¹ For a comparison of aggregate size of firms and states see G. Modelski, “The Corporation in World Society,” The Year Book of World Affairs: 1968 (London: Stevens and Sons [under the auspices of the London Institute of World Affairs], 1968), pp. 64–79.Google Scholar For the $120 billion figure see Kenneth Waltz, N., “The Myth of National Interdependence,” in Kindleberger, ed., pp. 217–218.Google Scholar

² In more recent economic analysis of extractive investment the emphasis on the movement of capital has also declined, in this case paralleling a decline in new net investment flows in these industries, and attention has focused on the reduction of costs and/or the mitigation of competitive disadvantage made possible by vertical integration. Thus, as Magdoff correctly insists, it becomes extremely important to oil and mining companies that both sources of supply and outlets for processed materials be secure — and therefore owned. Vertical integration, here inevitably across national boundaries, reduces the costs of risk and of holding inventories in a continual flow process. See Magdoff, pp. 32–50; and Kindleberger, pp. 19–22.

³ It should be noted that such an increase in bargaining power, while contributing to lower private costs to the firm and therefore to a competitive advantage relative to what the firm might otherwise enjoy, does not imply lower social costs either nationally or worldwide. Berhman has also considered the explanations of direct investment more extensively in an earlier monograph; see Behrman, Jack N., Some Patterns in the Rise of the Multinational Enterprise (Research Monograph, No. 18) (Chapel Hill: University of North Carolina School of Business, 1969).Google Scholar See Penrose, pp. 46–49, for a somewhat skeptical view of the social-cost-reducing (as opposed to private-risk-reducing) effects of vertical integration in the petroleum industry.

⁴ Unfortunately, the author seems to miss this point himself due to a confusion of marginal and average costs: “International purchases are directed to those that need them, and not necessarily to the plants with the lowest costs” (p. 118).

⁵ However, Magdoff does not lay primary emphasis on this factor and recognizes the importance of the monopolistic factors stressed by Hymer and Kindle-berger and, in particular, the importance of defensive investment by competing oligopolists in each other's home markets; see Magdoff, pp. 36–38.

⁶ On this point see Aliber, in Kindleberger, ed., p. 18.

⁷ Hymer's work is contained in his Ph.D. dissertation which must by now surely be the most often cited unpublished work in international economics. See “The International Operations of National Firms: A Study of Direct Investment” (Ph.D. diss., Massachusetts Institute of Technology, 1960).Google Scholar

⁸ An interesting model of direct investment as a result of increasing competitive pressure on export markets resulting from the economic and technological changes involved in product maturation is provided in Vernon, Raymond, “International Investment and International Trade in the Product Cycle,” Quarterly Journal of Economics, 05 1966 (Vol. 80, No. 2), pp. 190–207.CrossRefGoogle Scholar A number of individual cases of the phenomenon appear in the interview materials of Aharoni, Yair, The Foreign Investment Decision Process (Boston: Division of Research, Graduate School of Business Administration, Harvard University, 1966).Google Scholar This extremely interesting work emphasizes the organizational characteristics of managerial decisionmaking although the work hardly demonstrates, as the author claims, that the search for profits is unimportant to the investment decision.

⁹ This explanation provides an illustration of the theory of monopolistic advantage according to which size confers certain unique financial advantages such as lower cost of borrowed capital.

¹⁰ In The International Corporation Aliber proposes an alternative to the Hymer-Kindleberger model in which foreign investment results from an alleged difference in the rate of capitalization of earnings streams denominated in different currencies. Aliber's argument is intriguing and original, but its complexity demands a more detailed discussion than can be given here. Suffice it to say that it depends on an assumption of inconsistent market evaluation of earnings which is not explained. As it stands, it would not appear to compete seriously with a theory which combines the concept of monopolistic advantage with traditional models of location theory in which tariffs, transport costs, and other distance factors induce the firm to locate near the market.

