THE WORLD OF THE TRANSNATIONAL
CORPORATION
Kondratieff Waves – cyclical patterns of growth
& stagnation
50-75 year periodicity
Nikolai Kondratieff (1892 - 1938)
Growth
Decline
K1: 1770/80
1810/20
1830/40
K2: 1830/40
1870/75
1890/96
K3: 1890/96
1914/20
1930/40
K4: 1930/40
1967/73
1980/90
K5: 1980/90
1998/2000
2008/14
K6: 2014
???????
High correlation with technological change
Explanation for the waves’ dynamism focuses
upon contradictions between:
Short-term interests of individual
capitalists
Long-term behavior of collective capital
Comparison of the US and world
economies, late 18th century-present
Correspondence with political and
economic changes
 K1 leaders (late C18th): Britain, France, Belgium
 K2 leaders (1840s): Britain, France, Belgium, Germany,
northeastern USA
 K3 leaders (1890s): Germany, northeastern USA,
Netherlands
 K4 leaders (1940s): USA (S. California), Japan
 K5 leaders (1980s): USA (S. California), Japan, Taiwan, S.
Korea, China
 K6 leaders? (early C21st): USA (S. California), China, India,
Brazil??
THE TRANSITION TO GLOBAL CAPITALISM
 17th century: Internationalization of MERCHANT CAPITAL
(trade)
 mid-19th century: Internationalization of FINANCE
CAPITAL (loans and speculative capital)
 20th century: Internationalization of PRODUCTION
CAPITAL (manufacturing)
Links to colonialism/ neo-colonialism:
 Many of today’s TNCs have their origins in the colonial era
 Imperial Chemical Industries [ICI]
 Royal Dutch Shell
 Imperial Tobacco [British American Tobacco today],
Lucky Strike, Rothmans, Kool, Dunhill, Benson & Hedges
 US insurance companies associated with slave trade
(Lehman Brothers, Aetna, JPMorgan, Chase, New York
Life, Wachovia, FleetBoston, AIG)
 Use of colonies for RAW MATERIALS and as MARKETS
 Countries can GEOGRAPHICALLY OFFSET economic crisis by
diverting production elsewhere (flooding of foreign
markets)
The Global Economy on the Eve of the First World War
The Global Economy at the Height of US Power
Little change
Little Change
EVOLUTION OF U.S. TRANSNATIONAL
CORPORATE ACTIVITY
Phase 1 (mid-19th century to 1940):
Early period dominated by foreign direct investment (FDI) to obtain raw materials (oil,
minerals) for domestic mfg.; later, entry into Canadian & some European markets
Phase 2 (1945-1970):
FDI and overseas production to penetrate foreign consumer markets
Marshall Plan allowed US TNCs to penetrate W. Europe
Establishment of $ under Bretton Woods as principal reserve currency
gave the US immense power to shape the global economy; allowed the US
to print money to fuel borrowing for industry or buying dollardenominated goods (eg oil)
1957-67: 20% of all new US machinery plants, 25% of new chemical plants,
and over 30% of new transport equipment plants were located abroad
By 1970: almost 75% of US imports were transactions b/w the domestic
and foreign subsidiaries of US TNCs
Employment in overseas manufacturing plants of US TNCs, 1966 & 1977
Source: N.G. Howenstein (1982) – Growth of US multinational companies, 1966-77, Survey of Current Business, 62, 4, Table 6.
