People, Politics and Productivity: The World Corporation in the 1980s
Wriston, Walter B.
Much has been said and written about the future fate of all of us who live on this planet. In this era of almost instantaneous communication, any new intellectual fashion that catches the attention of the media is repeated endlessly throughout the world. In recent years, these fashions have ranged from the desirability of unlimited growth all the way to the Club of Rome's no-growth formula. Intellectual tides have moved from predictions that the world will soon run out of food and natural resources to a blind faith that new technology will provide for us all. The common denominator of most predictions of doom and gloom is a simplistic belief in straight-line projections combined with an unwillingness to believe that man is capable of innovation to meet his own needs. Like most things in this world, history would suggest that trends, no matter how strong, are not inevitable and can be changed by the concerted actions of mankind.
Today, as always, there is good news and there is bad news. The bad news is that more and more of our human resources are being diverted from productive work into government bureaucracy. The good news is that more and more people all over the world have come to this conclusion. Guido Carli recently wrote, "In the last five years public expenditure has more than doubled with no noticeable improvement in the quantity or quality of service, and with more and more funds going to replenish the coffers of the countless public bodies that dot the Italian landscape."
In the same vein, Norman Macrae has stated that he believes "the marginal productivity of new employees in the government sector has for some time been negative." The point is easily made. Mr. Macrae asks simple questions about productivity, such as: "By how much have crime rates gone down? How far has the legal system become more expeditious? By how much is the urban environment more beautiful and its infrastructure better fitted to meet changing demands?" You can make your own list of questions, but the answers will always be the same. If we in fact have a negative marginal productivity in government, it is clear that if we are to be able to feed ourselves in the future, we cannot do so through government action.
The alternative to declining productivity in the public sector is the increasing productivity of the great global corporations of the world. They are even now the principal agents for the peaceable transfer of technology and ideas from one part of the world to the other. Since no country has a monopoly on industrial and agricultural skills, the transfer of men, money, and ideas is necessary if we are to raise the world's living standards. The perceptions of the needs of mankind are not uniform in the public and private sectors. As a general rule, the politicians have been engaged in fragmenting the world, while the multinational corporations have been viewing the planet as one marketplace. The clash of these perceptions has understandably created a great deal of intellectual friction, which has been manifest in great outpourings of scholarly and not-so-scholarly attempts to clarify the issues between the public and the private sectors. We have witnessed lengthy United Nations debates about such weighty details as whether we should call a company multinational, transnational, international, supranational, or perhaps some other term in some other language. None of this rhetoric has really been useful. It is the kind of clarification that consists of filling in the background with so many details that the foreground sinks out of sight. What has tended to be pushed from sight in the current debates is the real nature of the choice confronting us. The arguments that use the world corporation as their focus are only a proxy for the real issue. The present struggle for control of the future is not between national companies vs. international, nor European companies vs. American or Japanese, nor even the currently fashionable theme of the developed countries vs. the developing. The debate is really the continuation and intensification of the battle between two historic ideas concerning economic and social behavior.
One idea, associated with words like free trade and free enterprise and laissez-faire, holds that business is politically neutral, existing only to satisfy the economic desires of the world's people. The other, older idea holds that business is-or should be-the chosen instrument of the state. Or, what amounts to the same thing, that the state should be the chosen instrument of business.
Today's global corporation is the modern heir to the tradition planted here in the United Kingdom by the Industrial Revolution and harvested most abundantly in the singularly free economy of the early United States. Despite the enormous success of the world corporation in supplying the world's needs, the state-dominated system that it displaced not only dies hard, but in some areas is expanding. That system, once known as mercantilism, remained dormant for a period, but it has already been resurrected twice, first as nineteenth century imperialism and then as twentieth century totalitarianism.
Today, much of the criticism of the global company is really the disquieting voice of neo-mercantilism. In this larger historical context, the themes being repeated today are distressingly familiar. Protectionist movements are becoming prominent, and governments are manifesting desires to restrict and control the freedom of the world corporation to conduct its business. It has all been heard before; the challenge comes again from sovereign authority and from affected interest groups using that authority to resist the market allocation of capital, labor, and purchasing power to areas of greater productivity.
Sometimes it would seem that the more successful the enterprise is in supplying the real needs of the world's people, the louder become the voices of protest. Often, nationalism is used as the stick to beat a world corporation. At the beginning of the 1960s, when more than 60% of the large multinationals were based in the United States, best-selling books all over Europe were sounding the alarm over what Servan-Schreiber called, "This strange phenomenon, dangerous and massive in its size and power... so hypnotizing and overwhelming, that it threatens to plunge us from our present ignorance into total despair." This inflammatory rhetoric never had any connection with reality, but it served a political purpose. Ten years later, only slightly more than half of the world's multinationals were headquartered in America, and books were being published in New York with titles like The Infiltrators, warning Americans about the impending takeover of their factories by Volkswagen and the Rothschilds.
