Hostname: page-component-586b7cd67f-dsjbd Total loading time: 0 Render date: 2024-11-25T18:07:51.679Z Has data issue: false hasContentIssue false
  • English
  • Français

Hegemony, imperialism, and the profitability of foreign investments

Published online by Cambridge University Press:  22 May 2009

John R. Oneal  and
Frances H. Oneal
John R. Oneal
Affiliation:
Visiting Assistant Professor of Political Science at McGill University, Montreal.
Frances H. Oneal
Affiliation:
Candidate in the Department of Political Science at Vanderbilt University, Nashville, Tennessee.
Get access

Abstract

Socialists at the turn of the century explained modern imperialism as an attempt to escape the crisis of monopoly capitalism. “Super-profits” that could be secured in the periphery, according to Lenin, were necessary to offset declining rates of return in the advanced economies. Today, radical theorists stress the role of the multinational corporations in accounting for neocolonialism. If great national power does produce material benefits for foreign investors, this should be apparent in two cases: the experience of British capitalists in the “high age of imperialism,“ 1870–1913, and the operations of U.S. multinational corporations abroad after World War II. But rates of return on foreign investments have not been significantly different in the developed and less developed regions of the world—a finding that is relevant not only for theories of imperialism but also for understanding development and modernization, the operation of the multinational corporation, and international capital markets.

Type
Articles
Information
International Organization , Volume 42 , Issue 2 , Spring 1988 , pp. 347 - 373
Copyright
Copyright © The IO Foundation 1988

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1. Winslow, E. M., “Marxian, Liberal, and Sociological Theories of Imperialism” Journal of Political Economy 39 (12 1931), pp. 713–58CrossRefGoogle Scholar; and Deutsch, Karl W., “Theories of Imperialism and Neocolonialism,” in Rosen, Steven J. and Kurth, James R., eds., Testing Theories of Economic Imperialism (Lexington, Mass.: Lexington, 1974), pp. 17–18Google Scholar.

2. Griffin, Keith and Gurley, John, “Radical Analyses of Imperialism, the Third World, and the Transition to Socialism,” Journal of Economic Literature 23 (09 1985), pp. 1089–1143Google Scholar.

3. Kemp, Tom, “The Marxist Theory of Imperialism,” in Owen, Roger and Sutcliffe, Bob, eds., Studies in the Theory of Imperialism (New York: Longman, 1972), pp. 15–34Google Scholar; and Mandel, Ernest, Late Capitalism (London: New Left, 1972), pp. 66–68 and 80–82Google Scholar.

4. Lenin, V. I., Imperialism, the Highest Stage of Capitalism, in Lenin, , Collected Works, vol. 22 (Moscow: Progress, 1964), p. 257Google Scholar; and Barroll, Martin A., “Toward a General Theory of Imperialism,” Journal of Anthropological Research 36 (Summer 1980), pp. 174–95CrossRefGoogle Scholar.

5. Bukharin, Nikolai, Imperialism and World Economy (New York: Fertig, 1966), pp. 45–46Google Scholar.

6. Hobson, John A., Imperialism: A Study (Ann Arbor: University of Michigan Press, 1965), chap. 6CrossRefGoogle Scholar.

7. Hobson, , Imperialism, pp. 80–81Google Scholar.

8. Lenin, , Imperialism, pp. 193, 240–45, and 299Google Scholar.

9. Baran, Paul A. and Sweezy, Paul M., Monopoly Capitalism (New York: Monthly Review, 1966), p. 104Google Scholar.

10. Baran, and Sweezy, , Monopoly Capital, p. 105Google Scholar; Szymanski, Albert, The Logic of Imperialism (New York: Praeger, 1981), chap. 3Google Scholar; and Biersteker, Thomas J., Distortion or Development? (Cambridge: MIT Press, 1981), pp. 4 and 49–51Google Scholar.