Phase 3 (1970s  ):
Collapse of Bretton Woods and increased strength of $
Growing imports from abroad; European and Japanese
TNCs penetrate the US market
US TNCs redeploy capital to lower cost production
regions (Europe & LDCs) – e.g. Nike
Initially produced in US and UK  Japan  S. Korea
and Taiwan  Indonesia, Malaysia, China, Vietnam
Between one-third and two-thirds of global trade is now
intra-firm trade between TNCs’ different subsidiaries
US TNC Employment, 1989-2009 (millions)
www.economicpopulist.org/content/government-finally-shows-what-we-already-know-shipping-jobs-overseas-big-problem
US-based Share of Employment by US TNCs for selected
years (%)
www.economicpopulist.org/content/multinational-corporations-are-hiringabroad
Change in US TNCs’ Domestic vs. Foreign Employment (%)
www.economicpopulist.org/content/multinational-corporations-are-hiringabroad
Understanding TNCs’ Dynamics – the
Product Life Cycle
Understanding TNCs’ Dynamics – the
Product Life Cycle
Lowell, MA
New England
US South
Global South
Paths of TNC evolution
The product life cycle as an evolutionary sequence of US
TNCs’ development
1900-1920s
1920s-1940s
1950s
1960s-1970s
1980s-present
TNCs as networks within networks
HOW DID THE US ECONOMY WORK PRIOR TO 1970?
1. Destruction of pre-war competitors  US
emerges as world’s “economic hegemon”
US pushes “laissez faire” policies
2. Aid packages to Europe and Japan
encouraged US economy to expand
Marshall Plan for Europe
 economic benefits to US companies
 political implications for world
geopolitics
3. Importance of BRETTON WOODS AGREEMENT
1944 conference in NH; Set the US $ as the world’s “reserve
currency” – Value of the US $ set at 1 oz gold = $35
 Stimulus to US banking sector
• constant demand for US currency as traders must
hold $ to access commodities priced in dollars – oil,
gold, wheat, cattle, coffee etc.
 Mfg. sectors benefitted because US lent money to other
nations so they could buy US goods.
 Allowed US to enjoy benefits of “seigniorage” –
acquiring resources through the printing of money.
 Allowed US to print dollars to cover any trade deficit
Established new key international organizations
Established new key international organizations
i) International Monetary Fund (IMF)
 Ensure convertibility of currencies & fixed exchange rates linked
to price of gold
ii) International Bank for Reconstruction and Development
(IBRD –“World Bank”)
 Ensure international flow of capital
 Foster “development” in LDCs
iii) International Trade Organization (ITO)
 Designed to reduce barriers to world trade (soon failed)
 Replaced in 1948 w/ General Agreement on Tariffs and Trade
(GATT)
GATT: Operated under aegis of UN; periodic “negotiating
rounds”
4 principles to reduce barriers in mfg realm:
 Reciprocity: mutual reduction of tariffs
 Non-discrimination: Members not to grant preferential
treatment to one country over others
• “Most-favored-nation rule” -- all members to be treated as
favorably as the most favored
 Transparency: Members expected to replace non-tariff barriers
(whose effects are hard to detect/ measure) w/ tariffs (which
are more open to scrutiny)
 Developing Countries: LDCs were to be granted favorable trade
treatment under a special set of provisions
4. Role of the central (federal) state dramatically changed
relative to pre-1930s
Greatly expanded role of federal govt as result of FDR’s
NEW DEAL; followed KEYNESIAN POLICIES
Fed govt stimulates CONSUMPTION stimulation of
PRODUCTION
 Defense spending (“Military-industrial complex”)
 Investment in infrastructure (e.g., Interstate Highway
System)
 1949 Housing Act  stimulate suburbanization
Emergence of Fordism
Role of federal govt was to REGULATE relationship
b/w PRODUCTION and CONSUMPTION
MASS PRODUCTION
MASS CONSUMPTION
INTERVENTIONIST CENTRAL STATE
Geographic reorganization of US industry
Much industry moved from urban to suburban areas
Much industry moved to the South and
SouthWest (“SNOWBELT TO SUNBELT SHIFT”)
• Cheap labor
• Anti-union “Right To Work” laws
THE US ECONOMY, 1945 TO LATE 1960s
Economy performing fairly well in 1940s & 50s
(growth stage of 4th Kondratieff)
“Golden age” of US post-war capitalism
Real Wages rising until 1970s
www.thestreet.com/story/11480568/1/us-standard-of-living-has-fallen-more-than-50-opinion.html
1960s: GNP grew 4.1% per yr (50% for the decade)
 Productivity grew 3.3% per yr
 Ave. family disposible income increased 30%
in real terms
 The “Affluent Society” (John Kenneth
Galbraith)
BUT: by early 1970s significant economic
changes
 GNP increasing only 2.9% per yr
 Productivity increasing at 1.3% per yr
 Unemployment increasing
• early 1970s: 5%
• mid-80s: › 10%
 Inflation increasing
• 1960s: 2-3% per yr
• Mid-70s: 10% per yr
• 1980: 13.5% per yr
THE NEW INTERNATIONAL DIVISION OF LABOR
Growing Deindustrialization:
Usual scapegoat is OPEC oil price hike in 1973 (quadrupled price of oil) -- BUT,
evidence is questionable
• based on business cycle, US should have gone into recession in 1960s;
markets for consumer durables becoming saturated
• recession delayed by govt spending (Vietnam War, space race, War on
Poverty)
• Govt spending stimulated inflation
• purchasing power of the $ declined; $ no longer worth in real terms what
Gold Standard says it is
• Nixon ends direct convertibility of $ into gold (abandons Bretton Woods)
OPEC price rise can be read as a defensive move; related to deeper
structural problems in US economy
Having the dollar as the world’s central currency during Bretton Woods era had
advantages:
 US could run chronic trade deficits and still maintain a strong currency – it
could print money to make up the shortfall.
