Multinationals and the Public Interest

THE OPEN MIND
Host: Richard D. Heffner
Guest: Jacob Javits, Henry Reuss, Philippe de Seynes, Robert Stobaugh, Hanna Whitman
Title: “Multinationals and the Public Interest”
VTR: 4/7/74

I’m Richard Heffner, your host on THE OPEN MIND. This evening, my guests and I are going to examine a subject that could not, would not have surfaced a generation ago, when this program series first began. For our concern now is with the extraordinary rise over the past two decades of the multinational, of multinational corporations, usually giant companies that do business not just in one, but rather in many countries, developing new production facilities, forming capital, increasing employment opportunities, fostering economic growth in a variety of host nations. But also seeming at times to wield and sometimes to manipulate unmatched economic power without concern for the traditions of national sovereignty. Here, in the multinational, we have an institution, a happening, if you will, that may be about more profound change in our own economic lives, and ultimately in the very structure and conduct of national and international political affairs than any other development in the history of modern man. Appropriately then, the United Nations has created its own blue ribbon panel of experts to study the multinational corporation. And the UN Secretariat has prepared research material for this group of eminent persons that begins in this way: “In the past quarter of a century, the world has witnessed the dramatic development of the multinational corporation into a major phenomenon in international economic relations. Its size and geographical spread, the multiplicity of its activities, its command and generation of resources around the world, and the use of such resources to further its own objectives, rival in terms of scope and implications traditional economic exchanges among nations.” Indeed, there are those who say that whatever problems multinationals raise for traditionalists, their economic power is growing so rapidly that it will ultimately become the glue that binds nations together once and for all, that the failures of our political efforts at internationalism will be succeeded successfully by economic ties that bind, bind all men together.

Well, with these thoughts in mind, the other week I visited two distinguished members of the United States congress. Sen. Jacob K. Javitz, Republican, of New York, and Rep. Henry S. Royce, Democrat, of Wisconsin. First I asked Sen. Javits, who is a member of the United Nations group of eminent persons, if he feels that multinationals are in the public interest. Now let’s watch a videotape of his reply.

Javits (on videotape): I do not say that they are in the public interest today. I do say that they are capable of being in the public interest. This is so true that they should not be dismantled or dissipated away. But on the contrary, they represent a critically important asset to the United States in terms of jobs, income, the addition to the United States of wealth and prosperity for its workers, its investors, its managers, and therefore a critically important national asset. And we should proceed along the lines of regulation, both domestic and international, and in that way make of what is now somewhat a blessing, somewhat a curse, generally speaking, a blessing. And this can be done.

Now, the main point is that those who oppose the multinational corporation in the United States today – and they include a number of my colleagues in the Congress and many other important people throughout the country – would dismantle them, or would establish conditions which would put them out of business. And that really would be disastrous for the American economy, for our ability to buy abroad, which is critical to us now with many critical materials including oil so short, and for employment in the United States and the competitive position of the United States in the world. We’re not alone in this. About two-fifths now of the major multinational corporations in the world are foreign, many of them Japanese. Now, that’s not just the capitalists lining their pockets. That means that that kind of enterprise, that kind of employment, that kind of export will go abroad instead of being here. And if the United States loses in the competition and becomes a second- or third-rate country, again it isn’t the matter of national pride, it’s a matter of our people not having the standard of living or the national security which Americans have become accustomed to and which we earned. We have the plant, we have the technology, we have the education, we have the national stability, and so we’re rightfully there.

Now for a few facts. It is a fact that the multinational corporations which are United States organized, that is, American multinational corporations,, do about $160 billion worth of business a year. That’s double our exports… –small gap in tape—they are also responsible, it is calculated, for close to half of our total exports from this country. And let us remember that we hear a lot about people who say American corporations are exporting jobs. We don’t hear nearly as much about the fact, one, that it takes some seven or eight million Americans to produce the things we export, and you can put at least several million, maybe as many as four, at the door of the multinational corporation. You never hear about that. Nor do we hear that those earnings are absolutely indispensible to buy the materials to keep our industrial machine going.