All such controversies overlook a fundamental point. In the tough, competitive global marketplace, it doesn't matter where a multinational corporation's headquarters are located. Any global company, whether based in America, Europe, Japan, or somewhere else, will sooner or later have to operate under the same economic and political rules that govern its international competitors. In order to stay in business, any company will be compelled to get its materials for production from wherever they are available most cheaply, conduct its processing activities wherever they are most efficient, and market its goods wherever there is a demand. And all of this has to be done in compliance with a bewildering variety of laws and value systems which have been constructed by our nation-states.
It is precisely this economic necessity that makes the multinational enterprise our best instrument for assuring the most efficient, most thrifty use of the world's resources. In an era when many people express concern that those resources might be squandered, the need to make them go as far as possible and to avoid waste is an economic and human necessity. Yet, efficient use of the world's resources does not generate much applause for the world corporations.
The neo-mercantilistic ideas have never died and furnish ammunition for critics of multinationals both at home and abroad. These familiar themes are articulated by some in developing countries who accuse multinational companies of milking the economies of their host countries by taking more out of them than they put in. At the same time these charges are leveled at the world's corporations abroad, labor leaders at home are averring that multinationals are exporting capital, technology, and jobs that might otherwise be used to build the domestic economy.
It has become a two-front war. If the international managers prove to a host country that they are creating more wealth for it than they are taking out, this very evidence will be used against them at home. If they prove to the labor unions at home that, on balance, they are creating more jobs at home than they export, or prove to their governments that the repatriated foreign earnings are good for the country's balance of payments, that evidence fuels the arguments of their foreign critics.
Because of their intellectual training, many of the critics are quite sincere in believing that international managers are lying when they say that everybody profits from their operations, home and host countries alike. The critics cannot accept this simple truth because they have been taught to believe that business is what twentieth century mathematicians call "a zero-sum game." They believe that a profit for anyone must mean a loss for someone else. But business is not a poker game that transfers a static pot of money from one player to another. It is a creator of wealth.
The zero-sum-game concept of business is the modern reincarnation of pure mercantilism. It belongs to the age of Louis XIV and the economic philosophy of Colbert, who said of French prosperity, "This state is flourishing not only in itself but also by the deprivation which it has inflicted on all the neighboring states."
The dead hand of Colbert is easy enough to see when one country after another hoists the flag of protectionism. But there is another, less familiar ingredient in his unhappy legacy with which we are also burdened. Adam Smith described Colbert as "... a man of probity... and of abilities... every way fitted for introducing method and good order into the collection and expenditure of the public revenue." Smith went on to say that because Colbert was "accustomed to regulate the different departments of public offices, and to establish the necessary checks and controls for confining each to its proper sphere... he endeavored to regulate the industry and commerce of a great country upon the same model as the departments of a public office."
The economic consequences of Colbert's policies were, of course, disastrous. Business can no more be run like a government than a government can be run at a profit. But there are still people of "probity and ability" who do not understand the difference and who, with what they believe to be the best of intentions, may wind up doing for the global economy what Colbert did for Europe.
Free enterprise, as preached by Adam Smith and his band of disciples, has never meant license to conduct business without limitations imposed by government. It is the acknowledged function of government to formulate and enforce laws designed to insure, so far as possible, equality, liberty, and justice for its citizens. Free enterprise asks only that, within those guidelines, no commercial enterprise should enjoy extraordinary privileges, and none should be laid under extraordinary restraints. This is all the modern global company requires to become a highly effective institution for making optimum use of the world's resources.
The concept of global efficiency, however, places a great strain on even the most liberal of modern nation-states. Each ruling government is primarily concerned with optimizing conditions within its own boundaries. All countries today participate to some degree in international specialization, contributing to the world economy what they can do best, and therefore most profitably. But every country at some point subordinates its possible economic advantages to considerations of military security, domestic stability, the protection of home industries or economic groups, and even national pride. Many of the developing countries struggling to feed and educate their people deem it more prestigious to build a steel mill than a fertilizer plant or public schools.
National governments often assert their dominance over business enterprises not only in pursuit of competitive advantage abroad, but also in furtherance of domestic political policies. No country permits completely free enterprise, but controls in today's world tend to come from one of two diametrically opposed political extremes, with the freer countries positioned somewhere in the middle of the spectrum.
