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A A New Transnational Corporateions: social structure of accumulation?
Profitability, Investment and Growthe Social
Structure of Accumulation for Long Wave
Upswing in the World Economy?
[12 December7 November1.334.305 May 2005] [10am] [7,702823 words]
Phillip Anthony O'Hara
Global Political Economy Research Unit
Department of Economics
Curtin University of Technology
GPO Box U1987
Perth. Australia 6845
Email:
Telephone: +61-8-9451-2618
http://pohara.homestead.com/gperu.html
[Version: 2 December 2003; 6,575 words]
I Introduction
According to leading social structure of accumulation (SSA) scholars, the corporation is a critical institution in the accumulation and growth process.[1] As the late David Gordon said, for instance, when examining the SSA role of agents and motors of accumulation:
A relatively stable internal corporate structure is … necessary in order to permit capitalist decision-making. … [And s]ome moderation of competition is necessary to prevent the kind of economic instability which would undermine accumulation. [Gordon 1980:13][2]
SSA scholars have tended to examine the question of SSAs from a national perspective, whereas French regulation analysts have generally tried to keep a global view. This paper seeks to follow regulation scholars in this respectthe regulation trend in this respect as we examine the second chapter on the Global System of Power and Accumulation: transnational corporations.. For instance, dDuring the postwar golden age of the 1950s and 1960s, Fordism was the leading system of production-distribution-exchange in the world. Part of this Fordist structure was the dual corporate system of giant, oligopoly corporations in the leading sectors, and the competitive firms that had a derivative relationship to the leading corporations. The oligopoly firms were the technological leaders in the motor vehicle, energy, heavy industry and consumer durable sectors. This partial monopoly position enabled them to have high profits and to reinvest much of this economic surplus into research and development activities that reinforced their top position. The competitive sector had a largely dependency relationship to the leading corporations as suppliers, outsourcers and contractors, supplying moderately important but essentially subsidiary activities when compared to the dominant players.
Over time, however, the dual system of oligopoly-competitive firms broke down somewhat as the dominant firms began to change and some loste their edge to other nations, industries and firms. The old technology industries began to slow down as the product cycle of the postwar boom came to an end and new systems of demand were required to propel growth and accumulation. New players emerged fromin Asia to compete with the old high-wage sectors in the West. High technology sectors emerged in the computing, telecommunications, biotechnology and media sectors that made redundant many of the techniques and products of the old sectors. The new firms that arose depended upon continual innovation, competition and adjustment rather than the establishment methods and products. During the 1980s, and 1990s and 2000s these new areas, sectors and firms came to dominate the industrial landscape at the expense of the old areas, sectors and firms that had to adjust or go into decline.
However, it is by no means obvious that the new transnational corporate system has satisfactorily resolved age-old problems of insufficient profitability and investment.accumulation. Many argue that the existing system has numerous contradictions that inhibit corporate and economy-wide performance. For instance, competition may be too great leading to declining margins and investment. High-tech industries may propel speculative bubbles that inhibit long-term sustainable growth and accumulation. There may be insufficient aggregate demand as supply- side strategies take priority in the age of neoliberalism, downsizing and innovation. The opening up of new markets in Asia may be insufficient in the light of the performance of Eeastern European, sub-Saharan African and Latin American nations. Overall, the contemporary corporate system may be too contradictory to propel sufficient accumulation and growth as profitability fails to materialise in the long-term.
This paper explores in some detail whether the new transnational corporate arrangements are able to promote sufficient global profitability, accumulation and growth and accumulation into the new millennium. The first major section deals with the issue of the structure and dynamics of the new system of corporate organisation and development. In the second main section the ability of this new structure to solve the global problems of productivity, profit and growth are scrutinized. Then in the last major section, the degree to which global market expansion and foreign direct investment (FDI) are able to propel profitability and accumulation are examined vis-à-vis the major contientents of the world. A conclusion follows.
