 1974. The second volume of Wilkins's classic study and the place to start for any study on the subject.

Wolf, Martin. "Will the Nation-State Survive Globalization?" Foreign Affairs 80 (January–February 2001): 178–190. Argues that nation-states will become stronger rather than weaker in the evolving international economy, and that further globalization will not be the destined result of market forces associated with the technological revolution but rather of conscious decision by nationstates to enhance their economic well-being.

See also Economic Theory and Policy ; Oil .

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