¹¹ Kindleberger, pp. 5–6. It is perhaps ironic that economists who pay the most obedient homage to consumer sovereignty when it is confined to economic goods find it so untrustworthy a guide when political variables are introduced. How-ever, for a model which does explicitly introduce political goods such as nationalism see Johnson, Harry G., “A Theoretical Model of Economic Nationalism in New and Developing States,” Political Science Quarterly, 06 1965 (Vol. 80, No. 2), pp. 169–185.CrossRefGoogle Scholar

¹² Hymer and Rowthorn, in Kindleberger, ed., p. 72; and Dunning, in Kindle-berger, ed., p. 147. Dunning finds that only about 6 percent of the difference in the rate of growth of sales between United States affiliates and European firms can be attributed to differences in the industrial distribution of sales.

¹³ Kindleberger recognizes, however, in American Business Abroad, that whether the multinational enterprise will “conflict with world efficiency, or … operate in the cosmopolitan interest to spread technology, reallocate capital, and enlarge competition.… depends largely on national policies toward the corporation” (pp. 184–185). The force of the analogy is considerably weakened by the ability of national governments to conduct independent foreign economic policies, particularly with respect to trade and exchange restrictions.

¹⁴ See Kindleberger, pp. 187–192; Johnson, in Kindleberger, ed., pp. 54–56; and Magdoff, pp. 191–201. Hymer, in particular, has emphasized the efficiency losses from international oligopoly; see Hymer, Stephen, “The Efficiency (Contradictions) of Multinational Corporations,“ American Economic Review, 05 1970 (Vol. 60, No. 2), pp. 441–448.Google Scholar

¹⁵ For a discussion of the “returned value” of foreign investment to the host country and one of the few attempts at its systematic measurement see Reynolds, Clark W., “Development Problems of an Export Economy: The Case of Chile and Copper,” in Essays on the Chilean Economy, by Mamalakis, Markus and Reynolds, Clark W. (Homewood, 111: Richard D. Irwin, 1965), pp. 203–398.Google Scholar

¹⁶ It is interesting that Tanzer, perhaps for ideological reasons, pays virtually no attention to the conflict of interests between less developed oil importers and exporters or the mutuality of interests between exporters and companies. He does discuss the much more tenuous “symbiosis” between oil companies and their home governments. See Tanzer, chapter 5.

¹⁷ See Adelman, M. A., “The Multinational Corporation in World Petroleum,” in Kindleberger, ed., pp. 231–232.Google Scholar

¹⁸ On the first two points see Johnson, in Kindleberger, ed., pp. 40–41. Johnson also points out, however, that the relatively price-elastic demand for knowledge-intensive products in low-income markets may result in lower prices charged in those markets by price-discriminating enterprises (p. 41).

¹⁹ Kindleberger, pp. 94–99, pays particular attention to the case in which capital flows, and direct investment under conditions of controls in capital markets, take place as a result of differences in liquidity preference between host and home country.

²⁰ See Magdoff, pp. 198–199; and Tanzer, chapter 20. However, it is not true, as Magdoff seems to imply, that any excess of repatriated investment income over net capital inflow constitutes a burden (“drain”) on the borrowing country. Since precisely this situation is implied by any borrowing, it would imply that all borrowing must be unproductive for the borrower. Magdoff's comparison of these two magnitudes is, therefore, somewhat misleading.

²¹ What matters to the business community, and to the business system as a whole, is that the option of foreign investment (and foreign trade) should remain available.” Magdoff, p. 20. (Italicized in original.) Is this a Marxist equivalent of Pascal's bet?

²² See Jenks, Leland H., The Migration of British Capital to 1875 (New York: Alfred A. Knopf, 1927);Google Scholar and Cairncross, Alexander K., Home and Foreign Investment 1870–1913: Studies in Capital Accumulation (Cambridge: Cambridge University Press, 1953).Google Scholar The question at issue is the extent to which the very slow growth of British productivity in the years prior to World War I can be attributed to insufficient capital deepening, especially in new, high productivity industries, and the relation of this to heavy investment abroad.