2. The New Transnational Corporate System
A business corporation is defined as a legal and organisational entity that has a potential life beyond that of its current owners, containing; certain internal structures that are outside direct market relations; and concerned primarily with profitability and growth or at least satisficing. A transnational corporation (TNC) is one that owns and controls companies or assets in more than one nation. As UNCTAD (2002a: 14) points out, there are around 65,000 TNCs affiliated to 850,000 firms abroad, with a combined TNC value added of $3.5million, foreign direct investment of $7 trillion, and total sales of $18.5 billion. While during the golden age of the 1950s and 1960s TNCs expanded considerably, it could be argued that it has only really been since the 19870s that TNCs have begun to dominate the increasingly global scene through FDI flows. Indeed, the second era of globalisation (the first was during the 1880s-1914) started in earnest during the 1980s and has been reinforced by the operations of TNCs worldwide since then..
Four main tendencies and three dominant engines of growth have been conspicuous over the past fewcouple of decades in the global corporate economy. The first tendency of the new corporate form is an environment of increasing globalisation in which trade barriers have been reduced substantially, controls on foreign investment were dismantled, and exchange rates became much more flexible throughout the world.[3] These trends have been critical to the growth of the transnational corporations, so that they could be more flexible in the way they function, so that they could either establish subsidiaries in manysome nations, or physically move their operations to other nations, or operate via contractual arrangements and patents. This flexibility is important also in the sense of being able to develop vertical, horizontal, conglomerate, and diversified forms of organisation. Part and parcel of this trend is the requirement that wages and conditions be organised on a relatively deregulated basis, and that temporary or permanent residency regulations arebeing adaptable to the business environment. Through these trends towards flexibility and deregulation of the economic and financial climate, TNCs are supposedly better able to contribute to global growth and development.
The second tendency of this new TNC environment concerns the structure of norms and processes associated with competition and innovation. The old dual corporate system of the golden age was based on oligopoly firms reaping a large surplus that was then put into research and development activities, advertising and other means of extracting economic rents. But with the maturation of this technology and the evolution of sectors and practices, a new form has emerged. This form is essentially Schumpeterian in nature and relates to a complex dialectic of innovation-competition-innovation ad infinitum. The leading sectors of the new system are the high technology industries of biotechnology, information and communication, telecommunications and computers. A firm or series of firms develop new methods or practices that are successful if the development-production-marketing phases are effective. If effective, profits are enhanced since the first movers are ahead of the others. Over time, other firms tend to move into the sector to produce a similar or superior product. This leads to profits moving from the old firms to new ones, and perhaps to new leaders in the field.
The process of innovation-competition-innovation has speeded up in recent decades, and so long as this complex process continues through several runs and markets emerge, growth and accumulation can be enhanced sufficiently to provide adequate profitability for long wave upswing. There is a drop in the “surplus capacity” of firms as they seek to reduce overheads, unnecessary labor costs, warehousing, and unprofitable lines of activity. Firms must in general be quicker to switch production lines, areas, and markets. They must also be quicker to engage in acquisitions and mergers if this can establish required profitability and reduce competition.[4]
The third tendency is for TNCs to move into areas of high growth and away from old production centres and markets. The new corporate system is one where corporations are relatively “foot loose” and able to choose where they produce, export, advertise and plan their activities. Currently, corporations are moving intoproducing in areas where market growth is strong, such as East and South East Asia (primarily), followed by certain special industrial zones (such as Mexico, Costa Rica, and Ireland), followed by some emerging and transitional economies of Central and Eastern Europe (such as Hungary, the Czech Republic and Poland). This new pattern of uneven growth and development is leading to some nations developing a viable corporate system of production, distribution and exchange for the first time. But it is also establishing a pattern where much of the world is becoming less important or neutral in growth patterns. For instance, Western nations and Japan are falling behind, especially in terms of growth and productivityhigh-technology areas; mainly at the expense of Asian nations. But more critical is the fact that most of Latin America is not growing in relative strength, and Africa is falling behind most other areas. So the only real plus is that some nations of Asia, special centres and a few transitional countries are starting to benefit; but it is not a global system of growth and accumulation. Later in this paper we examine the significance of this pattern for the world-system.
