"The transnational corporate system in the late 1990s"
by Róbinson Rojas Sandford (1997)
Transnational direct investment in less developed societies in the
1990s is consolidating further the historical regional spheres of
influence by the former colonial powers.
By and large, Latin America, Africa, Asia and Eastern Europe are
becoming more than ever "spheres of control of production and trade"
by the financial and industrial centers of the world.
Globalization is a task undertaken by the transnational corporate system,
and the system has three clear centers (United States, Japan, and the
major economies of the European Union). Those centers attract almost
totally the flows of international payment to factors of production,
creating a financial situation where capital flows from poor societies
to rich societies, as it was in the times of colonization and imperial
expansion from the 1500s to the 1930s.
The other main characteristic of the transnational corporate system
during the 1990s was the speeding up of "mergers and acquisitions"
which is one indicator of concentration of capital.
According to 'Financial Market Trends', OECD, July 1997, privatisations
were a large contributor to acquisitions: "worlwide receipts from
privatisations amounted to a record $88 billion in 1996, of which
$68 billion came from OECD countries"...and, the most dramatic fact
is that "in many countries, particularly in smaller OECD countries
and in the developing world, the sale of public companies to foreign
investors has been the primary source of inward investment in recent
years". That is, the contribution to new investments has been very
small.
'Financial Market Trends' indicates that "global flows of direct
investment are dominated by mergers and acquisitions in value terms.
In the United States, for example, acquisitions represented 85 per cent
of foreign investment in 1995, with establishments contributing only
15 per cent"..."By all accounts, mergers and acquisitions reached record
levels in 1996"...and..."the impact of cross-border mergers and
acquisitions on total foreign direct investment flows is likely to
grow in the future".
It is estimated that after eight years of continuous growth cross-border
mergers and acquisitions reached a record $263 million in 1996, which
is equivalent to about 80% of the total amount of flows of foreign direct
investment towards less developed societies.
The OECD publication explains that "international and national mergers
are driven by the same general set of industrial considerations, but
there are nevertheless certain differences in emphasis depending on
whether the merger involves firms from different countries.
International mergers arise partly because markets are still segmented
and the acquisition of a local firm afford the quickest access to the
foreign market. Domestic mergers are more likely to be driven by the
desire to achieve economies of scale, although even national markets
may also be segmented to some degree. As global integration continues,
industrial consolidation will gradually become more important than
geographical diversification, even for international mergers".
Thus, against a trend to faster concentration of transnational
capital, the pattern of foreign investment changes to follow the
trend. Table 1 gives some useful indicators.
________________________________________________________________________
TABLE 1. TOTAL INFLOWS, BY HOST REGION/COUNTRY
in US$ millions and percentage
Region/country 1984-1989 1990-1995
Total in US$ million 692,220 1,278,237
TOTAL WORLD (%) 100 100
DEVELOPED COUNTRIES 81 68
European Union 33 40
Other Western Europe 2 2
Canada 4 3
United Sates 38 19
Other developed cts. 4 5
(Japan 0.1 0.6)
DEVELOPING COUNTRIES 19 30
Africa 2.4 1.7
North Africa 1.1 0.7
Other Africa 1.3 1.0
Latin America and the Carib. 6.7 8.9
South America 2.9 4.6
Argentina 0.6 1.6
Brazil 1.2 1.0
Chile 0.5 0.6
Colombia 0.5 0.4
C. America & the C. 3.8 4.3
Bermuda 1.0 1.2
Mexico 2.1 2.4
Developing Europe** 0.0 0.1
Asia 10.0 19.4
West Asia 1.5 1.1
Central Asia* - 0.1
South, East, & S.E.Asia 8.5 18.2
China 2.0 9.2
Hong Kong 1.2 0.8
Indonesia 0.4 1.0
Korea, South 0.5 0.4
Malaysia 0.7 2.1
Singapore 1.9 2.2
Taiwan 0.6 0.6
Thailand 0.6 0.9
The Pacific 0.1 0.1
CENTRAL AND EASTERN EUROPE 0.05 2.3
________________________________________________________________________
* Former bureaucratic socialist countries
** Bosnia and Herzegovina, Croatia, Malta, Slovenia, TFYR Macedonia,
and former Yugoslavia.
Source: World Investment Report 1996. Investment, Trade and
International Policy Arrangements, UN, 1996
Data processed by Dr. Robinson Rojas.