11. Frank, André Gundar, Crises: In the Third World (New York: Holmes & Meier, 1981), pp. 159ffGoogle Scholar.

12. Amin, Samir, Imperialism and Unequal Development (New York: Monthly Review Press, 1977), p. 24Google Scholar.

13. Mandel, Late Capitalism; Griffin and Gurley, “Radical Analyses of Imperialism”; de Janvry, Alain, The Agrarian Question and Reformism in Latin America (Baltimore: Johns Hopkins University Press, 1981), pp. 10–21Google Scholar; O'Connor, James, “The Meaning of Economic Imperialism,” in Fann, K. T. and Hodges, Donald C., eds., Readings in U.S. Imperialism (Boston: Porter Sargent, 1971)Google Scholar; and Kiernan, V. G., America, the New Imperialism (London: Zed, 1978), p. iGoogle Scholar.

14. Edelstein, Michael, Overseas Investment in the Age of High Imperialism: The United Kingdom, 1850–1914 (New York: Columbia University Press, 1982)Google Scholar; and Cairncross, A. K., Home and Foreign Investment, 1870–1913 (Cambridge: Cambridge University Press, 1953)Google Scholar.

15. Davis, Lance E. and Huttenback, Robert A., “The Political Economy of British Imperialism,” Journal of Economic History 42 (03 1982), pp. 119–30CrossRefGoogle Scholar.

16. For example, Bosson, Rex and Varon, Bension, The Mining Industry and the Developing Countries (New York: Oxford University Press, 1977)Google Scholar; Gregerson, Hans M. and Contreras, Arnoldo, U.S. Investment in the Forest-Based Sector in Latin America (Baltimore: Johns Hopkins University Press, 1975)Google Scholar; Fitzgerald, E. V. K., The Political Economy of Peru, 1956–78 (Cambridge: Cambridge University Press, 1979)Google Scholar; Lall, Sanjaya, Developing Countries in the International Economy (London: Macmillan, 1981)CrossRefGoogle Scholar; Becker, David G., The New Bourgeoisie and the Limits of Dependency (Princeton, N.J.: Princeton University Press, 1983)CrossRefGoogle Scholar; Gereffi, Gary, The Pharmaceutical Industry and Dependency in the Third World (Princeton, N.J.: Princeton University Press, 1983)CrossRefGoogle Scholar; Shepherd, Philip Lynn, “Sold American!!! A Study of the Foreign Operations of the American Cigarette Industry,” Ph. D. diss., Vanderbilt University, 1983Google Scholar; Newfarmer, Richard, ed., Profits, Progress, and Poverty (Notre Dame: University of Notre Dame Press, 1985)Google Scholar; Reuber, Grant L. et al. , Private Foreign Investment in Development (Oxford: Clarendon, 1973)Google Scholar; and Szymanski, The Logic of Imperialism.

17. Myrdal, Gunnar, Economic Theory and Under-Developed Regions (London: Duckworth, 1957), pp. 53–60Google Scholar.

18. Spero, Joan Edelman, The Politics of International Economic Relations, third ed. (New York: St. Martin's, 1985), pp. 172–73Google Scholar.

19. Feis, Herbert, Europe, the World's Banker, 1870–1914 (New York: Augustus M. Kelley, 1964), pp. 17–23Google Scholar; Simon, Matthew, “The Pattern of New British Portfolio Investment, 1865–1914,” in Hall, A. R., ed., The Export of Capital from Britain, 1870–1914 (London: Methuen, 1968), pp. 28–31Google Scholar; and Whichard, Obie G., “Trends in the U.S. Direct Investment Position Abroad, 1950–79,” Survey of Current Business 61 (02 1981), pp. 39–56Google Scholar.

20. Wilkins, Mira, The Maturing of Multinational Enterprise (Cambridge: Harvard University Press, 1974), pp. 341 and 414CrossRefGoogle Scholar; Thomas, Horst, , At Home Abroad (Cambridge: Ballinger, 1974), p. 118Google Scholar; Grosse, Robert E., Foreign Investment Codes and the Location of Direct Investment (New York: Praeger, 1980), pp. 58 and 127Google Scholar; Davidson, William H., “The Location of Foreign Direct Investment Activity,” Journal of International Business Studies 11 (Fall 1980), pp. 9–22CrossRefGoogle Scholar; and Nurkse, Ragnar, Problems of Capital Formation in Underdeveloped Countries (New York: Oxford University Press, 1953), pp. 154–57Google Scholar.