²³ This will result simply from a divergence between the opportunity costs of an investment considered nationally (for instance, by a domestic firm or the planning authority) and internationally by the multinational firm. This should not be confused with the naive view expressed for instance by Tanzer (p. 34) that nationally inefficient investments result from the firm's “emphasis on high, immediate profits, rather than on lower, long-run profits which may be considerably more in aggregate.” This statement derives from a simple misunderstanding of the function of the discount rate as a measure of the opportunity cost of capital.

²⁴ See Denison, Edward F., Why Growth Rates Differ: Postwar Experience in Nine Western Countries (Washington: Brookings Institution, 1967), chapter 20.Google Scholar

²⁵ The best examples of these writings are those by Thomas C. Schelling; he focuses on strategic issues but his discussions of bargaining, drawn from oligopoly theory as well as game theory, are of more general interest. See Schelling, Thomas C., The Strategy of Conflict (London: Oxford University Press, 1960);Google Scholar and by the same author, Arms and Influence (New Haven, Conn: Yale University Press, 1966).Google Scholar

²⁶ Cited in Behrman, p. 144.

²⁷ For an explanation of “transnational relations” as contrasted with interstate politics see the introduction and conclusion to Keohane, Robert O. and Nye, Joseph S. Jr, eds., Transnational Relations and World Politics (Cambridge, Mass: Harvard University Press, 1972).CrossRefGoogle Scholar This volume first appeared as a special issue of International Organization, Summer 1971 (Vol. 25, No. 3).Google Scholar See also Kaiser, Karl, “Transnational Politics: Toward a Theory of Multinational Politics,” International Organization, Autumn 1971 (Vol. 25, No. 4), pp. 790–817.CrossRefGoogle Scholar

²⁸ Burton, John W., Systems, States, Diplomacy and Rules (Cambridge: Cambridge University Press, 1968), pp. 19, 30.Google Scholar

²⁹ In his contribution to The International Corporation Waltz argues that the United States is not dependent to a politically significant extent on external sources of supply because: 1) Supplies may be secure even if imported (Canada, Latin America); 2) if there are many suppliers, the chances of all of them refusing or being unable to supply requisite materials are small; 3) the United States has stockpiled many strategic materials; and 4) new technologies may substitute, particularly in emergencies, for imported raw materials (pp. 211–212). This argument succeeds in raising important objections to Magdoff's view although, like Magdoff's argument itself, it suffers from the lack of precise analysis, or even order-of-magnitude estimates, about the costs of autarchy. The debate has surely been joined — but so far largerly on the level of assertion.

The best analysis to date of interdependence, although it concentrates on the industrialized countries, is Cooper's, Richard book, The Economics of Interdependence: Economic Policy in the Atlantic Community (Atlantic Policy Series) (New York: McGraw-Hill Book Co. [for the Council on Foreign Relations], 1968).Google Scholar Cooper defines “interdependence” in terms of constraints on autonomy under a given system of relationships between states; he asks how difficult it may be to act independently (which may be the more relevant operational question) whereas Waltz asks what costs would result if autarchy, somehow, were achieved. The two definitions lead the authors to quite different conclusions.

³⁰ Sunday Times (London), 09 12, 1971, p. 49.Google Scholar The report specifically mentions Chrysler Canada and Douglas Aircraft Corporation as indicating that they were not permitted to grant wage increases under the Nixon wage-price freeze. For an acidly polemical, but frequently brilliant, analysis of Canadian-American economic relations from a left-wing Canadian nationalist point of view see Levitt, Kari, Silent Surrender: The Multinational Corporation in Canada (Toronto: MacMillan of Canada, 1970).Google Scholar

³¹ See Kahn, Herman, “The Arms Race and Some of Its Hazards,” in Arms Control, Disarmament, and National Security, ed. Brennan, Donald G. (New York: George Braziller, 1961), chapter 5.Google Scholar

