-I¢"CI,‘ *HF" .‘f' Date LIBRAR Y Michigan State Uni Verity This is to certify that the thesis entitled International Divestments and the Multinational Company: Three Case Studies presented by Leon Grunberg has been accepted towards fulfillment of the requirements for Ph. D. _degree in Sociology am a WWW Major professor July 3l, l979 0-7639 OVERDUE FINES ARE 25¢ PER DAY PER ITEM Return to book drop to remove this checkout from your record. I»- <:) Copyright by LEON GRUNBERG l979 INTERNATIONAL DIVESTMENTS AND THE MULTINATIONAL COMPANY: THREE CASE STUDIES By Leon Grunberg A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Sociology 1979 To My Parents ACKNOWLEDGEMENTS It is a pleasure to express my gratitude to the people who have helped me in this research project. The members of my committee, William Faunce, Richard Hill, Christopher Vanderpool and Fred Waisanen were always patient, and helpful. Bo Anderson and Kevin Kelly were kind enough to spend many hours discussing various issues with me. In particular, I am indebted to Richard Hill whose friendship and intel- lectual stimulation continually supported and extended me. William Faunce, since l97h, when we met in Lodnon, has guided my intellectual development by his example of rigorous thinking and atten- tion to evidence. My passage through graduate school was considerably eased by his generosity, concern and good humour. Throughout my 'exile' in Michigan, he and his family have made me feel at home and have been true friends. I am deeply grateful to them.. The nature of this research meant that I was continually dependent on the assistance and cooperation of many people in public life. I acknowledge their many contributions here. Finally,l am happy to thank those who gave me moral and material support. These include Michigan State University, my parents, Mick Fisher, Brian Davis and David Lister. Above all I warmly thank Regina Kielholz, without whom I doubt if this dissertation would have been completed. TABLE OF CONTENTS L'ST OF TABLES I O O O O 0 O O O O O O O O O I O O C 0 O O 0 O O Vii CHAPTER I THE PROBLEM IN CONTEXT . . . . . . . . . . . . . . . I. Statement of the Problem . . . . . . . . . . . . . . I 2. Scope and Limitations of the Study . . . . . . . . . . 2 3. International Divestments - A general and Preliminary View A A. International Context . . . . . . . . . . . . . . . . 7 5. Methodology and Data . . . . . . . . . . . . . . . . 12 (BICenera'lApproach .............. I2 (b) Data Collection . . . . . . . . . . . . . . . I7 (c) Quality of Data . . . . . . . . . . . . . . . 20 6. A Theoretical Framework to Guide the Research . . . . 23 The Consequences of Divestment or the ThreatIaf Divestment 34 (a) The Consequences on the Relations between capital and Labor . . . . . . . . . o 34 (b) The Consequences for the Community . . . . . . 36 (c) The Consequences for the National Economy and on the Efficacy of Government . . 36 7. The Plan of the Study . . . . . . . . . . . . . . . . 36 CHAPTER II A GUIDE TO THE CASE STUDIES . . . . . . . . . . . . 38 I. Overview , , . . . . . . . . . . . . . . . . . . . . . 38 2. Reasons for Investment . . . . . . . . . . . . . . . . 39 3. Factors Affecting the Development and Performance of the Subsidiary . . . . . . . . . . . . . . . . . . AS (3) Competition . . . . . . . . . . . . . . . . . 45 (b) Product Strategy - Marke Reserach and Development . . . . . . . . . . . . . . . SI (c) Industrial Relations . . . . . . . . . . . 57 (d) Transfer Pricing . . . . . . . . . . . . . . . 69 (e) Profitability . . . . . . . . . . . . . . . 76 A. The Reasons for the Decision to Withdraw . . . . . . . 79 5. The Process of Withdrawal . . . . . . . . . . . . . 83 The Tactics of Management . . . . . . . . . . . . 86 The Workers' ReSponse and Tactics . . . . . . . . . . 33 The Response of Government . . . . . . . . . . . . . . 90 6. The Consequences of Withdrawal . . . . . . . . . . . . 93 conClUSIon o o o o o o o o o o o o o o o o o o o o o 99 CHAPTER III LEYLAND INNOCENTI , , , . . a . . .-. . . .'. e . . 100 I. Overview . . . . . . . . . . . . . . . . . . . . . . IOO Sources of Data . . . . . . . . . . . . . . . . . . . 101 2. Reasons for Investment . . . . . . . . . . . . . . . . 102 I. 5. 6. Factors Affecting the Development and Performance of the Subsidiary . . . . . . . . . . . . . . . . (a) Competition . . . . . . . . . . . . . . . (b) Product Strategy . . . . . . . . . . . . . (c) Industrial Relations . . . . . . . . . . . (d) Transfer Pricing . . . . . . . . . . . . . (e) Profitability . . . . . . . . . . . . . . The Reasons for the Decision to Withdraw . . . . The Process of Withdrawal . . . . . . . . . . . . The Consequences of Withdrawal . . . . . . . . . . CHAPTER IV CHRYSLER UK . . . . . . . . . . . . . . . . . . l. 2. 3. h. 5. 6. CHAPTER V I. 2 3. 1.. 5. 6. CHAPTER VI l. 2. 3. Overview . . . . . . . . . . . . . . . . . . . . . Sources of Data . . . . . . . . . . . . . . . . . Reasons for Investment . . . . . . . . . . . . . . Factors Affecting the Development and Performance of the Subsidiary . . . . . . . . . . . . . . . . (a) Competition . . . . . . . (b) Product Strategy . . . . (c) Industrial Relations . . (d) Transfer Pricing . . . . . . . . . . . (e) Profitability . . . . . . . . . . . . . . The Reasons for the Decision to Withdraw . . . . . The Process of the Withdrawal Attempt . . . . . The Consequences of the Withdrawal Attempt . . . . IMPERIAL TYPEWRITERS . . . . . . . . . . Overview . . . . . . . ... . . . . . . . . Sources of Data . . . . . . . . . . . . . . . Reasons for Investment . . . . . . . . . . . . . . Factors Affecting the Development and Performance of the Subsidiary . . . . . . (3) Competition . . . . . (b) Product Strategy . . . (c) Industrial Relations . . (d) Transfer Pricing . . . . . . (e) Profitability . . . . . . . . The Reasons for the Decision to Withdraw . . . . The Process of Withdrawal . . . . . . . . . . . . The Consequences of Closure . . . . . . . . . . . SUMMARY AND COMPARISON OF CASES . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . The Three Cases Compared . . . . . . . . . . . . . . (a) Similarities . . . . . . . . . . . . . . (b) Differences . . . . . . . . . . . . . . of the Three Cases . . , , . . . . . . . . . . ARe-Exanination of the Conceptual Framework in Light 106 I06 II3 IZA l27 I35 I38 lhh 155 I6l I6l I63 16h I69 I69 I73 I81 ‘95 I97 200 203 208 2]] 2]] 2l2 213 2I6 2I6 225 229 232 23% 236 ZAZ 2&8 253 25A 266 266 271 275 CHAPTER VII CONCLUSION . I. The Nature of the Multinational Company . Centralization . The Strategic Plan . . . . . . . The Allocation or Distribution Denationalization Class Relations . 2. The Struggles Against Closures 3. Implications . . . APPENDICES . A INTERVIEWS CONDUCTED B TELEGRAM 0 o O O O P O O O C O O O O I o o . O of Tasks and Resources C PART OF THE COMMUNICATION BETWEEN UK AND US UNIONS ON THE MATTER OF CHRYSLER UK . NOTES . . BIBLIOGRAPHY 0 vi 285 288 288 289 293 299 301 312 316 3I9 3I9 322 323 325 3AA TABLE I0. Il. LIST OF TABLES Strike Hours per Employee: British LeyIand vs Innocenti Profit and Loss (Pre-tax) . . . . . . . . . . . . . . Innocenti: Revenue and Expenditure . . . . . . . . . . Chrysler UK'S Disputes Record - Minor Stoppages . . . Relief Allowances at Chrysler France and UK . . . . . . Profits and Losses . . . . . . . . . . . . . . . . . . Sales of Imperial Office Typewriters I97A . . . . . . . UK Market For Office Typewriters - Shares of the Main Companies . . . . . . . . . . . . . . Volume and Costs at Imperial . . . . . . . . . . . . Partial Typology of Class Relations . . . . . . . . . Survey of Chrysler Canada Workers . . . . . . . . . . vii 12h I35 I37 I89 I9] I98 222 22h 23A 303 309 C H A P T E R I THE PROBLEM IN CONTEXT “It is the inequalities, the injustice, the contradictions, large or small, which make the world go round and ceaselessly transform its upper structures, the only really mobile ones. For capitalism alone has relative freedom of movement. AS the moment dictates, it can bring off coups to right or left, turning, alternately or simultaneously, to profits from trade or manufacture, even ground rent, loans to the state or usury. Faced with inflexible structures ('those of material life and,no less of ordinary econ- omic life') it is able to choose the areas where it wants and is able to meddle, and the areas it will leave to their fate, incessantly recons- tructing its own structures from these components, and thereby lktha by little transforming those of others. That is why all the economic creativeness of the world stems from precapitalism, and why it is the source or characteristic of all great material progress and of all the most burdensome exploitation of man by man. Not only because of the appropriation of the surplus value of man's labour. But also because of that disproportion in strength and position, on a nation-wide as well as a world- wide scale, which means that at the whim of circum- stance there will always be one position more advan- tageous to adopt than the rest, one sector more profitable to exploit. The choice may be limited, but what an immense privelege to be able to choose!” Braudel (I976:445). I. STATEMENT OF THE PROBLEM It is by now a common place to note the dramatic increase in foreign direct investment in the last two decades and the emergence of multinational companies as a powerful force in the international economy. Less noted is the recent increase in international divest- ment and still little understood is the nature of the multinational companies that carry them out. It is the purpose of this study to shed some light on these two phenomena - international divestments and the multinational company. The central questions this study addresses are: I. (a) What are the reasons for international divestment? (b) How do divestments occur and with what consequences? 2. What can the study of divestments tell us about the nature of the multinational company? A word needs to be said about the implicit assumption that links the two issues together. Traditionally one studies an organism or organization in the course of its normal functioning to learn some- thing of its nature. Although divestments are an increasingly com- mon occurrence, they are generally regarded as manifestations of failure. Whatever the truth of that view (the study will shed some light on it), it is clear that divestments are manifestations of a disturbance in the organizational system. And disturbances tend to throw all kinds of things and relationships off their normal patterns. In such hutances the routinized gives way to drama and the hidden sees the light of day. We cantherefixeexpect to discover new and important things about the multinational company by a study of divestments. SCOPE AND LIMITATIONS OF THE STUDY The study refers in the main to divestments by multinational companies engaged in manufacturing activities in advanced capitalist ,- h- .s- O n 1F! .... o\- countries. There is no discussion of divestments by non-manufactur- ing companies in Third World Countries, although these are included in some of the aggregate statistics presented. Moreover the term divestments as used in this study is limited to mean closures or sales of producing operations. The term withdrawals is an approp- riate synonym and is used interchangibly with divestments. Although much of the ensuing discussion can be extended to apply to national multi-plant, multi-regional or multi-divisional companies, I have not included these in any part of the discussion until the final chapter where I make some comments on the similarities and differences between the two. The Study is about two cases of international divestment of sub- sidiaries, and one case of attempted divestment. The cases are: British Leyland divesting its Italian subsidiary, Leyland Innocenti in l975/6; Litton Industries, a US conglomerate, divesting its British subsidiary, Imperial Typewriters in I975; and Chrysler Cor- poration, one of the giant US automobile manufacturers, attempting to divest its British subsidiary, Chrysler UK. The description of these cases will comprise the major part of this dissertation. I have tried to describe the cases in sufficient detail to enable us to learn something about divestments and multinational companies. And, because it is a study of only three instances of divestment behavior, there is no hypothesis testing. Rather, it is hoped that several conceptual and empirical avenues will open up, for other researchers to pursue. ‘t‘ .A» ‘ ‘- p I v a. In. INTERNATIONAL DIVESTMENTS - A GENERAL AND PRELIMINARY VIEW The extent of divestments has only recently been documented, and even then not very accurately because of the absence of reliable data. The scattered data Show that divestments do occur in large numbers and that they have been increasing over time. Torneden (I975:20-l), examining SIS United States companies (The Fortune 500 plus the IS largest retailers), uncovered 56l cases of disinvestment of foreign operations during the l967-7| period. Ignoring national- izations, which he includes under the definition, the number drops to 537. Vernon (l977:l00), looking at I80 large US based multinat- ional companies, discovered 7l7 cases of sales or quuidations of manufacturing subsidiaries between l968-l97h. Sachdev (I976zl35), after a laborious sifting of some 3,500 documents, compiled a list of at least 532 cases of voluntary divestment by British based multinational companies for the period l968-l974. And Business International Weekly Reports (2l January I977) reported that divest- ments by foreign investors in Japan ”grew from six in I972 to 26 in I975 and IS in the first half of I976”. But these absolute figures as they stand are hard to interpret in a meaningful way. When related to the number of existing or new manufacturing subsidiaries the following picture emerges. Torneden (l975:22), using a figure of 3,238 newly formed foreign subsidiaries in the same period, arrives at a rate of divestments as a percentage of new susidiaries of l5.9%. In fact he noted an increasing trend of divestment activity: for example, in l967 there were l0.9 new establishments formed for every divestment, in l97l the ratio was F! f 2.7 to one (Torneden I976:34). Vernon(l977:l00), places the 7l7 withdrawals he discoverd in the context of a total population of 6,500 manufacturing subsidiaries owned by US multinationals although he does not say what happens over time. Sachdev (I976zl35-6), also notes that divestment activity is on the increase, although he does not give comparative figures of existing or new subsidiaries. Finally data on one country confirms the consistency of the pattern. Multinational companies of various parent domiciles closed I06 subsidiaries and established 447 in the l970-76 period in Belgium, giving an overall ratio of 4.2 to one. The ratio narrows over time. (Business International Weekly Reports, l5 July I977). The reasons for this development are a matter of speculation at the moment. Explanations could be pitched at different levels of gen- erality. A highly general form of explanation could correlate changes in the rate of divestment activity to movements in indicators of the international economy, presenting an argument for the links between the two. At a lower level of aggregation, country, industry and com- pany specific comparative analysis will establish certain factors and variables as significantly associated with divestment activity. Unfortunately there has been little systematic work at any of these levels, and, when this is allied to the great variety of country, industry and company circumstances, the most we can point to at this time is merely a series of hypotheses rather than any general theory, The following patterns have been tentatively supported: (I) the more technologically advanced the industry, the higher the propensity to 6: «a. A\. C» divest; (2) the more conglomerate in form the multinational company, the greater the propensity to divest (Sachdev, l976:l9l); (3) increas- ing foreign involvement and increasing divestment are positively related (Torneden, l975:33) and the larger the company, the greater the propensity to divest (Torneden, l975:33; Sachdev, I976:I37).l An aggregate picture emerges: it is the largest, most international animost conglomerate type of multinational companies, in the more technologically advanced industries that account for most of the divestment.2 However, it is also apparent that in some industries, notably labor intensive ones such as clothing, textiles and some branches of consumer electronics, national and multinational companies withdraw from certain countries and relocate in places with lower labor costs (Vernon, l977293’5). Other hypotheses can be proposed for consideration: the larger the commitment of resources to a subsidiary, the less likely a dive estment decision in the event of problems and the more likely effort will be applied to solve the problem; the more important a market and the greater the market share of the subsidiary in that market, the less likely is divestment. Both of these hypotheses assume there are costs associated with divestment and touch on the constraints that enter into the decision-making process. Data on the form of divestments, fragmentary and inadequate as it is, suggest the following pattern. Whenever multinational companies decide to withdraw, they usually choose to do so completely - that is by a full sale of their ownership or a liquidation (Torneden, l975:27). If they can, they tend to sell their ownership share, ._‘ L. ... pk. Ilh - u». - ... though if necessary they do liquidate and close subsidiaries (Torneden, l975z25).3 These data garnered from the responses of the multinational company, mask a more complex reality. Some multination- als probably dissect the Subsidiary,liquidate some parts and maintain or create others (Business International SA, l976:5l).h And there are no data on the fate of the subsidiaries that are sold - on whether they are maintained as going concerns, on whether they produce the same products with the same number of workers, or on whether they remain dependent on the multinational company for various services? Such questions are germane give the dependent nature of the relationship of many subsidiaries to the group. Other questions, which this study cannot directly address, are: Do multinationals have a higher prop- ensity to divest than national companies? Are there different reasons for each type? What is the relation of divestment to important Shifts S in national political forces? All these issues will have to be taken up elsewhere. The only thing that is clear from the limited data presented above is that withdrawals are an established part of inter- national production, that the increasing trend in their incidence was well established before the recession of l97h-75, and that a small number of large multinationals account for a large proportion of all divestments. INTERNATIONAL CONTEXT The three cases to be investigated in this study did not occur in a vacuum. To be fully understood they must be Situated in the real events that occured in the international political economy. The rel- evant period spans the years l967-76, a period that witnessed the end of the long post war boom and the deepest recession Since before the aT‘ second world war. Theories to explain this cyclical downturn in the international economy and business cycles in general are complex and controversial. I will not enter that field here. Nevertheless I will sketch in several broad features of the international economy in that period to help readers gain a bearing and sense of orientation as they proceed with the case studies. I begin with some facts and observations on the recession of I97h-75, (also the years in which the divestment 'crisis' comes to a head in the three cases), and on the years preceeding it. Gross domestic product of the countries in the Organization for Economic C00peration and DeveIOpment (OECD), essentially comprising all the advanced capitalist countries, calculated at I970 prices and exchange rates rose from $l,93l billion in I968 to $2,h2l.9 billion in I973, levelled off in l97h to $2,42h billion and fell to $2,38l billion in I975. Industrial production followed a similar pattern: it rose in the period I963 to I972 by 65%, continued to rise in I973, levelled off in l97h, but fell by varying amounts in all countries in I975 (Mandel, l978a:l4; Organization for Economic Cooperation and Devel- Opment l976b). Not surprisingly unemployment rose in all these countries to a post war high of IS million. In the previous I969-7l recession it had been IO million. There was also a small decline in world trade, after the rapid growth in its volume in the preceding years (Mandel, I978azl9). There are two other interesting and important features in the international economy that deserve mentioning. There was a decline in the rate of profit. In the US the rate of profit had fallen from .: A . I-I. In». 'a lhs a Pl. - \nb (72.. ‘5 .x. a before tax high of I6.2% in the period I9A8-50 to l2.9% in the I966-7O period, and to l0.5% in I973 (the after tax figures were 8.6%, 7.7% and 5.A%) (Mandel, I978a:22).6 In Britain the rate had fallen from l6.5% in the l950-5h period to II.7% in the l965-69 period and to 9.7% in I970 (the after tax rates being 6.7%, 5.3% and A.7%) (Mandel, I978a:23).7 Japan, West Germany, France, Sweden and Italy also witnessed long-term declines in the rate of profit in the post- war period (Mandel, I978a:23-5). Second, there was, in several national economies, a ”regular increase in excess capacity in industry” (Mandel, I978a:26). Thus, while there is always a decrease in capacity utilization in recessions, the general trend in the sixties and seventies was towards a lower rate of utilization of capacity. So for example, in manufacturing industry in the US the rate went from 92% in I966 to 78% in I968, from 86.5% in I969 to 75% in I97I and from 83% in I973 to 65% in March I975, the trough of the recent recession (Mandel,l978a:26). These two general trends of course did not operate equally in all capitalist countries or on all large companies. However, it is worth remembering them, for to varying degrees the three multinationals studied suffered from both a decline in profitability and excess cap- acity. It is generally true, of course, that variations in the mag- nitude of business failures and divestment activity can be expected to correspond to movements in the business cycle. The severe l97h-75 recession increased the incidence of business failures and divestments and decreased the rate of investment activity. Apart from cyclical fluctuations, there were several important structural deveIOpments in the international economy. First the rate ' .>. can 2. I0 of technological change (innovations) probably accelerated, sub- jecting many products and processes to quicker obsolescence (Mandel, l978b; Shonfield, I965). Companies were increasingly compelled to introduce better machines and new products or fall behind in the race. More generally, whole industrial sectors were in decline (e.g. textiles, shipbuilding, steel) as demand stagnated and competition from devel- 0ping countries increased, and new industrial sectors expanded (e.g. computers, electronics). Second, there was a change in the relative economic strength and power ofvarious national capitals. These are expressed in a whole range of economic figures which Show that countries like West Germany and Japan are increasing their share of economic activity while others, notably Britain, find theirs decreasing (Mandel, 9788639)}, The US position as undisputed leader is certainly threatened, though its lead in many areas is still relatively secure. The Japanese, Germans and to a lesser extent other European countries have been 'catching up' with higher rates of labor productivity growth: while the US had an average annual rate of labor productivity growth in manufacturing of 2.7% in the period l960-75, Japan's was 9.7%, West Germany's 5.7%, France's 5.6%,with Britain's at 3.8% (Mandel, l978a:l06). Allied to these differential rates of productivity growth, differences in unit labor cost between the US, Japan and West Germany were narrowing (Mandel, l978a:l09). One consequence of this convergence is that non-US multinationals were growing more rapidly than US ones, and the dominance of US multinationals ”declined consistently over the decade l963-72” (Dunning and Pearce, l975zh7). Moreover, there has been ”a sharp rise in the establishment of new companies or the . b V o s 1" ... find an- 5" a a :5 absorption of existing ones in the United States by the great Euro- pean multinationals” (Mandel, l978a:lO7). This is one more manifest- ation of the relative shift in strength of the various advanced national capitals. Third, while the trend is towards higher national seller concen- tration ratios the level of competition has intensified at an inter- national level (European Economic Community, l973,75). Several Third World countries have begun producing a range of producer and consumer products that are challenging western dominance. This is happening in steel, textiles and branches of consumer electronics where countries such as Taiwan, South Korea, Hong Kong and Brazil are threatening established industrial sectors in advanced capitalist countries (Mandel, l978a:l30-7). In addition, and to some extent in response, to this import competition, multinational companies have themselves transfer- red production to Third World countries to take advantage of cheaper labor, and have used these locations as 'offshore production' sites, thereby also challenging western national producers (Adam, I975). More generally the growth of foreign direct investment and the increased severity of competition have caused a fall in the largest firm concentration ratios both in the world's largest 500 industrial companies and in share of sales accounted for by the top three out of the top twenty Companies in many industrial sectors (Dunning and Pearce, l975:h5). Mandel (l978a:h9-50) also notes that: ”In I959 the world's largest firm in eleven of the thirteen major branches of industrial manufacturing and banking was American; by I97h this was the case in only seven branches. In I959 some 63% of the l56 largest firms in these thirteen branches were American; by l97h the percentage had declined to “3% as against 36.5% for the European multinationals and 20% for the Japanese multinationals"- l2 Along with this intensification of competition among the world's largest companies (most multinationals), there was a general decline in their rate of return on sales in the I962-72 period, with most of the decline occurring in I967-72. And whereas ”upto the mid-l960's both US and UK firms maintained their profitability, while the other European and Japanese firms recorded a fall; between I967 and I972, all major countries including the US experienced a sharp fall in profitability” (Dunning and Pearce, l975z60). Nevertheless, US firms consistently earn a higher rate of return on their sales and assets than other large firms (Dunning and Pearce, I975:6I). Fourth, and as a consequence of technological change and changes in the relative economic strength of countries and industrial sectors internationally, structural or long-term unemployment became a serious problem, in particular in Europe, for the first time since the pre-war depression. Thus, in the post recession period (I975 on) unemployment levels did not diminish but increased to l6.3 million in I976 and to about l7 million in I977 in the OECD countries (Mandel, I978a288). The period covered (I967-75) could be called a period of tran- sition, from fast growth to low or no growth, from low to high unemployment and from undisputed American economic leadership to unstable rivalry among the major capitalist powers. It is in this conjuncture that the evolution of the three cases studied took place. METHODOLOGY AND DATA (a) General Approach ”Subject matter, or kinds of things, do not, I hold, constitute a basis for distinguishing disciplines ... we are not students of some.subject matter but students of problems.