Secondly, the second thing that’s said against multinational corporations is they dip their sticky fingers in the foreign policy of other countries, like ITT in Chile. Well, sure, you’re going to have excesses when you have all that power floating around, and relatively little legislation to regulate it, because this is a very new phenomenon in the world. And by the way, not a bad phenomenon. I’d like to read to you what the Library of Congress in a study says about multinational corporations. “No more effective instrument has been found for the mobilization and diffusion of capital and technology.” That’s applying to multinational corporations. And the poorer countries of the world need that kind of infusion of capital and that kind of technology and that kind of brains and that kind of stimulus. Now, again, international regulation has not caught up with many of these countries, in connection with the antitrust laws, in connection with tax patterns, in connection with making things in one place and selling them high in another. But the United Nations is now working on it. I am a member of a committee of the United Nations working on precisely this matter. And we will regulate it by international agreement or convention. But in the meantime, let’s not kill the goose that is not only laying golden eggs but is capable of laying golden eggs which will be of enormous benefit not only to our country but also to the poor countries of the world. And by the way, on that score let us not assume for a minute that we’re just being great humanitarians about the poor countries of the world. The fact is that we want to live in a stable world; we don’t want to live in a world where poverty is the rule rather than the exception. And that’s the situation today. And that’s better for our security in terms of staying alive and not being blown up by atom bombs, and better for our jobs, and better for our employment in this country. And in addition, American enterprise, through the competition which is engendered abroad, gets sharpened up for domestic purposes too. And if, as in the case of the oil companies, we feel that they are overextending themselves in foreign exploration, let us lay for oil, and not enough in this country, we can deal with that by the antitrust laws, by making it more attractive to do what needs to be done here than to do what’s being done abroad. In short, the multinational corporation has the capacity for great operation in the public interest and the interests of all our people. Let’s not kill it, because it carries such capacity for good.

Heffner: I then asked Congressman Reuss if he thinks multinationals are in the public interest.

Reuss (on videotape): In theory, multinationals help matters because they channel capital to the places on earth where it will, again in theory, do the most good. But in practice, in many instances the multinationals, in my judgment, do just the reverse of serving the public interest: they do harm. I can think of cases for instance where multinationals have grievously interfered politically in a country. A classic case, of course, is ITT, International Telephone and Telegraph, conspiring to overthrow the democratically elected government of Chile just a few years ago. They were later caught red-handed. They were nationalized and expelled. But the worst part of the whole dreary fiasco was that the United States, our country, then gets the reputation all over the world of being an imperialist country whose companies try to mess around with purely local affairs.

Another tendency of the multinationals is to exploit the people, particularly of the poorer countries, economically. The copper companies in Chile, the oil, the American oil companies in Peru, the aluminum/bauxite companies in Jamaica all have been accused – and In many cases there’s something to the accusation – of milking the country for their revenues, of failing to train local people so that they can take over the jobs, particularly management jobs in a company, and generally hobnobbing with the local oligarchies who are the people who are repressing the people in their own country.

A third charge that bears some examining is that the multinationals minimize and in many cases avoid their just share of United States taxation, which means that the average taxpayer has to kick in with just that much more because the big foreign operating corporations minimize their taxes. Many ways to do this. One is by getting a tax credit for either taxes paid overseas or, in some cases, for royalties. Thus the American overseas oil companies did some very fancy footwork with the sheiks of Arabia a few years ago when they made a little deal with them to consider the royalties that they paid the sheiks as credits, and hence a deduction from their American income tax. Another tax preference which is very helpful is that American multinationals don’t’ have to pay any United States income tax whatsoever on income they earn overseas through a subsidiary until and unless they repatriate the funds and dividends. And frequently their game is to keep all their poker chips building up on the table overseas and not to repatriate the profits. So they, in effect, escape American taxes. All of this causes job loss at home, and it causes a big loss to the American taxpayer. Another grievance against the multinationals is that upon occasion they restrict competition and thus hurt the United States consumer. For example, the oil multinationals from the United States have formed ARAMCO, the consortium which digs for oil in the sands of Saudi Arabia. And they frequently have gotten together to raise the prices of oil over there, all of which have a disastrous effect on the American consumer. There is considerable ground for suspicion that the reason we don’t have adequate refinery capacity in the United States is because the multinational oil companies decided that they wouldn’t have it here, that they’d make more money without it. Or take bauxite, which is used for making aluminum. In Jamaica, a principal bauxite supplier, the bauxite plant is jointly owned by the three major American aluminum companies, ALCOA, Reynolds and Revere. Obviously, with a deleterious effect on the American consumer who gets ripped off in the process.

So, in my judgment, the thing to do with multinationals is not abolish them, but neither should we bow down before them and let them work their will unfettered. We ought to tame them, and we ought to regulate them in the public interest.

Heffner (on videotape): Thank you very much, Congressman Reus.

Heffner: Let me turn now to my guests for our discussion of multinationals and the public interest. First, Dr. Marina Whitman, distinguished Public Service Professor of Economics at the University of Pittsburgh, formerly a member of the President’s Council of Economic Advisors. Secondly, Robert B. Stobaugh, Professor at the Harvard University business School, who is Director of the study, Multinational Enterprises and the US Economy for the United States Department of Commerce. And thirdly, Philippe de Seynes, who is Undersecretary General of the United Nations for Economic and Social Affairs, formerly of the Ministry of Finance in France.

