Governments and Multinational Enterprises: From Confrontation to Co-operation?

Although, in this paper, we shall be primarily concerned with the role of central or federal governments, the term 'government' should be taken to embrace subnational and supranational administrations as well.

Throughout this paper we define a multinational enterprise (MNE) as an enterprise which own or controls value added activities in two or more countries.

In the economist's language, the ratio of marginal productivity of each input is proportional to its price, while in the case of each input, its marginal productivity will be equal to its price.

They may also confer power on the buyers, but in this paper we shall concentrate on seller power.

As described in standard industrial organisation textbooks.

Raymond Vernon , 'Organizational and Institutional Responses to International Risk' , in R.J. Herring (ed.) Managing International Risk (Cambridge: Cambridge University Press, 1983).

D.J. Teece , 'Transaction Cost Economics and the Multinational Enterprise: An Assessment', Journal of Economic Behavior and Organization, (Vol. 7, 1985 ), pp.21-45.

These include those compiled by national and regional governments, private consultancies and banks; but perhaps the most comprehensive source is that of United Nations Centre on Transnational Corporations. See especially UNCTC (1989), and Sections III and IV of the List of Sales Publications of the UNCTC. 1973-1989, issued by the United Nations in October 1989.

For example, expressed as a proportion of GNP, the outward direct capital stock in 1982 was 28.5% in the case of the Netherlands, 41.0% for Switzerland, compared with 6.0% for West Germany, 7.2% for the US and 4.7% for Japan. See J.H. Dunning and J. Cantwell , The IRM Directory of Statistics of International Investment and Production (Basingstoke: Macmillan Reference Books, 1987).

See P.B. Musgrave , Direct Investment Abroad and the Multinationals: Effects on the U.S. Economy (Washington, D.C.: Senate Foreign Relations Committee - Subcommittee on Multinational Corporations , 1975); and C. Bergsten , T. Horst and T. Moran , American Multinationals and American Interests (Washington, D.C.: The Brookings Institution, 1978).

Sweden was an exception, and by 1974 had enacted fairly comprehensive legislation, in an attempt to ensure that foreign investment by Swedish MNEs was in the best interests of the home country.

Bergsten, Horst, and Moran, op. cit., give examples of the US reacting to the policies of some European governments giving exemption from domestic taxation of export income and direct support in their oil MNEs.

A good example of the costs of creating (or recreating) a market system is now being played out in Eastern Europe- Here the transitional costs from a centrally-planned to a market-oriented system seems so huge that only by a united international support (rather akin to the US Marshall Plan for west European recovery after world war two) can this change in the macro-governance of economic activity be accomplished relatively smoothly and within a reasonable period of time.

M. Porter , The Competitive Advantage of Nations (New York : The Free Press, 1990).

For an attempt to do this, see J.H. Dunning , 'Dunning on Porter: Reshaping the Diamond of Competitive Advantage', University of Reading Discussion Papers in International Investment and Business Studies (forthcoming in 1991).

See for example, P. Cecchini , M. Catinat and A. Jacquemin , The European Challenge: The Benefits of a Single Market (Aldershot: Wildwood House, 1988).

And, by implication, depict their competition of such opportunities. Good examples include those countries comprising the EC and some East Asian economies.

See C.K. Kindleberger and P.M. Goldberg , 'Towards a GATT for Investment: A Proposal for Supervision of the International Corporation', Law and Policy in International Business, (Vol. 2, 1970), pp.295-323. The quotation that 'reduced to its simplest terms, there is an inherent conflict between the objectives of the international corporation and the nation-state' does not ring as true today as it did 20 years ago.

See, for example, Untc , World Investment Report 1991: The Triad in Foreign Direct Investment (forthcoming in 1991).

UNTC, Ibid., (forthcoming in 1991).

J.H. Dunning , 'Multinational Enterprises and the Globalization of Innovatory Capacity', University of Reading Discussion Papers in in International Investment and Business Studies (No. 143, September 1990).

J.H. Dunning , 'Governments, Economic Organization and International Competitiveness', University of Reading Discussion Papers in International Investment and Business Studies (No. 130, March 1989).

For a further analysis see J.H. Dunning The Globalization of Firms and the Competitiveness of Nations (Lund: The University of Lund, 1990).

For an examination of these relationships see J.H. Dunning , Governments-Markets-Firms; Towards a New Balance', The CTC Reporter (No. 31, Spring 1991).