The fourth tendency of the new corporate system is the establishment of certain institutional or organisational innovations within and between the TNCs. These include the promotion of global commodity chains (GCCs), value added chains (VAC), and diversified practices and activities. GCCs are ways of organizing inputs in various areas so as to produce a viable product (or series of products) that enhance market share. Producer and buyer-driven commodity chains are common, but increasingly the buyer-driven chains are becoming more dominant, especially . For instance, such “buyer-driven” commodity chains are common in the fashion and laptop computing industries.[5] The production of laptop computers is often done by producing simple inputs such as cables and keys in low skills areas such as the Philippines andor Indonesia; producing complex products such as screens and computer chips in high skill areas such as (increasingly) China, Singapore and South Korea; replying on some highly efficient transport companies or subsidiaries; and then marketing and selling the product in high value-added markets such as Japan, the US and Europe, with the help of sophisticated media groups for advertising and promotion. This triangular system of production, distribution and exchange is both a way of reducing costs, specialising according to comparative advantage and reducing bottlenecks through alternative sites and practices. (See Dicken 2003.)
3. Global Performance and Engines of Growth
Transnational Corporate Performance
In the light of these four main tendencies, the question arises as to how these transnational corporations have performed over the past few decades, and whether their performance has improved of late so as to promote system profitability, investment, and growth and development. We start first with the engines of growth and accumulation, those characteristics of the transnational system that enhance corporate and market expansion. Three such engines of growth have been foreign direct investment (FDI), cross-border mergers and acquisitions (M&As), and and royalties and license fees (RLFs)high-tech manufactured exports.
, as shown below in Table 1:
Table 3.1 Near Here
Table 1
Three Engines of Global TNC Growth, 1982-2001
Source of data: Adapted from UNCTAD (2002:4, 145, 93).
The first obvious engine of global growth is FDI inflows, which grew from $59b in 1982 to $203b in 1990 and $735b in 2001; or 24% (1986-90), 20% (1991-95) and 40% (1996-2000). average annual growth over the last two decades. FDI is distinguished from portfolio and bank-loan types of linkages with a domestic corporation and refers to the extent to which there is foreign investment in organisations where the parent company has management rights and control (Cohn 2000: 274). More specifically it can be defined as:
an investment involving a long-term relationship and reflecting a lasting interest and control of a resident entity in one economy in an enterprise resident in an economy of one country other than that of the foreign direct investor (foreign affiliate). An equity capital stake of 10 percent or more of the ordinary shares or voting power for an incorporated enterprise, or its equivalent for an unincorporated enterprise, is normally considered as a threshold for FDI. FDI flows comprise capital provided (either directly or through other related enterprises) by a foreign direct investor to a FDI enterprise, or capital received from an FDI enterprise by a foreign direct investor. [UNCTAD 2003a]
The rapid expansion of FDI over the past couple of decades (aside from the sharp decline during the global downturn of the early 2000s) indicates a heightening of investment linked to property rights and operational power. Positive functions that FDI can perform include the sharing of knowledge, technology development, expansion of markets and a more integrated regional or global systems of production, distribution and exchange (see Lall 2002a). But FDI can have negative consequences if it is not productively used for the expansion of plant and equipment; if it is a substitute for domestic investment; and if the subsequent profits are repatriated overseas in large quantities (Backer and Sleuwaegen 2003)
The second engine of growth is in cross-border mergers and acquisitions (M&As), which is included as FDI and which expanded from $151b in 1990 to $601b in 2001. M&As grew at an annual average rate of 26% (1986-90), 23% (1991-95), and 50% (1996-2000); growing very rapidly in the late 1990s (although declining during the global slowdown of the early 2000s). Theis expansion of the late 1990s indicates the possible advantages in taking over and merging with overseas entities rather than simply setting up a new company in a foreign land. The domestic company often has certain advantages such as local knowledge and business acumen. The links take the form of TNCs purchasing domestic assets through stock acquisitions and mergers. Also significant in this respect are strategic alliances – increasingly in the services sector – which include joint ventures and informal associations (OECD 2001).