Well Professor Whitman, gentlemen, I wonder if I could begin by asking what might seem to be a rather peculiar question, and that is whether there has not been in a sense a failure of nerve on the part of those who are looking into the face, into the mouth, into the very teeth of these giant corporations that are expanding as they are, and a kind of fear that has been generated by bigness itself, perhaps a failure of nerve that’s unwarranted. I raise the question and wonder how you respond.

Whitman: Oh, I think there is some of that. I think it’s sort of inevitable that governments, when confronted with something which is in some ways bigger than they are, that is, whose boundaries are in some cases broader than the boundaries of governments, should feel some concern in the growing importance of these entities. I think probably the tension is increased by the fact that the multinationals have grown up during a period when governments of nation states have been taking upon themselves or have had thrust upon them by the bodies politic increasing amounts of responsibility for domestic economic goals. I think that the number of goals and the ambitiousness of goals which governments are expected to fulfill in every industrialized country as well as in developing countries have increased during the post-war period. And I think partly for that reason you get a great tension between the governments which are expected to achieve certain things and these institutions which they see as being at least partly beyond their own control.

Heffner: Gentlemen, do you agree? Mr. de Seynes?

De Seynes: Well, very largely I would agree. And from the point of view of the United Nations, particularly focused on problems of developing countries, I think there is a fundamental ambivalence of attitudes in these developing countries. On the one hand, they would want to attract the multinational companies because they are providers of the things which they want most: capital, technology, management skills, and so on. On the other hand, they are, as was just said, very much afraid of their bigness, of losing control of their economy. More recently, I think they have been perceiving more clearly that the operations of the multinational corporations do not necessarily fit in with their own plans and economic policies; that the type of operations in which they are so successful are not always in conformity with the plans and policies for development of these new countries, very many of them being small and weak.

Heffner: Well, you talk about the perceptions of the small nations, the developing countries. And I wondered, Professor Stobaugh, in terms of the perception of Americans about multinationals, whether our perception of multinationals is costing jobs, as doing damage to our own national economy, is in your estimation correct.

Stobaugh: I think you, in order to answer the question, one has to consider what would be the situation if we did not have multinationals. And I think that the answer, when one considers that particular question, is the number of jobs is not the important issue; that we can control the number of jobs in the economy, in theory at least, through monetary and fiscal policy. Even though their arguments spring up over number of jobs, I think the critical question is what effect multinationals have on the level of job skills in this country. And from what we can tell with our studies, multinationals tend to increase the job skills in the US because we have more research and development going on in the American economy than we would have if we did not have multinationals. We have more exports of capital goods, equipment, items such as that that take highly skilled people in terms of both design and manufacture. So I think they are adding to the demand for highly skilled persons. So I would say that that’s the key issue, is the level of job skills, and indeed we do have a more highly skilled economy and better paid economy than we would have without them.

Heffner: In your…I’m sorry. Dr. Whitman.

Whitman: Well, I think that maybe because of what you referred to before, this sort of fear of bigness, it’s not surprising that a good many sort of myths have grown up about the multinational corporation. And I think to a large extent some of them are myths, or at least inaccuracies. For instance, I think it’s very, it’s, a lot of people feel that multinationals are responsible for, because they export capital, are responsible for a lot of the deterioration in the US balance of payments, which certainly took place in the late 1960s. but from all we can tell from the most careful studies that have been done to date, that simply isn’t true. That is, the multinationals seem to have come in on the plus side in the sense that they are responsible for more exports than they are for imports, and also when you take into account capital flows and so forth. And similarly, I think, with jobs, as Professor Stobaugh said, by and large they are heavily involved I the export industries in this country, and those are the particularly highly paid industries and highly skilled industries. So that I think that while the fear or concern is understandable, I think what it’s led to is a lot of feelings about the multinational corporation and the role it plays in strictly economic terms, which is not borne out by such facts as we have. There’s a lot more we’ve got to learn, and a lot more information and data we need. But, as I say, a good deal of work has been done, and it suggests that they have been on the plus side rather than on the minus side of the US balance of payments. I think you also have to remember that there has been a tremendous growth of trade and investment since World War II, and I think this has been very heavily tied up with the great increases in the standard of living that we’ve had in this country and in all industrialized countries. And the multinationals are very much a part of this.

Heffner: What about the threat they pose to national sovereignty?

