Nonstate Actors: The Future
of IPE(?)
British East India Co
BP (formerly Anglo-Persian Oil
Company)
Lecture 23 – Tuesday, 6 December 2011
J A Morrison
1
“In recent years, students of international relations have
multinationalized, transnationalized, bureaucratized,
and transgovernmentalized the state until it has virtually
ceased to exist as an analytic construct. Nowhere is
that trend more apparent than in the study of the
politics of international economic relations. The basic
conventional assumptions have been undermined by
assertions that the state is trapped by a transnational
society created not by sovereigns, but by nonstate
actors. Interdependence is not seen as a reflection of
state policies and state choices (the perspective of
balance-of-power theory), but as the result of elements
beyond the control of any state or a system created by
states.”
-- Stephen Krasner (1976)
2
“Changing material conditions, however,
and the continued variety of political ideas
have also made it difficult to secure any
general agreement on the scope of
sovereign authority. While universal
institutions have dramatically weakened, the
prerogatives of sovereign states have been
constantly contested…The actual content of
sovereignty and the
principle of exclusive control have been, and
continue to be, challenged.”
-- Stephen Krasner (1993)
3
Notice any differences between
Krasner 1976 and Krasner 1993?
6
“When the facts
change, I change
my mind. What do
you do, sir?”
-- Attributed to JM
Keynes
3
Lec 23: Actors of the Future
I. Multinational Enterprises
II. Transnational Advocacy Networks
III.The Media & Markets
IV.Exam Overview
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Lec 23: Actors of the Future
I. Multinational Enterprises
II. Transnational Advocacy Networks
III.The Media & Markets
IV.Exam Overview
5
“The multinational enterprise
(MNE) is defined here as an
enterprise that controls
and manages production
establishments - plants located in at least two
countries.” (Caves, 145)
6
Note about Terminology
• MNCs: multinational corporation
– Older term
– Less accurate
• MNEs: multinational enterprise
– Newer term
– More accurate, but less widely used
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I. Multinational Enterprises
1. Why MNEs? (Caves)
2. Are MNEs good or bad?
3. A Tale of two MNEs
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The obvious explanation for the
existence of MNEs is that
specific firms find it in their
interest to internationalize
production.
But we should be more precise:
why is it in their interest?
9
This is a major question for
economists in the “industrial
organizations” subfield.
How do we explain firms’ decisions
about which production processes
they undertake internally and those
they leave to other independent
firms?
10
And it has considerable bearing
on IPE: should firms trade with
foreign firms for their inputs or
should they acquire those firms
and directly control that
production themselves?
11
Let’s work through this using a
simple example…
12
(This is actually pertinent since
Guinness merged into the
international conglomerate
Diageo in 1997.)
13
Types of Integration
• Horizontal: same process
in multiple countries
– E.g. Guinness brews and
bottles beer in more than 50
countries worldwide
• Vertical: different parts of
production in different
countries
– E.g. While the barley is Irish,
the hops come from all over
(including the US)
14
So, Guinness must ask:
(1) Should we buy the foreign
production facilities or just
subcontract the stout’s production?
(2) Should we own the farms that
grow our barley, malt, and hops or
just buy it on the open market?
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Caves: Transaction Costs Drive
Integration
• Proprietary Assets  Horizontal
Integration
– E.g. Guinness might not want to give out the
secret recipe!
• “Impacted Information”  Vertical
Integration
– Impacted information: Primary producers
possess incentives to deceive downstream
dependents
– E.g. Producers of special hops might inflate
16
These are just some of the
motivations for transnational
integration.
The key point is that firms often
possess incentives to
“multinationalize” their
production.
17
We can apply the same logic to
consider empire as well:
Should Britain trade with the
Indians or should they acquire
India?
Should Japan trade with China
for raw materials or just acquire
China?
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I. Multinational Enterprises
1. Why MNEs? (Caves)
2. Are MNEs good or bad?
3. A Tale of Two MNEs
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First, we ask this question with
respect to the host countries.
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Benefits of MNEs for Hosts
• Investment: money!!!!
• Intellectual property: trademarks,
patents, production techniques
• New Products: (Guinness!)
• Technological Spillover Effects
• Training
• Infrastructure
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Costs of MNEs for Hosts
• Disproportionate bargaining power:
threat of exit
• Bring “dirty” industry (e.g. waste
disposal)
• Profits are repatriated
• Competes with domestic industry
22
What do Strange & Fieldhouse
say?
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Second, we ask this question
with respect to the home
countries.
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Benefits of MNEs for Home
Countries
• Lower production costs
• Access to new markets
• Benefits of economic
interdependence: peace!