³² For a stimulating, if one-sided, argument against direct foreign investment from the viewpoint of a poor host country see Peter Evans, B., “National Autonomy and Economic Development: Critical Perspectives on Multinational Corporations in Poor Countries,” in Keohane and Nye, pp. 325–342.Google Scholar

³³ For a horrendous case of mismanagement and corruption of local elites from the nineteenth-century experience of Peru see Levin, Jonathan, The Export Economies: Their Pattern of Development in Historical Perspective (Cambridge, Mass: Harvard University Press, 1960).Google Scholar

³⁴ In 1963 the United States government withheld foreign aid from Ceylon under the Hickenlooper amendment after nationalization of oil company facilities. This was done despite a history of company price discrimination again Ceylon and a Ceylonese government offer of compensation, although not at the prices demanded by the firms. For a discussion see Penrose, pp. 229–230, 270.

³⁵ For references to the Iranian coups in the context of United States intelligence activity and assistance to the shah's supporters see Dulles, Allen, The Craft of Intelligence (New York: New American Library, 1965), pp. 205–208.Google Scholar

³⁶ Tanzer argues here, as elsewhere in his book, that the oil companies' action resulted from the fact that “most of the profits in international oil come from the crude oil” (p. 329). This attributes more economic significance to transfer prices of crude than they possess and is somewhat misleading as a description of the source of oil profits. As Penrose is careful to point out, the oligopolistic rents accrue to the integrated operation as a whole and depend on the suppression of competition at all levels of production, which is why vertical integration is an essential instrument for control of the pricing structure in the absence of formal (and illegal) cartel arrangements. See Penrose, chapters 5, 6.

³⁷ For an essay that develops this line of argument see Adelman, M. A., “World Oil and the Theory of Industrial Organization,” in Industrial Organization and Economic Development: In Honor of E. S. Mason, ed. Markham, Jesse W. and Papanek, Gustav F. (Boston: Houghton Mifflin Co., 1970), chapter 8, especially pp. 148–151.Google Scholar

³⁸ See Aron, Raymond, “War and Industrial Society,” in War: Studies from Psychology, Sociology, Anthropology, ed. Bramson, Leon and Goethals, George W. (New York: Basic Books, Publishers, 1968), pp. 351–394.Google Scholar

³⁹ Servan-Schreiber, J.-J., The American Challenge, trans. Steel, Ronald (New York: Atheneum Publishers, 1968).Google Scholar

⁴⁰ For supporting evidence and reasoning for this line of argument see particularly Cooper; and Behrman.

⁴¹ In his essay in The International Corporation Adelman also emphasizes the likelihood of further state-enterprise conflict in the Middle East.

⁴² For a discussion of the relationship between bureaucratic or organizational politics within units such as states or enterprises, on the one hand, and world politics on the other, see Keohane and Nye, especially the editors' final essay, “Transnational Relations and World Politics: A Conclusion,” pp. 371–398.

⁴³ Penrose, pp. 204–205, discusses arrangements adopted by Libya in 1965 on concession agreements which had apparently been encouraged by one or two of the leading international majors, possibly in the belief that these terms “would create economic difficulties for independent producers.” Here at least, the interests of the government and the international majors appear, at least briefly, to have coincided.

⁴⁴ One possibility, of course, would not be the decline of the multinational enterprise but its restriction largely to the developed world. The general trends in investment since World War II may point in this direction, and recent developments in industries such as copper seem to lend strength to such a prognosis. For two interesting discussions of ways in which enterprises may redirect their activities toward the developed world, thus combatting the effects of nationalization without meeting the host-governments' challenges head on, see Vernon, Raymond, “Foreign Enterprises and Developing Nations in the Raw Materials Industries,” American Economic Review, 05 1970 (Vol. 50, No. 2), pp. 122–126;Google Scholar and Moran, Theodore H., “The Multinational Corporation versus the Economic Nationalist: Independence and Domination in Raw Materials,” Foreign Policy, 12 1971, forthcoming.Google Scholar