The International Corporation as a Force for Good
One of the most criticized institutions of our time – the multinational corporation – is also one of the most underrated and most important for our future.
When it comes to consumers, the large multinationals usually are the companies that have passed the most stringent market tests in terms of price, quality, and reliability. Not every multinational does a good job all the time (witness the Volkswagen emissions scandal), but most multinationals offer consumers remarkable experiences, as evidenced by the diversity of Amazon offerings, the reliability of Toyota cars (including environmentally-friendly hybrids), or Airbus planes. Thanks to Google, individuals can now perform web searches all over the world for most of what the internet has to offer.
Multinationals are major drivers of product innovation. It is not just Tesla’s electric cars or Stripe’s easy to use payments services. Even when smaller firms innovate, they are often seeking the prize of being a much larger multinational, whether or not they attain that status.
Large corporations, especially those with international reach, tend to pay higher wages and offer superior benefits and promotion chances for workers, as is especially obvious in Switzerland. That is all the more important in a time when many OECD countries have been suffering from wage stagnation. As for the impact of multinationals and foreign direct investment in lower-wage poorer countries, it is not disputed that they raise wages, train workers, enable rural to urban migration, and push for infrastructure development.
There is also a trickle-down effect from having large multinationals in your country. Typically multinational enterprises (MNEs for short) have finely honed practices for hiring, compensation, organizing production, and many other features of a business corporation. While not all multinationals succeed, in general large multinationals are being selected for previous success and revenue growth, so they tend to be relatively well-run, experienced business firms. Domestic businesses learn from these multinationals, and they end up hiring workers and bosses that have now experienced life within a top global company. Those benefits then are extended to the business environment in the home country more generally, and so productivity rises for many of the smaller domestic enterprises.
Multinationals are also major conduits for international trade, not just in their direct buying and selling with other entities, but through their internal transfers as well. Economists have called this “intra-firm trade.” For instance, Samsung might ship parts from a Vietnamese storehouse to a Korean factory, from one Samsung affiliate to another. That has all of the efficiency properties of international trade, and it is performed in secure fashion, yet it does not show up in traditional trade statistics. Intra-firm trade is not much discussed, but according to some estimates it accounts for one-third of global trade.
Multinationals also help to spread good governance around the world, most of all as nations compete for foreign capital. Singapore, for instance, in its early years knew that if it wanted to attract foreign capital it needed predictable laws and regulations. Singapore has since become a global center for MNEs. The changes required to attract those companies, however, have rebounded to the benefit of Singaporeans more broadly and also for Singaporean business. Oil countries aside, Singapore has one of the world’s highest per capita incomes, with much of that growth driven by foreign direct investment.
Technology transfer also is significant, most of all in recent times to China. China has been able to build up its high-speed rail network because they learned the relevant technologies from the German company Siemens, among other sources. Many people and political leaders in the West decry the unfairness of these technology transfers, which have not always been done with full respect for intellectual property. Still, without technology transfer the Chinese economic miracle – the most impressive growth spurt the world ever has seen – would not have been nearly as beneficial for well over a billion people.
It is remarkable that more than 80 percent of the African continent now has a cell phone or likely even a smart phone of some kind. Those devices enable many businesses and they help families and friends stay in touch and share experiences. None of that would have been possible without the efforts of Nokia, Apple, and other multinationals, including for instance Samsung making the computer chips and Maersk shipping various components.
The last decade also has been a remarkable triumph for public health, spearheaded by greater access to vaccines and antibiotics in Africa and South Asia, among other regions. Again, multinationals were instrumental in developing and also spreading many of those biomedical technologies, even if often with the help of governments, aid agencies and NGOs.
Multinationals benefit public health in yet another way, namely by building large fortunes that lead to later charity. The Gates Foundation, for instance, has helped lead public health advances in Africa, and of course those funds come through the earnings of Bill Gates in his earlier multinational enterprise Microsoft. Most multinationals also take some care to invest in their local communities, if only for purposes of good will and community reputation.
