3 The birth of the IPE
3.1 Influences of Marxists, Dependency theorists and world-
3.1 INFLUENCES OF MARXISTS, DEPENDENCY THEORISTS AND WORLD-SYSTEM SCHOLARS
Early Marxist research on corporate power centered on the concept of imperialism, most notably articulated in Lenin’s 1917 book Imperialism, the Highest Stage of Capitalism (1965), but also in the works by Hilferding (1981), Luxemburg and Bukharin in the first decades of the 20th century (Palma, 1978, p. 889). The term “imperialism” was first applied to the relationship between “backward” and “advanced” countries within the capitalist system and later to the totality of the monopolistic phase of capitalism (Palma, 1978, p. 884). Lenin’s Imperialism contained many themes that were discussed by the evolutionary economists of the time and that later recurred in other disciplines. For example, commenting on cartelization tendencies, Lenin quoted the German scholar Vogelstein, who had stated that “while at that time it appeared to be something novel, now the general public takes it for granted
that large spheres of economic life have been, as a general rule, removed from the realm of free competition” (Lenin, 1965, p. 20).
Moreover, Lenin argued that the “holding [company] system,” to which I have already referred in Section 2, “should be made the cornerstone” of understanding the new stage of capitalism, given that it enabled capitalists to gain a controlling interest in more companies with less capital than ever before (1965, p. 54). Citing the example of an off-balance-sheet loan from a German steel company to its subsidiary, Lenin maintained that “the ‘holding system’
not only serves enormously to increase the power of the monopolists; it also enables them to resort with impunity to all sorts of shady and dirty tricks to cheat the public, for the directors of the ‘mother company’ are not legally responsible for the ‘daughter company,’ which is supposed to be ‘independent,’
and through the medium of which they can ‘pull off’ anything” (1965, p. 55, emphasis in the original). Quoting a text by Eschwege from 1914, Lenin maintained that “this typical example of balance-sheet jugglery, quite common in joint-stock companies, explains why their Boards of Directors are willing with a far lighter heart to undertake risky transactions than individual businessmen” (Lenin, 1965, p. 56, emphasis in the original).
Lenin was greatly influenced by Rudolf Hilferding’s book The Finance Capital and by many bourgeois economists who studied monopolization tendencies at the time. Marxist scholars also influenced Thorsten Veblen, even though he was not a Marxist himself (Sweezy, 1986, p. 31). The two most prominent scholars in Marxist studies were Paul A. Baran and Paul Sweezy, whose book The Monopoly Capital was later deemed “the leading attempt to bring Marx’s Capital up to date” (Foster, 2014). Baran and Sweezy saw that much of the “stagnation of Marxian social science” was caused by the fact that
“the Marxian analysis of capitalism still rests in the final analysis on the assumption of a competitive economy” (1966), notwithstanding the contributions of Lenin and Hilferding. Monopoly Capital was thus essentially an attempt to explain the “strong tendency toward secular stagnation under advanced capitalism” (Foster, 2014), which was driven by increasing monopolization in many industries, both nationally and internationally. This, Baran and Sweezy argued, had led to a situation in which the “tendency of the surplus to rise” had replaced the traditional Marxist law of the tendency of profit rates to fall — an idea that Kalecki also discussed in his work.
Baran and Sweezy’s core thesis was that large MNEs were “turning most modern industries into a variant of the neoclassical model of monopoly.”
Hymer had essentially reached a very similar conclusion from a different direction. Given that the most heated scholarly debates are often fought between scholars and groups who disagree more on details than on broader outlines of research topics, it is no wonder that in the 1962 introduction to his Political Economy of Growth, Baran admonished Galbraith and other “liberal critics” by saying that “nothing is further from their minds (or at least their public utterances) than ‘touching deeply’ the giant corporation. What can be expected from their recommending various regulatory boards and even their
possible appointment to Distinguished Citizens Committees?” (Baran, 1973, p.
xiv).