Stobaugh: Let me come back to that point about what we in the US see of multinationals. We, I think we ought to separate the people in the government into different segments. We see forays against the multinational from time to time. The Treasury Department, for example, last year, I guess, proposed that taxes be increased in certain ways on the multinationals, particularly, we’ve had a number of proposals. One of them had to do with you tax multinationals if they export more than certain percentage of their output from a subsidiary back to the US. We see the labor unions attacking the multinationals, partially because of the imbalance of bargaining strength. And we see other segments, we see Rep Reuss talking against the multinationals. On the other hand, we see other people in favor of the multinationals speaking more in favor of them. So I think for us to say that the US government or the US population is a monolithic group or that any government is a monolithic group tends to be kind of misleading when we start looking at relations between governments and multinationals.

Heffner: Yes, but isn’t’ this going to be a situation in which, since there are so few people who even know how to define the word “multinational”, that it is going to be the small group here or the small group there that will make the basic determination as to what our policy will be? As we planned this program and I mentioned the word “multinational” to people, I found very few who register…

De Seynes: This is really where public discussion and enlightened public discussion is essential. Because it is a highly complex problem. It is technically very complex, and yet it does generate more emotions, more populist emotions, more nationalist emotions than any other problem at present. And therefore I think it is very essential that this be debated publicly and on the basis of studies such as we have referred to a moment ago. I would like to say a word more on this question of jobs, because it affects both sides, the developing countries as well as the developed, and it is closely linked to technology. It is jobs which the, job creation which the developing countries need most of all at present because unemployment with the population explosion has reached tremendous heights, and it is threatening the stability of the governments and it is creating this terrible situation which you can see all over these, around the cities and the degradation of the rural areas. Now, the type of technology which the multinational corporations bring to the developing countries are not necessarily the most job creative. And here you have already a problem and a conflict. And there are some adjustments and interpretations which have to be made. Now, in the home country, you have a problem when the highest and most advanced technology is combined in developing countries with very cheap labor and when the products of this combination come back to the home country in terms of spare parts of components for the final product. I think these illustrate the type of complexities which you have with multinational corporations.

Whitman: I think when we talk about whether multinational corporations are in the public interest or not, we have to distinguish first of all between the countries that are sending and the countries that are receiving. But I think also we have to distinguish various levels even on the part of the sending countries, that is the countries like the United States which export capital rather than import it through multinationals. I think that, first of all, there’s the question of what impact does the multinational have on totals, big aggregates? Total income, total employment, total balance of payments. And there, as I say, insofar as we can tell, the net effect appears to have been positive or more likely to have been positive than negative. That doesn’t mean one might not change regulations in such a way as to even improve it. But they seem to have come down on the plus side.

The second thing, of course, still strictly in economic terms, is what impact do they have on different groups within the population. And there, of course, the answer may differ for different groups. And this is not insignificant. I mean, if there’s a textile worker in one city whose plant closes up because of foreign competition, he may not be very comforted by the fact that some instrument company in another city suddenly has a vastly enlarged export market and can hire lots more people. So that presumably the aggregates are the main thing by which we define the public interest. But what happens to individual groups is also important. And probably we need to find – and in fact the government has made proposals – to provide better assistance for adjustment so that the people who suffer directly in certain situations, their problem of adjustment can be alleviated so that the country as a whole can gain from the change process that takes place.

And the third thing, I think, which has to be taken into account, which oddly enough is a matter apparently of much more concern to Europeans than to Americans. Americans tend to focus on the economic aspects. The Europeans, I think, have been more concerned with sort of the political and cultural aspects of the impact of multinational corporations. And there, of course, we have the least information. And of course, developing countries have also been concerned about this, and probably the smaller the country the more reason they have to be concerned about some of the cultural questions or the question of dominance by multinationals, or at least in particular areas.

De Seynes: I would say there is a big difference between the Europeans and the less developed countries there. I think because of the difference in bargaining power. I think the bargaining power of the Europeans is very large. They can legislate, they can take decrees, they can stop the multinational corporations to come in, and they will find alternative ways of doing things. And they can reciprocate, of course. They can send their capital and technology to the United States. So there is the relationship there which is approximately symmetrical. And as to the cultural values, I think it is quite clear that the Europeans are very largely trying to imitate the cultural values of the United States regardless of multinational corporations or not. And I think there is a two-way traffic there. I think there is a cross-fertilization of cultural value between Europe and the United States. But when it comes to the developing country, this is very different, because the cultural values there are much more deep-seated, and they are, I would say, part of the psychological comfort and equilibrium of the population. And unless you can get them to change to a different system of values, then the cultural impact of multinational corporations can be very great indeed and very negative. And this is something which you have to watch for. But in that case – and Professor Stobaugh raised a question of the alternatives – sometimes there are no alternatives. Sometimes there are no alternatives but the multinational companies. If you want to develop computers – and every country, as small as it is, will have to do certain things by computers – you have to go to the multinational companies. And there are many, of course, other different aspects of this. But there it is a question that the bargaining power is, because of the situation, the bargaining power is very very small indeed in many developing countries.