21. Thunell, Lars, Political Risks in International Business (New York: Praeger, 1977)Google Scholar; and Grosse, , Foreign Investment Codes, p. 61Google Scholar.

22. Gilpin, Robert, U.S. Power and the Multinational Corporation (New York: Basic Books, 1975), p. 50CrossRefGoogle Scholar; and Shepherd, , “Sold American!!!” p. 446Google Scholar.

23. Kelly, Marie E. Wicks and Philippatos, George C., “Comparative Analysis of the Foreign Investment Evaluation Practices by U.S.-Based Manufacturing Multinational Corporations,” Journal of International Business Studies 13 (Winter 1982), pp. 19–42CrossRefGoogle Scholar.

24. Blaug, Mark, “Economic Imperialism Revisited,” in Boulding, Kenneth E. and Mukerjee, Tappan, eds., Economic Imperialism (Ann Arbor: University of Michigan Press, 1972), pp. 142–55Google Scholar; and Gilpin, , U.S. Power, pp. 50–51Google Scholar.

25. Wilkins, , The Maturing of Multinational Enterprise, p. 350Google Scholar; and Reuber, et al. , Private Foreign Investment, pp. 77–94Google Scholar.

26. Calvet, A. L., “A Synthesis of Foreign Direct Investment Theory and Theories of the Multinational Firm,” Journal of International Business Studies 12 (Spring/Summer 1981), pp. 43–60CrossRefGoogle Scholar; Krugman, Paul, “A Model of Innovation, Technology Transfer, and the World Distribution of Income,” Journal of Political Economy 87 (04 1979), pp. 263–65CrossRefGoogle Scholar; and Olson, Mancur, The Rise and Decline of Nations (New Haven, Conn.: Yale University Press, 1982), p. 59Google Scholar.

27. Stigler, George I., Capital and Rates of Return to Manufacturing Industries (Princeton, N.J.: National Bureau of Economic Research, 1963), p. 54Google Scholar.

28. Sharpe, William F., Portfolio Theory and Capital Markets (New York: McGraw-Hill, 1970)Google Scholar; and Harrington, Diana R., Modern Portfolio Theory and the Capital Asset Pricing Model (Englewood Cliffs, N.J.: Prentice-Hall, 1983)Google Scholar.

29. The preeminence of Britain before World War I is commonly exaggerated. Russett, Bruce, “The Mysterious Case of Vanishing Hegemony; or, Is Mark Twain Really Dead?” International Organization 39 (Spring 1985), pp. 207–32CrossRefGoogle Scholar. Yet, it did have in 1870 the highest average of any country for the three indicators of power Russett considers. In 1913, Great Britain trailed the United States and Germany; but neither of these countries seriously contended British influence in the periphery, though for very different reasons. From 1870 to 1913, there was a pat Britannica in much of the world, but in part because of the circumstances and policies of the other great powers. The leading position of the London financiers was not seriously contested. Feis, Europe, the World's Banker.

30. Feis, , Europe, the World's Banker, pp. 17–28Google Scholar; and Edelstein, , Overseas Investment, p. 70Google Scholar.

31. Woodruff, William, Impact of Western Man (London: Macmillan, 1966), pp. 150–51Google Scholar.

32. Edelstein, , Overseas Investment, p. 114Google Scholar.

33. Edelstein, Michael, “Sectoral and Aggregate Indices of the Rate of Return to U.K. Home and Overseas Portfolio Investment,” Queens College, City University of New York, 1982Google Scholar.

34. Edelstein estimates the return on high-grade South African gold mining shares between 1887 and 1913 to have been 5.2 percent per annum. Edelstein, , Overseas Investment, p. 335Google Scholar. He rejects Herbert Frankel's figure for 1887–1913, 2.1 percent annually, because Franke! considered all classes of mining shares in computing his average. Edelstein argues that including lower grade equities inappropriately reduces the average yield, but this is inconsistent with portfolio theory. Greater variability in returns, characteristic of lower quality securities, is associated with greater average return. Sharpe, Portfolio Theory; and Harrington, Modern Portfolio Theory. Accordingly, Frankel's estimate for the prewar period was used in computing the results reported in the next section.