________________________________________________________________________
________________________________________________________________________
TABLE 2.- 14 LESS DEVELOPED COUNTRIES. SHARE OF TOTAL
FOREIGN DIRECT INVESTMENT (%)
Country WORLD = 100 LESS DEVELOPED COUNTRIES = 100
1984-1989 1990-1995 1984-1989 1990-1995
Argentina 0.6 1.6 2.9 5.1
Brazil 1.2 1.0 6.4 3.5
Chile 0.5 0.6 2.8 2.1
Colombia 0.5 0.4 2.5 1.4
-------------------------------------------------------------------
SUB-TOTAL 2.8 3.6 14.6 12.1
-------------------------------------------------------------------
Bermuda 1.0 1.2 5.2 4.0
Mexico 2.1 2.4 11.0 8.1
-------------------------------------------------------------------
SUB-TOTAL 3.1 3.6 16.2 12.1
-------------------------------------------------------------------
China 2.0 9.2 10.6 30.6
Hong Kong 1.2 0.8 6.4 2.6
Indonesia 0.4 1.0 1.8 3.4
Korea, South 0.5 0.4 2.7 1.5
Malaysia 0.7 2.1 3.6 6.9
Singapore 1.9 2.2 10.1 7.5
Taiwan 0.6 0.6 3.1 1.9
Thailand 0.6 0.9 3.0 2.9
------------------------------------------------------------------
SUB-TOTAL 7.9 17.2 41.0 57.3
------------------------------------------------------------------
GRAND TOTAL 13.8 24.4 71.8 81.5
__________________________________________________________________
source: World Investment Report 1996, UN, 1996
__________________________________________________________________
Table 1 indicates that industrialized countries direct investment
in less developed societies are concentrating on three regions, but
with very asymmetric emphasis. Latin America and the Caribbean
increased its share from 6.75 to 8.9%, while Central and Eastern
Europe accounted for 2.3% of world inflows in the 1990s as against
a meagre 0.5% in the 1980s.
Of course, the most dramatic growth ocurred in Sout, South East and
East Asia, which rocketed from 8.5% to 18.2% of world direct investment.
Within the region, China was the individual country with the highest
increase, from 2.0% to 9.2%.
Africa saw its share shrinking to 1.7% from 2.4%, while, among the
industrialized countries the European Union also was a 'most preferred'
are for transnational capital attention, increasing its share from
33% to 40%.
Within less developed countries, the 14 'most invested' (see Table 2)
reached a 24.4% of world total as against only 13.8 in the 1980s. This
spectacular growth was totally due to the Asian countries jumping from
a share of 7.9% to a share of 17.2, of which more than half is accounted
for by China.
One indicator of how concentrated are direct investment by transnational
corporations in less developed societies is captured in Table 2 columns
3 and 4, which show than investment in the "great 8 of Asia" shhot up
to 57.3% of total investment in less developed societies from 41%. For
the '14 most invested countries', the share grew from 71.8% to 81.5%.
Thus, when we think "globalization" reaching less developed societies
we must not forget that only 14 countries out of almost 200, are
receiving about 82% of the financial globalization.
THE TRIAD MOVES AHEAD
In the new carving of planet earth in spheres of economic, political and
cultural spheres of influence, the 1990s did show a very clear pattern
with the members of the Triad making sure effective financial control
over their sections of the world production they dominate.
From OECD, International Direct Investment Statistics Yearbook, OECD,
1997, the following appears:
US DIRECT INVESTMENT IN ASIA, LATIN AMERICA AND EASTERN EUROPE
1985 1995
Latin America -1000 11500
Asia 200 8250
Eastern Europe 0 1750
JAPANESE DIRECT INVESTMENT IN ASIA, LATIN AMERICA AND EASTERN EUROPE
1985 1995
China 100 4600
Other emerging Asia 1200 8000
Latin America 200 2200 (peak 1988 -3300)
Central and Eastern Europe 100 100
EUROPEAN UNION DIRECT INVESTMENT IN ASIA, LATIN AMERICA AND E. EUROPE
1985 1995
Central and Eastern Europe 100 7750
Emerging Asia 750 5000
Latin America 600 5400
To complete the picture, the following data is focused on each region:
FDI OUTFLOWS TO EMERGING ASIA BY PRINCIPAL OECD INVESTOR
Cummulative 1985-1996 (per cent)
Japan 50%
United States 31%
European Union 19%
FDI OUTFLOWS TO LATIN AMERICA BY PRINCIPAL OECD INVESTOR
Cummulative 1985-1996 (per cent)
United States 61.5%
European Union 27.8%
Japan 10.7%
FDI OUTFLOWS TO EASTERN EUROPE BY PRINCIPAL OECD INVESTOR
Cummulative 1985-1996 (per cent)
European Union 79%
United States 18%
Japan 3%
BUSINESS CYCLES AND FLOWS OF TRANSNATIONAL CAPITAL
One main item of propaganda about transnational corporation capital
is that it contribute to economic growth. Even more, transnational
capital is an engine of growth.