‘ And problems may Cut right across the borders ;\, . . A b .n» ‘.. . :- and .he ..v l3 of any subject matter or discipline (Popper, I963z66-7). This study confronts an area that straddles several disciplines - for example economics, political science and sociology, and if one goes in for fine demarcations, organizational analysis and business manage- ment. It therefore borrows concepts from various disciplines. More Specifically this study is an attempt, if labels are necessary, at political economy. There are several definitions of this term.'0 What is essential in the method is to examine the phenomenon under investigation in the dynamic context in which it exists and to con- ceive and look at the phenomenon as itself made up of interrelated parts, some of which are in contradiction and some of which are mut- ually supportive. In a sense the method assumes the world is con- tinuously connected (a totality); each phenomenon, a sum of others, and itself part of a sum (Ollman, l976:l2-AO). The issue for the researcher then is where to cut into the continuously connected whole - where to demarcate the area for study, and to choose the tools or concepts to effect the dissection, and then to knit the now analyzed parts into an integrated synthetic unity again. I have chosen to cut into the larger phenomenon of the internationalization of capital by focusing on the vehicle of that process - the multi- national company, and its divestment behavior. I have also tried to follow the maxim that recommends to researchers that they choose the methods of data collection that best suit their problem, and the methods of analysis that best fit the data. Three possible data collection avenues were suitable to researching the problem posed in this study: aggregate statistical data from official sources; survey data; and case study material. Ideally one would pursue all three. In fact my intention was to ed. a... ... .- Qt. 5-. .n» a su- ... -\~ up. IA combine the collection of official aggregate data with case study material. This approach would permit some statistical manipulation and generalization and some in-depth description in the analysis phase. The experience of other researchersanulmy own with official sources quickly suggested the limits of the first approach, at present.11 For example, in two countries with sophisticated data collection capa- city, the US and the UK, the published data on flows of foreign invest- ment are not sufficiently disaggregated to distinguish cases of with- drawals as defined in this study.‘2 And as a rule the subsidiaries of multinational companies are not specially categorized in censuses of manufacturing: they are treated as indigenous. Some Western governments do conduct special censuses or surveys of multinational companies, but again no data on withdrawals are published.‘3 The survey approach was avoided for two reasons. First, there was a high probability of a very low response rate. Second, such responses as were obtained, would tend to eschew detailed answers and would be difficult to check for reliability. The experiences of Sachdev and Torneden emphasize the stregth of these problems. Sachdev, after examining some 3,500 documents, compiled a list of lh3 multi- nationals which appeared to have divested subsidiaries. His request for cooperation received a positive response from 2l companies - 29 did not respond and 87 refused. Of another five, which were asked to participate in a pilot study, three refused (l976:ll8-25). During the interviews with the 2l companies, he notes (l976:l25) that execu- tives had little reserve in discussing the matter in general terms but were: ”cautious over the question of giving ps. IS Specific statistics such as the profit or loss fitures in the period before disinvestment, the extent of the dis- investment operations and proceeds of disinvestment”. Torneden (I975zllh), after examining financial records for 5l5 large US companies, contacted I89 that had experienced one or more divest- ments. Thirty-eight companies reSponded; a response rate of 20%. He also conducted interviews with IS companies who had divested over- seas operations. Torneden (l975:39), for several years an executive for an American multinational,commented on the interviews: ”It was found that good interviews were generally obtained from corporate executives who were my business acquaintances while interviews held with executives who were previously unknown to me generally produced incomplete and superficial findings)‘ The problems of secrecy and sensitivity also loomed large in interview situations. Sachdev's (l976:l25,l2l) experience again acts as a salu- tory warning. He comments: ”The atmosphere during the interviews, particularly in the case of voluntary disinvestment, was frequently tense and diffused, an air of suspicion was felt in the preliminary stages”. And, ”And executives frequently appeared relieved when the interviewswere over, and in almost every case expressed the desire to be in- formed of the study as soon as possible”. And deSpite written and frequent assurances of confidentiality, Sachdev (l976:l25) reports that, ”Before each interview the author was virtually asked to take a pledge not to make any information public, or give anyindication whereby a particular company could be identified”. He was also occasionally grilled as to his plans and aims for the study. This catalogue of difficulties and the impression given by the «P. .N- F.- I6 extreme sensitivity of companies that there was some secret to uncover, pointed to the case study approach as promising the greatest rewards, particularly in the present primitive state of our knowledge on the sub- ject. And one important advantage of the case study approach is that it concentrates resources. The next decision centered on the number of cases to research and what selection procedure to adopt. As almost always is the case, such decisions are strongly guided by the constraints of available resources. Within these constraints and following the principle that more than one case is analytically preferable, l Opted to research three cases. A plurality of cases invites comparative analysis by bringing into relief similarities and differences on several dimen- sions, and leads towards generalization. Again resource constraints prevented the development of a fine scanning mechanism to catch most of the cases of withdrawals, their meaningful categorization, and the selection of a handful of ones representing specific types. More pragmatically, I selected three cases which were important and signif- icant enough to have been widely reported on. This clearly could be a source of bias, tending to portray divestments as important economic and political events, surrounded by extraordinary publicity and con- troversy. This will have to be kept in mind, though it appears from an extensive reading of the press that most cases of divestments are perceived as important and controversial. As it is, the cases differ on several dimensions, that, on the face of it are salient to divest- ments. Therefore they can be compared on: (a) country differences, (b) industry differences, (c) inter company differences, (d) outcome differences. l7 (b) Data Collection Two distinct tactics are possible: (a) go directly to the top of the decision making hierarchy and the 'center' of the cases (i.e. the parent);or (b) begin at the bottom and periphery and work up to the top and into the center (i.e. from worker representatives, sub- sidiary management, local politicians etc.). The advantage of the first approach is that it avoids time wasted pursuing unnecessary or irrelevant lines of inquiry and would, as it were, get at the story in one fell swoop. The disadvantages are more substantial: least serious is the possibility of rejection, since the other option remains; more important are the following issues: How could the researcher believe what he was told? On what basis would case specific questions be formed? In contrast, the second approach collects data from a variety of sources and leads to an accumulation of details which could be used to generate specific questions for executives to answer, and to corroborate answers and facts. Moreover, such detailed knowledge would act as a powerful lever on executives to grant frank interviews so as to present their side of the case. In this way, it was hoped to obtain a detailed, balanced, and compre- hensive picture of the cases. I began by forming a general picture of the cases by scanning newspapers, journals, government documents and other publicly avail- able material, as well as by interviewing a few journalists and academics who in one way or another had some familiarity with the cases. I then contacted involved persons that would be the least likely to be nervous and secretive about the issues. Trade union officials, shopfloor worker representatives and politicians were all forthcoming and eager to tell their side of the story. An invaluable L» .5 .C II Cy III source of information proved to be ex-executives of subsidiaries who were employed prior to, and at the time of, the withdrawal attempt. Perhaps a useful rule of dunM>is for researchers to expect there to have been conflicts within the multinational company and to try and exploit them to obtain specific information. I also contacted the current management of subsidiaries. Armed with a great deal of de- tailed information and questions and with the positions and views of various parties, I approached the parent. I expected them to be more willing to participate in order to present their side of the case and more forthcoming to someone who had accumulated much data. My experience with this tactic proved fruitful, though not univ- ersally so. In the case of Imperial Typewriters, which was completely closed in I975, it was very hard to trace executives of the liquidated company and when one was, he refused to c00perate. In one case I did try, as a small experiment, an early and direct approach. I received no reply after several attempts at contact. Much later after exten- sive research and interviews with ex-executives I tried again and this time received an eager acquiescence to meet, though I had the impres- sion that the purpose was to find out how much I knew rather than provide me with additional information. The reader will nevertheless become aware as the case studies are read that there is both an uneveness in the depth and range of material presented both in an overall respect and in particular aspects (e.g. transfer pricing, industrial relations, product strateQY). This isan unavoidable corollary of the case study approach. Sometimes one penetrates deeper at one point and shallowly at another depending on a combination of factors, not least amongst them being luck. Further l9 elaboration on data cellection procedures will be presented at apprOpriate places in the case studies. More specifically, I adopted two main methods of data collection: the documentary method and the in-depth interview. The documentary method - the scanning and analysis of all forms of written records (newspapters, government and company reports, letters etc.), was used to deveIOp as detailed a picture of the events and incidents as pos- sible, as well as to fill in the context in which the cases unfolded with statistical and other data. Unlike historical research which generally has to rely on documents to piece together the reasons for, and coalitions surrounding decisions, research on contemporary issues can go to the participants themselves for that part of the story. The interviews were expected to get at the reasons for the decisions made, uncover the coalitions and divisions among the various interested groups, and tap the perceptions of the participants. The two methods support and inform each other. The documentary method fills in the structure of situations, and interviews elicit the reasons for the actions of people within those structures. I conducted 30 interviews in person, and several less important ones by telephone and letter [Appendix A]. I received two refusals, one of which was later reversed. In the interviews I tended to avoid general questions and concentrated on specific and concrete questions. In this way I hoped to: avoid emptyposturing and philosophizing; re- solve discrepencies in the data; fill in gaps in knowledge that existed from the documentary phase of the collection; and elicit the fine ine side details and flavor of the cases. I found that the quantity and quality of data I elicited bore a close association to the degree of 20 knowledge of, and sophistication about, the cases I was able to pro- ject. Once I had gained access, the interviewees were generally help- ful and open. The interviews lasted on average two hours. None was less than one hour long, some took the best part of a day, and some spanned several days. Additional information or clarification was often requested byfkfllow-upletter and/or phone call. I rarely used a tape recorder, partly because I did not need verbatim accounts and partly to avoid the sense of unease that a tape recorder can create. The issue of confidentiality rarely came up. Occasionally, during an interview I was asked to note something 'off the record' and this I did. Otherwise no assurance of confidentiality was offered and none sought. At a late stage in the research one official in the parent company did ask for the right to inspect any material I intended to publish, before agreeing to the interview. I suspect that contrary to the experience of Sachdev, I was able to avoid the trade off of confidentiality for data, because my previous leg work had rendered the issue inapplicable. (c) Quality of Data This neglected but important aspect is worth considering, partic- ularly since much of the data collected are from primary records and first hand verbal accounts. Below I briefly discuss some of the com- parative strengths and weaknesses of the sources and some of the ways I dealt with problems in the data. The main sources of documentary and interview data were company records and officials, union documents and representatives, and various media and public sources (e.g. government/parliamentary reports, poli- ticians). Each have their own particular weaknesses and strengths and I will describe them a little further below. However, there were 2l some problems that were common to all which I now discuss. Given the nature of the tOpic investigated, the most trouble- some problem was the extent of special pleading engaged in by the various sources. Management often claimed that market circumstances, worker intransigence, government policies were responsible for problems at the subsidiary that was chosen to be divested, and by-passed issues such as transfer pricing, insufficient investment, and so on. Workers emphasized precisely these neglected aspects and ignored others, such as for example, decline in demand and low productivity. Worker sources also tended to defend their position by attacking the records of other subsidiaries in the group, somtimes unfairly. Whereas it seemed managment was intent on presenting a 'socially responsible' image and thereby downplaying their role in the affair, workers were deSperately trying to prevent closure and save jobs.]5 Media sources tended to rely heavily on company, and to a lesser extent on union, sources for thier information. The deveIOpment of close, almost client-like relations tends to inhibit journalists from probing and confronting publicly stated positions. These, and to a lesser extent official sources (which also depend on company and union sources for data), tend to reproduce the information and positions in the orig- inal sources. Not surprisingly given the unequal control of informa- tion, company sources tend to dominate both media and official sources. I tried to overcome this problem by at all times subjecting the data to the normal verification procedures. Where relevant documentary data existed, I cross-checked interviewees' answers to questions with those to reconcile discrepencies. I also cross-checked data in doc- uments from various sources. Crucial and sensitive pieces of information .t IF Ob u“. A.» D‘ 'I- 22 gained in one interview were cross-checked by bringing them up for comment in anotherinterview,.and sometimes at different times within the same interview for consistency. However, it is inevitable that some points could not be cross-checked and that on some issues there were conflicting positions. Where such things occur I indicate this in the text. The relative strengths and weaknesseSIof each type of source deserves brief mention. Company sources represent the least aggregated industrial and business data available. Therefore data can be clearly identified with particular contexts and companies and they reveal the picture that businessmen see at first hand. Moreover, where secrecy is breached, or in non-sensitive areas (e.g. industrial relations), the data are highly reliable, for companies are unlikely to engage in self-deception. On the negative side are problems of comparabil- ity of data gathering and recoding procedures across companies and even between subsidiaries of the same multinational. Secrecy is also a considerable problem. The first problem makes comparison over time and across companies and subsidiaries difficult. The second makes it difficult to paint as full a picture as one would like and renders management comments on for example transfer pricing, profit repatria- tion and subsidiary profit and loss statements, product policy and market allocation highly su5pect. Not surprisingly, union and worker sources suffer from a lack of authoritativeness in precisely those areas mentioned above. At best here, they can merely voice suspicions. . However, they can and do Provide detailed knowledge of the relations of production because such information is based on the workers' experience at the front line of production. Staff workers can alsoprovide inside information on design «C .u» 23 and commercial policy. Media sources, as I have stated already, are best used to develop the barebones of a situation - for example names, dates, and at this, they excel. Moreover, though they represent the public position of various parties, this is useful if only to later show the discrepancy with private or real positions. Offical sources comprise a very large and motly mixture. But especially useful in a study of this kind are those committee reports and minutes of evidence which have far greater authority than unions or private researchers do and usually more resources to breech secret" ive areas and pursue many linescfi'enquiry comprehensively. By way of a conclusion to this section I can only echo the recom- mendations and demands of many other researchers, politicians and worker representatives. Legislation is urgently needed to expose the inner world of multinational companies to public scutiny. ATHEORETICAL FRAMEWORK To GUIDE THE ESEARCH In this section I adopt a neo-Marxian framework. I do not enter into a critique or defense of the framework (a voluminous literature on this already exists) but, as it were, lead off from it to explain divest- ment by multinational companies. Before I present the three factors that I propose to be signific- antly related to divestment behavior, a few words need to be said about the basic assuptions that underpin‘flwmn These assumptions are presented schematically: (i) The drive for capital accumulation occurs ”under the pressure of competition” (Mandel, I978b:77). (ii) In other words the profits of an individual company is a function not only of the level of exploitation 2A of its workers but also of its performance in the battle against other companies in realizing an amount equal to, below or above the surplus value produced in the production process (Marx, I967bzh3). (iii) Therefore in Mandel's (l978bz76) words: “The capitals that can only partially realize their surplus value, or realize it only below or just at the average rate of profit, are at an obvious dis- advantage compared to those that suc- ceed in realizing the full value of their commodities, with so to speak a second helping - i.e. with a part of the surplus- value produced in other spheres added to it, or in other words with surplus-profits”. (iv) There are several ways by which surplus- rofits can be earned - for example by gaining a competitive advantage from better productivity (than rival producers), from using cheaper labor (than rival sellers), or cheaper raw materials (than rival buyers), or by being able to get commodities produced an out onto the market faster than rivals can (Mandel, I978b:77-8). One can add that such advantages will maifest themselves in either lower costs of production or in more successful marketing, broadly defined (see Chapter II ), or in both. (v) It is inevitable that competition will mean that some companies will do better and some worse than others. (vi) There is uneven devl0pment between countries, regions, spheres of production, and companies. This can be the result of unequal starting positions and/or the actual process of capital accumulation under conditions of ”a relative immobility of capital and relative limits to equalization of different rates of profit set by monopoly” (Mandel, I978b:75). (vii) Uneven development means there will be differences in wage levels, productivity levels, and capital in- tensity between areas and spheres of production. (viii) Those companies that can be mobile will attempt to take advantage of the existence of uneven develop- ment by shifting their location, sphere or vehicle of activity. They will do this by geographic (e.g. internationalization), industrial (e.g. conglomeration), or legal (e.g. take-overs, mergers) mobility. (ix) In sum, these various assumptions suggest that there always exist differences in levels of profits between geographic and industrial spheres and legal entities. .: .r\ .r. F\- .u. 25 On the basis of these assumptions and for easons to be elaborated below, I propose that divestment behavior is strongly influenced by three factors: (I) The comparative conditions of various local labor markets in different countries and spheres of production, and differences in the relations of production in those labor markets. (2) The intensity of competition in an industry and market, and the relative strength of the competitors. (3) The activities and policies of various governemtns. There are several ways to increase surplus value. Some are of less relevance in advanced capitalist economies. Increasing the length of the working day is not a feasible preposition. Also improbable is decreas- ing the value of labor - either by reducing wages below the social average necessary for workers to reproduce themselves or by cheapen- ing the value of the basic commodities they consume. Worker organiza- tion has essentially blocked the first strategy and various trends in the international economy (e.g. the Common Agricultural policy in the EEC) have blocked the second. The most common method to inc- rease surplus value is to increase the productivity of labor (relat- ive surplus value). Productivity can be increased by (a) increas- ing the quantity of instruments of production and/or by introducing new and improved instruments of production; (b) reorganizing the process of production (e.g. increasing the degree of specialization, speeding-up the work process). But just as workers have historically managed to win an eight hour day and to often prevent the lowering of wages below the historic social average, their response will also affect the ability of capital to raise the productivity of labor or at least to influence the terms under which this is accomplished. The reaction of labor - its docility firi- .: 26 or militancy, will condition the ability of capital to effectively alter the mix of machines and labor and to reorganize the labor process. The reaction of labor (i.e at the points of production - the relat- ions of production, and at the societal level - the political or class struggle) will be a consequence of a multitiude of factors. Impor- tant ones will be: conditions in the external labor market - i.e. supply of and demand for labor; the type of organization of the labor process - i.e. on the degree of hierarchy, on the system of renumera- tion, on the type of mobility channels, all of which could be subsumed under the concept of the internal labor market;l7 the level of organ- ization and consciousness of labor. Clearly there are relationships among these factors (i.e. they don't operate independently), and per- haps the level of organization and consciousness is the most critical one. Multinational companies will be able to gain competitive advan- tages insofar as they can find cheaper or more docile and badly organ- ized labor than their rivals. They will therefore compare external labor markets and the level of labor organization and consciousness across various areas. And within the multinational framework they also will compare those two factors across subsidiaries. As a gen- eral rule we can be safe in preposing that multinationals will tend to divest when: (a) profitiability at one location (or Sphere of production) is adversely affected by a deterioration of the conditions in either the external labor market or in the level of worker milit- ancy or both and where better conditions exist elsewhere; or (b) even if labor is docile and relatively cheap, when the parent, in the search for surplus profits, calculates that better conditions exist else- where. In other words, divestment will be partially determined by .I v'c :5 on an“. 