Transcript Oatley chp 8 9-ed.ppt

FDI AND MNCS
Oatley, Chapters 8 & 9
Ch.8: Multinational Corporations in the
Global Economy
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A corporation in which one country owns a facility in
a foreign country, thus extending managerial control
across national borders.
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This managerial control enables the firm to make decisions about
how and where to employ resources.
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Decisions made are based on global strategies for corporate
success rather than on basis of conditions within any of the
countries in which the firm conducts its business.
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Multinationational corporations higlight the tensions inherent in an
economy that is increasingly organized along global lines and
political systems that continue to reflect exclusive national
territories.
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2 perspectives:
MNCs as productive instruments of a liberal economic order:
MNCs ship capital to where it is scarce, transfer technology
and management expertise from one country to another,
and promote the efficient allocation of resources in the
global economy
 MNCs as instruments of capitalist domination: MNCs control
critical sectors of their hosts’ economies, make decisions
about the use of resources with little regard for host country
needs, and weaken labor and environmental standards
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Regardless of this divergences, there is consensus that
MNCs are the primary drivers and beneficiaries of the
dynamics of globalization
MNCs in the Global Economy
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MNC is more than a firm that engages in
international activities
MNC: a firm that controls and manages production
establishments – plants – in at least two countries
MNCs mean that extension of corporate ownership
and corporate decision-making power across
national borders
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MNCs are involved in economic production, international
trade, and cross-border investment
Example of General Electric (GE), which is regularly ranked among
the world’s largest MNCs. GE controls some 250 plants located in
26 countries in North and South America, Europe and Asia. The
ability to engage in international trade is equally critical to GE’s
success.
MNCs have existed since late 19th century
This first wave of multinational businesses was dominated by Great
Britain. British firms invested in natural resources and manufacturing
within the British Empire, the U.S, Latin america and Asia.
American firms dominate after WW2
European and Japanese governments discouraged the outward foreign
direct investment (fearing risk to balance-of-payments consequences of
capital flows)
European Economic Community led to more US investment in Europe
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US MNCs’ dominance diminished since 1960s when
first European and Japanese MNCs began to
invest overseas.
Later MNCs based in Asia and Latin America
Unprecedented growth in MNCs in recent decades
(see Figure 8.1)
61,582 MNCs by 2000
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Foreign Direct Investment (FDI)
FDI: when a firm based in one country builds a new
plant or a factory, or purchases and existing one, in a
second country
FDI in 2000 reached more than $1 trillion
UN estimates that MNCs currently produce 10% of the
world’s GDP and employ 54.2 million people
worldwide
100 largest firms account for more than 12% of the
total foreign assets controlled by all MNCs, for 14% of
sales, and 13% of MNC employment
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MNCs account for 1/3 of world trade
Most of this is intrafirm trade: trade between an MNC
parent and its foreign affiliates
Intrafirm trade accounts for 30-40% of world trade
MNCs activities are overwhelmingly concentrated in
advanced industrial countries
75% of MNC parent corporations are based in advanced
industrial countries
Advanced industrial countries are also the most important
recipients of FDI
But in last 20 years we see increasing MNC activities in the
developing world
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MNC investment in a small number of Asian and Latin American
countries
Asia’s share of FDI doubled, rising from one-tenth of the total, between
1986 and 1997, with China alone attracting more than half of all FDI
inflows into East Asia between 1993 and 1997.
Brazil, Argentina, Chile and Mexico captured 53 percent of FDI inflows
in Latin America.
Thus, MNC investment in the developing world has increased during
the last twenty years, but the majority of this investment has been
concentrated in a very small number of developing countries.
MNC parents based in Hong Kong, China, South Korea, Singapore,
Taiwan, Venezuela, Mexico, and Brazil
Yet these developing world MNCs considerably smaller than MNCs in
advanced industrialized countries (exceptions: Cemex, Samsung,
Hutchinson Whampoa ranked amongst the world’s 100 largest MNCs
in 2002).
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Debate about globalization (criticisms) that MNCS shift jobs from
advanced capitalist countries to developing countries.
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Sweatshops: MNC affiliates based in developing countries are
sweatshops engaged in systematic exploitation.
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Erosion of government regulations designed to
protect workers, consumers, and the environment
These are topics to be examined in detail in the
subsequent chapter
Economic Explanations for MNCs
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Opting for a large investment in a far-off country is
not an obvious choice for corporate participation in
the global economy
Why not simply handle economic transactions
through the market (instead of between MNC
parent firms and their foreign affiliates)?