World Investment Report 1993, UN, 1993, concludes:
"The growth of FDI outflows is closely correlated with the growth of
output. In short, and not surprisingly, the decision by TNCs to invest
abroad is affected by cyclical fluctuations in economic growth (business
cycles), both at home and abroad. The impact of business cycles on
global FDI flows operates through the interactions between home and
host-country economic conditions. This is partly owing to the fact that,
as regards the supply-side of FDI, the foreign investment decisions of
TNCs are affected by the availability of investible funds from corporate
profits or loans, which are themselves affected by conditions at home.
However, demand-side factors also play their part: growing markets
abroad can give TNCs an impetus to invest, especially if domestic
conditions are deteriorating. Indeed, growing foreign markets may be
particularly attractive for TNCs based in countries experiencing a
cyclical downturn. In 1991, these factors helped to raise the share of
developing countries in total inflows; it rose to 25 per cent from an
average of 17 per cent during 1985-1990". (We know, from Table 1 that
that share rose even more in the period 1990-1995 to 30%).
The most important finding of this United Nations' study is that FDI
'follow economic growth in the host country' and there are no indicators
signalling that FDI 'fosters economic growth'
The study adds: "the growth of the world economy after the recession of
the early 1980s appears to have stimulated FDI flows WITH A TIME-LAG
OF ABOUT TWO YEARS. Similarly, the downturn beginning in 1989-1990 led
to a decline in world-wide FDI flows starting in 1991. Business cycles
may also induce growth rates of different countries to diverge more by
affecting some countries more severely than others. The cyclical
downturn that began in 1989 is one such example: GDP growth in the early
1990s in developing countries was significantly higher than in developed
countries, and the difference between their growth rates is expected to
increase substantially. This suggests that business cycles, to the
extent that they cause a greater divergence between the growth rates of
developed and developing countries than would otherwise have taken
place, have stimulated flows of FDI to the latter" (ibid, p. 94)
Data gathered by UNCTAD, Programme on Transnational Corporations, 1993,
show that foreign direct investment inflows to 'developed countries'
went up from about US$ 10bn (1980 prices) in 1970 to about US$ 50bn, at
the same time that the rate of growth of real gross domestic product
went down from around 4% to 2%. Between 1984 and 1990, the rate of
growth decreased to 2% from almost 5% in 1984, and, foreign direct
investment increased from about US$ 40bn to around US$ 180bn.
By and large, those FDI appear more slowing down than speeding up
economic growth in developing countries, which, of course, is consistent
with classical economic theory which states that monopoly/oligopoly
capital slows down rate of growth of the industry.
For the whole period 1970-1990 in developed countries FDI grew from
US$ 10bn to US$ 180bn while rate of growth decreased from 4% to 2%.
The same study by UNCTAD shows for less developed countries the
following:
Rate of growth 1970-1981 = from almost 10% to 3%
FDI flows 1970-1981 = from US$ 2bn to US$ 18bn
Rate of growth 1981-1985 = from 3% to 5%
FDI flows 1981-1985 = from US$ 18bn to US$12bn
Rate of growth 1985-1991 = from 5% to 3.7%
FDI flows 1985-1991 = from US$ 12bn to US$ 38bn
REINVESTED EARNINGS AND RATES OF PROFITS
Another important issue related to FDI is that they "add" enormous
sums of fresh capital to already capital-starved less developed
economies.
UN, 1993 argues that "in terms of inflows, reinvested earnings are
a considerably larger component of FDI in developing countries than
in developed countries. ( between 40-20% for less developed countries
and 20 to -20% for developed countries). In the latter group, inward
FDI is financed overwhelmingly from funds brought in from abroad,
whereas in developing countries, FDI depends more on profits earned
there. It is not clear whether that contrast is due to the difference
in profits earned in two regions or to different rates of profits
repatriation, dependent, among other things, on policies of host
countries. If majority-owned foreign affiliates of non-bank United
States parent firms are any guide, they earned much higher profit rates
in developing countries: 8 per cent in the period 1983-1990, compared
with 5 per cent in developed countries (United Sates Department of
Commerce- profit rates are defined here as the share of net income to
total income)".