5.. .ws 5 ~ ~_- .5 ‘F— 27 either a comparative deterioration in labor conditions affecting the profit performance of a subsidiary, or by the pull of potential extra advantages existing elsewhere. However,it is important to note that there is a duality here. Multinational companies tend to have a world-wide horizon and can be internationally mobile. Labor tends to have a local frame of refer- ence and is relatively immobile. So whereas multinational companies, in theory at least, connect the various local labor markets and expand the pool of labor available for hire, to the workers these labor markets appear to be separated. Large-scale immigration of labor also expands the pool of labor available for hire and also connects, in the eyes of the workers, the labor markets. But with the internationalization of production the connections are only visible to capital (see Chapter II for a discussion of international union cooperation). The same duality can occur within the multinational. Workers in various subsidiaries will be linked either by the international technical division of labor (e.g. each subsidiary is producing parts that will go to make one fin- ished product) or, even when each subsidiary is producing and distrib- uting their own products, by the hierarchical division in decision making (e.g. decisions are made centrally by a common parent and will tend to have effects on all subsidiaries). But whereas they are con- nected technically and/or in the eyes of the headquarters, they will tend to feel separated by that same hierarchical and technical div- ision of labor - e.g. groups may have different conditions of work and connections between them will be masked by the organizational hierachy in decision-making. But if capital will tend to invest in areas where cheaper labor C0733 .u., .5 v.— NC. a “A.,.. by Q s I. NH. ears. . NI- .5 Ir. » 5 any Ly \» an. 28 or more docile labor exists, the compulsion to do so for individual companies will depend on competitive conditions in the industry and market place. An oligopolistic industry and market structure will tend to protect companies from price competition (reasons for this are developed in Chapter II) and reduce their need to seek out cheaper labor. Moreover, if the industry is historically characterized by a high capital to labor ratio, than productivity is less dependent on the behavior of labor, but is more associated with the level of capital investment and technological deveIOpments. In other words, the drive to cut costs in individual companies depends on the level and type of competition that exists between companies. And the form of the cost-cutting (i.e. on whether it is via cheaper labor or higher productivity) depends on the type of production process that is in Operation in the industry. The factors that affect the intensity of competition are (a) how concentrated the industry is; (b) how well protected the market is; (c) how rapid technological developments are; (d) the level of satur- ation in the market and what happens to the level of demand over time. The more more intense the competition, the more compulsion there is on each company to cut costs, and/or to achieve some product or marketing breakthrough. The latter will enable companies to outsell rival com- panies and perhaps, if it can distinguish its product sufficiently, to charge higher prices than normally obtains in the market for that type of product. Multinational companies have monopolistic characteristics which enable them to use the advantages associated with these to drive out «C .\u 0.! ~7- N b » ~ .\. Pu 29 smaller, national, competitive companies in various countries. This will increase the degree of concentration in certain markets. However, the elimination of smaller national companies will not eliminate com- petition. Multinationals of various country domicileIMlll compete With each other for markets and profits. The intensity of competition will vary by industry and market. In some industries they will compete by seeking cheaper production sites; in others by constantly trying to increase the productivity of labor to gain a cost (and hence profit) advantage over rivals and also by product and marketing developments (financed from the higher profits derived from the lower costs) which gives them selling advantages. Success or failure in these competitive battles will depend on a multitude of factors (e.g. good management, luck in research and development, size, and so on). The relevant point here is that com- panies will not be of equal strength. There will be differences in the reserves of cash, the share of various markets, the economies of scale earned and so on. These differences will become significant when one company gets a lead in production and/or marketing, or when a new entrant enters a market. Companies that cannot cope with the competitive pressures will clearly, sooner or later, fail. Finally the third factor proposed is the activities and policies of various governments. Briefly the argument goes as follows. Govern- ments have traditionally had the function of legitimating the existing social order. To carry out that function effectively they must collect resources and revenues. In capitalist societies resources and reven- ues are produced largely on a private basis. The government then col- lects a share of what is produced to carry out its function. The government is therefore structurally dependent on the private fa \b ‘A \- ‘Au en. \FI 30 accumulation and production of goods and wealth. Its interests are therefore a reflection of a dependency, not on any one firm or group of firms, but, on the general level of production and accumu- lation. Part of the governments legitimation function is to respond to the interests of various non-capitalist groups and classes. In general, the more resources and hence power a group or class has in the overall polity, the more likely the government will be responsive to its interests. For example, groups that are well organized and have particularly strong electoral influence (e.g. by being located in marginal constituencies or by being an important source of electoral funds) will have more influence than unorganized groups with few resources. Governments will therefore tend to protect and further the interests(Mimultinational firms as a group insofar as they are a vital source of revenues and resources. It will be hostile to such firms only insofar as it serves the interests of the class that dom- inates the production of goods and wealth, and its hostility will be based on the resources and power of that class or goup of classes. Japan, for example, for many years, as its national monopoly capitalist class was developing, restricted inward foreign investment. As Japan- ese companies succeeded in winning export markets and in challenging large foreign companies, the restrictions were gradually lifted, partly under foreign pressure, and partly because Japan was on the brink of a wave of outward foreign investment (Yoshino, l97h). Multinational companies are internationally mobile. Govern- ments insofar as they depend on them for the production of goods and wealth will compete to offer them attractive terms. They may offer them 3l special incentives to locate in certain regions or give them tax breaks or maintain labor laws that discipline the labor force or pursue a monetary policy that offers cheap capital (i.e. through a compara- tively lower rate of interest or a devalued currency) such that buying national companies or setting up new ones becomes an attractive proposition compared with investing in another country. However, the process is not all one way. Different countries appear more or less attractive to multinational companies. Countries that possess vital sources of raw materials or have a large and affluent market may not need to offer any incentives since they are in Short supply and in- deed may extract beneficial terms from multinationals. Countries that have little to offer will have to compete in the incentives they offer.18 And at a very general level, multinational companies will take into consideration the overall political stability of a country. Divestments, will tend to occur in countries whose governments threaten the multinational company with, for example, exprOpriation or the stoppage of profit remittance, or actually penalizes it by such actions (also heavier taxes). They may also occur independ- ently of any one government's actions. If for example a company discovers that it can obtain greater government incentives in another country it may pull out of one and move to another regardless of the actions of the original government.. It is unlikely however, that a multinational would move that quickly under these conditions; more likely it would bargain with the government on the basis of that threat. A word needs to be said about the threat of divestment. The threat is of enormous significance precisely because the multinational can compare labor markets and government policies on a world-wide basis. pr‘n-s WV v F“ “\- r: «- pg n <. en.— A v .\4 -\~ \F.‘ 32 Workers and governments because they depend on capital (national and international) for the satisfaction of various needs, will tend to compete for the location of the subsidiaries of multinational companies. In such circumstances, multinationals can invoke the threat of divest- ments to strengthen their bargaining position whether it be with labor or governments. And of course, actual divestments tend to confirm the potential force of the threat. Most multinationals faced with an intransigent labor force or, less often, an un-cooperative government will use the threat of divestment as a tactic to discipline the labor force and bring about more favorable government policies. To summarize the structure of the argument. I emphasized the existence of different levels of profit between geographic (and industrial) areas. These were seen to be the result of several fac- tors - differences in labor costs, labor productivity, level of com- petition and government policies. Government policies influenced the level of profitability either indirectly through their effects on wages, worker strength and competitive conditions or directly through taxation and incentive/subsidization policies. Multinational com- panies observe this unevenly developed world (in terms of profit oppor- tunites) and are able to compare conditions across areas. Because they are internationally mobile they will tend to invest and divest according to differences in the factors mentioned. Leading companies will pioneer moves out of<>ld areas and into new ones in the search for higher profits and others, under this competitive threat, will tend to follow. Finally I suggested that divestment may occur simply because some companies will fail in the competitive battle when it intensifies (as in recessions). 33 To recapitulate. The three factors that determine the probab- ility of divestment are: (I) Comparative conditions in (a) the external labor market and (b) in the relations of production in different countries. (2) (a) the intensity of competition, and (b) the relative strengths of various multinationals, in an industry and market. (3) The relevant activities and policies of different governments in attracting or discouraging the investment of multinational companies. Each of these factors is in turn conditioned by a number of factors. For (la) the factor is the supply and demand for labor in a region. Indicators for this factor are levels of unemployment, and comparative wage rates. For (lb) the most important factor is the degree of docility or militancy of the laborforce. Indicators are strike comparisons, productivity levels, and extent and type of trade union activity. For (2a) the factors are the number of sellers in the market, the degree of price competition, the level of import penetration and the degree of collusion. Indic- ators are concentration ratios, pricing behavior of companies in the same market, import share of market and its change over time, cooperative agreements, and how often and to what extent relative market shares change. For (2b) the factors are capital reserves, level of cap- acity utilization, market share, degree of economies of scale and various financial ratios. For (3) the factors are the degree of dependence of govern- ments on multinational companies and the balance of class forces within the country. Indicators are the share of national output, exports, and employment accounted for by multinationals, and which group/class benefits most from the pattern of policies the government pursues. It is, of course, possible that all three factors could be Operating when an actual divestment decision is made. However, it is more likely that factors (I) and (3) will be significant in determing the threat 3A of divestment. For whereas labor and governments can be influenced (by, for example, threats) in the short run, the effects of competition can only be modified by medium and long tern changes (e.g. product changes, increasted marketing effort). The Consequences of Divestment or the Threat of Divestment (a) The Consequences on the Relations between Capital and Labor One way to conceptualize the relations between capital and labor within a company is to view them as ”organized dependency relations” (Stinchcombe, l965:l80). An organization, as for example a multi- national company, is.a”community of fat9fl in that damage to the com- pany is bad for the individuals within it. A community of fate is ”more binding to the degree to which its members are dependent on the group for all their satisfactions” (Stinchcombe, l965zl80). Stinchcombe, who has proposed the above conceptualization, argues that there will be variations in dependency according to the following conditions: (i) The capacity of the labor force to organize opposition to the managers and capitalists. (ii) The existence and avilability of alternative sources for the satisfaction of needs now met by the company.. (iii) The degree to which the status, security and rewards of the labor force are protected by law, rules etc. (iv) The degree of institutionalized dependence of managers and capitalists on the labor force. (v) The alternatives available to the labor force regarding task performance - e.g. slow downs, disruption to output. Of course, this is tied to (ii), (iii) and (iv), for on its own it could trigger a divestment. .~-— UV 4 v .‘u .Fu 0 ....~ \flu .\¢ 35 (vi) The nature of the ideology of managers and capitalists - i.e. to what extent do they use their power, or, in this context, how 'socially responsible' are they? The more workers employed by the multinational company are in a community where there are few alternative sources of employment (depres- sed regions for example), and where the multinational has several other available and feasible alternative location sites, the more dependent will the workers and the community be on that multinational company. Their fate is tied very closely to the fate of the subsidiary. Indeed some of the conditions Stinchcombe cites (e.g. the capacity to organize and alternative task behavior) may very well be the spurr to divest- ment. In that case the organization of the workers is not a counter- vailing force. Divestments will sever the dependency relation and throw workers onto the fortunes of the local labor market and the government. Alternatively, the threat of divestment will tend to reduce the hostility of labor and make it more amenable to manage- ment demands, such as, for better productivity, some lay-offs, 'res- ponsible' wage claims. Workers faced with a potential divestment have three practical strategies open tx>them. They can organize an international campaign of solidarity with workers in other subsidiaries of the multinational company. They can pressure their government to use its resources and influence to prevent the divestment or to save the jobs if it takes place (the pressures is more likely to be effective the more clout those workers have politically). And thirdly, if faced with a threat of divestment, they can accept thedemandscfi'nmnagement. 36 (b) The Consequences for the Community These will depend on the importance of the subsidiary in the economy of the community. Therefore, only a case by case analysis can uncover these, though it is obvious some suffering will ensue. (c) The Consequences for the National Economy and on the Efficacy of Government Again the effects will depend on the importance of the subsid- iary in the national economy. The more important the subsidiary in terms of output, eXports and employment, the more likely is the government to intervene. Of course, the government cannot order a multinational not to divest. It could nationalize or take-over the subsidiary but often this is inadvisable because a subsidiary when severed from the advantages of its parent is rarely economically viable. The otherwalternatlve is to bargain with the multinational over terms that may induce it to stay. ‘IHE PLAN OF THE STUDY An abstract/general to concrete/Specific movement occurs in the Steps taken in this study. This chapter sketched in the broad enmirical and conceptual lines that demarcate the boundaries of my focus. The main empirical features of international divestment, the international political economy in which they occur, and the concep- tual framework that acted as a guide in the exploration of the case studies were outlined. The second chapter pulls apart the subject of withdrawals by multinational companies into areas that make chronological sense (i.e. reasons for the withdrawal, the process and consequences of withdrawal. Futher, the development of the 37 relationship between parent and subsidiary is divided into areas by which the business world itself thinks and talks about the operations of multinational companies (i.e. competition, product strategy, in- dustrial relations, transfer pricing and profitability). This chapter also acts as a literature review of the work on multinationals, presenting in the process many unconnected ideas that are relevant to the subject matter of this study. Each case in turn described and analyzed according to the divisions mentioned above (chapters III, IV, and V). In chapter VI, I begin the move back towards the general and away from the specific. The three cases are summarized in their essentials and then analyzed by comparing the findings with the ideas presented in Chapter I and II, and by comparing the cases one with the other. We will, for example, consider the following questions: Did the nationality of the parent make any difference to any aSpect of the vvithdrawal? Did the difference in capital intensity between the automobile and typewriter industries make a difference? Did differen- ces in the size and health of the parent or in the size of, and numbers employed in, the subsidiary have any effects. I also consider the theoretical framework presented in chapter I in light of the evidence contained in the three case studies. The final chapter presents some theoretical conclusions about the multinational company and briefly speculates about the implications for the international political economy. It also considers the workers' struggle against closures. a - 0 u C. A p a e . . a u p s . . ~ . y u . any I p. a . 3.. :5 v CL A v . u a}. f\- .\.. s c-r— ‘5 § \ .,\ - ..\ . n\a .\4 I l E r C W 38 C H A P T E R II A GUIDE TO THE CASE STUDIES OVERVIEW This chapter acts as a guide and an introduction to the body of the study: the case studies. In it I try to accomplish several objectives. First, it contains a literature review on multinational companies and related topics interpreted in light of withdrawals. Second, it presents evidence on several specific aspects of the subject of withdrawals by multinational companies. Third, it is meant to introduce readers who are unfamiliar with business and economic literature to the subject. The concepts and language used in this chapter and in the case study chapters tend to be those of management. The reasons for this are essentially practical. Since much of the data to be pre- sented were collected in interviews with managers and from other business sources, it seems most straightforward to describe the case studies in the same terms. In chapter VI the case studies are reinterpreted according to some different concepts, some of which were presented in chapter I However, no amount of demarcation of a presentation can suc- cessfully mask the synthetic nature of this research. This chapter, written after the data collection phase, therefore presents a sel- ective reporting of the literature and anticipates some of the themes and conclusions to be expounded in the final chapters. Finally, a word about presentation. This chapter will be a 39 model for the three following case study chapters, each of which will be divided into sections according to the following format: I. Overview 2. Reasons for Investment 3. Factors Affecting the Development and Performance of the Subsidiary (a) Competition (b) Product Strategy (including Research and DeveIOpment and Marketing) (c) Industrial Relations (d) Transfer Pricing (e) Profitability 4. Reasons for the Decision to Withdraw 5. The Process of Whithdrawal: the multinational's tactics, the workers' response and tactics; the response of government. 6. The Consequences of Withdrawal REASONS FOR INVESTMENT At present no single theory satisfactorally accounts for foreign direct investment, or what amounts to the same thing, for the exist- ence of multinational companies. I will briefly present several plausible ones without entering into the debate that goes on around them. One important, early explanation can be found in Lenin's (I970) remarkably prescient monograph written in l9l6. What is compelling in the theory is the way he tied what he called the export of capi- tal to the monOpoly Stage of capitalism. The intermediate Steps in the reasonsing, not fully undertaken by Lenin, are quite complex and a matter of controversy (O'Connor, I97lI:l59-68).I Suffice it here to note that he provided the critical concept - monopoly, which offered up many clues on multinational companies and in 40 particular on the type of industries and countries that would produce them. Sometime later, conventional economists studying the growth of a new type of multinational company, returned to the con- cept of monopoly in their explanations.2 Their theories were at a lower level of abstraction than Lenin's and were rooted in the field of industrial organization - that is in the characteristics of the companies going overseas and in the structure of the industries and markets in which they operate. Several questions were posed: why is it that only some companies in some industries from some countries become multinational? Why does cross-investment within the same industry occur? And why do the companies that invest abroad, presumably to take advantage of differences in the rate of return, do so via subsidiaries and the like rather than through portfolio investment? (Hymer, l976:l8-23).3 Hymer (l976zh2) ans- wered the last question by arguing that companies preferred owner- ship and management control becuase it led to the elimination of some foreign competition if there was an acquisition, and it en- abled companies to fully appropriate the returns on unique advan- tages (i.e. monopoly profits). Moreover the advantages had to be large enough to allow the company going abroad to overcome the barriers (e.g. ignorance of local ways, communication costs) typically confronted when operating abroad (Caves, I972:270-3).h Kindleberger fills in the sort of advantages that multinational companies have - for example, brand names, special marketing skills, patents on special technology or products, economies of scale due to vertical integration, favored access to finance, and special management skill (Kindleberger, l969:l5-27). Johnson is more AL f?» a\. ”o... C the \ I a . El 1: Al specific, maintaining that the transference of knowledge is ”the crux of the direct investment process” because knowledge has the nature of a public good within the company. Once produced, its exploitation can be extended at little extra cost (Johnson, l970:35-h2). We know something about the characteristics of the companies that invest abroad and why they choose the subsidiary form. We also have some clues as to the characteristics of the industry in which they reside. Vernon's model rests squarely on the above explan- ations except that he describes the sequence of the foreign direct investment process and provides further insights into the industry and country origins of multinationals based on market character- istics. He summarizes (I97lz66) the international product life cycle thus: ”To begin with, US controlled enterprises generate new products and processes in response to the high per capita income and the relative availability of prductive factors in the United States; they introduce these new products or processes abroad through exports; when their export position is threatened they establish overseas subsid- iaries to exploit what remains of their advantage; they retain their oligopolistic advantage for a period of time, then lose it as the basis for the original lead is completely eroded.” Vernon suggests reasons for the preponderance of US multinationals. Country specific characteristics, in particular a high per capita income (and a large market) and relative labor scarcity, have pro- vided suitable conditions for the growth of market oriented, product innovative and technologically advanced companies in producer and consumer goods' industries. And it is these characteristics that are the basis of the advantages possessed by US multinationals. This b2 argument also helps to explain the direction of overseas expansion by US multinationals. They concentrate their location in countries closest to their home country in market characteristics - for example Canada, W. Europe (in fact two thirds of the total book value of foreign direct investment is located in developed capitalist countries). On the other hand Continental Europe was characterized by low income consumers (this is hardly true today) and scarce land and raw materials. Therefore the multinationals that came out of Europe developed advantages in material saving processes (e.g. synthetic chemicals and dyes) and in cheaper consumer goods (e.g. margarine, certain types of drugs, safety matches) (Franko, I976). To some extent the above explanations are static. Companies have advantages and go abroad to eXploit them. It seems as if each company acts in splendid isolation (although it is true that Vernon introduces the element of threat). Knickerbocker (I973) proposes a interactive model based on the concept of oligopolistice reaction. With this we havean added explanation for the setting up of subsid- iaries and an explanation for the pattern of location of investment, including cross-investment. He sought to explain the bunching of overseas investments in some industries, i.e., the clustering of investments of companies belonging to the same industry in the country, often within a three year period. He noted as others had done that many of these companies resided in oligopolistic industries. But why were they bunching their investment? Knickerbocker (I973z30) hypothesized that a form of oligopolistic reaction (or rivalry) was taking place. In his words, given the nature of oligopoly: ”Each firm only had to Checkmate the moves of a few major rival firms. The 53 strategy guaranteed that no one firm would get an insurmountable upper hand in any industry. And the strategy guaranteed that the costs of perpetuat- ing the oligopolistic equilibrium would be about the same to all rivals in the industry”. The evidence did Show a positive association between degree of industry concentration (especially at the 'four company level') and degree of bunching, especially in industries in which marketing capa- bilities were important (Knickerbocker, I973:60). By extending the application of the concept of oligopolistic reaction we can offer a plausible explanation for cross-investment. Once a pioneer and followers have become multinational and invaded foreign markets, they have, as it were, widened the area of competition. If local rivals exist, some will be eliminated, and larger ones might face a loss of market share. What better way of striking back or matching the invaders move then to set up operations in the Iatter's home turf? Of course, this assumes they have the capability and sufficient advantages to be able to undertake such a move. That is why, when there is an established international group of multinationals, oligopolistic reaction will probably become an even more salient concept. The picture presented so far is heavily based on one overriding assumption; the one in fact suggested by Lenin. It is advanced capitalist countries that give rise to large dynamic companies and Oligopolistic industrial structures. And it is out of such in- gredients that multinational companies are born. However, the above explanations are very market centered. There is little mention of the search for cheap labor or raw materials. D\- Po AV 4 \ ' O .