Heffner: Is this…Professor Stobaugh?

Stobaugh: I would like to respond and give a little different view of the bargaining power. I agree that many times the developing countries, when they look at the multinational enterprises, they look at the worldwide sales or the worldwide size of the enterprise and they say, “We’re a small nation. We don’t have much bargaining power.” But in fact, in some types of products, particularly the more mature product lines, when there have been the development of these products by European and Japanese and by a number of US firms, sometimes even the small countries, if they have studied the situation and know what they’re doing, they can strike a much better bargain because there are many different competitors. It’s not as though there are a few multinational enterprises that operate as one little club. In fact, they’re competing with each, against each other. And if you take an industry such as petrochemicals, or many industries with standardized products, after they’ve gotten a certain age and a number of companies have the know-how, then the nations don’t have to take the multinationals. They can buy technology from a number of different sources.

De Seynes: This is the very point. The acquisition of technology independently of one single channel, which creates this feeling of bondage, which the developing countries often have. That if they want technology, they have to go and get the capital at the same time and the control of the multinational corporation and all of the things which they don’t have. But I agree with Professor Stobaugh that things are changing to a considerable degree there. And one, certainly, of the matters which is of interest of the UN is precisely to try and see how these alternative sources of technology can be developed.

Heffner: What can we expect from the group of eminent persons at the United Nations?

De Seynes: You can expect a report…(laughter)

Group: (laughter)

De Seynes: …because this is what they have been asked to do. And, well, I would say that what you can expect is that the subject matter will now be very much in a systematic way in the UN. That is, that the UN will use the instruments at its disposal to get to grips with this problem. Now, these instruments are limited, as you know, because we are not a world government and we cannot establish control even if we desired to do so. But we have certain advantages in this process to which I referred earlier of elucidation of the problem, of demystification of the problem through public debate on the basis of professional studies. We have the possibility of initiating negotiations for international agreements on certain specific matters pertaining to multinationals, and you have the possibilities of developing program actions of help to developing countries to train them mostly in the intricacies of multinational corporations so as to strengthen their hand in their negotiations with them. I would say that one item which is certain to come out is the request for more information. And as you know, this is very topical in Washington now. Now, how one will go about this is a different matter. But this, I can predict, will be in the report of this group.

Heffner: You say, “We are not a world government,” talking about the United Nations. Is the major fear – well, put it another way – is a major fear, as you perceive it, and as you do too, that the multinationals are becoming in their own way a world government of their own, and that they are imposing a kind of economic control the rough manipulation of their huge resources willy-nilly, whether the political entities, units want to go their way or not? Is this a fair statement of one of the fears at least?

Group: (laughter)

Stobaugh: I was going to say I think that that is not an accurate description of what’s going on because indeed the multinationals are subjected and controlled by the laws of each individual country. And if they operate in the US, if a British company operates in the US, they are subject to US laws. And I think the question is, will we have some type of international organization that oversees them so that in some places now the laws of a nation are put in such a way as to encourage multinationals to come there and, say, and manufacture and take their profits, manufacture and make profits, and then not, the way the laws are they don’t have to pay taxes until they pay, they have to pay local taxes but sometimes they’re forgiven in order to attract investment, and then they don’t have to pay home country taxes until they’re paid out as dividends.

Heffner: Well, you say that that’s an inaccurate description of what is, but it’s not too inaccurate a description of what has been said about what is on the part of a good number of critics.

Stobaugh: I think that’s right. But I think what the critics, both the critics and the friends, regardless of who they are, they should realize that the multinational corporation, first it’s made up of many different corporations, each domiciled in a different country. And wherever the corporations are domiciled, they’re subject to the laws of that country. And one of the problems that’s created now is that the laws from one country to another country are inconsistent. And you may take the US, say, and France, they may not be happy with the laws of Ireland or with the laws of brazil, but there’s not too much that they can do about it now if the laws of Ireland or the laws of brazil in some way encourage, say, manufacture in Ireland or brazil and export to them. But in fact, each individual corporation is subject to the laws of the country in which it is operating.

Heffner: Well, I’d like to ask…Go ahead.

Whitman: After all, the government does in a sense have the upper hand. I mean, that is…

Heffner: By ways…

Whitman: Well, in the senses that in the final analysis they can always throw the multinational corporation out. They can expropriate its assets and say, “You no longer control.”

Heffner: Now that’s the host country?

Whitman: The host country. That’s right.

Heffner: What about the mother country?