Nothing wrong with reinvested earnings when profits on those reinvested
earnings are not going to leave the country. But, if those reinvested
earnings, which were domestically produced, are seen legally as foreign
investment, what happens is that domestic capital will flow abroad
towards the home country of the investor. For less developed societies
it will mean that domestic capital from poor countries will flow
towards rich countries.
In normal business conditions, with 10% depreciation, 10% profits and
50% of reinvested earnings, in 10 years the host country will be
treating as foreign capital an amount which is 50% national capital.
The following data could be illustrative:
UNITED STATES.- Investment and income on investment abroad (US$ million)
Income on U.S. U.S. direct of which net direct
assets abroad investment reinv. invest.
abroad earnings abroad
1960 3,621 -2,940 -1,226 -1,674
1965 5,506 -5,011 -1,543 -3,468
1970 8,169 -7,590 -3,177 -4,413
1972 10,949 -7,747 -4,532 -3,215
1973 16,542 -11,353 -8,158 -3,195
1974 19,157 -9,052 -7,777 -1,275
1975 16,595 -14,244 -8,048 -6,196
1976 18,999 -11,949 -7,696 -4,253
1977 19,673 -11,890 -6,396 -5,494
1978 24,458 -16,056 -11,343 -4,713
1979 38,183 -25,222 -18,965 -6,257
1980 37,150 -19,238 -17,017 -2,221
1981 32,549 -8,691 -12,978 +4,287
1982 21,381 +2,369
1983 20,499 -373
1984 21,509 -3,858
1985 34,320 -14,065
________________________________________________________________________
source: U.S. Bureau of Economic Analysis, Survey of Current Business,
June 1982, Table 1466.
________________________________________________________________________
Summarizing:
-transnational capital, thorough merging and acquisitions, is becoming
more concentrated, more monopolic capital, in the 1990s
-transnational capital is strenghtening its grip on spheres of
influence, following the pattern known as The Triad
-transnational capital is not playing the role of engine of growth
but rather of engines to suck capital from the host economies
-transnational capital is slowing down rates of growth in both
developed and developing countries.
ARE CLUSTERS AGAINST STANDARD ECONOMIC THEORY?
UNCTAD is very clear about regional investment clusters, and
particularly about the continuing pattern of clustering of host
countries in a region around a single home Triad member located in
the same region.
UNCTAD adds: "According to theory, clustering is unlikely to ccur:
the distribution of foreign direct investment should reflect the
location advantages of host countries, rather than their geographical
proximity to a home country. While geographical factors are certainly
important, other location advantages include the host country's natural
endowments, its infrastructure and human resources, as well as those
aspects of its policy environment which impact foreign direct
investment."
"Such factors are considered to be a primary determinant of why
transnational corporations, once having decided to invest abroad,
will invest in one host country as opposed to another."
"A geographically-based pattern of foreign direct investment WOULD
NOT BE EXPECTED TO OCCUR, since the type of foreign direct investment
that transnational corporations wish to undertake, rather than a
corporation's country of origin, should determine the relevant location
advantages of a host country"...Thus, "no single Triad member would be
expected to emerge as the dominant investor in a particular host
country".
"However, other factors may play a role in the distribution of world-
wide investment flows, which might lead to the concentration of foreign
direct investment by a single Triad member in a given host country.
These include cultural, historical, commercial and political links
between home and host countries". (UNCTAD, World Investment Report,1991)
Therefore, clusters could be utilized, as in colonial times, to protect
the trade of one colonial power against the encroachment of other
colonial powers in the "former's territory".
UNCTAD comments: "the formation of a regional free-trade area with one
of the Triad members at its core could, hypothetically, also lead to a
pattern in which foreign direct investment from the Triad member would
predominate in other countries within its free-trade area. This might
occur if the regional integration programme, as designed by its members,
incorporates measures that discriminate against firms from outside
the region. For example, investment incentives for firms from the region
only; local content levels set at a regional level; and public
procurement markets that are closed to firms from outside the region
are all examples of measures associated with regional integration that
would favour member-State firms at the expense of extraregional ones".
(Ibid.)
Empirical data for the last 10 years or so point to the formation
of the above kind of regional integration, bringing back to the
"globalized" world the pattern of "spheres of influence" so familiar
to colonial times during XV-mid XX Century, when Western European
powers, United States and Japan had their geographically defined
hunting grounds for colonial trade.
BACK
|