Why not sign contracts with locally owned firms that
produce and then sell them to the retailer? This is
common in the apparel/textile industry
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But, in some cases transactions are taken out of the
market
E.g. Volkwagen in Mexico
Volkswagen took economic transactions that would
otherwise have taken place between suppliers of
components, assemblers, and corporate
headquarters out of the market and placed them
under the sole control of Volkswagen corporate
headquaters
Why did Volkswagen (and other MNCs) do this?
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MNCs buy inputs from factories that it owns, and it
sells a portion of its output to factories that it owns
We need to analyze the specific characteristics of
the economic environment in which MNCs operate
Locational advantages and Market imperfections
Locational Advantages
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Locational advantages derive from specific country
characteristics that provide opportunities for MNCs
to internationalize their activities
3 specific country charateristics:
 Large
reserve of natural resources
 Large local market
 Opportunities to enhance the efficiency of the firm’s
operations
Market Imperfections
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Locational advantages help us understand why some
firms opt to internationalize activities, but they do not
help us to understand why firms sometimes choose to
take the resulting transactions out of the market and
place them within a single corporate structure.
Market imperfections: arises when the price mechanism
fails to promote a welfare-improving transaction. Firms
will be unable to profit from an existing locational
advantage unless they internalize the international
transaction. 2 different types of market imperfections
have been used to understand 2 different types of
internalization: horizontal integration and vertical
integration.
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Horizontal integration: occurs when a firm creates multiple production
facilities, each of which produces the same good or goods (e.g. auto
producers)
Cost advantage is gained by placing a number of plants under common
administrative control, important when intangible assets are the most
important source of a firm’s revenue
Intangible asset: value derived from knowledge or skills possessed by firm’s
team of human inputs (e.g. Coke’s formula, software, etc.)
Intangible assets are often difficult to sell or license to other firms at a price
that accurately reflects their true value: in other words, markets will fail to
promote exchanges between a willing seller of an intangible asset and a
willing buyer (“fundamental paradox of information”)
Create additional production sites: integrate horizontally: firm realizes full
value of its intangible asset without having to try to sell it in the open
market
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Vertical integration: refers to instances of internalization of transactions for
intermediate goods; outputs of one production process that serves as an input into
another production process
E.g. crude oil and refineries and retail outlets
Specific assets: investment that is dedicated to a particular long term economic
relationship (e..g shipowner and railroad; agreement on building of a rail spur (A
spur is a railroad track on which cars are left for loading and unloading) to the
dock; a specific asset)
But it is difficult to write and enforce long-term contracts
Problem of renegotiation of initial contract conditions
Opportunistic behavior once investment has been made
Awareness of this possibility may prevent investment in the first place
In the book’s example, the railroad owner will recognize that the shipowner has an
incentive to behave opportunistically after the spur is built and will refuse to build
the spur
Vertical integration eliminates the problems arising from specific assets
Locational Advantages, Market
Imperfections, and MNCs
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Although locational advantages and market
imperfections often occur independently of each other,
we expect to see MNCs-firms that internalize economic
transactions across national borders- when both factors
are present.
Locational advantages tell us that cross-border activity
will be profitable, whereas market imperfections tell us
that the firm can take advantage of these opportunities
only by internalizing the transactions within a single
corporate structure.
Locational Advantages, Market
Imperfections, and MNCs
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Table 8.6
When locational advantages and intangible assets
are both present, we expect to find horizontally
integrated MNCs that have undertaken foreign
investment to gain market access.
Horizontally integrated MNCs are therefore often
present in manufacturing sectors. FDIs by auto
producers in the markets of other advanced
industrial countries are perhaps the prototypical
example of this type of MNC.
Locational Advantages, Market
Imperfections, and MNCs
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When locational advantages combine with specific
assets, we expect to find vertically integrated
MNCs that have invested in a foreign country either
to gain secure access to natural resources or to
reduce their costs of production.
Locational Advantages, Market
Imperfections, and MNCs
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The best example of firms investing to secure access
to natural resources is found in the oil industry. An
oil refinery must have repeated transactions with
the firms that are drilling for oil.
The refinery is highly vulnerable to threats to shut
off the flow of oil, because inconsistent supply
would be highly disruptive to the refinery and its
distribution networks. Thus, a high degree of vertical
integration in the oil industry is expected.
Locational Advantages, Market
Imperfections, and MNCs
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When locational advantages exist, but there are neither
intangible nor specific assets, we do not expect to find a
significant amount of MNC activity.