Whitman: Well, the mother country, again, in a legal sense, certainly has the upper hand. I guess the US Congress could, if it wanted to, tomorrow pass a law saying there may be no more exports of capital from the United States. I think it would be a howlingly unwise thing to do. But again, the government does in the end have very substantial powers to control these entities. Now, whether they will do that and whether it’s a good idea to do that are two quite different questions. But I think there still is a basic asymmetry between a private organization, however large, and a sovereign state. And whereas the sovereign states may worry about their effective economic self-determination being nibbled away at, still one cannot ignore the legal realities that in the end they do have the final say.

Heffner: So that when you were a member of the President’s Council of Economic Advisors you were not concerned overly about the financial controls and therefore the political controls of the multinationals? That’s a fair question, I think.

Whitman: That’s a very fair question. I think that we were concerned about certain aspects of the multinationals’ behavior, primarily because we were concerned with the development of US policy toward multinationals. I mean, there were issues, and very major issues, coming up on which we very clearly had to have some analysis and some views. And of course, one of the things that startled us was how little we really knew about this question, which is always where you begin. And sure, there was a lot of concern, for instance, at the time, that there were these very large movements of funds from one country to another, capital flows from one country to another over the last year or two. The extent to which multinationals were doing this. That’s not a question which really we ever had a full answer to, although when the multinationals were surveyed – and there are fairly heavy penalties for not answering honestly – it appeared that surprisingly little funds were being pushed around directly by the multinationals. Now, I think that that doesn’t mean nonetheless that they don’t have an indirect influence. I think it’s quite clear that the development of international money markets in the post-war period, the Eurodollar market and others, which really have integrated capital markets throughout the world, has been very heavily influenced by the existence of multinationals and vice versa. And certainly the existence of these international capital markets has made the movement of funds from one country to another much easier. So that in that indirect sense, I think, of course, the multinationals have had an impact on the structure of the international monetary system. And again, I think that this development of international capital markets in one sense can be a great force for good; in the other sense, of course, it can at times be disruptive, and in particular it can to some extent reduce the autonomy of individual countries in running their own particularly monetary policies without paying attention to what goes on in the outside world. And I think this is what upsets countries. That it forces upon them a degree of integration with the rest o the world which they may not always be entirely happy with.

Heffner: Well, I said when we began the program, I asked about this question of a failure f nerve, and I was thinking In my former incarnation as an historian I had always been very much impressed with Theodore Roosevelt’s conversion from fear of bigness to a concern to look bigness in the face and wonder whether it was good at one time and bad another. And I remember he had been very much impressed with Crowley’s phrase, “The promise of American life.” And I wondered, not to be nasty or peculiar about it, but would it be possible to say, to think it’s not an impossible thought that the real premise of life in the future is involved with the development of this planet’s riches, which development can really only come with an absence of the kind of nationalist restrictions that at present exist, and can really only come through the kind of giant economic entity that the multinationals to some people threaten to become, to some people promise to become.

De Seynes: I think one must beware of sweeping statements here.

Heffner: (Laughter) Not to sweeping questions, but sweeping answers.

De Seynes: No, but I am quite interested that you referred to Theodore Roosevelt in this and to this period, because I’ve always been interested in this. When companies started to become big in this country, then it was felt, and to be national rather than statewide, then it was felt that there was a necessity to have a real degree of, let’s say institutionalization, the creation of all kinds of regulatory commissions and what have you and legislation and so on. And in fact, I have always felt that this market in the United States which is frequently described as the freest market in the world is one of the most institutionalized. And I think if you go from there on to the world, you can understand why we in the UN are striving to certain types of institutionalization precisely because we do recognize the role, not the exclusive role,, but the role of bigness and large organization in the development of the world, and we want, by letting this bigness develop, try to avoid the sometimes very negative effects which go with it.

Stobaugh: Those who say that the government’s afraid of bigness can just go back to a few years and look at the actions that the US government took to control multinational enterprises. They put mandatory restraints on their capital movements out of the US. That affected dividend policies abroad which infected the internal operations of US-owned subsidiaries but incorporated in foreign countries. The US government directly affected those operations without discussing it, without getting the approval of the foreign governments. The US government didn’t hesitate to tell the US parents what the US subsidiaries could do in terms of exports and to whom they could sell. So that in effect the US government controlled the export policies of US-owned subsidiaries in Canada and prevented them from exporting to communist countries, for example, which upset, a number of these actions upset our allies. So I think that the question is not so much whether government can control multinational enterprises, because they can. I think the question is should the governments get together and agree on some common policy for multinational enterprises, whether they’re each doing some kind of separate control.