 US consumers benefitted (cheap foreign goods).
 US investors in overseas markets benefitted ($ buys more foreign
currency/ goods)
 US military could maintain foreign bases more cheaply.
 BUT: US workers engaged in tradable goods industries (primarily
manufacturing) were hurt because imports were cheap and exports
expensive.
 By the late 1960s/ early 1970s things had changed:
• WW2 competitors had rebuilt their economies
• Ideology of “free trade” reduced protection from cheap imports
• Time-space compression TNCs could more easily coordinate
offshore activities capital flight
CHARACTERISTICS OF THE POST-BRETTON WOODS
ECONOMY
1. Shift from AGRICULTURE & MANUFACTURING to SERVICES
Mfg as % of total emploment:
1947: 33%
1977: 24%
1997: 16%
2012: 9%
Mfg as % contribution to GDP:
1947: 26%
1977: 22%
1997: 15%
2012: 12%
Manufacturing absolute numbers
Manufacturing job loss in recent decades
http://economistsview.typepad.com/economistsview/2005/10/the_decline_in_.html
2005
2. Shift from more LABOR INTENSIVE forms of
work to more CAPITAL INTENSIVE forms
(automation, robotics) (1948-2011)
3. Trend towards OLIGOPOLY among corporations
 Age of acquisitions and mergers; huge though diversified
corporations
4. Redeployment of capital by corporations in search of NEW MARKETS
and LOWER PRODUCTION COSTS
 growing economic internationalization as TNCs exploit “Time-space
compression”
 As the pace of economic life has increased, TNCs “need” to have
flexibility
• growing use of contingent workers who are easily hired and
fired
• growing use of just-in-time inventory control and delivery by
some
Export Processing Zones (EPZs) in the
Global South (2003)
Overseas investments are a growing
source of profit for US corporations
Source: Moody (1988: 112), An Injury to All; US Statistical Abstract
US Private assets held
abroad
Proportion of profits made
abroad by US TNCs
1950
$ 19b
1950
3.4%
1960
$
49b
1960
5.9%
1970
$ 119b
1970
9.4%
1980
$ 701b
1980
15.6%
1994
$2,233b
1994
18.4%
Worsening of workers’ situations
NYT Aug 28, 2006
Growing inequality
Emergence of a low-wage economy for many workers


Falling real wages and minimum wage
Of the 25 million jobs created in the US in the 1990s “boom”,
only 18% paid more than the national average.