35. Williamson, Jeffrey G., American Growth and the Balance of Payments, 1820–1913 (Chapel Hill: University of North Carolina Press, 1964), p. 259Google Scholar.

36. The estimates in the table are derived from Nash, Robert L., A Short Enquiry into the Profitable Nature of Our Investments, 3d ed. (London: Effington Wilson, 1881) pp. 32–33Google Scholar; Cairncross, , Home and Foreign Investment, pp. 228–30Google Scholar; Rippy, J. Fred, British Investments in Latin America, 1822–1949 (Minneapolis: University of Minnesota Press, 1959), pp. vii–viii, 30–32, 42, 72Google Scholar; Paish, G., “Great Britain's Capital Investment in Other Lands,” Journal of the Royal Statistical Society 74 (01 1911), pp. 167–87CrossRefGoogle Scholar; and Lehfeldt, R. A., “The Rate of Interest on British and Foreign Investments,” Journal of the Royal Statistical Society 76 (01 1913), pp. 196–207CrossRefGoogle Scholar.

37. Cairncross, , Home and Foreign Investment, pp. 183–85Google Scholar. His estimates have been corroborated by Feinstein, C. H., National Income, Expenditure and Output of the United Kingdom, 1855–1970 (Cambridge: Cambridge University Press, 1972), pp. T37–T38Google Scholar, and Matthews, R. C. O. et al. , British Economic Growth, 1856–1973 (Stanford, Calif.: Stanford University Press, 1982), pp. 128–29CrossRefGoogle Scholar.

38. Nash, , A Short Enquiry, p. 75Google Scholar.

39. Simon, , “The Pattern of New British Portfolio Investment,” p. 29Google Scholar.

40. Hall, A. R., The London Capital Market and Australia, 1870–1914 (Canberra: Australian National University, 1963), p. 9Google Scholar.

41. Woodruff, William, Impact of Western Man, p. 153Google Scholar; and Feinstein, , National Income, Expenditure and Output of the United Kingdom, pp. T37–T38Google Scholar.

42. Woodruff, , Impact of Western Man, pp. 152–55Google Scholar.

43. Japan is considered a developed country after 1900.

44. Paish, “Great Britain's Capital Investment”; Nash, A Short Enquiry; and Cairncross, , Home and Foreign Investment, pp. 183 and 229Google Scholar.

45. Williamson, , American Growth, pp. 129, 137, and 259Google Scholar; and Hall, , The London Capital Market, pp. 90 and 161Google Scholar.

46. Edelstein, “Sectoral and Aggregate Indices”; Simon, Matthew, “The Enterprise and Industrial Composition of New British Portfolio Foreign Investment, 1865–1914,” Journal of Development Studies 3 (04 1967), pp. 283–84CrossRefGoogle Scholar; and Bloomfield, Arthur I., Patterns of Fluctuation in International Investment Before 1914, Princeton Studies in International Finance, No. 21, 1968, p. 38Google Scholar.

47. Royal Institute of International Affairs, The Problem of International Investment (London: Oxford University Press, 1937)Google Scholar.

48. Lipson, Charles, Standing Guard (Berkeley: University of California Press, 1985), p. 52Google Scholar; and Stone, Irving, “British Direct and Portfolio Investment in Latin America Before 1914,” Journal of Economic History 37 (09 1977), pp. 690–722CrossRefGoogle Scholar.

49. Cairncross, , Home and Foreign Investment, p. 229Google Scholar.

50. Griffin and Gurley, “Radical Analyses of Imperialism”; and Menon, Rajan and Oneal, John R., “Explaining Imperialism,” Polity 19 (Winter 1986), pp. 169–93CrossRefGoogle Scholar.

51. Edelstein, , Overseas Investment, p. 145Google Scholar.

52. Sanderson, G. N., “The European Partition of Africa,” Journal of Imperialism and Commonwealth History 3 (10 1974), pp. 1–54CrossRefGoogle Scholar; Platt, D. C. M., Finance, Trade, and Politics in British Foreign Policy, 1815–1914 (Oxford: Clarendon, 1968), pp. 362–67Google Scholar; and Menon and Oneal, “Explaining Imperialism.”