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Costs of MNEs for Home
Countries
• “Footloose” capital: change in bargaining
power
• Cost domestic jobs and/or change in
terms of trade
• Loss of tax base
• How to keep firms accountable overseas?
– Environment
– Labor standards
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I. Multinational Enterprises
1. Why MNEs? (Caves)
2. Are MNEs good or bad?
3. A Tale of Two MNEs
27
MNEs are not new!
They are at least as old the
medieval joint-stock trading
companies.
28
So, we have lots of history and
examples to consider.
Here, we’ll look at two
interesting multinationals…
29
British East India Co.
United Fruit Co.
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British East India Company
• Charted in 1600 to compete for access to
India
• 1612: Defeats Portuguese
• 1670: King grants Co. power to mint
money, conduct foreign policy, command
troops, enforce justice
• 1700-1850
– Co. expands territorial influence
– Parliament continuously exerts sovereignty
over Co.
31
Indian Mutiny of 1857
• Sepoy Mercenaries object to treatment,
begin uprising
• Civilian rebellion follows—“First Indian
War of Independence”
• Rebellion put down; but Co. falls into
disfavor
• Government of India Act of 1858
– Transfers governance & property to Crown
– End of “Company Rule” in India
• 1876: Queen Victoria becomes “Empress
32
United Fruit Company
• 1899: United Fruit created (in Boston) to
grow and trade tropical fruits from Latin
America
• 1900-1930
– UFC acquires companies and territory
throughout Latin America
– UFC takes on quasi-governmental role in
“banana republics”
• By 1930, UFC is largest employer in Latin
America
33
The Banana Wars
• US military frequently intervened on behalf
of MNE’s interests
– Nicaragua occupied 1912-1933
– Haiti occupied 1915-1934
– Veracruz Mexico occupied in 1914
• 1928 Banana Massacre: Colombian
government kills 1000s of striking workers
• United Fruit may have orchestrated coup
d’éta in Honduras
– CEO of United Fruit: “In Honduras, a mule
costs more than a member of parliament.”
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These two cases show the close
affinity between global politics and the
global economy.
But, arguably, they tell different stories:
The East India Company was more
often subordinated to political interests.
United Fruit, by contrast, dictated policy
to both its home and host countries.
35
Lec 23: Actors of the Future
I. Multinational Enterprises
II. Transnational Advocacy Networks
III.The Media & Markets
IV.Exam Overview
36
In addition to entities organized
to secure economic ends
(MNEs), international political
economy is also influenced by
nonstate actors dedicated to
achieving non-economic
goals…
37
Keck and Sikkink (and others!)
call these actors Transnational
Advocacy Networks (TANs).
38
K&S argue that these “complex global
networks carry and re-frame ideas,
insert them in policy debates, pressure
for regime formation, and enforce
existing international norms and rules,
at the same
time that they try to influence particular
domestic political issues.” (199)
39
But how are TANs able to
achieve their objectives?
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The Strategies of TANs
• Information
– Gather and report reliable information
 Analogous to int’l regimes!
• Symbolism
– Use events to focus attention, build
movement
• Leverage
– Link issues
– Use powerful friendly governments
• Accountability
41
Lec 23: Actors of the Future
I. Multinational Enterprises
II. Transnational Advocacy Networks
III.The Media & Markets
IV.Exam Overview
42
The “information revolution” has
dramatically increased and perhaps
transformed the influence of the media
on markets.
Today, the media has the power to
influence actors’ political and market
behavior like never before…
43
Apple’s Environmental Campaign
The 2009 Iranian Election
Grand Theft Auto
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And, of course…
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Speaking of Apple…
http://www.thedailyshow.com/watch/thu
-march-12-2009/jim-cramer-extendedinterview-pt--2
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Lec 23: Actors of the Future
I. Multinational Enterprises
II. Transnational Advocacy Networks
III.The Media & Markets
IV.Exam Overview
48
--> I’ve changed the exam deadline.
You now get 1 extra day!
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Final Exam Timing
• Distributed: 5:30 PM, Friday, 9 December
– http://ipe.jamesashleymorrison.com/exam/
• Due: 10:00 PM, Wednesday, 14
December
• Tardiness
– Exams marked late if received after 10:30 PM
– Normal penalties apply!
• Upload to Moodle, as usual
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Final Exam Format
• Format:
– Q1 (400 words): Select 1 of several questions
– Q2 (650 words): Everyone answers same
question
– Q3 (650 words): Select 1 of several questions
• See course site for old exams
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Final Exam Preparation
• Get all materials now: slides, notes,
readings
• Audio from last year:
– http://ipe1011.jamesashleymorrison.com/podc
ast/
• Organize notes on readings
• Review discussion questions and notes
from discussions
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