Average hourly earnings, 1964-2008 (2008 $)
FEDERAL MINIMUM WAGE, ADJUSTED FOR INFLATION
A quarter of jobs in the US pay below the federal poverty line
for a family of four ($23,050 – $10.60 per hour for a full-time
worker)
5. Changed role for the central state
Shift from DEMAND MANAGEMENT “stimulator
of the economy” to SUPPLY SIDE “pursuer of
deregulation” – Milton Friedman (Univ of
Chicago)
• Replacement of “bottom-up” economic
policies of New Deal w/ “trickle-down”
policies
Decentralization – “New Federalism”
Individual states playing a greater role in
economic development
Allows TNCs to play states against each other for
incentives Company, state, date
subsidies per job created
Nissan, TN, 1980
$11,000
Saturn, TN, 1985
$13,000
Toyota, KY, 1985
$50,000
BMW, SC, 1992
$68,000
Mercedes-Benz, AL, 1993
Nissan, MS, 2000
$169,000
$73,750
Searchable data base at:
www.nytimes.com/interactive/2012/12/01/us/g
overnment-incentives.html
6. New international organizations, e.g.
WORLD TRADE ORGANIZATION
By 1980s GATT becoming increasingly irrelevant;
GATT had dealt w/ mfg but did not cover
agricultural commodities and services
WTO came into being on Jan 1, 1995
Unlike GATT, WTO treaty created permanent
organization to enforce trade rules and assess
penalties
CRISIS AND RESTRUCTURING POST-1970s
1. Economic slow down in core industrial countries and FALLING
PROFIT RATES
Rates of economic growth in OECD countries:
1963-1973: 5-6% per yr
1973-1978: 2-3% per yr
1979-1982: ‹ 1% per yr
Associated w/ decline phase of 4th Kondratieff
Falling levels of demand for BUILDING, MINING, FACTORY EQUIPMENT
(eg ships, vehicles, machinery, machine tools) and hence for STEEL
2. Growth Of Inflation
Financing for Vietnam war stimulated inflation in late 1960s
Inflation reduced profits  increased problems of capital accumulation
 CAPITAL INVESTMENT financed not by profits but by BORROWING
ROLE OF FEDERAL RESERVE SYSTEM
“The Fed” can EXPAND or CONTRACT the MONEY SUPPLY to control
MONETARY POLICY
(different from FISCAL POLICY)
ELEMENTS OF THE FRS:
 12 Regional Reserve Banks – these operate
the DISCOUNT WINDOW
 Federal Open Market Committee (located at
NY Fed Res Bank)
Regional Reserve Banks:
Commercial banks borrow from the RRBs to
make up temporary shortages in their
required reserves
By loaning money to commercial banks, RRBs
expand the money supply
Interest rate (“Discount rate”) charged by
RRBs to commercial banks affects how much
money the latter will borrow and at what
price
Federal Open Market Committee:
Expands the money supply through buying
govt. securities (e.g. Treasury bonds)
Buying govt securities creates money in a
dealer’s account
Contracts the money supply through selling
govt securities  takes money out of the
system
Fed moved against INFLATION by increasing the
PRIME RATE to 21.5% (by June 1982) to cause a
RECESSION (known as the “Reagan recession”)
This was a calculated decision to favor FINANCE
CAPITAL over MANUFACTURING CAPITAL
worst recession since the Great Depression.
Unemployment peaked at 9 million and 17,000
businesses failed
Why? If inflation is running too high relative to
interest rates, lenders lose out
But, debtors do well
Loan Amount
$100
Interest 5%
$105
Inflation 10%
$110
Loan Amount
$100
Interest 10%
$110
Inflation 5%
$105
Implications?