53. Hobson, John A., The War in South Africa (New York: Fertig, 1969)Google Scholar.

54. Feis, , Europe, the World's Banker, pp. 17–23Google Scholar.

55. U.S. Department of Commerce, International Direct Investment (Washington, D.C.: GPO, 1984)Google Scholar.

56. Szymanski, , The Logic of Imperialism, pp. 130–31Google Scholar; and The Economist 281 (3 10 1981), p. 82Google Scholar.

57. U.S. Department of Commerce, Survey of Current Business (Washington, D.C.: GPO, various years)Google Scholar; and U.S. Department of Commerce, Selected Data on U.S. Foreign Direct Investment, 1950–76 (Washington, D.C.: GPO, 1982)Google Scholar.

58. Lall, , Developing Countries, p. 73Google Scholar; Fitzgerald, , The Political Economy of Peru, pp. 130–31Google Scholar; and Vaitsos, Constantine V., Transfer of Resources and Preservation of Monopoly Rents (Cambridge, Mass.: Center for International Affairs, 1974)Google Scholar.

59. The Commerce Department does not give fees and royalties by country from 1980 on, so the average for 1977–1979 was added to income in calculating broad returns for 1980–1982.

60. Economic Report of the President (Washington, D.C.: GPO, 1985)Google Scholar.

61. Moran, Theodore H., “Foreign Expansion as an ‘Institutional Necessity’ for U.S. Corporate Capitalism,” World Politics 25 (04 1973), pp. 369–86CrossRefGoogle Scholar.

62. Lall, , Developing Countries, p. 62Google Scholar; Barnet, Richard J. and Muller, Ronald E., Global Reach (New York: Simon & Schuster, 1974), p. 158Google Scholar; Moran, Theodore H., Multinational Corporations and the Politics of Dependence (Princeton, N.J.: Princeton University Press, 1974), pp. 41–45Google Scholar; Rugman, Alan M., Inside the Multinationals (New York: Columbia University Press, 1981), p. 146Google Scholar; Szymanski, , The Logic of Imperialism, p. 300Google Scholar.

63. Bergsten, C. Fred et al. , American Multinationals and American Interests (Washington, D.C.: Brookings Institution, 1978), p. 195Google Scholar.

64. Bergsten, et al. , American Multinationals, pp. 188–89Google Scholar.

65. Leftwich, Robert B., “U.S. Multinational Companies: Profitability, Financial Leverage, and Effective Income Tax Rates,” Survey of Current Business 54 (05 1974), pp. 27–36Google Scholar.

66. Oneal, John R., “Foreign Investments in Less Developed Regions,” Political Science Quarterly 102 (Spring 1988), forthcomingGoogle Scholar.

67. Ibid.

68. The rate of return on British capital in the U.K.'s colonies was higher than in non-British less developed countries from 1938 to 1957. Svedberg, Peter, “The Profitability of U.K. Foreign Direct Investment Under Colonialism,” Journal of Development Economics 11 (12 1982), pp. 273–86CrossRefGoogle Scholar.

69. Block, Fred, “Marxist Theories of the State in World Systems Analysis,” in Kaplan, Barbara Hockey, ed., Social Change in the Capitalist World Economy (Beverly Hills, Calif.: Sage, 1978), pp. 27–38Google Scholar; Bergesen, Albert and Schoenberg, Ronald, “Long Waves of Colonial Expansion and Contraction, 1415–1969,” in Bergesen, , ed., Studies of the Modern World System (New York: Academic Press, 1980), pp. 249–63Google Scholar.

70. That investments were primarily portfolio in the British case and direct for the United States should not make a significant difference or make the figures incomparable since longterm averages are being considered. Stock and bond prices do fluctuate more dramatically than actual profits, being more liquid and subject to investors’ sentiments, so the variability of returns in the two cases should not be compared. But the yield on financial capital in the long term should reflect the profitability of the underlying assets.