One type of government tends to organize its economy to favor public ownership of enterprise. It adopts policies of income redistribution, regulates consumption, maximizes central planning and government allocation of resources. At the authoritarian extreme of this system are countries like The Peoples Republic of China, the USSR, the nations of Eastern Europe, North Korea, Vietnam, Cambodia, and the socialist countries of Africa. The fruits of this system are written plain in history.
The medium-term economic consequences of such policies always involve depressed internal growth rates and can lead to extreme economic degeneration, as we saw in Nasser's Egypt, Sukarno's Indonesia and Allende's Chile.
At the other end of the political spectrum, another group of countries pursues policies that favor private business ownership, deliberately depress current consumption in favor of capital accumulation, permit market mechanisms rather than fiat to allocate resources, tightly control their labor unions, and generally practice social regimentation. These states tend to take a positive view of the world economy and favor policies that foster global interdependence. They usually also experience relatively strong growth rates. But very often these societies produce an increasing mal-distribution of income which may ultimately create an explosive social situation. If the situation deteriorates, it is not unusual to see what one economist euphemistically calls "a strong military infrastructure" take over the government.
All the other national economies are strung out somewhere along the spectrum between these extremes. The most comfortable location is somewhere as close as possible to the middle, but it takes an effort to stay there. Every economic crisis creates pressure on governments to flirt with one extreme or the other, sometimes with both at the same time. There is always the temptation to solve short-term problems by exchanging them for long-term instability.
In the long run, both types of controlled economies are unstable. The progressive ruination of the economy in the one case and the social regimentation and inequitable income distribution in the other cause internal pressure that will press for radical change. Such countries can either change rather slowly, or they can abruptly flip, from one kind of economy to the other. When internal pressures become irresistible, the regimes in charge may either give ground gradually or be quickly replaced. The transfers of leadership from Sukarno to Suharto, Nasser to Sadat, Allende to Pinochet, and Spinola to Soares are but very recent examples of how rapidly events occur.
No matter where a government is positioned on the political spectrum, often the public and private sectors are in conflict. This natural interplay has generated a great deal of nonsense about the relative power of multinationals and governments. The facts are clear and simple.
A multinational corporation, no matter how large, is essentially helpless in the hands of a nation-state, no matter how small. Despite overwhelming evidence of this truism, investigations abound. The Group of Eminent Persons appointed by the United Nations Economic and Social Council in 1972, at the instigation of the then-communist government of Chile, started an investigation of the relative powers of multinational companies and the sovereign states. It is not now, nor ever has been, a contest. I can give them one example right next door to the UN headquarters in New York, where I happen to live.
New York, as you may know, is a hard place to park an automobile. Members of missions assigned to the UN enjoy diplomatic immunity. They can, if they choose, ignore the No Parking signs-which many of them do, to the constant irritation of less privileged New Yorkers. If I park my own car in the neighborhood, the Police Department tows it away. And the head of every global company is in the same fix.
There you see the true difference between sovereignty and the lack of it. If the example I chose seems a little absurd, it is no more so than books with titles like Sovereignty at Bar. Or for that matter, some of the reports that were turned out by the Group of Eminent Persons who parked their cars outside the UN building, in clear defiance of local laws.
The same may be said of the accusations of neocolonialism. Paolo Rogers of Olivetti put it well when he asked: "What kind of colonialism could it be when taxes are paid to the colonized country? Multinational corporations, whether U.S.- or Europe-based, when investing abroad, have no power to infringe on the sovereignty of host governments, and like it or not, they are bound to abide by local laws, rules and regulations."
As a last resort, all the multinational company can do in its relations with a sovereign state is to make an appeal to reason. If this fails, capital, both human and material, will leave for countries where it is more welcome. Whether or not there is a shortage of capital is the subject of debate, but no one asserts there is a surplus. Since men and money will in the long run go where they are wanted and stay where they are well treated, capital can be attracted but not driven.
In the long run, it all comes down to this: the future of the global company in any one area will be determined by the degree to which a particular government is willing and able to sacrifice the material well-being of its citizens to noneconomic factors. Everything we've discussed thus far will be resolved almost automatically when our nation-states make up their minds concerning this one basic question.
The reality of a global marketplace has been the driving force pushing us along the path of developing a rational world economy. Progress that has been made owes almost nothing to political imagination. It has been the managers of the multinational corporations who have seen the world whole and moved to supply mankind's needs as efficiently as politics would allow. The thousands of products that have helped raise the living standards of mankind have made this economic process highly visible to millions of people. Far too many of the world's people have now seen what the global shopping center holds in store for them. They will not easily accept having the doors slammed shut by nationalism. The reason for optimism about the future of the world corporation rests on the solid base that it is the best way that has yet been found to organize our society to give it the optimum chance of supplying the needs of mankind in an increasingly crowded world.