Instead, firms will prefer to purchase their inputs from
independent suppliers and to sell their products through
international trade, or they will prefer to enter into
subcontracting arrangements withs firms located in the foreign
country and owned by foreign residents. e.g apparel
production. Major retailers such as GAP rely heavily upon
producers located in developing countries, but they rarely own
the firms that produce the apparel they sell.
Locational Advantages, Market
Imperfections, and MNCs
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In those industries in which market imperfections exist, but locational
advantages are absent, it is less likely to find significant amounts of MNC
activity.
In such instances, firms do have an incentive to integrate horizontally and
vertically, but integrated firms cannot easily expand sales into foreign
markets, are not heavily dependent on foreign sources of raw materials
and cannot easily reduce their costs by exploiting cost differentials between
their home country and foreign countries.
As a result, firms in these industries have little incentive to extend their
activities across national borders.
MNCs and Host Countries
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Positive externalities: arise when economic actors in the host country that
are not directly involved in the transfer of technology from an MNC to a
local affiliate also benefit from this transaction.
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Transfer of savings, technology, and managerial expertise to host countries
can allow local producers to link into global marketing networks
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Yet, opening a country to MNC activity does not guarantee that the
benefits will be realized
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Dilemma for host countries: attract MNCs to capture the benefits that FDI
can offer, but they need to ensure that activities by MNCs actually deliver
those benefits.
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Next chapter: most of the politics of MNCs revolve around government
efforts to manage this dilemma
Chapter 9: The Politics of MNCs
“The regime of nation states is built on the principle that the people in
any national jurisdiction have a right to maximize their well-being, as they
define it, within that jurisdiction. The MNC, on the other hand, is bent on
maximizing the well-being of its stakeholders from global operations,
without accepting any responsibility for the consequences of its actions
in individual national jurisdictions”.
The tension inherent in these overlapping decision-making frameworks
shapes the domestic and international politics of MNCs. In the domestic
arena, most governments have been unwilling to forgo the potential
benefits of foreign investment, yet few have been willing to allow foreign
firms to operate without restriction.
Most governments have used national regulations and have bargained
with individual MNCs to ensure that the operations of foreign firms are
consistent with national objectives.
Chapter 9: The Politics of MNCs
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Governments’ efforts to regulate the activities by
the MNCs carry over into international politics. Host
countries, especially in the developing world, pursue
international rules that codify their right to control
the activities of foreign firms operating within their
borders.
Countries that serve as home bases for MNCsessentially the advanced industrialized countriespursue international rules that protect their overseas
investments by limiting the ability of host countries to
regulate the activity by MNCs.
Regulating Multinational Corporations
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Governments prohibited foreign firms from
engaging in certain activities, and they have
required them to engage in others. All of these
regulations have been oriented towards the same
goal: extracting as many of the benefits from the
FDI as possible.
Even though both developed and developing
countries regulated MNC activities, developing
countries have relied far more heavily on such
practices.
Regulating MNCs in the Developing World
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In the early postwar period, most developing
country
governments
viewed
MNCs
with
considerable unease. Governments in newly
independent developing countries wanted to
establish their political and economic autonomy
from former colonial powers, and
often this
entailed taking control of existing foreign
investments and managing the terms under which
new investments were made.
Regulating MNCs in the Developing World
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Most developing countries entered the postwar
period as primary-commodity producers and
exporters. Yet MNCs often controlled these sectors
and the export revenues they generated.
Regulating MNCs in the Developing World
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In agricultural products, the fifteen largest
agricultural MNCs controlled approximately 80
percent of developing countries’ exports. And
although foreign direct investment shifted toward
manufacturing activity during the 1960s, MNC
affiliates also played an important role in these
sectors.
Regulating MNCs in the Developing World
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Allowing foreign corporations to control critical
sectors raised political and economic concerns. The
central political concern was that foreign ownership
of critical natural resource industries compromised
the hard-won national autonomy achieved by the
developing countries’ struggle for independence.
Economic concerns arise as governments adopted
import substitution industrialization (ISI) strategies. If
MNCs were allowed to control export earnings,
goverments would be unable to use these resources
to promote their development objectives.
Regulating MNCs in the Developing World
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In response to these concerns, developing countries regulated,
not blocked FDI.
Governments sought to control access to their economies to
ensure that the benefits were in fact delivered. Governments
did block foreign investment in some sectors of the economy.