\ \d. J I .1 «Nu a c s I r I» a - bid a rm» n w 3.. l. t... ..c Ah To some extent that makes sense. As most multinationals have oligopoly characteristics and are found in high technology indus- tries, Iabor cost considerations tend to weigh less heavily than other factors such as marketing. Nevertheless, there are companies in some labor intensive industries (e.g. textiles, clothing, consumer electronics) that do go overseas, mainly to the third world, in search of cheap labor. And it is the case that much of the US investment to Europe benefited from the cheaper labor there. However, that does not explain European investment in the US nor the manifest preference for the higher wage countries in Europe by US multinationals. Clearly, industry specific market and com- petive factors have so far been crucial. It is interesting to speculate that if the parcelling out of the world's market among multinationals reaches some form of competitive equilibrium, cost consideration will become the primary determinant of the location of subsidiaries. The contest will then revolve around “matching one another's production cost curves on a world wide basis” (Knickerbocker, I973:203). Following the idea of a more developed multinational world a little further, we can see that the theory of monopolistic advantages and the Vernon model will become less salient. Once established as a multinational, a different set of factors will tend to determine investment and divestment. Why include this section in a study of divestment? In the few existing studies on withdrawal there is consistent reference to 'bad acquisitions' as an important contributing factor to the with- drawal decision. The implication is, mistakes were made and subseq- uently had to be rectified. There is, however, another angle which A5 can connect the entrance and withdrawal of the multinational in any particular instance. It could very well be the case that the reasons that directed the multinational to a particular location in the first place subsequently lose their relevance and potency for holding the multinational to that location. A particular advantage may be neutralized, a leading rival may move to a cheaper location, a tariff barrier may disappear and so on. We shall look for this type of factor in the case studies. FACTORS AFFECTING THE DEVELOPMENT AND PERFORMANCE OF THE SUBSIDIARY (a) Competition In this section, I describe the nature of the company, the relations between companies in a situation of oligopoly, some evid- ence relating to competition and then apply the discussion to the multinational company in the international economy. It should by now be obvious that I reject the nee-classical model of 'free competition' in which, as Oskar Morgensten (l972zll7l) describes, ”no one has any influence on anything where there is ni gain, ni perte, where everyone faces fixed conditions, given prices, and has only to adapt himself to them so as to attain an individual maximum” and I replace the nee-classical model with a more realistic picture in which competition means “struggle, fight, maneuvering, bluff, hiding of information”. I also adopt the conceptualization of the firms presented by R. H. Coase (I952z332) back in l93h, whereby the firm is viewed as an alternative mode to the market for coordinating production. Edith Penrose (I959:I5) elaborated: ”The essential difference between economic activity inside the firm and economic 46 activity in the 'market' is that the former is carried out within an administrative organization, while the latter is not. The growth in the 'size', however defined, of the industrial administrative unit is of impor- tance because the larger this unit is, the smaller is the extent to which the allocation of productive resources to different uses overtime is directly governed by market forces and the greater is the scope for conscious planning of economic activity”. The growth of companies is a result of internal and external forces. For Marx (l967az625-8) it was the result of the accumula- tion process and of the tendency towards centralization fuelled by competition and the credit system. Whatever the specific cause of growth, Hymer (l975:38) has considered the growth process suf- H77 ii‘I‘ ficiently established to call it ”the law of increasing firm size” arguing that: ”with each step, business enterprise acquired a more complex administrative structure to coordinate its activities and a larger brain to plan for its survivial and growth“ ~\In other I7773£dr§5- words given the nature of the company and its tendency to grow there is an expansion of the ”islands of conscious power in the ocean of unconscious cooperation”.5 The visible hand comes to vie with the invisible hand in determining economic activity. The task thus becomes to uncover the rules and criteria that govern the dec- isions and behavior of companies as well as the boundaries, of those rules and criteria. But companies do not exist in isolation. Their survival and growth occur in bounded market and industry structures. The struc- ture of an industry and market is defind by the number of companies, their relative size and the power relations between them. The process of accumulation and centralization has gradually led to a situation 47 in many industries and markets wherein there are a few large pro- ducers and sellers who mutually recognize their interdependence. Typically, in this oligopolistic situation, every action or move calls forth a reaction or countermove (Eichner, l976:2). Oligopolistic competition has the following characteristics. Very rarely is there price competition, most often there is 'price Ieadership'. Prices, it is hypothesized, are set either by tying them to costs so that the profit margin will yield a target rate of return on the investment or by basing them on the need for inter- nally generated funds to finance investment for long term growth. Both these pricing models suggest that prices are a function of some internally determined decision (on desired rate of return or need for funds to grow) thereby highlighting the partial discret- ionary power at the command of oligoply companies.7 However, there often exists intense jostling for market shares using the marketing effort (advertizing, distribution, sales, etc.) and research and development programs to differentiate products, improve existing ones and create new ones; to do that there is a downward pressure on costs so that bigger margins than those of the rivals can be earned to pay for greater marketing efforts and research and devel- opment programs (Baran and Sweezy,l966a:67-72).8 Nevertheless, as industrieSInature there tends to emerge (depending on several factors, the most central being the importance of technological change and product differentiation in determining market position) a fairly stable distribution of market Shares (Jacoby, I964);9 indeed some industries are characterized by low mobility or turnover of the leading com- panies over time (Boyle and McKenna, I970),IO in some cases to such an #8 extent that these huge companies seem to become ”permanent institutions” (Eichner, l976:2l). But this objective relative permanence is of little comfort to leaders of large companies in oligopolistic ind- ustries. For them the rule of the game is to run at an ever increas- ing speed merely to stay in the same place or to avoid falling behind. What difference does the internationalization of production via the multinational company make to the issues discussed above? There are three important structural consequences which are manifest in changes in the relations between multinational and national companies, among multinationals themselves, and between parts of the multinational. I will deal with changes in each rela- tion in turn. The first consequence of internationalization is that previ- ously separated companies become connected in an industry and market. As Kindleberger (l969z32) puts it, internationalization ”widens the area of competition“.]] Therefore, small and medium sized national companies have to compete with subsidiaries that may have access to the parent's extensive managerial, technological, marketing and capital resources. This inequality will contribute to an acceler- ation of the already existing indigenous process of the rationaliza- tion (or centralization) of capital by mergers, take-overs, and exits to produce oligopolistic situations in several industries and markets.12 But the very entry of multinationals and their contribution to a process of rationalization creates the conditions for the emergence of new multinationals, and for the competitive struggle to proceed at a higher stage.l3 Two vital features of this higher stage can be pinpointed: the area of competition is gradually widened to incorporate nearly 49 all of the non-socialist world and the companies that compete in flihsexpanded areabecome huge, powerful, virtually indestructable institutions with even larger 'brains' and administrative systems than the largest national companies possessed. The growth of multinationals of various nationalities within a widening area of competition results in a period of international competition highlighted by a 'scramble' for market shares in new areas (e.g. in fast developing societies such as Spain, Iran, Brazil etc.) and a redivision of shares in established markets (e.g. EurOpe). In other words the contemporary capitalist world is in a period in which the large companies, essen- tially the multinationals, are jostling each other to establish their place in what they hope will become a fairly stable structure.lh And if past experience is any guide, then gradually the intensity of the rivalry will abate (in differing industries and markets at varying speeds) to a fairly routine oligopolytype (Hymer, l970:82). But there is an apparent paradox in the developments I have out- lined above. On the one hand, I propose that the large company, and therefore multinationals, are virtually permanent institiutions and yet on the other hand, characterize the present stage of international capitalist relations as intensely competitive and full of rivalry. I think the paradox is fully resolved when two other relations are considered. First, it is crucial to view the multinational company as a number of productive and trading parts which are unified by a head office or brain with strategy. The multinational as a capital accumulating entity, is virtually a permanent institUtion. But what product it produces, with what mix of inputs, in which country or region it locates production facilities and the destination C533 .Vu O s .H. ~C «C «I. L» I- .o \ CL ha. a 3 Flu 50 of the products are outcomes based on strategic decisions struck out of the interaction of the multinational's environment and its own capacities and plans. Second, what adds to the permanency of multinationals is that they are now so important to many national economies, because they control vast amounts of resources, that governments tend to main- tain them as going concerns, even if, as occasionally happens, they have been judged to fail by the market. In summary, the following are the main points to bear in mind when studying competition in the international economy, and in particular, when examining competition as a contributing factor to the closure or failure of subsidiaries. Multinational companies are huge, fairly permanent collections of resources which allocate resour- ces according to anfixture of market and non-market criteria. They are also composed of many parts which are coordinated by a head office which plans and develops strategy. Multinationals meet each other in various markets and industries, sometimes directly (parent to parent) and sometimes indirectly (via their subsidiaries). At present, in many industries and markets they are jostling each other for shares. However, this competition is waged as if by proxy, on many fronts (i.e. in many product lines and markets), and the subsid- iaries compete with the advantages and burdens of the multinational connection. To illustrate the last point: a subsidiary may find itself being charged prices on intracompany transactions which are below a comparable market price, or it may be lent money at very cheap interest rates as compared to those existing in the market, or an investment program may be funded which it could not finance 5l out of its own resources and it could be saved from collapse by the intervention<1Fthe parent. Conversely, a subsidiary could be over- charged on intracompany transactions, could find its profits chan- neled into central funds to be used to fund the investment programs of other parts of the multinational and it could collapse or be 'executed' as a result of specific head office decisions. Therefore, and to anticipate a little the discussion in later chapters,the behavior of a multinational and its subsidiaries can only be analyzed in terms of two sets of relations; the external relations between companies, otherwise known as market relations, and the internal relations between the parts of the multinational. 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However, comparing the three cases and noting what seem to be important similarities and differences is a useful step along the road to developing some generalizable statement about international divestments. (a) Similarities Each parent began to internationalize production, in the area or sphere of production we are concerned with, at a later stage than the leading rivals. To compensate for this relative disadvantage they acquired companies overseas that would guarantee them immediate shares of important marekts. Of critical value to each parent was the take-over of a substantial marekting package (i.e., brand image, dealer network and, to a lesser extent, products) through the acquisi- tion, which guaranteed them market shares. In return, the subsidiaries expected benefits in areas in which they were weak - e.g. finance, management and R and D, and advantages from belonging to an inter- national group - e.g., integration benefits, access to more foreign markets and so on. In each case, the marriage seemed promising. However, in each case, the results of the assocation were dis- appointing and the subsidiary's performance deteriorated. Many general and specific factors can be called upon to explain this. One general contextual condition was the particularly difficult economic conditions in Italy and the UK, the countries in which the subsidiaries were located. Both countries had weak economies charac- terized by higher than average inflation rates and balance of 267 payments deficits. They were more vulnerable and with less steady economies than those of other EurOpean countries. Another general and contextual condition that could be associated with the deteriora- ting performance is industry specific factors. In this period, seve- ral countries began to produce automobiles. In particular, Japan became a major producer and exporter. When this is allied to the saturation in the demand for new cars in the seventies, surplus capa~ city, estimated at between l0-20%, became a major problem for many companies (Mandel, l978a:52). The typewriter industry also under- went substantial changes as demand patterns altered, new low-cost centers of production emerged, and technological breakthroughs occur- red. These various industry conditions clearly intensified competi- tion, particularly in its international dimension. 'More Specifically there were substantial weaknesses afflicting each of these multinationals. Chrysler, Litton, and British Leyland, in different degrees, increasingly experienced financial or commer- cial or technological problems or some combination of these, in the course of the period. These companies were huge, yet frail, and the overall group weaknesses contributed to the disappointment of the association between parent and subsidiary. Very tentatively we could propose the following associations for consideration: subsidiaries are more likely to be divested (a) the more economically unstable the country in which they operate; (b) the more intense the competition, of whatever form, in the particular industry in which they operate, and (c) the weaker the parent. However, the effect of country, industry and parent company con- ditons are tempered by the following observations. Some companies 268 operating in the automobile and typewriter industries in Italy and the UK performed well. Moreover, each of these weak parents owned subsidiaries that performed well at the same time and in the same industry as those that didn't. In other words, unless one ascribes more weight to country Specific condtions than the case studies jus- tify, parent weakness, of itself, did not prevent some subsidiaries from being successful. And, in this regard it is crucial to note that the real group weaknesses were not fatal. These large companies did not disappear or fail. Mandel (l978a:8l) suggests that a major reason for the survival of weak, large companies is that, ”the bank- ing system continued to accord them credit, that the central banks and the bourgeois state continue to bail them out”. This was true in the case of British Leyland and Chrysler. Another important reason suggested by this research is the ability of these large companies to restructure themselves to cope with environmental exigencies. They do this by conglomeration, locational shifts, acquisitions and divestments, and product rollover strategies. In- deed, whereas credit may tide them over a cash-flow crisis, restruc- turing enables them to adjust to fundamental, long-term changes in demand, technology and competition. Very Specifically it seems that each subsidiary, at some point, faired badly in the internal allocation of resources and was ascribed a marginal role in the strategic plan. The only generalizations we can safely make at this stage are that multinationals tend to have a more or less developed strategic plan and product strategy, and centralize decisions on where to design, produce and sell products. Such centralization and strategic planning is rational from the 269 parent's interests for it enables the parent to avoid the duplication of cost and effort in R and D, production and marketing. By careful allocation and integration, overhead costs (e.g., R and D) can be spread over larger volumes, competition in the market between sub- stitutable products from different subsidiaries can be eliminated by the allocation of export markets and so on. The three multi- nationals, however, had only gone part way towards Operating a fully centralized, inter-dependent organization. Nevertheless, each, centrally determined the allocation of the fruits of R and D programs (e.g. new products) and export markets. These and other scarce resources, such as capital for investment in production improvements, seem to be allocated according to criteria that will accomplish and further the group's long-term goals, whatever these may be, as set out in the strategic plan. Therefore, Chrysler France and Triumph-Adler, earning a higher rate of return on capital, were favored in the plan and consequently in the allocation of various resources. Innocenti was also favored for a while, until the strategy shifted from an emphasis on overseas production toan emphasis on exports from the domestic base. Moreover, Chrysler Uk received sub- stantial transfusions of funds from the parent, not because these would earn a respectable rate of return or any for that matter, but to prevent the subsidiary collapsing. The strategic plan still had a place for Chrysler UK. These examples suggest that strategic plans are not all woven of the same cloth. There are differences between them and these reflect not only environmental differences (e.g., based on industry, tech- nological, market, country differences) but also company goals. 270 Large companies seem to be strong enough to chart their direction, albeit always within the limits set by environmental or external forces - and foremost among these is that as a group and in the long-run they must be making profits at least at the rate that pertains in the industry. The cases also demonstrate that there existed more or less in- ternal competition over the allocation of resources. In two cases this competition was of a conflictual nature, with direct conflict between subsidiaries and between various management enclaves. In the Imperial case there was insufficient evidence for such a con- clusion to be drawn, but there is no reason to rule it out. The discretionary power that parents have to determine the allocation of centrally held resources and their varying ability to determine the distribution of profit between subsidiaries by the manipulation of various financial flows makes any judgement of sub- sidiary performance (e.g., profit figures) highly tenuous. No surprisingly we saw that the decision to withdraw is taken at parent headquarters by tOp management. The multinationals seemed to have prepared their withdrawal strategy carefully. In contrast, workers have very little time to prepare their reSponse, and in each case, they were too weak to take the parent on directly. Wor- kers and their representatives directed most of their efforts at pressuring the government to intervene on their side. Both the Italian and UK governments were under pressure and, because of the visibility of the issue, responded with some form of action. In this three way struggle, it became clear in each case, but particularly in the Imperial case, that access to markets is the 27] critical asset to be bargained for at the time of closure. Good management, scientists and engineers can be moved elsewhere within the company; R and D is normally already centralized; machines, if workers allow it, can be transferred; products, brand names can also be transferred. The one thing that cannot is the market, although access to it via the dealer network can. This suggests that in times of surplus capacity and intense competition, in advanced capitalist countries, the acquisition route is most suspect from the interests of the host country. (b) Differences There were few significant differences in the political and economic condtions between Italy and the UK. Some reference was made to the troubled political situation in Italy by British Leyland management, but this was only of minor import in the decision to withdraw. And, as I have already pointed out, it was also true that other subsidiaries in each group (i.e. Seneffe in Belgium, Triumph-Adler in Germany and Chrysler France) were located in count- ries with more stable economic conditions, which may have contributed ‘UJtheirapparently better performance. But there was an important industry difference. Imperial com- peted in a segment of the typewriter industry with very different conditions than existed in the automobile industry. The manual seg- ment of the typewriter industry was characterized by standardized products and techniques of production, low barriers to entry and many producers. VCompetition in this segment, therefore, took a price form, in particular from products produced in low labor cost Third World countries. Because Litton did not adquately prepare Imperial 272 to 'rollover' from standard to advanced products, in the short term Litton competed by price discounts, and in the long-run by locational moves in search of cheaper labor. In the advanced sector the crucial strategic decisions concerned the amount of spending on R and D, for this sector was characterized by rapid technological innovation. In contrast, in the more capital intensive automobile industry, with much higher barriers to entry and an oligopolistic structure, com- petition was waged more by the marketing effort, broadly defined. In this industry, at this time, the crucial strategic decisions are about the control of markets by new products, advertising and so on, and control of costs by high volume production and high productivity. Without forcing the differences, we see here three separate but over- lapping strategic imperatives - those of costs, markets and innova- tions. Strategic decisions in each of these industrial sectors will tend to be influenced by slightly differentsectoralinmeratives. In addition, there were organizational differences that influen- ced the shape of group strategy. Litton, a conglomerate with a wide product spread and a financial holding company structure, tended to respond and adapt to changes in the market-place and in technology by restructuring the parts of which it was composed. The history of the company is marked by frequent acquisitions and divestments. It literally accomplished its 'rollover' process out of product lines and industrial sectors and into new ones on the backs of sub- sidiaries. Rather than carry out comprehensive internal restructur-, ing and re-organizationcfl:resources, it substituted acquisition and withdrawal. The conglomerate form may thus represent a qualitatively different type of organization, with a higher propensity to divest 273 than more traditional types. The change in British Leyland's overseas strategy, away from overseas production to exports from the domestic base had quite a lot to do with the rescue and nationalization of the company by the Labour government. In the depressed seventies it was not surprising that British Leyland chose to protect British jobs and emphasize exports as much as possible. Chrysler Corporation in the mid sixties embarked on an expan- sionary course in Europe in an effort to match its two US rivals. Strategy therefore, dictated acquisitions, and high capital spen- ding with plans for future integration of