Another key Marxist theoretician of the corporation, Hugo Radice, called Vernon and Dunning “apologetics” of large corporations (Radice, 1975). What is more, in a chapter that was originally omitted from Monopoly Capital because of the death of Paul Baran in 1964, the authors distanced themselves from Galbraith and Berle. In particular, Baran and Sweezy criticized these scholars for advocating the concept of “workable competition” and “a pragmatic, piecemeal approach to problems of monopoly and Big Business”, and for confining “themselves to more or less realistic proposals” for improving the system (Baran & Sweezy, 2012).
Baran was a trailblazer in this field, given that some of his ideas preceded those of Hymer. Comparing the changes seen in the 1900s to the transition from feudalism to competitive capitalism, Baran (1973, pp. 60–61) noted that
“the transition from competitive to monopolistic capitalism has resulted likewise in a tremendous increase of the absolute volume of the economic surplus and in the shift of the control over it from the relatively small capitalist to a few giant corporations.” With the growth and propagation of large-scale enterprises, monopolies and oligopolies greatly influenced the distribution of the economic surplus and “the resulting concentration of assets and profits in the hands of a small group of giant concerns (and a small circle of the capitalists who control them) assumes… major significance when we consider our remaining ‘classical’ conditions for growth” (Baran, 1973, p. 61). Baran criticized mainstream economists for firing at monopolies with ammunition
“drawn from the arsenal of the theory of perfect competition — the perfect ideology of petty business.” As a result, “the evil effects of large-scale enterprise were seen primarily in the distortion of ‘optimal’ arrangements that were expected to emerge from the reign of free markets” (Baran, 1973, p. 63).
Keynesian economists also came in for criticism from Baran because “the relation between the process of investment (and economic development) and the growing role of large-scale enterprise and monopoly… received only spotty and sporadic attention” from them (1973, pp. 63–64). Specifically, since Keynesian economists treated the bulk of investment as an exogenously determined “autonomous” factor, with little attention paid to its composition, Baran accused their theory of income and employment of bypassing “the problem of the impact of monopoly and oligopoly on the volume and the long-run effect of investment” (1973, p. 64). Galbraith also addressed this in his work. However, Galbraith’s ideas were difficult to systematize into the Keynesian framework and, perhaps for this reason, they have had little impact on its later development.
Significantly, Baran anticipated some of the early ideas of Hymer’s internationalization thesis. Baran maintained that in monopolistic capitalism, oligopolistic and monopolistic firms that operate under conditions of rapidly decreasing costs are even more anxious than their competitive predecessors to expand their sales abroad. Even if the prices in foreign markets are lower than
those at home, companies may find it profitable to push their exports and engage in price discrimination, because discriminatory price reductions will not affect their positions in domestic markets (1973, p. 111). Writing some 35 years before the outbreak of the Latin American debt crisis, Baran also drew attention to large MNEs’ opportunities to encourage their host governments to open up new business opportunities abroad via either military or economic means. A loan granted to a company investing in a country with a tight market situation by an “oligopolist government may be tied to conditions that decisively shift the competitive balance in favor of that oligopolistic firm”
(Baran, 1973, p. 114).
Some scholars later accused Baran and Sweezy of basing their analysis on the neoclassical conception of “imperfect competition” and overstating the empirical evidence regarding monopolization (Foster, 2014). However, the main Marxist criticism of the Baran–Sweezy thesis, specifically the notion that
“oligopolistic pricing can lead to an increasing share of gross profits to income,” came from scholars associated with the “internationalization of capital” school (Pitelis, 2000), as suggested by Jenkins (1987) and in a book edited by Radice (1975). In their view, Baran and Sweezy relied too heavily on the neoclassical “quantity theory of competition” model, which regards
“competition and monopoly as polar opposite types of market structure”
(Pitelis, 2000, p. 202). However, the scholars associated with the internationalization of capital school argued that “competition should be viewed as a process which dialectically links competition and monopoly, as Marx had proposed. Accordingly, increasing concentration need not imply monopoly power, given actual and potential competition by rival firms”
(Pitelis, 2000, p. 202).