For example, MNCs were excluded from ownership of public
utilities, iron and steel, retailing, insurance and banking and
extractive industries. When foreign firms already owned
enterprises in these sectors, governments nationalized the
industries. Through nationalization, the host-country government
took control of an affiliate created by an MNC.
Regulating MNCs in the Developing World
 Most
governments created regulatory regimes to
influence the activities of the MNCs that did invest.
Many developing countries required local affiliates to
be majority owned by local shareholders, instead of
allowing MNCs to own 100 percent of the affiliate.
Local ownership, governments believed, would translate
into local control of the affiliate’s decisions.
 Governments also limited the amount of profits that
MNC affiliates could repatriate, as well as how much
affiliates were allowed to pay parent firms for
technology transfers.
Regulating MNCs in the Developing World
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Governments
also
imposed
performance
requirements on local affiliates in order to promote
a specific economic objective.
If a government was trying to promote backward
linkages, it required the affiliate to purchase a
certain percentage of its inputs from domestic
suppliers. If the government was promoting export
industries, it required the affiliate to export a
specific percentage of its output.
Regulating MNCs in the Developing World
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Not all developing countries adopted identical
regimes. Governments that pursued ISI strategies
imposed the most restrictive regimes. India after
achieving independence was determined to limit the
role of MNCs in the Indian economy. It expelled
existing enterprises that owned more than 40
percent of the local subsidiary by forcing them to
choose between selling equity to Indian firms or
leaving India together.
Regulating MNCs in the Developing World
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Governments
that
adopted
export-oriented
development strategies, such as the East Asian newly
industrialized countries were relatively more open to
FDI. Singapore and Hong Kong imposed almost no
restrictions on inward foreign investment, to the
contrary, Singapore based its entire development
strategy on attracting foreign investment.
South Korea and Taiwan were less open to investment
than Singapore and Hong Kong. In both countries, the
government developed a list of industries that were
open to foreign companies, but proposals to invest in
these industries were not automatically approved.
Regulating MNCs in the Developing World
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Still Taiwan and South Korea did more to attract
foreign investment than did most governments in
Latin America or Africa. Beginning in the mid-1960s
and early 1970s, both the Taiwanese and the South
Korean gvt created export-processing zones (EPZs)
to attract investment.
Regulating MNCs in the Developing World
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Export processing zones are industrial areas in which the
government provides land, utilities, a transportation
infrastructure, and buildings to the investing firms, usually at
subsidized rates.
Foreign firms based in EPZs are allowed to import components
free of duty, as long as all of their output is exported. Taiwan
created the first EPZ in East Asia in 1965 and South Korea
created its first in 1970. These assembly and export platforms
attracted a lot of investment from American, European and
Japanese MNCs and helped to fuel the takeoff of East Asian
exports during the 1970s.
Regulating MNCs in the Developing World
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Most developing countries have greatly liberalized
FDI since the 1980s. Sectors previously closed to
foreign investment, such as telecommunications and
natural resources, have been opened.
Why did these developing countries ease their
restrictions on MNC activities?
-The
restrictive-investment
regimes
yielded
disappointing results. FDI fell during 1970s as the
wave of nationalizations and tight restrictions led
MNCs to seek opportunities in less risky markets.
Regulating MNCs in the Developing World
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MNCs that did operate in the developing countries
were reluctant to bring in new technologies, and the
sectors that governments had nationalized
performed well below expectations.
In short, efforts to foster industrialization by
managing MNC activity yielded disappointing
results. Second the decision to liberalize FDI came
as part of the broader shift in development
strategies. Governments intervened less in all
segments of the economy as they adopted marketbased strategies.
Regulating Multinational Corporations in the Advanced
Industrialized Countries
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The typical advanced industrialized country has been more
open to FDI and less inclined to regulate the activities of MNCs
than the typical developing country has been.
Only Japan and France enacted regulations that required
explicit government approval for a manufacturing investment
by a foreign firm.
Most governments of industrialized countries have excluded
foreign firms from owning industries seemed “critical” but they
have not drawn the lists of sectors from which foreign firms are
excluded so broadly to discourage MNC investment.
Regulating MNCs in the Advanced Industrialized
Countries
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Until 1970, Japan tightly regulated inward FDI.
Japanese government ministries reviewed each
proposed foreign investment and approved very
few. Proposals that were approved usually limited
foreign ownership to less than 50 percent of the
local subsidiary. Such restrictions were motivated by
the Japanese gvt’s economic development
objectives.
Regulating MNCs in the Advanced Industrialized Countries
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Government officials feared that Japanese firms
would be unable to compete with MNCs if FDI was
fully liberalized.