the European operations. But by the mid seventies Chrysler was in a steady decline in the US and faced with a massive investment program to hold its position. It was therefore increasingly compelled to give priority to the needs of its domestic operations at the expense of overseas ones. By I978 Chrysler had sold substantial parts of many overseas subsid- iaries. The content of strategic plans may also be influenced by the nature of the coalitions within the group, and the relative weight of these coalitions. Innocenti management aggressively represented the subsidiary's interests at group headquarters with considerable success because they had a direct line of communication and influence to top central management. As far as I could tell, this was not true for Imperial and Chrysler UK. Innocenti won a role for itself in the overall strategy which belied its size and marginality in the group. The issue of the coalitions and the conflict between them within the multinational is certainly worthy of further exploration in 27h future research. At subsidiary level, differences in performance - Innocenti per- formed better than the other two, can also be partly explained by the content of the strategic plans and the outcome of the internal conflicts between various interest groups. Imperial was given a peripheral role in the group strategy. To a lesser extent, so was Chrysler UK. Therefore, or perhaps in association with these role prescriptions, these subsidiaries faired badly in the internal allo- cation of resources process. Innocenti, for some time, faired well. Also at subsidiary level, there were differences in the level of organization and militancy of the three workforces. Chrysler UK's was well organized and militant at shop floor level and continually contested management along the job control frontier thereby contri- buting to the poor productivity performance. Innocenti's workforce was well-organized but predictably militant (every three years). Imperial's workforce was poorly organized and quiescent. EJt thesedif- ferences, made little difference tothe decision towithdraw. Chrysler UK, with the most militant workforce, was not divested. This is one indication, among many,of the importance of strategic plans over operational fac- tors in the decision to divest. But such workforce differences do help account for the differ- ences in outcomes of the cases. Chrysler UK and Innocenti were saved in some form, Imperial was totally closed. The difference in outcome could also be due to differences in the level of commitment to the subsidiaries between the three parents. Chrysler, more committed financially, technologically and commerically to the UK, found it less easy to withdraw than the other two, whose commitment was never 27S morethanofa marginal nature. And, though theoretically the prin- ciple of 'sunk costs‘ indicates that past investments should not determine future ones, this may be a difficult rule to follow in practice. Moreover, Chrysler, unlike the other two parents, did not have sufficient Spare capacity readily avialable tosupply the sub- sidiary's markets in the event of withdrawal. As we have seen, multinationals do not easily give up markets. A RE-EXAMINATION OF THE CONCEPTUAL FRAMEWORK IN LIGHT OF THE THREE CASES The conceptual framework in Chapter I assumed that multinationals, as capital accumulating entities operating under the pressure ofcom- petition, would continuously be searching for ways to earn surplus- profits by gaining some form of cost and/or marketing advantage. Because competition is increasingly taking an international form, they would survey an unevenly developed world in terms of profit oppor- tunities and make comparative judgements about the location, quantity and type of investments and divestments to undertake. Moreover, this process would itself be uneven. That is, some multinationals pioneer the move into new geographic, industrial, product or tech- "OIOQICBI spheres in the attempt to gain an advantage, and others fol- lowed in an attempt to also earn some advantage, or reduce their dis- advantage, And, because multinationals as a genre have monopoly char- acteristics, the search for sUrplus profits is worthwhile, since advan- tages which enable these profits to be earned can be protected for longer than would be the case in a classically competitive world. Based on the above, three factors were proposed as likely to be associated with divestments. These were:- (i) the comparative conditions of various local labor markets and relations of production in different 276 countries which affected the comparative rates of profits; (ii) the intensity of competition in an industry and market and the relative strength of the competitors; (iii) the activities and policies of various governments. It was hypothesized that multinationals would tend to divest subsid- iaries if: (a) the local labor market condition and relations of production deteriorated, and better conditions existed elsewhere, or even if there had been no deterioration but better conditions existed elsewhere; (b) competition in the industry or market was intense enough to lead to a deterioration in profitability and less competitive conditions existed elsewhere, or simply, if better competitive conditions existed eslewhere. The strength of the competitors, in particular at parent level, was considered important, for a strong parent would help a subsidiary with- stand intense competition; (c) the government withdrew incentives from, or imposed sanctions on, the Operation of the subsidiary, and more favorable government policies existed elsewhere. External labor market conditions were only crucial in the Litton case. Litton closed the Hartford plants and expanded in the UK prim- arily because labor costs were cheaper there. The move was not, how- ever, prompted by an aggressive search for higher profits, but by the competitive threat posed by foreign manufacturers. Litton's closure of Imperial three years later was,in part, the result of the loss of the labor cost advantages as the gap between British and Third World labor costs widened. Not surprisingly, labor costs are a more significant factor in the more labor intensive typewriter industry than in the capital intensive automobile industry. In both the Chrysler and British Leyland cases it was comparisons between the internal labor markets or relations of production in different subsid- iaries that were associated - indirectly or not proximately - with 277 the divestment decision. The turbulent state of the relations of production at Chrysler UK compared to Chrysler France contributed to the unequal distribution of resources between the two. For this rea- son among others, Chrysler UK performed poorly and this precipitated the decision to divest, although not an actual divestment. In the Leyland case, the differences in the internal andexte rnal labor markets did not determine the decision to reduce capacitybut which subsidiary would be divested. Innocenti, with a less quiescent labor force and a worse productivity performance than Seneffe was divested. The dynamic effect of competition is significant in all three cases. In the price sensitive US manual typewriter market, Imperial' was increasingly damaged by low cost products from the Third World and Japan, and could only sell its poor quality electric in the UK at a heavy discount. Because no steps were taken to counteract these competitive pressures - e.g. by moving into the non-price advanced end of the product range, Imperial's profit margins appa- rently dwindled. Imperial's weakness was compounded by the tempo- rary cash difficulties at Litton. In the mid seventies the industry bifurcated. Technologically advanced and financially healthy com- panies moved into the electronic office systems field, while smaller, more technologically backward companies, mainly located in low cost countries concentrated on standard products. At this conjuncture Imperial was divested and Triumph-Adler continued to prosper. The automobile industry, as we have seen, is characterized by various forms of non-price competion. Much of the battle is waged by the marketing effort. Chrysler UK for various reasons presented a wak challenge to its EurOpean competitors. With no new products 278 and a poor delivery record it had serious trouble selling in com- petitive markets. In fact much of its production was sold on a fixed contract basis to Iran, thus avoiding continuous competitive pressures. To aggravate matters, its domestic market was highly vulnerable to import competition. Again weaknesses at the parent company conjoined to precipitate the divestment crisis. Innocenti, in contrast, began well and was a successful and aggressive competitor in Italy. But the entrance of rival models into its niche of the market suggested that it should respond with a vigorous marketing effort. There was none. However, it is not true to say that parent troubles forced the divestment crisis. In fact, the divestment dec- ision was taken after British Leyland was rescued by the British government and guaranteed massive sums of money. Neither direct or indirect government actions were a very important factor influencing the divestment decision. No government incentives were withdrawn and no sanctions imposed. Both Litton and Chrysler mentioned that certain government policies in Britain adversely affected the perforamnce of their subsidiaries - e.g., a high purchase tax on automobiles and the high level of wage settle- ments, but these were not critical to the decision to divest. In fact, Imperial had benefited from several government programs. British Leyland also mentioned the unstable social and political climate in Italy but again this had but marginal influence on the decision. However, government action was significant in preventing the with- drawal of Chrysler. Massive sums of money loaned or granted by the British government were necessary to prevent Chrysler's withdrawal. And it is clear that the aid was proferred precisely because Chrysler 279 UK was a very important company in the economy accounting for a size- able number of jobs and exports. Litton did not ask for government help, but it is unlikely that the government would have reSponded with large sums, attesting to the minor importance oflnmerialin the economy. As we hypothesized in chapter I, actual divestments are more likely to be directly influenced by competition than by the other two factors. To the extent that relations of production, wage levels and government actions require modification, multinational companies can or will employ the threat of withdrawal to bring about the desired change. In a truly stable oligOpoly situation they could also mode- rate the potentially damaging effects of competition by various forms of negotiated behavior among themselves. But in the present turbu- lent state of competition in many industries in the international economy, competition is a pervasive and powerful external and uncon- trollable constraint on company action and survival. In terms of Caves and Porter's notion of ”barriers to entry” discussed in chapter II, section 4 it is interesting to note the following. First, the notion of managerial barriers to exit can be fitted into our discussion of the internal alliances and coali- tions that surround the allocation of resources and investment and divestment decisions. In fact, Torneden, andtiaves point to the fact that divestments are often preceded by a change in top manage- ment. Second, that included in their factor inhibiting exit, “man- agerial behavior'I should be the concept of the strategic plan of the company. This is obviously tied to managerial coalitions and relative power balances, but it needs to be considered, in its 280 own right, as a source explaining the differential performance of subsidiaries, and the reluctance to divest a loss-making subsidiary. Third, the finding by Caves and Porter that one barrier to exit is the difficulty of marketing intangible assets can be turned around to suggest that in fact multinationals can and do separate tangible and intangible assets (or production and marketing assets), divest the tangible (fixed) assets and keep or make arrangements with marketing assets to preserve their market share. In a period of low growth and surplus capacity, the managerial skill is to rationalize production to produce at near full capacity utilization afld_maintain or win market shares. The whole issue of closures, exits, and divestments requires more research to explore and test for the factors and variables that are associated with them. This research has provided an inside view of the factors that lead upto divestments in three multinationals. What is needed is more of this type of case study research across multinationals in different industrial activities in other parts of the world. This would provide evidence on the similarities and dif- ferences between our three cases and divestments occurring in other industrial sectors and in Third World countries. Such case studies shoud pay particular.attention to the strategic plan of the multi- national and the internal coalitions and conflicts within it. Also needed is a much fuller statistical picture of the multinationals that do most of the divesting. The latter is critically dependent on the legal obligation on multinationals to publish, in much fuller form, details of their operations. For example, information on the number of subsidiaries they own, the profit and loss figures of each 28] subsidiary, and the transfer prices utilized for intracompany tran- sactions. Surveys will certainly not provide complete answers to the many questions surrounding the divestment decsion. The effects of withdrawal on the workers and communities and more generally on the capital-labor relations are as we proposed in chapter I. Where some form of production continued, as in the Chrysler UK and Innocenti cases, the workers' level of militancy was reduced in response to the lay-offs and threatened lay-offs. In practice they gave up gains won on the 'job control frontier' or in other con- ditions of work. In the insensitive words of one executive the ”threat of the plughole” had an effect. However, both of these two workforces remained well-organized and mobilized to defend their interests. The Imperial workforce was totally disbanded, attesting to the low level of organization of the workforce, the alternatives open to Litton, and the weak government response. The only tactic employed by all three workforces was to put pressure on their governments to intervene in some way. Two dallied with the international union cooperation tactic with disappointing results. The cases therefore, show that at this period the links of nationality are far more advanced than international links. Workers look to their government to bolster their position. They do not ex- pect, nor do they seem to achieve, meaningful cross border solidarity. Even when much preparatory spadework had been done, at the moment of crisis, little positive action was forthcoming. However, the labor movement can be successful at mobilizing workers and sympathizers to pressure the government to act, or at least to become involved in the process. The issue is sufficiently visisble and sensitive as to 282 require some government show of action. But the type of government response depends on several other factors - e.g., the level of poli- tical mobilization, the importance of the subsidiary to the national economy, and the ideology and coalitions in the government branch. In each of the cases, it was the multinational that set the pace in the negotiations and the workers and government, as their foot- slogging opponents, responded always one step behind. Two interesting features of the process and consequence of with- drawal deserve special mention. First, workers, although relying heavily on government support, developed two imaginative, autonomous responses to closures. One had direct and immediate effect. In two cases they occupied (took possession) of the plant, equipment and work-in-progress, signaling to all, their determination and willing- ness to work. But allied with this bold gesture, they also developed carefully worked out plans that challenged the rationality of capita- list production. Their reactions were not merely romantic or desper- ate, but had a forward looking, reasoned approach to them. Second, it became clear that the prime asset multinational's bargained for at the time of withdrawal was access to the market. In a time of surplus capacity in many industries, markets rather than production capacity is at a premium. It was also clear that with most govern- ments in advanced capitalist countries pursuing an open door, free trade policy no institutional force existed to prevent multinationals from withdrawing from productiona and maintining access to markets. It is time to take stock and consider the usefulness of the conceptual framework taken as a whole. In each case, the divestment decision can adequately be explained in terms of a deteriorating performance at the subsidiary and better profit opportunities existing elsewhere. Companies that have lower productivity, higher wage costs, face higher taxes than rivals, and, for these and other reasons, cannot or do not invest as much as competitors in R and D, production improvements, marketing and so on, will see their performance deteriorate and will, in all likelihood, sooner or later fail. There is nothing startling about our conclusion, that of the three factors, the most important influencing divestment behavior is the intensity of competition and the relative strength of the com- petitors. In Marx's words (Grundrisse, l973:752) “competition executes the inner laws of capital, makes them into compulsory laws towards the individual capital”. The fundamental laws of capitalist accumulation. that is, the relation of capital and labor in its many sidedness (e.g. the relations of production, the organic composition of capital, and more genrally the political class struggle), the many movements of capital in circulation, are all felt by individual capitalists through the competitive process. Yet the three cases did not provide unqualified support for the assumption that in this competitive process, multinational's invest- ment and divestment behavior would be guided by the search for surplus profits. Certainly Litton, Chrysler and British Leyland acquired the three overseas subsidiaries in response to, and in order to close the gap Opened up by rivals. Their investment behavior was defensive and not based on an aggressive search for suplus profits. Excluding the closure of the Royal plants in the US and the transfer of produc- tion to Imperial, divestment behavior did not involve a withdrawal followed by a move to a new location, where presumably some competitive 28h advantage could be gained. Rather the withdrawal was followed by the increased utiliztion Of facilities existing elsewhere and already belonging to the multinational. (This would have happened in the Chrysler case if it had been divested). SO the case studies demon- strate that multinationals do survey an unevenly developed world in terms of profit Opportunities, and do so, not only across the world outside their boundaries, but also across substitutable subsid- iaries within their international empires. This leads us to a critical area that was completely missed in the conceptual framework. The behavior of multinational companies, including their divestment behavior, is determined not only by the unavoidable laws of capitalism acting through competition, but also by internal organizational factors which mediate the effects of external competition or market forces. It should by now be obvious that subsidiaries are engaged in two competitive battles and two worlds - an external and an internal one. In the first, the laws of the market can be said to Operate. In the second, it is the adminis- trative and strategic decisions of a hierarchic organization that set the rules. 285 C H A P T E R VII CONCLUSION ”The giant companies using the new technology available to them are becoming the main accumu- lators and investors of capital, the determi- nants, therefore, of the renumeration and con- ditions Of labour; the main economic power base in the world, the determinants, therefore, of political power ... the deveIOpment of giant companies has enabled them to replace not only the market detrmination of prices, but also the market allocation of resources - national and international. This gives them a determining power ... in the whole politi- cal economy of the nation and the world”. Barret-Brown (l972:39-AO) The central thesis that has emerged from the case studies is that to fully comprehend the internationalization of capital and its poli- tical-economic significance, it is necessary to penetrate the internal world of the vehicles of that process, the multinationals. That in- volves examining the way these companies make decisions, how resour- ces are allocated, the relations between the center and the subsid- iaries, and the relations of production and class relations more generally. In other words, in that the expansion of multinationals interiorizes more and more market and political - juridical relations, the distinction between the study Of organizations and the study of political-economic relations becomes increasingly blurred. TO study multinationals is to study political-economic relations. But the emphasis on the internal side of the process Of internationalization in this dissertation, though justified theoretically and empirically, should not be taken to imply that external relations are now unimportant. 286 I think the cases also demonstrate the importance of relations between multinationals in the market and between multinationals and .the apparatuses of nation-states. In other words, multinationals do not, by any means, interiorize the totality of political-economic relations. Competition in the market, the clash between the juri- dical domains of nation-states and multinationals, and the political conflicts between classes also need to be analyzed. The forces that remain outside the domain of multinationals act as external constraints on the behavior of multinationals. For example, ”competition from the new commodity, the new technology, the new source of supply, the new type of organization” (Schumpeter, l950:8h), act as severe constraints on the actions of all companies, even the very largest. The relatively uncoordinated actions of private companies produces cycles of boom and recession, which lead to unavoidable fluctuations in the conditions for profit making (e.g. changes in aggregate demand, exchange rates, the rate of inflation). The mass of state regulations that are the product Of the continuous conflict and bargaining between classes and fractions Of classes, can also act as constraining forces on the actions of companies. There are also signs that international agencies - e.g. the United Nations, the EEC, international union secratariats, are beginning to develop regulations or concerted actions to constrain multinationals. At this stage, these attempts have not been effective. There are, therefore, relations of an internal and external character and there are contradictions underlying each internal and external relation. It is precisely the conflicts produced by these contra- dictions that this dissertation has focused on - for example, the 287 conflict between the profit seeking behavior Of the owners and man- agers of multinationals and the workforce, which is dramatically expressed in divestment situations, the conflict between parent and subsidiary managements'when group imperatives clash with subsidiary interests, or the latent conflict between governments and multi- nationals when their goals conflict. A critical issue is the degree Of identity or non-identity bet- ween the patterns and regularities that govern internal and external relations. DO, for example, multinationals make decisons by simu- lating market 'decision rules'? Are the effects of the decisions made by multinationals, even if differently arrived at, similar to those that would have been produced by a market? More specifically, arethe.allocation of resources and the distribution Of wealth accom- plished on a different basis? Are patterns Of trade different if con- ducted on an internal or an external basis? And more generally, are the international connections (cultural, political, and social) con- structed under the domain of multinationals different from those dev- eloped on a different basis? My general answer is that there are important if limited differences. And this does not only have academic significance, for if this is the direction in which we are headed, then the argument is no longer about 'planning' versus 'market' but about who will do the planning and for whose benefit. In the following pages I conceptualize the multinational company as an internal political-economy and elaborate on what that means, discuss the workers' struggle against closures and conclude with brief comments on what these themes imply. 