TRANSNATIONAL COMPANIES: The gloved fist of imperialism

Fight racism! Fight imperialism! No. 111 February/March 1993

In its relentless thirst for profits, capitalism has grown into a worldwide system of economic and political domination of the overwhelming majority of the world by a small number of imperialist countries. Transnational corporations – enterprises operating in a number of different countries – have been in the forefront of this process, leaving no area of the world untouched by their drive to control markets and investment outlets and expand their profitable spheres of operation. A recent study by the United Nations, World Investment Report 1992 (WIR) brings us up to date with this development.

The United Nations has been principally the mouthpiece of the strongest imperialist powers so it is no surprise that this very detailed study of transnational corporations is apologetic, rather than critical, in tone. The reassuring subtitle of the report, ‘Transnational Corporations as Engines of Growth’, shows an intention to reconcile the reader to the gruesome reality which imperialism holds, at least, for the vast majority of humanity. However, the wealth of statistics gathered together in this very detailed report allows us to reveal the real processes at work. These show not only the emergence of three competing imperialist power blocs – USA, Japan and the European Community (EC) – but also how the collapse of the socialist bloc has removed all barriers to imperialism’s aggressive and expansionist drive.

TNCs and competing Imperialist power blocs

Transnational corporations [TNCs) have become the principal vehicles of imperialism’s drive to divide and redivide the world according to the balance of economic power. And foreign direct investment (FDI) is now the central mechanism for doing this in an increasingly integrated world economy. Such investment implies control over economic activities through either majority or substantial minority ownership. The international capitalist production system is increasingly controlled and organised by TNCs.

In 1990 world-wide outflows of FDI reached an unprecedented $225bn. The growth rate of FDI between 1985-1990 was 35% per year, far exceeding that of world exports (13%) and gross domestic product (12%). The estimated accumulated global stock of FDI is in the region of $1.7 trillion. At the end of the 1980s the volume of goods and services sold by foreign affiliates of TNCs was $4.4 trillion: almost double that of world exports (excluding intra-firm trade).

The total number of TNCs in 1990 exceeded 35,000 with more than 150,000 foreign affiliates. While about 90% of TNCs originate in the imperialist nations (‘developed capitalist countries’), half of their foreign affiliates are in the oppressed nations (‘developing countries’). The Imperialist countries are responsible for nearly all worldwide investment out-flows (Table 1) with the major powers, France, Germany, Japan, Britain and the USA alone accounting for 70% (Table 2) and for about half the number of TNCs. In individual countries a small number of TNCs account for the majority outward FDI. In West Germany the 50 largest TNCs, less than one percent of the total account for 60% of the accumulated outward investment stock. 350 TNCs in France accounted for 80% of outward FDI flows between 1981-1984.

In the 1980s, 75% to 83% of FDI outflows went to the imperialist countries. The share invested in the oppressed nations dropped in the latter half of the 1980s from 25% to 17% of the total, almost certainly due to the debt crisis facing those countries and the artificial mini-boom created in the imperialist nations.

The world recession since 1990 has now reversed this process. More recent statistics show that while FDI outflows fell in 1991 to $177.3bn, the share of this total going to the oppressed nations increased to 27%. Faced with a rapid fall in profits in the major imperialist countries, transnational companies, in a desperate drive for new sources of profit, invested some $42.7bn in the oppressed nations, a rise of 38% on the previous year. FDI in Latin America increased by over $4bn (more than 50%) as the so-called liberalisation policies of these governments exposed already poverty-stricken people to yet further unparalleled plunder. Investment in Asia also increased by $5.8bn (nearly 30%) as TNCs invested more in lower income nations such as Indonesia, Malaysia and Thailand and seized new opportunities in China and Vietnam. Finally, inflows to the ex-socialist bloc in Eastern Europe rose by $1.8bn to $2.3bn in 1991 a rise of 360%, although from a very small base.

Statistics for the FDI outflows from the five major imperialist powers reflect the changed balance of economic power since the 1970s and point to the emergence of three competing power blocs (Table 21). The economic decline of US imperialism is mirrored by the rise of Japanese imperialism. The main imperialist nations in the EC together have the dominant share with small changes in the distribution between Germany, France and Britain. The 1991 figures have been partly estimated and Japanese data for all years is an underestimate because they do not include reinvested earnings.

The World Investment Report does not give aggregate figures for FDI flows for the EC. Figures from the BIS annual report do and show the share of world direct investment outflows of the European Community rising slightly from 40.0% in 1975-79, to 44.0% in 1985-89 and 45.4% in 1991. The same data show that the US share rapidly declined from 45.0% in 1975-79, to 16.9% in 1985-9 and 16.6% in 1991. Japan’s share rose sharply from 5.9% in 1975-79 to 17.6% in 1985-89, falling to 17.3% in 1991 due to the stock market crash and growing recession in Japan, having reached an all-time high of 21.6% in 1990. German FDI did not fall in 1991 when its share reached a high of 13.0% almost certainly as a result of its push into the ex-socialist bloc.

The accumulated stock of FDI reflects the weight of the longstanding export of capital from the oldest imperialist powers. In 1989 the EC held around 32% of this stock, with Britain holding 16%, Germany 9% and France 5% of the world total. The United States held 27% (this figure is inconsistent with the amount of accumulated stock given in the same table in WIR p16. which would put it slightly higher than the European Community) and Japan 11%. This changing balance of power can be seen by comparing this with the shares in 1971 when the United States held 52%, Britain 14.5%, France 5.8%, W Germany 4.4% and Japan 2.7%. The data also demonstrates what has been consistently argued in FRIF: that while Britain is certainly a rapidly declining industrial power, its transnational companies and banks have ensured it still retains a formidable imperialist presence.