Whitman: I think what Professor Stobaugh has just said refers back to something you said before, Mr. Heffner, and that is you can’t simply take it for granted that the growing importance of multinational entities will necessarily promote a greater degree of world stability and world cooperation. I think that’s something that has to be positively worked for. I think that, on the contrary, there is also the possibility that it could enhance tensions between sovereign states in the way that, to a relatively minor but nonetheless real degree it brought about some tension between the US government and the Canadian government. So that I don’t think one can just sit back and think, well, with the increasing importance of the multinational we will have an increase in tendency toward world cooperation and world stability. I think they have the potential for that, but actualize that potential will be no small task.

De Seynes: And you need many other things.

Whitman: That’s right.

De Seynes: I mean, they are not in themselves an instrument of world stability and equity. If you like, they can greatly contribute to it, but there’s at least quite a lot of other things.

Stobaugh: Sometimes it’s hard to look at one situation and see whether they’re relieving tension or whether they’re creating tension. If you take the case of the multinational oil companies, when some of the Arab nations boycotted the Netherlands for example, the oil companies were able to take crude oil produced in Nigeria or other countries that were not boycotting the Netherlands and thereby delivery petroleum to the Netherlands. Well, on the one hand you can say that helped reduce the friction between the Netherlands and, say, Saudi Arabia, and if indeed the Netherlands had been completely cut off from petroleum there might have been a greater possibility of war than there was. So you can say, well, in a way the multinational enterprises perhaps improve relations, kept sort of as an intermediary between the Netherlands and some of the Arab countries. On the other hand, you can say, well, they created frictions because they did not deliver to France as much as they had been delivering to France before, and France had a pro-Arab policy and expect, presumably, but we’re not sure what negotiations went on between France and the multinational enterprises, but presumably France expected to not have oil cut back, but some of the oil that was delivered from Nigeria to Holland was taken away from France so that all countries suffered about the same amount of shortage. Well, that might have created some tension there. And it’s hard to look at any one situation and see whether they’re creating tension or soothing tension, unless it’s a very close analysis.

Heffner: Well, I wonder. You’re all trained very well in the dismal science of economics. Are you concerned as people in this role, with this training, for the question of sovereignty? Does that loom very large when you consider the multinationals? Is it one of the things that you take to use as a guideline for judging the development of the multinational, the potential for the obliteration of national sovereignty? Does it really concern you? Is that…

De Seynes: Well, it is a very great concern in the United Nations. And I much prefer we really try to come to grips with the total problem of multinationals. We had been debating this subject of what is called in the UN the “permanent sovereignty” over natural resources. And this has the value of, I would say, sort of transcendental principle. Now, how does one implement it and concretize it in the face of markets which are international, of technology which is international also, is a very, very difficult problem. And I think here you are really, as far as the UN is concerned and the developing country, at the real center of the whole problematic of multinational companies. Now, that will not, I think, prevent, quite to the contrary, the efforts being made to strive towards a certain normalization of the relationship between governments and multinational companies, because again, once, I would like to repeat that their contribution is very much desired by a great majority, I would say, of the countries. And witness the incentives which they are giving to the multinational companies, the tax incentives and other types of incentives which they are giving. So it is the process of accommodation now, step by step, then gradually which I think is at stake.

Whitman: I think there really is a certain, an ambivalence on the part of economists or the discipline of economics. That is, economic analysis lends itself much better to looking at questions of efficiency, of total income, total employment, and so on. Then it deals with the question of the distribution of that income, unemployment and so forth. Economics does not deal very well or very comfortably with questions of distribution of income or welfare. And I think for that reason an economist can perfectly well analyze these questions of impact, of multinationals, or any other phenomenon, either from the world point of view or from the national point of view. You give the economist a framework and he can perform this analysis for you. However, I think we find it rather difficult to try to make the tradeoffs between world income and world efficiency and national sovereignty. We don’t know quite how to weight this thing called “national sovereignty” or figure out how much it should enter in the equation and how much sovereignty one should be willing to give up in order to get a given amount of increase in total world income and world standards of living. I think individual economists have individual biases obviously. I tend to be somewhat of an internationalist in my outlook. I think other people are more or less so but I think that our discipline, as I say, is not yet at a very advanced state of being able to take sovereignty into account as one of the factors in the equation.

Stobaugh: I think we attempt to take it into account. First, I’m not officially trained as an economist, having a doctorate in business administration and teaching at a graduate school of business administration. (laughter)

Heffner: That relieves you of that burden. Okay.