288 THE NATURE OF MULTINATIONAL COMPANY - An Internal Political Economy? Building on the findings in this study and work by other resear- chers I now propose that the multinational company be viewed as an internal political economy Operating in the wider political economy. By an internal political economy I mean a particular form of social structure, an organization, in which the allocation of resources and the production and distribution Of gOOds and wealth is to a signifi- cant extent governed by internal social processes. These social processes include political and economic conflicts between groups with varying interests within the organization. Moreover, viewing the organization in this way places the study of organizations back into political economy. Centralization The three case studies amply demonstrate how crucial decisons concerning the allocation of tasks and resources are centralized. This finding fits in with the conclusions Of the most detailed and thorough research on centralization in multinational companies which indicates: (i) The degree of centralization is greater than management at all levels think, that in fact the ”arms length relationship turns out to be a myth”. (ii) Comapnies ”are Of a piece", so if they are centralized in one area or function, then they tend to be centralized throughout (Broole, l979) . The reverse side of this tendency to centralize control is a dependency Of the parts within the structure. This dependency is rooted in the need for the parts (e.g., subsidiaries) to Obtain access to re- sources with which to carry out their tasks. As we have seen, 289 subsidiaries are dependent on central (normally parent) decisions for access to a whole range of crucial resources. These include: capital investment for replacement and improvement of machines and plant; short term funds; R and D and new products; export markets; and management time. One factor determining subsidiaries' share of resources (Others will be presented shortly) is the task each is allocated to fulfill. And the task they are allocated is determined in the overall strategic plan. The Strategic Plan Theoretically centralization implies a mechanism of coordination and allocation between the parts that comprise the whole. In two of the cases, a strategic plan existed and in the Litton case (at divis- ional level) it was inferred. However, according to several commen- tators, strategic or corporate planning has not been universally accepted in the business community (Business Week, l8 December l978). But no matter the seeming reluctance in some quarters (there is lit- tle systematic research on this tOpic) to adOpt the formal apparatus of long-term strategic planning, it is clear that multinational com- panies must find some way to coordinate the parts and allocate re- sources between them. A textbook on corporate planning (Argenti, 197h:135) has put it this way: “The task Of the planners at the center, or group headquarters, is to determine the corporate Objec- tives for the entire group as a corporate whole and to select a suitable strategic structure for the group as a whole ... In deciding what the strategic structure should be, however, the central planners must decide what role each major part Of the group must play within the group over the long-term future.” This organizational compulsion to plan strategically is a function of 290 the administrative imperatives of controlling and guiding a large, complex organization selling in many markets, producing in many loca- tions and Often, producing several products, But there are also economic forces directing large companies towards strategic planning. The massive amounts of R and D and capital investment outlays that many projects now require and the increasing length Of time needed for these projects to yield a return, compels the large company ”to control or seek to control the social environment in which it functions”. (Galbraith, l973:39) To minimize the risk inherent in such projects, large companies plan (control) the investment, the financing and costs, and attempt to plan their sales or at least to reduce the probability Of failure by marketing research and analysis and vigorous sales efforts. They also pressure the state to pursue policies to stabilize the economy and to support their profit aspir- ations (Mandel, l978b:228-9). Thus we see that increasing size, in- creasing complexity, largely produced by geographic and product diver- sification, and the ”increased risks attached to colossal investment projects in conditions of accelerated technological innovation and the reduced turnover time of fixed capital” (Mandel, l978b:229), all combine to necessitate some form of long-term strategic planning. Such planning enables the large company to pursue a consciously chosen direction rather than to merely drift or react to environmental forces. They are no longer at the mercy of the Operation Of external forces, such as, for example, the market, technology and governments, because the concentration of economic resources enables them,singly or in groups, to influence market prices, the type and rate of tech- nolgical change, and the relevant policies of governments (Mason, 29l l976:27-8). Nevertheless, in varying degrees such companies are sub- ject in the last instance to forces outside their individual control. For there are always areas that are not under their domain, individ- ually or as a group, and, within their ranks, there still exists a pervasive insecurtiy about each other fostered by the imperatives of competition. Thus internal planning and external forces remain in a relation of tension. It is at base a tension between the 'internal' and external political economy, between the 'domestic' and 'foreign' policy of companies (Wiles, l977:63). Within the capitalist enter- prise, a ”command economy” Operates;.outside, market forces, more or less, rule. This non-coincidence Of internal planning and relative external 'anarchy' has prompted one writer on planning to prOpose that ”The real Object of corporate planning is the continuous adapta- tion of the enterprise towards continuing survival” such that the planning process ”becomes a machine for sequentially aborting incom- PBtent plans” (Beer, l969:398). A central, if tentative, finding of this research is that one Of the ways multinational companies (as one form of the genus Of multi -unit companies) adapt to environmental changes is by altering their direction and shape. Therefore, although multin ationals may seem immortal, many Of the parts die, some are disbanded and recreated elsewhere, and many new parts spring to life. SO the permance Of the whole entity masks an immense amount of flux within it. For the death Of products and the birth of new ones, the contraction and expansion of markets, the introduction Of new technology, the dis- covery of new sources of supply, now rarely strikes at the ”very foundations” and ”very lives” Of companies, as Schumpeter (l950:8h) 292 believed. 'Hn:”perennial gale of creative destruction,“ if it occurs at all, now takes place within the ambit of large multi-unit com- panies. The 'rollover' out Of old products and into new ones, the new technology, market or source of supply are all accommodated by the adaptive and restructuring behavior of large companies. And, if one can generalize from the case of Britain, even ”the expansion of new, and the decline Of Old, industries was achieved to a con- siderable extent through the change in the size and structure of firms and not primarily through new entrants and bankruptcy'I (Penrose, l978:ll5). There is little agreement about the goals enshrined in these strategic plans. Galbraith prOposes three main 'purposes': (i) to secure a minimum level of earnings to protect the autonomy of the technostructure's decision-making; (ii) growth; (iii) to show an improvement in profits from one year to the next (Galbraith, l973:lO3). Others substitute market share, satisfycing behavior, or some such variant. Mandel (l978b:232), however, holds to the view that the goal Of the strategic plan is "maximization of profits” but amends it, such that large companies aim at: ” ... long-term profit maximization, hwwhichfactors such as domination of themarket , share of the market , brand familiarity, future ability to meet demand, safeguarding Of Opportunities for innovation, i.e., for growth, become more important than the selling price which can be Obtained immediately or the profit margin which this represents." Wiles (l977:87) on the other hand, conceptualizing the large company as a collection Of heterogeneous members who make competing 293 claims on the resources generated by it, finds it difficult to believe that there will be agreement to ”maximize the enterprise's long-run profits, or any less reputable indicators like market shares or sales .” The case studies do not throw light on this controversy. At best we can echo the gist of Sweezy's words in Chapter VI. Multi-unit companies will seek to pursue policies and develop strategic plans that are to the benefit of the group rather than of any part. In sum, strategic plans, like centralization, hold the multi- unit company together. They also lay out the overall direction of the group and mediate between the internal and external environments. These plans conceptualize this relation by defining the techniques of production employed, the product lines engaged in, the markets in which the group sells and the role of the parts in fulfilling the plan. Moreover, the relationship between the parts, and of the parts to the external environment are established, at least theoreti- E31112 in the strategic plan. The Allocation or Distribution of Tasks and Resources But if the strategic plan, among other things, conceptualizes the role and tasks of the parts within the group and the allocation of resources with which the parts can accomplish their tasks, the reality may be very different. The implementation, perhaps even the formation of the plan, are subject to internal conflict, as is the distribution of resources. According to Wiles (l977:353), there is a similarity between the 'command' economies Of the Soviet Union and the large, complex 294 company. In Soviet style economies, the allocation of investment funds is: ” ... decided by ideology (heavy industry should grow faster), by the political pull of local party bosses (each seeking to in- dustrialize his own bailiwick), by military needs, and by a dozen more directly economic considerations. Many of these are very arbitrary.” In the large capitalist company there are divisions and conflicts of interests between, for example, the engineering or production department which wants the latest technology and machines, the sales department which wants a high eXpenditure on new products and adver- tizing, and general management, which wants increased size, employ- ment and so on. He goes on: ”Decisions on how to allocate money between these uses may eventually be taken on a rational basis, but in the short run and often the medium run quite contradictory poli- cies may be pursued by the departments.” (Wiles, l977:8l). In other words, in 'command' or planned economies, more or less con- flict and struggle will exist over the distribution of scarce and valued resources. Multinationals, as the cases have demonstrated, are no different in this respect. In two of the cases (Chrysler and British Leyland) the evidence indicated vigorous internal struggle for resources; in one case, to the point of subsidiaries going to central arbitration. Subsidiaries seem therefore, to be locked into an internal struggle. But the degree of conflict over the distribution of resources will vary. We can propose that it will vary according to: (i) the degree of central control over crucial resources; 295 (ii) the degree to which they are scarce; (iii) the degree to which the relations between parents and subsidiaries are rigidly hier- archical and authoritarian; (iv) the degree to which subsidiary managers adopt a local frame of reference and the degree to which they act on it. A rigidly controlled organization will attempt to prevent, by a system of carefully designed sanctions and rewards, subsidary (and department) heads from pursuing local and sectional interests to the detriment of the whole group. A weakly controlled organi- zation will be less successful in preventing internecine conflicts from erupting. One way to prevent subsidiary managers from adop- ting, too strongly, a local frame of reference is to tie their success and security to a group wide mobility channel. Against that, however, is the possibility that such managers will not care very much about the performance of the subsidiaries, since they will see them merely as stepping stones to other places. It is also clear that the more centrally controlled the resources (note that a sub- sidiary of the size of Chrysler UK had to seek central approval before spending over $50,000) and the scarcer they are (in terms of the demands made upon them by subsidiaries), the greater the degree of latent conflict. As I have pointed out, whether it becomes mani- fest, depends on the actual relations between the parts of the organization. The literature on organizations is full of examples of internal conflict and of the attempts to overcome them. For example, Crozier, describes how centralization, impersonal rules, and a strict top down chain of command are methods to moderate the level of power 296 struggles in organizations. However, he sees these methods as coun- terproductive in that they lead to a”vicious circle”. Power struggles lead to centralization and impersonality and increased hierarchy, which in turn lead to dysfunctions, which generate new bases of power, which then require increased centralization an so on. (Crozier, I967:I93-h). In this sense, power struggles within organi- zations are endemic. Cyert and March (I963) in an early study that anticipates mahy of the points made in this part of the research, conceive of the organization as a coalition of bargaining or con- flicting members. Moreover they also prOpose that, ”conflict is never fully resolved within an organization.” (Cyert and March, l963zh3). The parent - subsidiary form of relation is a relatively recent source of internal organizational conflict. The added logi- stic and communication difficulties, even with modern transportation and communication, and the issue of nationality (to be taken up shortly) increase the potential for intra group conflict within the multinational form of organization. The outcome of internal conflict regarding the allocation of resources is Often an unequal distribution of resources between subsidiaries. Some are favored with various types 0‘ resources, while others do less well in the allocation battle. Cyert and March (l963:270-8) discuss this critical issue, but only in terms of the allocation of funds to different projects and sub-units. The discussion needs to be broadened to the allocaton of tangible things among subsidiaries, like the fruits of R and D (e.g, products) and of intangibles like access to export markets, among subsidiaries. For multinationals have further limited the discretionary power of 297 'sub-units'. They no longer give subsidiaries funds which they can spend at their own discretion. Rather, because they have centrali- zed such things as R and D and access to markets, they determine a much wider and comprehensive set of allocations. Why do some subsidiaries win out in the internal allocation of resources process? As far as I can tell there is little reserch on this question. Building tentatively on the findings of our case studies, the following factors at least, seem to be important deter- minants of the distribution of internally held resources: (a) differences in inherited assets and differences I in past performances between subsidiaries. For example, the subsidiaries that were favored (i.e. Chrysler France, Innocenti till I974, and Triumph-Adler) had better performances than others within the organization, and had better assets; (b) differences in unit costs between subsidiaries (i.e. the result of differences in labor costs and labor productivity). For example, Chrysler France and Triumph-Adler had better unit costs than Chrysler UK and Imperial; (c) differences in current performances and projected performances on rate of return on investments, or on sales growth or marekt share or, more likely, given the dependence of these indicators on past parental allocative decisions, on budgeted targets. This determinant is particularly complex, however, given the interdependencies between performance and allocative decisons; (d) the requirements of the strategic plan, which may be the product of (a), (b) and (c) and/or develop- ments in the environment as interpreted by top management; (e) the relative power of various subsidiaries which depends on all the above but also on other things, such as preferences and coalitions at the head office and the vigor with which various subsidiary interests are pushed. 298 The distribution of resources is, therefore, the outcome of a combination of economic and non-economic factors. In any case, it is highly dubious whether any strict profit 'optimization' model is applied in practice. According to Brooke and Remmers (l972:l60): ”The reasons for this include sheer com- plexity, difficult political considerations, the margins of error to which most long-term forecasts are prone, the changing restrictions affecting the investment and flow of funds in and between different countries, and the presence of power groups inside the firm representing product and geographical interests.” The distribution of money within the multinational, is governed by atransfer pricing mechanism and is also subject to internal conflict. Distribution patterns are the result of various govern- ment policies on taxes and tariffs (in that the multinational will seek to minimize its tax and tariff burden), and company needs and company strategies. In other words ”company prOpensities or prefe- rences” as well as external factors need to be considered (Vaitsos, l97h:3l5-6). That this distribution process is subject to internal conflict was shown in the Innocenti case which also shows that the outcome will, to some extent, depend on the relative weight of the conflicting groups. However, this distributional struggle will be more relevant to groups outside the multinational managerial hier- archy - i.e. various governments, and groups of workers, since the distribution of the surplus (not profits as dividends) to various subsidiaries will determine the amount of taxes each pays and the wages each can afford. The dividend policy will of course, be the result of central decisions based on the consolidated income statement. 299 Denationalization Many of the features of the multinational so far described apply equally to various forms of multi-unit companies. However, unlike the other forms, multinational companies cross-cut the sovereignties of nation-states. The issues that follow from this single fact have spawned a massive literature. Remaining closely within the confines of this study, several salient aspects of cross-cutting jurisdictions need to be addressed. At a political-economic level, the cases indicatezthatthlti- nationals make crucial decisons concerning their subsidiaries on the basis of strategic plans and coalitions that encompass an inter- national empire. In contrast, nation-states pursue policies in a number of important economic and political areas on a basis of national jurisdiction. Therefore, we saw how British Leyland's transfer pricing policy, which served the interests of the parent, Operated against Italy's tax collection capabilities. We saw how the export marketing policies of Litton, and other multinational companies in the typewriter industry, shaped the pattern of trade for several countries - e.g., the volume and value quantities of the trade and its direction. In this pattern, countries like West Germany exported a higher value quantity of typewriters to a wide range of countries than countries like Britain. We also saw how awhole range of allocative decisions affected the behavior of subsidiaries and how parents, taking the decision to withdraw, impact on the employment situation in various countries. In each case, the multinational's decisions made sense from the perspective of the parent's interests, yet was at Odds with policy objectives 300 in one or more countries. Quite simply the totality Of a multi- national is out of reach of any one nation-state - nation-states have 'limited sovereignty' over subsidiaries. Or to put it another way, ”Within each foreign subsidiary the fact of belonging to a single giant enterprise weighs more than the fact of being located in a given country“ (Martinelli and Somaini, l973:7l). Or to put it yet another way, there is an element of 'denationalization' - that is, there is to varying degrees a “transfer of the guiding economic decision-making to foreign centers.” (Newfarmer and Muller, l975:lh5). The nation-state's ability to effectively implement policies on the level of employment, the growth rate, the balance of payments, fiscal and monetary policies will, to varying degrees, depend on the policies of multinationals operating an international strategy. Two important qualifications to this view are, (l) the extent to which sectors of the economy (i.e. industry, agriculture and banking) are 'denationalized' 2292(2) something that writers often ignore, the extent to which multinationals act in the same way as each ctherin, for example, allocating resources or setting transfer prices. Leaving aside the important influence large multinational companies have in Third World countries, in advanced capitalist countries, one must examine the net aggregate impact on regions, industrial sectors and the national economy, before concluding that the be- havior of multinationals will have a significant impact on national policies. Martinelli and Somaini (l973:76) go so far as to suggest that, ”many of the flows controlled by MNCs can be addressed to one coun- try only in sofar as they are subtracted from other countries.“ 30l They go on: ”The geographical distribution and the qualitative divison of these flows is a function of (a) the structure of the corporation and (b) the active inter- vention of nation-states, which try to orient towards themselves those flows not yet engaged by the corporate structure.” They conclude (l973:76-7), "We could thus say that the range of competition among states is proportional to the degree of discret- ionary choice of the multinational corporation.” In other words, they suggest that multinationals directly connect nation-states in a competitive battle for resources controlled by the parent. Not only will there be conflicts between nation-states and multinationals, but also between nation-states. However, we should note that apart from exceptional situations such as in Chile, where Allende government nationalized the assets of several US multinationals and the latter responded by partici- pating in the overthrow of Allende, the conflicts will remain within the parameters of capitalist social relations. In other words, governments will not challenge the basis of private capitalist accumulation. Reasons for this were presented in Chapter I. The nature of the conflicts will be over the terms of the multinational relationship, rather than over that relationship itself. Thus, the cases show that the Italian and the British governments' intervention was such as to socialize costs associated with the multinational connection but to leave most of the benefits in private hands. C ass Relations —_ J— This discussion so far has tended to reify the relations and contradictions embodied in the multinational company by referring to 302 parts, wholes, subsidiaries and centers, as though they were not human creations. It is now necessary to recast the anlysis and bring to the fore the class relations and class contradictions that underlie these relations. For although the preceding discussion in this chapter could be analyzed by a structural-functional schema, this would not sufficiently capture the fact that multinationals are historically specific institutions that had a beginning and will have an end, and, ”are institutions created by men to serve the purposes of men,” (Penrose, l97l:6),(which I would amend by inser- ting 'some' before men l. Nevertheless, in the following analysis I begin with a Marxist- structuralist conceptualization of class relations because it has the merit of recognizing that various forms of class relations are historically specific, contain fundamental contradictions, and are subject to transformations. A structuralist conceptualization stresses the social relations that constrain the actions of men. It is undoubtedly true that, in the words of Poulantzas (l975) there are, ”objective class positions” which are independent of the will Of the ”agents” or individuals who occupy them. However, a com- prehensive class analysis should develop both aspects of class relations. In Marx (l963:l5) Pithy expression, ”Men make their own history but they do not make it under circumstances chosen by them- selves, but under circumstances directly found, given and transmitted from the past”. The structuralist conceptualization of class relations used here is taken from Erik Olin Wright (l976). Wright (l976:39) develops a typology of class relations: 303 ”in terms of three processes underlying social relations of production: control of labour power, control of the physical means of production and control of invest- ment and resources.” TABLE l0 Partial Typology of Class Relations Substantive Social Processes Comprising Class Relations Economic Ownership Possession Control over Control over Control over investments, the physical the labour power resources means of of others production Bourgeoisie Traditional Capitalist + + + Top corporate Executive + + + Contradictory loc- ation between the proletariat and the bourgeoisie Top Managers Partial/minimal + + Middle Managers Minimal/- Partial Partial Technocrats - Minimal Minimal Foreman/Line Supervisors - - Minimal Proletariat - - - Source: Erik Olin Wright In terms of the typology of class structure, we see that, substantively, capitalistsand tOp corporate eXecutives are similarly 30h located, are are polar Opposites to the proletariat or working class. This is the primary or fundamental relation and contradiction in the cpaitalist class structure. In between, are positions, which are ”objectively contradictory” in that they have ”contradictory loca- tions”. Rejecting Poulantzas' thesis that political and ideological relations (i.e., in his definition, relations between supervisory and non-supervisory postions and mental and manual positions) also determine the structure of class relations, Wright (l976:39-A0) proposes instead that: ”... the extent to which political and ideological relations enter into the deter- mination of class position is itself determined by the degree to which those positions occupy a contradictory location at the level of social relations of production.” Or, put another way, ”the more a position coincides with the basic antagonistic class relations at the level of social relations of production, the less weight political and ideological forces can have in determining its class position.” This only makes empirical sense if we remember an important distinction Wright makes between ”fundamental” or ”ultimate“ and ”immediate” class interests. As Wright (l976:l6) puts it, ”immediate class interests are interests defined within a mode of production, whereas ultimate class interests are interests defined between modes of production.” I will argue that ideological and political relations will be important in deter- mining class relations in their "immediate'I form. The relation between what Wright calls the bourgeoisie and the proletariat is not altered within the multinational. The position Of subsidiary managers, a crucial position between the two main 305 classes, also fits into the typology. They have control over 2255. of the physical means of production and control over the labor power of some of the workers in the organization. However, they have partial or minimal control over resources and investments. They are, therefore, in a contradictory class position, in that they are in an ambivalent power situation and may have ambivalent class interests. Moreover, there are a series of economic, politi- cal and ideological factors which will push them to perceive their self defined interests as more allied to one class or the other. For example, Innocenti management to some extent identified with the interests of the subsidiary against those of the parent. On the other hand, in the Chrysler case, top subsidiary management was encouraged to adopt a group perspective by regularly being re- cruited to top positions at parent headquarters. Or, if their economic interests are tied to the performance of the subsidiary, they may then vigorously pursue sectional interests within the internal political process, or they might try