If war is the greatest scourge of mankind, multinationals are one of the interest groups most reliably opposed to foreign conflict. Of course this is partly for selfish reasons of profit maximization, but it runs much deeper. Multinational owners, managers, and workers are more likely to understand the perspectives of foreign countries, and, because of their international experience, more likely to vividly visualize the destruction abroad that a war can bring.
These days, you shouldn’t just think of multinationals as emanating from the very wealthiest countries. Mexico has successful multinational food product companies and cement makers, Chinese tech and retail payments companies are spreading throughout the world, and Ethiopian Airlines is a major player in international air travel.
The criticisms of multinationals are too numerous to rebut in their entirety, but in most cases they are magnified by the tendency of the media to play up bad news. In earlier decades the charge was that multinationals would lead to American culture taking over the whole world, but these days China, India, and others are on the rise and American culture is in relative retreat.
The American tech companies are the more recent villain, and there are some legitimate concerns connected with news manipulation and privacy. Still, the communication, research, and social network benefits from Google and social media are enormous, and virtually all new communications methods have had some rough patches in their early days. In spite of the rhetoric you sometimes hear, few people actually wish to return to the pre-internet days. To the extent that tech services face hacking, privacy, and news manipulation problems, it is actually the well-capitalized, talent-rich multinationals such as Facebook that have the best chance of addressing them.
Multinationals, because they operate in so many different environments and have to hire so many different kinds of individuals, also tend to favor values of tolerance, cross-cultural contact, multi-linguism, and as mentioned global peace. In a Swiss context, the success of multinationals such as Nestlé, Roche or UBS is often explained by their ability to apply globally the skills that have been required domestically for many decades, especially bridging the different perspectives of various cantons and also population and immigrant groups. Rights for gay workers and same-sex partnerships, for instance, are more likely to be respected and honored in multinationals than in the millions of small businesses spread around the globe. MNEs also tend to support the world’s multilateral institutions, and to favor the idea of a free and well-ordered global regime for trade, investment, and migration.
Another criticism is that multinational corporations control and push around the poorer countries of the world. In reality, multinationals often are a relatively vulnerable interest group with only a limited base of domestic support in most of their outposts. Uber and Facebook and Google have left China, the European Union is pursuing going after the American tech companies, India limits Walmart at the retail level, and a wide range of emerging economies are, for better or worse, flexing their regulatory muscles and relegating foreign multinationals to lower-tier positions in their economies. If anything, we have been a resurgence of nationalism, mercantilist sentiment, national-level barriers to entry for outsiders, not usually for the better in my view.
There are particular cases where multinationals have exercised too much foreign influence of the wrong kind, for instance how oil companies have interfered in the politics of African states, practiced bribery to ensure concessions, and tolerated or encouraged regime corruption. Still, in many other cases multinationals find foreign environments too difficult or too burdensome to operate in, precisely because they are not in charge. For instance, American multinationals left Haiti some time ago, due to poor electricity supply, bad roads, a corrupt port, a bad court system, and crime, among other obstacles. Haiti is hardly a powerful country, but multinationals have not succeeded in running the place.
It is interesting to consider multinationals and their role in broader world history. The move from medieval times to the Renaissance was accompanied by a significant rise in cross-national and cross-regional commerce, as multinational traders and financiers drove a process of European recovery and economic integration. That process of economic development set in motion several centuries of a cross-European cultural flowering. The villains in this story, the two World Wars of the 20th century, partially dismantled the earlier globalization, and recovery from those wars coincided with a new globalization, again partially driven by multinationals.
Today, we stand at a moment when national politics is less reliable and less predictable than it was ten or twenty years before, as evidenced by Brexit and the election of Donald Trump. Whatever you think of those political outcomes, multinational enterprises are relative oases of stability in a volatile time. They are good for both consumers and workers, and a benefit to the broader international order. Circa 2020, as a new decade gets underway, it is time to give multinational enterprises their proper due.
Tyler Cowen is author of the recent book Big Business: A Love Letter to an American Anti-Hero.