Makes borrowing much more expensive, especially as firms have
become more reliant on borrowing to finance investment
 Retarded TECHNOLOGICAL INVESTMENT  Hindered
COMPETITIVENESS
 But, simultaneously, inflation increased some LABOR COSTS
RECESSION in both:
 CAPITAL-INTENSIVE industry e.g. steel, shipbuilding,
automobiles, consumer durables
 LABOR INTENSIVE industry e.g. textiles, clothing, footware
Boom for FINANCIAL SECTOR as foreign investors buy $
3. Increased International Currency Instability
i) End of Bretton Woods  FLOATING EXCHANGE RATES
Issue of Over/ Under-valuation of currencies
If currencies are STRONG (eg $, £) industrial
production is RETARDED because EXPORTS are
expensive
Equally, IMPORTS from abroad are relatively
CHEAPER
If currencies are WEAK (eg DM, ¥, Swiss Franc)
industrial production is STIMULATED because EXPORTS
are cheaper
Equally, IMPORTS from abroad are relatively MORE
EXPENSIVE
Assume the Japanese Yen (¥) exchanges at ¥100
= $1
For an American to buy a Japanese car priced
at ¥2000,000 = $20,000
For a Japanese to buy an American car priced
at $20,000 = ¥2000,000
Situation 1: the dollar strengthens against
the yen ($1 = ¥200 instead of ¥100 )
For an American to buy a Japanese car priced at
¥2000,000 = $10,000 (instead of $20,000)
For a Japanese to buy an American car priced at
$20,000 = ¥4000,000 (instead of ¥2000,000)
Japanese imports become cheaper; US exports
become more expensive
Situation 2: the dollar weakens against
the yen ($1 = ¥50 instead of ¥100 )
For an American to buy a Japanese car priced at
¥2000,000 = $40,000 (instead of $20,000)
For a Japanese to buy an American car priced at
$20,000 = ¥1000,000 (instead of ¥2000,000)
US exports become cheaper; Japanese imports
become more expensive
The value of the dollar over time
June
1982:
interest
rates hit
21.5%
Strong dollar  loss of international
competitiveness & significant import penetration
Proportion of sales accounted for by imports (%)
1980
1985
Clothing & textiles
34
55
Shoes
50
81
7
25
35
40
Computers
Autos
US Exports and Imports, 1970-1998
www.census.gov/statab/freq/99s1323.txt
Manufactured goods
Agricultural goods
Deficit in mfg
The loss of export competitiveness and
competition from cheap imports affected
different parts of the US in different ways
Import-vulnerable & export-oriented sectors
Share of regional Mfg accounted for by export-oriented,
import-vulnerable, and non-traded goods in 1985
Decline in share of production workers in mfg
employment, 1978-1985, by region
ii) Problem of INTERNATIONAL DEBT CRISIS
1973 OPEC oil price increase  PETRO-DOLLAR surpluses
 US and Western Banks flooded w/ $
 Many Global South countries borrowed heavily in 1970s
PROBLEMS:
 Financial instability in 1980s as Global South countries
defaulted on debts
 Strong incentive for Global South countries to increase
EXPORTS to earn foreign exchange
 Structural Adjustment Programs (SAPs) imposed on
defaulting Global South nations
IMPACT:
 Many LABOR INTENSIVE industries in Global North countries
faced INTENSE COMPETITION
4. RESSURGENCE OF POLITICAL VOLATILITY (“NEW
COLD WAR” of 1980s)
Reduced possibilities for trade b/w EAST and
WEST, and trade involving CENTRAL AMERICA,
MIDDLE EAST, SOUTHEAST ASIA
US Govt efforts to stabilize regimes 
encouragement of OVERSEAS INVESTMENT by
US TNCs (e.g., Philippines)
5. GROWING INTERNATIONAL
COMPETITION FOR US




post-1970 stagnation of world markets
aggressive role played by govt in NICs
US losing role as economic hegemon
Growing industrialization of some LDCs
GLOBAL RESTRUCTURING HAS RELIED ON
3 ELEMENTS
1. Transformation of political and economic relationship b/w capital
and labor
 Introduction of robotics and labor saving technology  loss of
high wage mfg jobs
 Threat of capital flight has allowed corporations to play workers
and communities against each other
•undermines bargaining power of workers
•encourages states and communities to compete for
investment
2. New roles for central government and public
sector
Deregulation of economies and markets has
made capital flight easier
shift from investment in COLLECTIVE
CONSUMPTION (schools, hospitals,
community services) towards
PRIVATIZATION
3. Creation of a NEW INTERNATIONAL DIVISION OF LABOR as
TNCs exploit TIME-SPACE COMPRESSION
 TNCs searching for new markets and labor sources
 Reduction of relative distances b/w places
 Pace of social life has increased
 Need for TNCs to be able to be “flexible”  growing use
of contingent workers
 Emergence of low wage mfg economy