to increase the rate of profit at the subsidiary by adopting a hard line in their re- lations with workers, or they might do both. There are no structural factors that clearly predict the direction that subsidiary managers will take in the class structure, although they tend to ally with the interests of the bourgeoisie because they share in their authority and control. Not surprisingly, multinationals tend to prefer subsidiary tOp managers to be of the same nationality as the parent so as to minimize the dangers of antagonistic national identi- fications. However, and particularly in the Third World, locally recruited tOp managers could be integrated into the capitalist 306 class as a 'comprador bourgeoisie'.3 How the contradictory position is resolved, if indeed it can be, within the structure, or at least, how it is interpreted, by subsidiary management, has significance for the performance and fate of the subsidiary and therefore for the economic well-being of workers. The relation and contradiction between labor and capital within the multinational is mediated by other relations. At the level of immediate interests there are economic, political and ideological relations that will mediate the primary contradiction. Economically, the relation is mediated by the competition between subsidiaries for centrally allocated tasks and resources. Workers, and to a lesser extent managers, at various subsidiaries, will reflect in their actions, particularly in situations where survival is at stake, the divisive form of their relations. These structurally produced divisions can be ameliorated by cross-border solidarity, but can only be overcome by the abolition of the structure that generates them. Political relations also mediate the capital-labor relation. Nation-states in their economic, legislative and juridical roles can mediate the primary relation by conditioning the terms Of the relationship and/or directly intervening into it. Modern capitalist states increasingly do both, often in response to pressures and demands from capital and labor. In the international form of capital-labor relations, the position of the nation-states is more complex. Although it still conditions, and intervenes into, the relation by subsidizing capital, passing labor laws and so on, the claims made upon it by international or 'foreign' capital and home labor do not have equal political legitimacy. In other words, 307 according to the rules of the political game, it should side far more with labor in the relation. This should be particularly true for representative governments of the western mode, than for authoritarian governments in capitalist countries in the Third World. On the other side, as we have pointed out in Chapter I, the nation-state tends to defend the interests of international capital insofar as they are congruent with the interests of the dominant class and insofar as the state is structurally dependent on inter- national capital for the generation of wealth and revenue. Therefore, in terms of ”immediate class interests”, the effects of the nation- state's mediation, that is, on whether it supports national labor against international capital, depends on the nature of the class relations in the country and on their reflection within the state apparatus. For example, in the Imperial case, the state provided economic support for Litton when it acquired Imperial because that coincided with immediate economic national interests in that jobs, exports and revenue were generated, but, when Litton divested, the government apparatus was divided on whether to act against Litton or, at least, to support the workers. The civil servants and most ministers adopted a 'commercial' rationality in responding to the case, which in essence supported the class interests of capital, whereas only one or two ministers argued for a rationality that tilted towards the interests of labor. Rather than this being a reflection Of a lack of political will of government, even a Labour one, to take on international capital,ascnecommentator on the case Observed, it illustrates the dependence of government on capital. Given that the most dominant part of British capital is itself 308 international, for the government to have set a precedent of closing the market off to Litton products would have endangered the interests of British international capital. But there is an additional complication. Because several nation-states mediate the relation between international capital and labor groups in various countries, then there may be differences in the contextual political and economic conditions generated by state actions. For example, workers at various subsidiaries may face differences in economic and social conditions created by the differences in labor laws, fiscal policy and so on - these differences in conditions may make it more difficult for workers to see that they have similar 'fundamental' or 'immediate' class interests. Finally, and as in all cases of the capital-labor relation, there is an ideological mediation, which may or may not have economic underpinnings. For example, racial, sexual and ethnic antagonisms will divide the working class in its relation with capital. Obviously, national identification will be an additional factor in the multi- national form of relation. National identification may affect all groups in the multinational - i.e., top executives, subsidiary managers and workers, but it is likely to have the most profound effect on labor. The connections between workers at subsidiaries in various countries will be minimal, primarily because they are relatively immobile or rooted to one locale, and because inter- national communication rarely permeates down to shOp floor level. A good illustration Of cross cutting class and national identifi- cations is provided by a survey of Chrysler Canada workers to test their willingness to support Chrysler workers in the US, England 309 and Mexico (Warner and Turner, l972:l6l). The results were: TABLE ll Survey of Chrysler Canada Workers % of Respondents who would: US England Mexico Go on strike for Chrysler workers 53 IO 9 Slow Down 35 IA l3 Pay increased Dues 68 A3 39 Give moral Support 68 7] 62 Do Nothing 7 20 29 There is a tendency, therefore, for workers in different coun- tries to see each other more as foreigners rather than as members of the same class. I have argued that within the multinational form, the relation between labor and capital is mediated by the contra- dictory class position of subsidiary managers and, in terms of 'immediate class interests', by economic, political and ideological relations. But, if there are contradictions in the 'fundamental' and 'immediate' class interests within the multinational, there are also differences in nggr_between the classes. This dimension, of course is contained in the concept, class relations. In the multi- national, the disparities or imbalances between labor and capital increase. This is a product of the increased stretching and frag- mentation that occurs in the multinational form. That is, the control hierarchy has more rungs in it so that the distance between the bottom and tOp increases and, the base is spread over a larger total area which encompasses more areas that have distinct economic, poli- tical and ideological conditions. This should not simply be thought 3lO of geometrically or Spatially, but, as I have tried to show, also sociologically. In terms of the dimension of power relations then, control over a whole range Of vital resources is centralized or removed from lower level rungs in the hierarchy. Moreover, at lower levels in the structure, there will be an increased fragmen- tation of power as each is compelled to compete for centrally held resources. Consider the resource information. At the center and at the tOp, knowledge or information about the whole empire is con- centrated, both in the sense that all flows of information end up there, and that information about the future is contained in the strategic plan. At the subsidiary management level there is a con- centration of information about only a part of the empire and know- ledge about that part of the plan that defines the task of the subsidiary. At worker level, information about the plan is virtually non-existent and such information that there is, is not only of a part of the empire, but that which comes form being at the bottom of the part. Thus, there is not only ignorance about what goes on at the top and center, but also about what goes on at other parts in the organization. To accent the gist of the preceeding analysis I quote the words of Hymer (l978:h37-8) who in several brilliant articles, some years ago, developed a profound conceptualization of the multinational company. ”To maintain the separation between work and control, capital has erected elaborate corporate superstructures to unite labor in production, but divide it in power ... Upon its various bases of national labor, the multinational corporation constructs local hierarchies to supervise and 3ll manage day-to'day operations, regional administrations to coordinate national branches, and, at the tOp, strategy apexes to give overall guidance and direction through the use of budgetary controls. At the bottom of this vertical hierarchy, labor is divided into many nationalities. As one proceeds up the pyramid, nationality becomes homogeneous and increasingly North European. The vertical stratification of the cor- poration rests on a division of mental and manual labor. The higher-level intellectual functions concentrate at the tOp and vanish on the bottom. In the natural body, head and hand wait upon each other. In the corporations, they part company and become deadly foes. Although the multinational corporation Spreads production over the world, it concentrates coordination and planning in key cities, and preserves power and income for the privileged. The power of the bottom is thus weakened by the spatial division of labor. Each national or reg- ional labor force performs a specialized function which is only meaningful to the integrated whole, yet it has no understanding of the whole. Its integration with other groups is not of its own doing, but is the act of capital (the head) that brings them together; it remains an iSOIated group whose connections to other groups are matters foreign and external to it. Even its national leaders - its government officials and local corporate executives - are only middlemen in a world system, and themselves blocked from the information needed to obtain an overall picture. The national technostructures occupy an ambivalent position. On the one hand, they are in conflict with the top of the pyramid over their desire for better jobs or their nationalist identification with their country; on the other hand, they are subordinate and dependent because they lack the key ingredients of capitalist power - information and money.“ Having laid out the structural sources of class relations and contradictions in the multinational company, I turn now to an examination of the concrete practices of the classes in crisis sit- uations, such as divestment. As I have suggested, crises tend to 3I2 unmask existing relations and contradictions, in particular, they demystify the nature of class relations. THE STRUGGLES AGAINST CLOSURES Ideologically, defenders of the capitalist system, that is, the capitalist class and their allies and supporters, have a hard job justifying closures and lay-offs, for the latter reveal, in a direct and concrete manner, the irrationality and inhumanity of such a system as judged by a set of values not governed by the Search for profits. At such times it becomes apparent that workers are deprived of work, and resources are made idle. One crude form of defence sometimes used is to 'blame the vitims' - the workers. Managers sometimes claim that workers are laid off because they were lazy or greedy. As the cases show workers have usually managed to shatter these illusions by marshalling various kinds of data and by mounting sit-ins or occupations which Show them as willing and able to work. A more sophisticated argument in defense of closures and lay- offs is presented by conventional economists. They argue that closures are indispensable by-products of a dynamic, competitive economy. Tying up resources and labor in companies that are making products few peOple want and/or at too high a cost is wasteful, particularly when they could be redeployed to more profitable uses. Therefore, the market, as the 'first best' allocator of resources - in the sense of achieving optimality, Should be left to Operate unimpeded, even if some suffering ensues. The workers have res- ponded in several ways. First, they have expanded the calculus of 3l3 costs and benefits to incorporate the public costs in the form of higher unemployment insurance, welfare payments, lost tax revenues and so on. Moreover, the 'lost' resources and the idle workers and plant represent forsaken production of goods and services. Workers also point to the costs that can not be measured in accounting terms: the disruption to peOple's family and community lives; the damage to their mental and physical health; and the fragmentation of groups of workers which have accumulated skills and expertise over a long period of time and which might be put to work to satisfy urgent social needs. Another tack taken by conventional economists, like Johnson (l970), is to extend the concept of optimal allocation of resources to the world level, arguing that to block the flows of capital and other resources is always at the expense of other groups and prevents the maximization of global welfare. The concrete counterpart of this postion is echoed in the words of J. Gilluly, the Litton executive who carried out the closure of Imperial, who after noting that Imperial was loss-making, Observed: ”Added to this are the implications of any action taken upon the welfare of more than 3,000 employees in the remainder of our marketing organizations worldwide. In addition, there are also more than 3,000 individual companies throughout the world, each with its own employees, who depend on us for profitable products to sustain their operations.” Leaving aside a theoretical and empirical rebuttal of this position, which would in the minimum involve tackling the assumption that unimpeded mobility Of capital increases global welfare and that there is no alternative way to improve conditions at one place 3lh except ultimately at the expense of another, we can turn to the concrete experience of what this means in practice. In practice, workers experience the international mobility of capital as a form of pervasive insecurity. This insecurtiy compels them to defend local and ntional interests, even at the expense of workers elsewhere. In our three cases, and in many others, workers have rarely overcome, either at the level of consciousness or practice, the divisive nature of international capitalism. As we have seen, there are many forces that act on workers to prevent them from sur- mounting local or national interests. They range from practical yet important factors such as differences in language, culture and so on, to structural constraints which compel workers to fight foréa limited pool of resources. This was brought home to me by the comments of the workers I interviewed. Italian workers believed that they had lost their jobs because they were less productive than British workers, British workers feared French productivity, French workers feared the German 'economic miracle' and so on. With the media never failing to harp on these real or alleged differences, it became abundantly clear that there is never a satisfactory level of productivity to ensure basic security - that there was always one more comparison to make and conjure up. It is here that present worker reSponseS are inadequate. Only real corss-national links and action will overcome this weakness. Underlying much of the ideological defense of the capitalist system is the mythology that closures and lay-offs are the result of 315 an impersonal competitive market which is no respector Of person - companies also fail and go bankrupt; shareholders and creditors lose money. The struggle against multinational closures tends to edu- cate workers as is shown in the cases.and others that the decision is often a conscious, Strategic one. The multinational continues to prosper or at least survive. The veil of the market is lifted to reveal efficient 'accumulating machines' organizaing their re- sources to further their interests at the expense of the interests of workers and local communities. The visibility of the conscious hand, whether it be American, British or Japanese, demystifies the nature of economic laws. One consequence of this demystification is that workers are encouraged to prOpose counter-plans to run their factories. In the numerous occupations and sit-ins that occurred in the seventies, workers displayed imagination and rigor and moved someway beyond capitalist rationality. They literally took possession of the means of production - of the factories and the machinery. More- over, in the plans they prepared, they made various demands ranging from the right to work, to stay together as a group with special skills and social links, to make socially useful products, to manage their enterprise, and to have the enterprise owned by the state. Few of these demands were realized, in our three cases or in others, primarily because they did not become generalized and political and because the state mediated the struggle by easing the 'adjustment process'. Legislation in several countries placed restrictions on the timing and manner of closures and lay-offs. And states in those 3l6 countries took on the costs of improved unemployment insurance, retraining where provided, and rescue of plants through direct SUbSidlESINhere political struggle or other circumstances compelled them to. But rarely was the dominant rationality confonted. The struggle, though real and fierce, remained localized and limited, making it easier for capital and the state to COpe and withstand it. IMPLICATIONS What are some of the wider implications of the preceding con- ception of multinational companies, given that a few hundred of them now produce about a sixth of the entire world's output of goods and services and that direct foreign investment has replaced trade as the major international economic activity (Madden, l977:l)? It is becoming clear that an increasing proportion of the world's economic activity is governed by 'command' or 'planned' entities rather than by market forces. Moreover, Since the majority of multinationals come from a handful of advanced capitalist coun- tries, and since decision-making and the control of resources are very centralized within them, then it is safe to conclude that economic power now resides in a few visible hands in a select number of key cities. This does not mean that competition has been elimin- ated. Rather, these giant entities have increased their degrees of freedom of operation within an unplanned world environment. Large size, conglomeration, concentration, internatlization, the multi- unit structure, and strategic planning, are all developments that have altered the nature of the competitive process. Not only is competition now less damaging to multinationals as capital 3l7 accumulating entities, but much of the competition that takes place, occurs between the subsidiaries within the multinational company. It is a competition that is organized according to rules that are to a large extent set by the owners and top managers at the center. Moreover, the process of uneven development that is generated by capitalist accumulation does not disappear within this internal political economy, but is actually reproduced in a more or less planned form. Some subsidiaries, and therefore, workers and communities, prosper as others do badly. The uneven deveIOpment, will partially be the result of central decisions taken by the parent on the tasks and resources allocated to various subsidiaries. Those that are favored will perform better and generate more jobs, income, tax revenues (though not necessarily) within the locale, than those that are not. Multinationals, therefore, accommodate themselves to the unevenly developed world (in terms of their location behavior) and also reproduce uneven deveIOpment within the form. And the development of subsidiaries is a dependent development, in that it is conditioned by the goals, plans and needs of the parent Operating and international empire. If economic life is, in Habermas' words (l975) becoming, "repoliticized" both in the sense that the State is now an active participant in the economic Sphere and that economic decisions are increasingly centralized and planned then: (i) How open should the decision-making process be? (ii) How are these decisions to be made? (iii) What voice or representation Should those presently excluded (e.g., workers, people living in local communities) from the process have? 3l8 (iv) What rationality should govern economic life? (v) Are closures, for example, the only or best way for organizations to adapt to the inevitable changes in technology and in consumer needs? (vi) Are there alternative ways for peoples in various countries to be connected, other than under the divisive rule of multinationals? The answers to these questions will, in the end, be decided by the outcome Of the concrete economic, ideological and, most crucially, the political struggles that continuously take place. If there are any research lessons from this study it is that policy or research strategies that observe and monitor multinationals from the outside are doomed to miss the reality of these organizations. It is therefore, difficult to give advice to would-be researchers, other than to recommend the 'long march' methods adopted in this research. What is sorely needed is research that uncovers how such organizations make crucial decisons concerning the allocation of resources. APPENDICES APPENDIX A INTERVIEWS CONDUCTED INNOCENTI Name Adler, B. Bottagisio, S. Fanzaga, A. Hanky, A Plant, P. Robinson, G. Villiam, M. Zanotti, G. CHRYSLER UK Broady, C. Colin, J. 3l9 APPENDIX A INTERVIEWS CONDUCTED Title Formerly Special Projects Director (I972-7h). Finan- cial Director Innocenti (I974-76) Personnel Director Inno- centi from l979 Secretary of the Federa- zione Lavoratori Metal- mecanicci Former Financial Director Innocenti (l972-7h). Corporate Finance Staff (l979-75). Secretary of British Ley- land. First Chief Executive Inno- centi (I972-7h), Board of Directors Innocenti 1975) . Worker and Member of Fac- tory Council Innocenti. Worker at Innocenti. Researcher, Manpower and Compensation, Chrysler UK Executive, Administration and Public Relations, Chrysler France. (until 6 IA 13 20 l2 l5 l3 l3 l9 Date December l977 December l977 October l977 October l977 December l977 December l977 January I978 January I978 November l977 October l977 October l977 December l977 October l977 Place London London Milan Milan London London London London London Milan Milan Coventry Poissy nr. Paris Name Cook, M. Gibson, R Lander, D. McCluskey, E. O'Gorman, D. Simpson, 0. Vaughan, I. IMPERIAL Cairns, D. Prescott, J. Topham, T. OTHER Bendiner, B. Boddewyn, J. Casserini, K. 320 Title Manager of International Personnel Chrysler Corpor- ation. Industrial Engineer Chrysler UK. Vice President, Inter- national Operations, Chrysler Corporation Shop Steward, Chrysler UK Shop Steward, Chrysler UK Shop Steward, Chrysler UK Executive for Compensation and Manpower Planning Chrysler UK. Regional Secretary, Trans- port and General Workers' Union. Member of Action Committee and Labour Member of Par- liament. Member of Action Committee and Senior Lecturer, Uni- versity of Hull. Coordinator, World Auto- motive Councils Inter- national Metalworkers Fed- eration (IMF). Professor, New York Uni- versity. Assistant General Secret- ary IMF. Date 3 November l978 8 December l977 3 November l978 6 March IS IS IS IS 26 22 28 26 22 I6 22 l979 l977 l977 June l977 June June June l977 September l977 June l977 November l977 September l977 July 1977 March l977 July I977 Place Detroit Coventry Detroit London Coventry Coventry Coventry Coventry Hull London London Hull Geneva New York Geneva Name Dale, J. Dimitrio, P. Dodsworth, T. Fyfe, J. Gennard, J. Gladstone, A. Poirrier, B. 32l Title Public Relations, United Automobile Workers. Confederation of British Industry. Journalist, The Financial Times. Researcher, Manpower Ser- vices Commission. Lecturer, London School of Economics. International Labor Office Confederation Francaise Democratique du Travail Date 2 March l977 2h June I977 13 May 1977 ll January I978 28 April I977 21 July I977 20 October l977 Place Detroit London London London London Geneva Paris APPENDIX B TELEGRAM 322 APPENDIX B TELEGRAM To: Mr Whittaker, Managing Director, Leyland Cars Ltd, Leyland House. From: Austin - Innocenti - British Leyland Factories UK. Shop Stewards Conference. THIS CONFERENCE DEMANDS AN EXTENTION TO THE EXPIRY DATE, AND TO REMOVE THE THREAT OF CLOSURE TO ALLOW THE TRADES UNIONS AT INNOCENTI AND YOUR SELVES TO NEGOTIATE A SATISFACTORY AGREEMENT STOP ROBINSON AUSTIN WORKS CONVENOR APPENDIX C PART OF THE COMMUNICATION BETWEEN UK AND US UNIONS ON THE MATTER OF CHRYSLER UK 323 APPENDIX C PART OF THE COMMUNICATION BETWEEN UK AND US UNIONS ON THE MATTER OF CHRYSLER UK From: Mr. G. Hawley, National Secretary, Transport and General Workers Union, London. To: Douglas A. Fraser, Vice President Director, Chrysler Department UAW. Date: l3 November l975 ... I think that I have set out the information leading up to the present crisis and did appreciate the Telex you sent offering your assistance. Perhaps you would therefore bring all pressures to bear on the Chrysler Board that they maintain their operation in the UK, that they maintain and support financially the confidence that they are stated to have in their present products and that further devel- opment in this field is essential if they are not to lose in the battle for customer sales. Perhaps you would let us know the outcome of any meeting that you hold in respect of this matter. REPLY From: Douglas A. Fraser. To: Mr. G. Hawley. Date: 25 November l975 ... Leonard Woodcock and myself met with Messrs. Riccardo and Cafiero yesterday, Monday, November 2h. Leonard eXpressed the strong wish of the UAW that whatever changes in operation were made in the United Kingdom, such changes would not be detrimental to the workers. We offered the opinion that surely some way could be found to deal with the problems confronting the Chrysler Corporation without adversely affecting the workers in the United Kingdom. Mr. Riccardo stated that the negotiations had reached a very 329 sensitive stage and they were awaiting a call from your government to get a reaction to the Chrysler Corporation's latest prOposals. He Stated in fact that they expected to hear from your government this week and thought they might be in the United Kingdom on Thrusday or Friday of this week. Mr. Riccardo also stated, Brother Hawley, that they thought it unfair to the trade unionists of the UK to make Leonard and I privy to their latest proposals to your government before the trade unionists in the United Kingdom had knowledge of such proposals. I am sorry we cannot pass any more information along to you but perhaps by the time you receive this letter, the company's latest position will be in the public's domain. If you have any ideas on how tht UAW can be helpful in this matter, please let us know. NOTES l. 325 NOTES CHAPTER I Both found the distribution of divestments was skewed towards the largest companies. Thus 34 US companies in the upper quartile of the Fortune 500 accounted for 226 or h8% of all the cases of divestments and #9 British companies in the top l00 rank accounted for 3A3 or 54% of the cases of divestments. This indicates multiple divestments by some multinationals. The skewed distribution, of course, could simply be because large companies have more subsidiaries. Interpreting the previous associations is Open to the normal caveats. As no multivariate analysis was appfiefiito the data it is possible that some of the associations are Spurious. Sixty three per cent of 558 divestments were sales, 33% liquidations, and AZ nationalizations. Business International SA (l976:5l) makes the comment, ”Whenever possible, in fact, divesting companies try to segregate the good parts of their business, and to sell or liquidate only the rest”. See for example, the article on France titled ”The Leftist Threat Prompts an Exodus” in Business Week, (26 November, I973). The rate of profits is on the capital employed by non-financial companies and is calculated after eliminating gains from re- appreciation of inventories. The rate is calculated on net holdings of industrial and commercial companies. However, I have already noted that international divestments were on an increasing trend before the l975 recession. The decline in investment activity is illustrated by the following national figures: the annual average rate of investment as a percentage of GNP in the period I970-7h was l8.8 in the US, 24.9 in West Germany, 3h.9 in Japan and l5.6 , 20.8 and 30.8 respectively in l975. Interestingly, there was virtually no change in the figures for Italy and Britain. (Mandel, l978a:l06). Britain's exports which were ahead of French exports and equal to Japan's exports (in value terms) in I970 were 20% behind both by 1975. l0. l2. l3. lh. l5. l6. l7. 