In particular, the Japanese government feared that
unrestricted FDI would prevent the development of
domestic industries capable of producing the
technologies deemed critical to the country’s
economic success.
Regulations on inward investment, formed an
important component of Japan’s industrial policy.
Regulating MNCs in the Advanced Industrialized
Countries
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Since the late 1960s, Japanese investment
restrictions have been greatly liberalized. In 1967,
Japan increased the number of industries open to
foreign investment and began to allow 100
percent ownership in some sectors. Additional
measures taken in the 1970s and early 1970s
further liberalized inward FDI, so that Japan now
has no formal barriers to such investments.
Regulating MNCs in the Advanced Industrialized
Countries
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Many scholars argue that structural impediments
continue to pose obstacles to foreign investment in
Japan. For example, the crossholding ownership (A
situation in which a publicly-traded corporation owns stock in
another publicly-traded company) that characterizes
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Keiretsu groups makes it difficult for foreign firms to
purchase existing Japanese enterprises.
Thus, even though gvt restrictions on FDI have been
eliminated, Japan continues to attract only a small
share of the world’s foreign investment.
Regulating MNCs in the Advanced Industrialized
Countries
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Despite the general tendency toward greater openness,
governments in the advanced industrialized countries have
been sensitive to foreign control of critical sectors.
During the 1960s, the French government became concerned
about losing economic autonomy as a result of of the large
FDIs made by American MNCs following the formation of the
EU.
French government believed that industries like electronics and
computers, defense, aerospace and the nuclear industry were
too important to be controlled by foreign companies.
Regulating MNCs in the Advanced Industrialized
Countries
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The French government instituted a more restrictive
policy governing all inward direct investment.
Proposed foreign investments were carefully
screened, and many were rejected.
In cases where a foreign MNC was attempting to
purchase an existing French firm, the government
would actively seek a French buyer. These more
restrictive measures were greatly eased beginning
in the mid-1980s and today France actively seeks
MNC investments.
Regulating MNCs in the Advanced Industrialized
Countries
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A similar reaction in the US in the late 1980s.
During the 1980s, Japan became a major direct
investor in the US, as did European multinationals.
The rapid rise of FDI, especially by Japanese MNCs
sparked concerns about foreign ownership of
critical sectors of the American economy,
particularly in companies and semiconductors which
are the foundation of modern electronics.
Regulating MNCs in the Advanced Industrialized
Countries
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In 1988, the Congress passed legislation the Exon-Florio
Amendment to the Defense Production Act of 1950 that
allowed the executive to block foreign acquisitions of American
firms for reasons of national security.
Although such concerns diminished during the 1990s as
Japanese investment dwindled, they reemerged in the 2000s.
Regulating MNCs in the Advanced Industrialized
Countries
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The Dubai Ports World controversy began in February 2006
and rose to prominence as a national security debate in
the United States. At issue was the sale of port
management businesses in six major U.S. seaports to a
company based in the United Arab Emirates (DP world) and
whether such a sale would compromise port security.
The United States House of Representatives held a vote on 16
March 2006 on legislation that would have blocked the
DP World deal, with 348 members voting for blocking the
deal, and 71 voting against.
The company could not operate in the United States after this.
Bargaining with Multinational Corporations
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Host countries and MNCs often bargain over the
terms under which MNCs invest.
The more the host country has exclusive control over
things of value to the MNC (such as natural
resources, a large domestic market, access to
factors of production that yield efficiency gains),
the more bargaining power it has.
Bargaining with Multinational Corporations
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Equally critical is the extent to which the MNC
exerts monopolistic control over things of value to
the host country. Does the MNC control technology
that cannot be acquired elsewhere? More broadly,
are there other MNCs capable of making and
willing to make, the contemplated investment?
The more the MNC has exclusive control over things
the host country values, the more bargaining power
it has.
Bargaining with Multinational Corporations
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Host countries have the greatest bargaining power
when they enjoy a monopoly and the MNC does not.
In such cases, the host country should capture most of
the gains from investment.
In contrast, an MNC has its greater advantage when
it enjoys a monopoly and the host country does not. In
these cases, the MNC should capture the largest share
of the gains from investment. Bargaining power is
approximately equal when both sides have a
monopoly. The gains should also be evenly distributed
when neither side has monopoly over things the other
values.