FDI stocks and flows into the oppressed nations and ex-socialist bloc tend to come from one or more of the competing power blocs (WIR refers to these blocs as members of a Triad). And in the 1980s this clustering of FDI had become more pronounced with countries receiving FDI tending to be around a single Triad member located in the same geographical region. The United States is the dominant investor in Latin America with the exception of Brazil (EC) and also in a few Asian countries (Philippines, Pakistan and Bangladesh). Japan is rapidly consolidating its position in Asia recently adding Singapore and Taiwan to its cluster. Finally the EC continues as the dominant investor in the ex-socialist bloc, Africa and a few Asian countries (India, Sri Lanka and Vietnam) where its members have long-standing imperialist ties.

Japan’s consolidation in Asia and the formation of regional trade and investment blocs in North America (Mexico, Canada and the United States in NAFTA) and Europe (EC and EFTA countries to form the EEA) has strengthened the trend towards three competing power blocs, with FDI flows following the pattern of rising intra-regional (within the same region) trade. Intra-regional trade in goods now accounts for 61%, 41%, and 35% of the total trade in goods in the EC, Asia and North America respectively. A great deal of this trade is carried out by TNCs with a high proportion of it being intra-firm transactions. An estimated 25% of worldwide trade is infra-firm trade between TNCs, but it is much higher in many countries. Some 80% of US external trade (exports and imports) was carried out by TNCs with one-fifth of exports and two-fifths of imports being infra-firm transactions. For Japan and Britain intra-firm trade accounted for one-third of their international trade in the early 1980s. Finally intra-firm trade in royalties and licence fees accounts for over 80% of the total value of such transactions.

A world in their image

Economic viability and competitiveness is increasingly dependent on the acquisition of new technologies. That technology is almost totally in the hands of TNCs within the imperialist countries. 95% of strategic technology alliances were between firms in those countries during the 1980s. TNCs account for over three quarters of the patents registered in the United States. Following the collapse of the ex-socialist countries, TNCs have a stranglehold on the vast majority of nations, especially the ex-socialist countries and heavily indebted oppressed nations desperately needing capital investment to survive. FDI has become the principle source of foreign capital to oppressed nations rising from 30% of total long-term capital flows from private sources in 1981-85 to 74% from 1986-90.

That investment is available at a price and then only if high enough profits are to be made. More than two-thirds of FDI to the oppressed nations was concentrated in 10 countries usually with a developed infrastructure. A large proportion of production will be for export. In Malaysia foreign affiliates of TNCs accounted for over 50% of manufactured exports, in Mexico 58% and in Singapore as much as 90%.

In the case of Africa FDI fell to $2.2bn in 1990, a decrease of 50% on 1989. There is an increasing marginalisation of the region with devastating consequences for the people. Low income oppressed nation receive very little attention by TNCs. The rest have to open up their economies, ‘to give a greater role to the private sector and market forces’.

The IMF and World Bank force privatisation and ‘liberalisation’ programs on oppressed nations. ‘Free-market’ economic policies give TNCs the freedom to plunder and exploit economies as part of an overall global strategy. The annual number of privatisations world-wide increased fivefold between 1985 and 1990 to around 130. By the end of the 1980s the value of state-enterprises sold off reached over $185bn, many in the oppressed nations, with no sign of the process stowing down. From 1991 to 1992, the number of joint venture and wholly owned affiliates registered in the ex-socialist bloc doubled to more than 34,000 of which the foreign equity stake was $9.4bn. Debt for equity swaps (handing over factories etc. to reduce long-term debt) have been a crucial component of FDI flows in Chile, Brazil, Mexico and Argentina. 80% of all FDI flows in Chile ($3.2bn), 59% of those into Brazil ($4.5bn), 30% of those to Mexico ($3.1bn) and 20% to Argentina ($0.7bn) between 1985-89 have been through debt-equity swaps. In such ways is the world organised and moulded to the interests of the global profit making requirements of imperialist corporations.

Profits made in the oppressed nations are far higher than those made in the imperialist countries. Real profits, as opposed to those declared, are higher still once transfer pricing and various tax avoidance measures are taken into account. Recent statistics for Japanese FDI in manufacturing show a 5% return on sales in Asia, 3.2% in Europe and a loss of -0.9% North America. Increased Japanese FDI in Asia is therefore to be expected with the very low wages in Vietnam ($20 a month) an important attraction.

The employment effects of FDI are very limited. The number employed by the foreign affiliates of US TNC remained unchanged at around 6.6bn workers throughout the period 1982-89, while the worldwide assets of these affiliates grew by 78% and worldwide sales by 34%. Direct employment by TNCs in oppressed nations was estimated at 7 million in the mid-1980s, less than one per cent of the economically active population. Between 1.5 and 2 million people, including a large number of young unskilled or semi-skilled women, are employed in the more than 20 labour intensive ‘export processing zones’. These are cheap labour zones for assembly of components and are designed to increase the global profitability of TNCs at the smallest cost.

Overall the impact of the global policies of TNCs has been devastating both for the majority of the world’s population and the environment. The next few years promise to be worse as world recession in the imperialist nations threatens to destroy some of the largest transnational companies. BCCI operated in 78 countries with over 400 offices and some 14,000 employees when it collapsed in a web of corruption in 1991. Some 1.3 million people were affected worldwide. As a result of it record loss of profits of $4.97bn in 1992. IBM has announced 25,000 job losses worldwide. 40,000 jobs have already been lost in 1991. The world’s largest company General Motors announced in December 1991 that it would close 21 plants and eliminate 74,000 jobs as a result of losing $12bn in North America since 1990. Far from being ‘Engines of Growth’, transnational corporation are the instruments of a globally integrated, crisis-ridden, capitalist system which have no answers to the problems facing the vast majority of humanity.

David Reed