The Marxist body of theory on large enterprises developed in close interaction with dependency theorists, who were concerned with the factors restraining much of the southern hemisphere from enjoying the benefits of economic progress and integration into the world economy. Gabriel Palma has argued that we can broadly divide development theorists into three major approaches. The first approach built on the writings of Paul Baran, centered on Andre Gunder Frank and continued with the CESO School (Centro de Estudios Sociales of the University of Chile), particularly Brazilian Marxist economist Theotônio dos Santos. This school was characterized by an attempt to construct “a theory of Latin American underdevelopment” (Palma, 1978, p.
898). To highlight one significant example of how this school approached the power of MNEs, in 1970 Dos Santos noted how the postwar period saw the development of a new kind of dependence, one “based on multinational corporations which began to invest in industries geared to the internal market of underdeveloped countries” (Dos Santos, 1970, p. 232). He labeled this dependency technological-industrial dependence because he saw industrial development as being strongly conditioned by the technological monopoly secured and maintained by imperialist powers.
The second approach built on work conducted by the Economic Commission on Latin America (ECLA), which the United Nations established in 1948 as one of its regional commissions. This approach became known for its analyses of Latin American development “from the perspective of a critique of the obstacles to ‘national development’” (Palma, 1978, p. 898). In an illustrative example of this strand, Chilean development economist Osvaldo Sunkel criticized many of the conventional accounts in development economics for analyzing “the national economy in isolation, treated as if it existed in an international vacuum” (1972, p. 519). Specifically, Sunkel noted how dependency theorists had only recently begun to notice how their vast resources had enabled MNEs to “plan the development of consumption” and how these “institutional developments in the United States are reflected abroad as the new multinational corporations spread throughout the international economy” (Sunkel, 1972, p. 521). These MNEs’ activities follow an established pattern, starting with exporting finished products; proceeding to establish sales organizations abroad; continuing by allowing foreign producers to use licenses and patents to manufacture products locally; and finally, buying out the local producer and establishing a partially or wholly owned subsidiary. Through this process, a new structure of international economic relations emerges, one “where trade between national firm Z of country A and national firm Y of country B is replaced by the internal transfers of firm Z to countries A and B, while firm Y vanishes from the picture” (1972, p. 521).
The third approach identified by Palma focuses on an attempt to develop
“a mechanic-formal theory of dependency — and to a lesser extent, a mechanic-formal theory of Latin American underdevelopment based on its dependent character — by focusing on ‘concrete situations of dependency’”
(Palma, 1978, p. 898). In addition to the orientations highlighted by Palma, one further strand of studies that drew partly from the work of Andre Gunder Frank and his successors was the world-system theory, championed by Immanuel Wallerstein and his colleagues, especially Terence K. Hopkins (Wallerstein, 1974). According to Hopkins and Wallerstein, the world economy should be analyzed as a system experiencing an “ever-present division of centers and hinterlands, or as we shall say ‘cores’ and ‘peripheries’”
(Hopkins & Wallerstein, 1977, p. 112), with various countries having distinct roles in global production chains.
The ultimate beneficiaries of these chains are, Hopkins and Wallerstein argued, transnational corporations and their rich host countries. Many scholars built on these ideas, providing detailed analyses of the core-periphery relationships and imperial structures that hindered Southern countries’
attempts to follow the developmental paths that rich northern countries had taken. Even though Wallerstein and Hopkins discussed corporate power only as part of their wider framework for the world economy, their work laid the foundations for the later emergence of bodies of literature on global value chains and, very recently, the framework of global wealth chains (see Section
5.1). These frameworks have also been influential in providing direction for IPE research on corporate power.
One remarkable scholar whose work drew on evolutionary economics, internationalization theories and dependency theories was Gunnar Myrdal, who is better known for his analyses of social policies and Keynesian economics. However, in some of his lesser-known works, Myrdal developed his ideas about combining the corporate planning framework with development viewpoints. Myrdal argued that underdevelopment was not an isolated phenomenon. For him, it was a part of a world process in which powerful nations have impoverishing effects on other parts of the world.
Myrdal described these debilitating upshots of world economic relations as
“backwash effects.” He pointed out that in the absence of counteracting measures, trade will not move toward an equalization of world incomes.