Bargaining with Multinational Corporations
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The obsolescing bargain: The MNC cannot easily remove its
fixed investment from the country, so the investment becomes a
hostage. In addition, the MNC’s monopoly over technology
diminishes as the technology is gradually transferred to the
host country and indigeneous workers are trained. This leads to
MNCs losing their earlier bargaining power (esp. in natural
resource industries).
The host country can exploit this power shift to renegotiate the
initial agreement and extract a larger share of the gains from
the project, i.e nationalizations in the 1960s and 1970s.
Bargaining with Multinational Corporations
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MNCs enjoy more bargaining power than host
countries in low-skilled labor intensive manufacturing
investments. No host country enjoys a monopoly on
low-skilled labor, MNCs can pick and choose
between many potential host countries. Often
investment in low-skilled manufacturing entail a
relatively small amount of fixed capital that can be
readily moved out of a particular country.
Bargaining with Multinational Corporations
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Evidence that MNCs enjoy greater bargaining
power than do host countries when it comes to
manufacturing investment can be seen in the
growing competition between host countries to
attract such investment.
Locational advantages: packages host countries
offer to MNCs that either increase the return of a
particular investment or reduce the cost or risk of
that investment.
Bargaining with Multinational Corporations
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Tax incentives (reduced corporate income tax rate),
tax holidays
MNCs also exempted from import duties, many
advanced industrialized countries also offer MNCs
direct financial incentives (provided as a grant from
the government to the MNC or subsidized loan).
Bargaining with Multinational Corporations
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The typical advanced industrialized country
has less been inclined to try to restrict the
activities of foreign firms than has the typical
developing country.
Bargaining with Multinational Corporations
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Three factors explain this:
Developing countries have been more vulnerable to
foreign domination than advanced industrialized
countries. The advanced industrialized countries
have more diversified economies than the
developing countries, consequently, a foreign
affiliate is more likely to face competition from
domestic firms in an advanced industrialized country
than in a developing country.
Bargaining with Multinational Corporations
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There is a strong correlation between a country’s role as a
home for MNCs and its policies toward inward FDI. The two
largest foreign investors during the last 140 years- the US and
the UK-also have been the most open to inward foreign
investment.
Finally, there have been fundamental differences in how gvts
approach state intervention in the national economy. Although
many developing countries pursued ISI strategies that required
state intervention, most advanced industrialized countries have
been more willing to allow the market to drive economic
activity.
The International Regulation of Multinational
Corporations
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Even though there are partial rules, set out within the
WTO and OECD, there are no comprehensive
international rules governing the activities of the
MNCs.
The International Regulation of Multinational
Corporations
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The reason is that conflict between the capitalexporting developing countries has prevented
agreement on such rules. Developing countries have
advocated international rules that codify their right to
control foreign firms operating within their borders.
Advanced industrialized countries have pursued rules
that protect foreign investment by limiting the ability
of host countries to regulate the MNCs operating in
their economies. Hence the lack of a consensus.
The International Regulation of Multinational
Corporations
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International rules governing FDI have been based on four
legal principles.
Foreign investment are private property to be treated at least
as favorably as domestic private property.
Second, governments have a right to expropriate foreign
investments, but only for a public purpose.
Third, when a government does expropriate a foreign
investment, it must compensate the owner for the full value of
the expropriated property.
Finally, foreign investors have the right to appeal to their home
country in the event of a dispute with the host country.
The International Regulation of Multinational
Corporations

Such principles were accepted by capital-exporting
and capital-importing countries throughout the 19th
cc.
The International Regulation of Multinational
Corporations

The capital-importing countries began to challenge
these legal principles following WWI. The first
challenge came in the Soviet Union, after 1917rejection of private property. The comprehensive
nationalization of industry that followed “constituted
the most significant attack ever waged on foreign
capital”.
The International Regulation of Multinational
Corporations



Led by the United States, the advanced industrialized
countries, in their role as capital exporters, have placed
greatest emphasis on creating international rules that regulate
host-country behaviour in order to protect the interests of the
MNCs.
Developing countries by contrast, in their role as capital
importers have placed greatest emphasis on creating
international rules that regulate the behavior of MNCs so that
those countries maintain control over their national economies.
This basic conflict has prevailed for more than fifty years of
discussions about international investment rules and prevented
agreement on comprehensive rules.
The International Regulation of Multinational
Corporations

Throughout the 1960s and 1970s, developing
countries undertaken a number of efforts to create
international investment rules that reflected their
interests as capital importers, and sought
international recognition of their right to exert full
control over all economic activity within their
territories. pp. 206-207. Such efforts met opposition
from the advanced industrialized countries.