Stobaugh: Yes. It relieves me of the burden of trying to put the multinationals in the, of tight economic analytical type framework. I agree when we come to grips with the sovereignty question we come down with this love/hate relationship that was just mentioned, this wonderment as to whether you want to invite them in or not. But we see that multinationals do give host nations a problem because the host nations want them but then they lose control and that, as Professor Whitman was saying a while ago, our economies are getting more and more integrated. That produces economic efficiency, but you lose control. And that control means different things to different people. And if you’re a policy maker or if you’re an official running for reelection in a year or two years, then it’s quite important for you to be able to do certain things. And that’s the dilemma that they face.

De Seynes: I think all this would support really. The question of tradeoffs is perhaps no more difficult here than any other area. It is tradeoff between the economic efficiency of the enterprise even at the local level, I would say, leaving aside the question of the global strategy of the multinational company. But at the local level it is the strategy of the enterprise to maximize profit as a token of efficiency. But the tradeoffs on the other side ore very frequently of a political nature, of a social nature, of a cultural nature. And that we just don’t know in what system of equations to raise them. You have to go in the broader entreative way. And I would say more by proving the movement by walking. We find that there are quite a number of governments of developing countries who are very, very susceptible about their national sovereignty and which deal in a very relaxed way with the multinational companies. I think it is the question of knowing what you want, what you’re expecting from this company, and going after them, rather than letting your door open and let them come in and make their selling, their hard sell in the country. I think this question of attitude of the initiative which the developing countries take is quite essential in developing normal relationship with the multinational enterprise.

Heffner: Doesn’t that raise the important question for us in this country of finding some means of developing an equitable treatment for our own multinationals? As we begin to become a little aroused and perhaps a little incensed by some of the firebrands’ words about the multinationals, aren’t we likely to put our own multinationals at a disadvantage competitively?

Stobaugh: I think there’s that danger of, I think for example on tax policy, if the US adopted a tax policy that severely handicapped the operations of US companies abroad, they would be at a disadvantage in competing with the German multinationals or the British multinationals, the Japanese multinationals for example. And if you look at against whom our multinationals are competing, they’re primarily competing abroad against other multinationals rather than against the local companies. So that we would be asking, we could end up putting the kind of burden on our multinationals tax-wise that could make them not be competitive in many countries. On the other hand, we want to have a policy of making them pay whatever, what’s a fair, quote/unquote, tax burden. And I think one of the ways we can do that, accomplish both means, is through some kind of agreement within, say, the OECD countries which are the countries in which the headquarters of most multinational enterprises are. That is, I think that’s the way to begin to have some type of international body that controls, say, tax policy for multinational enterprises, would be have it starting with the OECD and then making agreements with the developing countries on issues.

Heffner: Professor Whitman, in terms of your experience in Washington, do you feel that we are going to deal with the multinationals equitably and provide for them the means of competing abroad?

Whitman: First I guess we have to define what “equitably” is.

Heffner: I’ll leave that to you.

Whitman: (laughter) You’re leaving that to me too. One of the problems is, of course, that it’s very hard to define what tax neutrality is. Presumably it’s a good thing that you want to achieve. But unfortunately you can’t really define it unequivocally. Tax neutrality with respect to multinationals of other countries is one thing, and tax neutrality as between multinationals and domestic companies is something quite different. I think that in the past our tax policy has focused primarily on the concept of neutrality as relates to other, multinationals of other, whose parents are in other countries. That is, the kind of competitive equality that Professor Stobaugh was just talking about. I’m, so that I suspect that if any moves are made in changing tax policy with respect to multinationals, it will probably be in the direction of limiting in some ways the tax situations which they currently enjoy. That is, I suspect that there’s more likelihood of changing tax policy in a way that is disadvantageous to multinationals than in ways that makes it more advantageous. That may tend to reduce their equality or their competitive position with regard to multinationals of other countries. It will presumably create an equality in some ways that does not exist now with respect to domestic companies, which of course do not have the privilege of deferring taxes until they pay out dividends. So I think it’s a very, very, this question of what is equitable is really a very complicated one because there is no unequivocal way that you can define neutrality or, which I suppose is as close as one can come to the concept of equality.

Stobaugh: I think there are two things that I would like to…

Heffner: In just a few seconds that we have left.

Stobaugh: …make explicit about multinational enterprises. Is one, that most US firms, for example, are run by US managers. They’re people from the University of Michigan, the University of Texas, and places like that, rather than being some international citizen. And secondly, we’ve talked a lot about finances. But the movement of technology and management know-how is more important than the movement of finances.

Heffner: And that’s the point at which I have to say, I’m sorry, but we have no more time, but plenty of thanks to the three of you, Dr. Marina Whitman, Professor Robert Stobaugh, and Mr. Philippe de Seynes.

Heffner: And thanks, too, to you in the audience. I hope you’ll join us again next week on The Open Mind. Meanwhile, as another old friend used to say, “Good night and good luck.”

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