Rather, it strengthens rich and progressive countries, whose manufacturing industries have taken the lead and fortified themselves against the surrounding economies. At the same time, underdeveloped countries are in constant danger of seeing even what they have in terms of industry, particularly small-scale industry and handicrafts, priced out by cheap imports from industrialized countries (Long, 1981, p. 24).
In a little-known section in Myrdal’s book Economic Theory and Underdeveloped Regions (1964, p. 49), he notes how in highly integrated states, all prices are essentially manipulated. They “are not the outcome only of the forces in the market; they are in a sense ‘political prices’, depending also on the regulating activity of the state, of quasi-public and private organizations and of private businesses.” Therefore, a “pure” price system is nowhere to be found, because it is shaped by the legislation and administration of the state.
In this regard, the prices “correspond to the valuations and objectives which emerge from the democratic political process” (1964, p. 49). Unfortunately, Myrdal did not develop his ideas on “political prices” any further.
The 1980s saw a decline in Marxist and dependency scholarship on the power of MNEs (Lall, 1993, p. 122), but there were some exceptions. In particular, the work conducted by Cowling and Sugden — jointly and separately — deserves to be mentioned. In his 1982 book Monopoly Capitalism (Cowling, 1982), Cowling discussed several of the key ideas introduced by Baran and Sweezy and other Marxist scholars. Drawing partly on Keynesian economist Kalecki, Cowling attempted to give a more rigorous form to the concept of monopoly capital, connecting it to broader Marxist and Keynesian ideas. In his opinion, “no attempt [had] been made to provide an exhaustive treatment of monopoly capitalism” (Cowling, 1982, p. 3). However, for the purposes of this project, Transnational Monopoly Capitalism, which Cowling published five years later with Sugden, is of greater interest (Cowling &
Sugden, 1987). Citing mainly earlier Marxist and Keynesian research, Cowling and Sugden argued (1987, p. 2) that the growth of dominant transnational corporations “leads to monopolisation tendencies within such a system, which in turn imply a potential for a rising profit share, but the consequences of this
for the level of aggregate expenditure will imply a secular stagnation tendency.”
Mirroring (but not directly referring to) some of the ideas put forward by Galbraith, Barnet and Müller, and Vaitsos, Cowling and Sugden challenged the Coasian view of the corporation, which was based on a strict division between market and non-market transactions. Reflecting some of the ideas I discuss in subsequent articles, Cowling and Sugden called for a move “away from an obsession with market versus non-market exchange” in order “to explore the very nature of exchanges” (1987, p. 10). In order to overcome these distinctions, which did not truly apply to the everyday realities inside MNEs, Cowling and Sugden called for more attention to the literature on decision-making structures within MNEs, highlighting especially a framework developed by Zeitlin (1974). Cowling and Sugden argued that in MNEs,
“control implies the ability to determine broad corporate objectives despite resistance from others,” or, in other words, decisions about strategic issues, such as “a firm’s relationship with its rivals, nation-states and workers, its rate and direction of capital accumulation, its sources of raw materials, and its geographical orientation” (Cowling & Sugden, 1987, pp. 11–12). These strategic decisions are fundamental because, ultimately, they determine the direction of an MNE.
Cowling and Sugden went on to define an MNE as “the means of coordinating production from one centre of strategic decision-making when this coordination takes a firm across national boundaries” (1987, p. 12).
Usually, firms transnationalize “either to consolidate or to improve their retaliatory power — i.e. to defend against or to try to attack rivals” (1987, p.
47). Cowling and Sugden point out that their definition covers Coasian firms that internalize market transactions under central coordination, as well as, for example, a clothing production firm that subcontracts part of the assemblage to “housewives looking for additional money” (1987, p. 13). This would fall within Cowling and Sugden’s definition of an MNE, but not within the Coasian definition. It is fair to say that after the 1980s, Marxist and developmentalist debates on international monopoly capital and corporate planning have been few and far between, even though some articles have been published on these themes (Foster & McChesney, 2009; Foster, McChesney, & Jonna, 2011).
Below, I argue that this demise of critical thinking on the corporation also fostered the withering of these ideas as part of the IPE/GPE agenda.