326 The definitions range from those within the tradition of the classical political economists such as Riccardo, to those within the Marxist tradition. What is essential to most of these definitions is that in examining social phenomena they consider the relations of states and classes, in particular, as they affect economic production and distrubtion. For a recent review of various approaches to political economy, see Petras and Trachte (l979:l09-A7). For one rigorous explication of Marxist political economy see Sweezy (l970:ll-22). Sachdev in his study of divestments by British multinationals, contacted 84 host government agencies requesting data on divestment. Just under two thirds replied that no data was kept; 28% referred him to another agency with little success; and 8% refused to assist because the data was classified confidential. The UK census, for example, defines 'divestments' as a ”lower net indebtedness to the parent company”. This could include repayment of trade and other credits (Great Britain, Department of Industry, l97l:5). I also contacted the Department of Employment which, since l975, collects data on Significant redundancies (which may indicate a closure), but did not record the nationality of the company. Names are confidential. My request for data on withdrawals from the Department of Industry in the UK, elicited the response that such information was buried in the original response fOrms of the survey, and in any case was strictly confidential. A few of the interviees insisted that no tape recorder be used before agreeing to the interviews. In fact, the workers had to put together a defense in a matter of hours rather than weeks. For example, the Chrysler and Imperial workforces had to prepare their case over a week-end. The Chrysler workers informed me they were still working on the document presenting their case on the train to London, where they hOped to meet members of the government. Labor will be a are that attempts to increase relative surplus value may lead to unemployment (as a firm uses more and more effic- ient machines) and to different conditions of work as the production process is reorganized. An internal labor market is defined as an administrative unit within which the pricing and allocation of labor is governed by a set of administrative rules and procedures which are fairly rigid within the unit (Doeringer and Piore, l97l). 18. 327 It is not just the less advanced countries that compete for the investment of multinationals. The competition between advanced countries belonging to the OECD is so fierce that the OECD has developed a procedure to enable a member country to bring grievances to the attention of the relevant committee when it considers, ”its interests may be adversely affected by the impact on its flow of international direct investments of measures taken by another Member country Specifically designed to provide incentives or disincentives for international direct investment”. (Orginization for Economic COOPeration and DeveIOp- ment , l976c:23). CHAPTER II l. Lenin does mention the ”over-ripe” state of capital or the ”super- fluity of capital”. This surplus of capital was exported because of the tendency of the rate of profit to fall in the imperialist countries. It went to areas where higher rates of profit could be earned because of the differential strength of labor (and potential labor power, i.e. peasants) and the differences in organic composition of capital. The plantation, mining, railway and banking groups were super- ceded by manufacturing companies in producer and consumer goods industries. Cross-investment refers to the phenomenon whereby for exmmple, General Motors invests in Germany and VW in the US. This pattern of investment requires a more refined explanation than the one contained in Lenin's theory as it weakens the ”surplus of capital” thesis. In other words, why is it unprofitable for General Motors to invest the capital it exported in the US and not so for VW. It is possible that they 'accept' different degrees of profitability. There are some intermediate steps in the reasoning. It is neces- sary to explain why, for example, advantages are not exploited via exports or licensing. The existence of tariff barriers tends to induce a firm to prefer overseas production to exports. As for licensing, Caves suggests it is essentially the advantage of product differentiation (based on marketing and innovation) which cannot easily be separated from the company and licensed that induces firms to prefer overseas production. Quoted from D. H. Robertson by Coase, (I952:333). I should warn the reader that the effects of oligopoly are still controversial. A good discussion of target-return pricing can be found in (Blair, 1972:469-75). l0. l3. l4. 15. I6. 17. 328 Eichner (l976:88) in fact suggests that I'under oligopolistic con- ditions, competition through investment will replace competition through price.” He calculates that for the few leading companies in four industries the annual average change in market share was I to 3 per cent, and 3 to 6 per cent for the big three in the automobile industry. After examining the mobility of the top ICC and 200 manufacturing companies from l9l9 to I964 they concluded ”The extent to which mobility exists is slight, especially since l93l, and is more the result of changing significance of industries than of competition in the traditional sense. Furthermore, much of the mobility, both recent and early, is the result of mergers, hardly a competitive process.” For example the average annual exit rates for the largest lOO companies declined from 2.8 in l9l9 to O.h in l9h8-6A. Foreign trade also increases competition by drawing companies into a common arena, but only in the product market. There are dozens of examples of this process operating in EurOpe. A famous one is the response to the entry of IBM into the United Kingdom and its h0% market share in I964 which led to the govern- ment sponsored amalgamation of the four British owned computer companies into ICL by I970. Mandel notes that monOpolies ”merely reproduce it (i.e. competition) on a higher scale and in a more acute form” (Mandel, l968:h3h). Dunning and Pearce (l975:45-7,60) examining a sample of 486 of the 700 or so largest companies in the world found a general fall in the largest firm concentration ratios and a shuffling in many industries among the largest firms because of the entry of EurOpean and Japanese firms into the top five. As a matter of interest they also noted a major fall in profitability among companies in the most important advanced capitalist countries. Whether the increased competition is the reason it is impossible to say with confidence. Vernon (l977zh0-S), while acknowledging the diversity of feasible strategies, insists however, that most of the research and develOp- ment and initial production still occurs in the parent company's home country. An executive of Nestle, the Swiss multinational, observed: ”The marketing of a new product may cost two to three times more than the plant that manufactured it“. (D'Antin, l975:l26). A simple calculation on Vernon's data on 376 multinational companies classified in terms of I58 product lines shows that on average each multinational was in ten product lines. l8. I9. 20. 2l. 22. 23. 29. 25. 329 ”Rollover strategies” refer to the movement out of productsthatare in the senescent stage into new products in a planned way. Some examples are International Business Machines, Dupont de Nemours and Union Carbide, and perhaps SOme Japanese companies. (Levinson, l972:96; International Labor Office, l976a:hO-l,7-9) However, other examples can be uncovered. The pullout by Akzo, a Dutch multinational, from its Ferenka subsidiary in Ireland is one such case. The company had reported losses of IS million pounds, due in part to frequent labor disputes. The company was quoted as saying ”We have lost confidence in the company's ability to restore normal labor relations”. (The Financial Times, 29 November l977). Other than the two widely quoted examples of Ford and Chrysler threatening their British workforce with withdrawal or the stOppage of investment, many other examples can be found in the press. See, for example, (The Guardian. 30 June l977) which reports the case of Commodre Business Machines threatening to pull out of Britain and move to Taiwan rather than give recognitition to the union; and (The Guardian, 8 March l979) which reports on the case of Grundig in Northern Ireland which over recent years has often used the threat of closure in response to industrial difficulties. However, the counter argument could be made that multinationals are more able to withstand difficulties at one subsidiary than a national company because of their greater spread. Which behavior is adopted depends on many company specific and market characteristics. Their militancy could be affected either way depending on several factors, though it is more likely to be curtailed. Unit labor costs being the fraction of some measure of output (usually physical) to total cost. Of course, unit labor costs are subject to many local deveIOpments - e.g. the rate of inflation and therefore of wage increases. The point I am making is simply that in terms of what the headquarters of multinational companies can do, comparing productivity is far more beneficial than comparing wages. The pressure to control costs (and unit labor costs are the most amenable to short term control) will increase whenever a company sees its oligopolistic advantages being eroded i.e. price becomes a more salient factor in competition. C. F. Pratten, in a personal communication pointed out that ”in certain cases it was clear that the differences (in produc- tivity) were taken account of when making decisions”. 26. 27. 28. 29. 30. 3I. 32. 33. 330 See for example, (The Central Policy Review Staff, l975) which makes much use of productivity comparisons to argue that Britain is lagging behind other nations and needs above all a change in attitudes to catch up. Cases like St. Gobain and DunIOp-Pirelli are frequently cited as examples of International bargaining. Northrup and Rowan (l974) cast doubts on the claims. It would only be partial because the multinational com any could always move to a new location. The unionized workers would always be one step behind. However, if the management calculated that the advantages of a move c uld only be very short-term, they may forego such opportunities. To take the worst possible case: workers at a French subsidiary may belong to a conservative union, the Italian workers to a com- munist union, and the British to an 'apolitical' union; each country may have its own systems of collective bargaining - e.g. local, regional, national; there may be differences in the state of the labor market in the localities in which the subsidiary is; one country may have laws forbidding sympathy action, or outlaw independent unions and so on; and the cost of living may vary. Other arguments against the feasibility of international wage harmonization on the grounds of differnces in Uabor productivity' and 'market forces' are summarized in Kujawa (l975:ll6-7). Monopoly pricing is also considered to be non-market determined or administered according to neo-classical precepts. It is interesting to note that, for example, in e ch IOO pounds profits made by a foreign subsidiary of a UK comapny, the dividend available in the UK is 48 pounds whatever the country. So formally at least the tax authorities have tried to equalize the benefits of operating in different countries, though these formal statutory rates do not mean that enforcement differences or bilateral agreements do not alter the effective tax rate. Nor, of course,dothey preclude the use of tax havens. A recent study lamented that transfer pricing ”constitute one of the most secretive operations of the firm” (Arpan, l97l:ll). The chief sources are: Business International, various bulletins, and pamphlets put out by the Institute for Workers Control in Great Britain which also covers events on the continent of Europe, various newspapers and various union documents - e.g. Report of the International Metalworkers' Federation (IMF) to the Organization for Economic Cooperation and Developemnt (OECD) unpublished. 3“. 35. 36. 37- 38. 39. A0. Ln. #2. 33I Occasionally subsidiaries have been offered 'for nothing' or 'given away' (Business Internation SA, l976:87). Invariably, giving it away'means that the new owner has to take on the liabilities of the subsidiary which may be considerable. The Dutch multinational Philips closing down a subsidiary at Herbon, Germany is a case in point. Workers and local management were able to Show that the subsidiary was profitable though Philips stillwent ahead with the closure. The case is cited in the IMF report to the OECD.. See the confidential document of a multinational company ins- tructing its local management on how to act in case of occupation, in Workers' Control Bulletin (l976:lh-6). Clarke (l973:lh) concludes: ”the occupation is a form of offensive industrial action revealing potentialities in workers and their capacities for self-organization, which remain largely dormant in the restiictive defensive postures to which trade unionists have traditionally condemned themselves”. In fact, in many countries the entry and exit of multinationals is only recorded as aggregate financial flows. Henry Ford II, head of Ford Motor Company was recently courted and feted by several national and local EurOpean leaders. They were competing for a new large manufacturing subsidiary. Britain 'won' the investment after much personal sweet talk by the British Prime Minister and more importantly by subsidizing something like h0% of the capital required. Third World countries are involved in much fiercer competition to attract multinationals. On Ford, see (The Sunday Times, 9 October I977). The Labour government in Britain for a Short period of time, while Antony Wedgewood-Benn was Secretary of State for Industry (l97h-75), pursued such a policy, albeit tentatively and briefly, but it had little to do as such with multinational withdrawals. However, a strong reluctance to move is exhibited by workers. Very rarely do more than one quarter look for jobs outside the locality and even less actually move. The primary reason is ”a straight forward attachment to the area in which peOple have become accustomed to live, with its familiar surroundings and circle of friends”, (Greenwood, l977:l9). Some of the views are summed up in the article by Fryer (l973:2-l9), where they come in for some scathing criticisms. Fryer contends that redundancy has been defined in managerial terms and has been depersonalized to suggest that it is the 'logic of the system of industrialization' that produces redundancies. He asks: “for whom is redundancy, a problem, urgent and efficient?” 332 CHAPTER III l. 2. For more on the history of Innocenti see Gamba (l976). Although the name British Leyland was not adopted by the company till l975 I shall refer to the company as British Leyland throughout. From l968-75 it was known as British Leyland Motor Corporation Ltd. British Leyland bought a 99% share in AUTHI which was increased to 97.2% in l973. By I97h British Leyland was looking to get out of Spain completely, ostensibly because it could not afford the expansion plans the Spanish government insisted it undertake. To translate Italian lire into pounds sterling the following exchange rates will be used throughout. In I972-7h one pound sterling exchanged at around ISOO lira. The ensuing account is based on interviews with ex-executives, and newspaper sources listed on page th in the text. One reader expressed considerable surprise at the terms of the deal. An illuminating expostion of the ”personal considerations and special situations” that induce the seller to offer the firm for sale, often at a price less than thepresent.value of the expected Stream of profits warrants, can be found in Penrose (I959:ISB-6l). She cites personal reasons such as the desire for cash, a lack of Optimism of the future of the firms, as inducements to owners to sell and ”take less than the capitalized value of the profits they could be expected to earn”. Other influencing factors, whose effects can only be gauged by examining the details of each transaction include tax considerations and undervaluation of the shares by the market. See the comments by a factory shop steward back in I972 quoted in Pontarollo (l975). Among other things the shop steward points out the dangers inherent in Innocenti's status as an assembly operation reliant on only one model and warns that the new management planned to ”take everything it can get from Innocenti, push the production to its maximum without any pre-arranged re- placement solution to use in the case of production stagnation or market crisis” and he adds, ”The day when the foreign master wants to pack his bags,wild horses could not stop him, especially when he has factories in various other countries.” Interview with Antonio Fanzaga. He stated: "The most important advantage to Innocenti was the assurance of an increase of production and employment.” The British Leyland Company report for I972 stated ”an expansion of assembly capacity is planned". l0. ll. l5. l6. l7. 333 Interview with Percy Plant. British Leyland's entry into, and expansion in, EurOpe as with Chrysler's has to be contrasted with the systematic and orderly expansion of the Ford EurOpe empire. The export penetration success of Japanese vehicles has been uneven. In the United Kingdom the total sales rose from 5,l60 vehicles in I970 to l07,922 in l975 ( a 9% share of the market). In Italy due to import quotas, only I,OOO cars from Japan are allowed in, and in France and West Germany, as of I975, the Japanese only attained around l.5% of the market. (Gregory, l976z47). There are several examples of mergers and collaborative agreements. Some of the more recent are the take-over of Audi-NSU by Volkswagen, of Daf by Volvo, the merger of Citoen and Peugot and the marketing agreement between American Motor Corporation and Renault. British Leyland UK products exported and sold through the sales subsidiary British Leyland Italia accounted for a sales volume of 4,864 cars in l97l-72, amounting to a sales value of seven milliardi di lire as compared to a sales value of 64 milliardi di lire for Innocenti. British Leyland products simply could not be sold on the Italian market (Villiam, l975:Tables 7,ll). Villiam is an Innocenti worker and a member of the factory council. The Ryder review was ordered by the government in I974 to conduct ”an overall assessment of the British Leyland Motor Corporation's present situation and future prOSpects, covering corporate strategy, investment, markets, organization, employment, produc- tivity, management/labor relations, profitability and finance, and to report to the government”. The Ryder Report (l975:l9) comments that the paying out of 70 million pounds in dividends out of the 74 million pounds earned between l968-74 was ”clearly wrong”. Interview with P. Plant and Sergio Bottagisio , personnel director at Innocenti from August I974 in an interview on l4 October l977 in Milan. The latter described the uneveness of the investment program such that though presses could turn out 80,000 or more bodies annually, the paint shop was inadequate for the flow and bottlenecks developed. Part of the problem is due to the dual nature of the relationship between the head of Innocenti and headquarters. In Brooke and Remmers' terms (l970:77) there is both an bpen' and a 'closed' relation. The slogan ”Beward of imitations” was used in adverts for the UK minis. Presumably the reference is to the Bertone mini (Pontarollo 1975). I8. 20. 2l. 22. 23. 24. 25. 334 Interview with A. Fanzaga, and Sergio Bottagisio. Bottagisio commented: I'In Italy it is difficult to have conflicts over small issues with the whole company. In fact, strikes are rarely about security of employment, pensions, housing etc., and tend to be national”. Management referred to the fact that many of the new recruits were migrants from the South. They were apparently inconsistent workers, unused to factory discipline and prone to frequent absenteeism. As an aside here, but of importance, is the issue of trade union access to inside information. The Italian unions and members of the factory council though insightful on many areas of Innocenti's performance, could only report suspicions but no evidence of tran- sfer pricing. One of them smilingly understated the case by saying ”It is very hard to get that sort of evidence”. Lall, (l973:l75-9) mentions several other inducements to manipulate transfer prices: to avoid restictions on profit remittances; to alter the flows of monies to take advantage of movements in the exchange rate: to avoid trade union pressure for higher wages or government enquiry if the declared profits of the subsididary are too high. The term 'cash cow' is used to refer to a subsidiary that is profitable and whose profits are used elsewhere in the company - i.e. there is minimal re-investment in the subsidiary. The Wall Street Journal, (28 November l975) actually reported that a sum of $2l.4 million was injected for "tooling-up'I and that the money had gone ”down the drain”. Business Europe (5 December l975) reported a 16 milliardi lire loss for I975. The ten million pounds or IE milliardi lire figure is repeated in British papers. See for example, The Financial Times(27 Nov- ember l975)and the Sunday Times (2 November I975). The sparsity of the financial data is due to the lack of published accounts. But the data are reliable as it comes from inside sources and was corrobarated by at least two ex-executives. Here are comparisons of the output of British Leyland subsidiaries and their COWPEtltOFS for I973: The Financial Times (ll November I974). Italy Fiat = l.56m. Alfa = 205,000 Innocenti = 63,000 Spain Seat = 358,000 Renault= l66,000 Chrysler = 63,000 Citroen= 45,000 AUTHI = 40,000 Australia Holden= I35,000 Ford = lOl,OOO Chrysler = 45,000 British Leyland(Australia)= 32,000 South Africa Chevrolet = 37,000 Ford = 30,000 Volkswagen -28,000 Chrysler = l6,000 British Leyland(S.Africa) =l3,000 The British Leyland subsidiaries are underlined. 26. 27. 28. 29. 30. 32. 33. 34. 335 The Central Policy Review Staff (l975zix) estimated that sales of cars in western European markets would reach I972-73 levels only by I980 and, they projected a 25% over-capacity in western EurOpe till I985. Mr Plant confirmed this negotiating position in the interview. The sums British Leyland asked for from the Italian government were lO milliardi lire (6.5 million pounds at I,500 exchange rate) for operating expenses and about four milliardi lire (2.5 million) for export finance, to be loaned to British Leyland at cheap rates of interest. Not once in all the interviews did an executive or ex-executive mention the fate of the workers as a factor in the decision making process. Business International SA (l976:49) reports that social reSponsibility considerations were seldom mentioned and did not seem “to rank high in the company's frame of mind re- garding divestments”. He also described some of the activities he and fellow workers undertook. I'Everyday was used up in meetings with politicians, factory councils, in visists to schools and factories to publicize our case.” Gianni Zanotti, a worker since I972 at the factory, told me in an interview that the plan to alter production at Innocenti was a serious and realistic one based on the capacities and capabilities available at Innocenti. The plan was deveIOped by the factory council and teachers from the polytechnique. There is of course an Opposite view that argues that market determined events necessarily lead to a more efficient allocation of resources and factors of production. I will assess the two positions in terms of closure at a later point. Gfia d'Intergrazione Guardagni is a scheme under which workers who lose earnings as a result of restructuring or crisis con- ditions, or short time work,suspensions, receive a part of their earnings from the State. A.d3Tomaso is an Argentinian born entrepreneur involved in the production of motor cycles. One of the largest costs to the company was indemnity payments for the workers, a legal requirement, estimated at anywhere between three and nine million pounds depending on the source. Leyland Innocenti as a legal entity was put into liquidation. A whole series of legal and accounting processes are involved. Legally the company as a ”ficticious person” ceases to exist, 36. 336 inthe process the assets of the company are used to clear the liabilities. However, in the case of Innocenti the workforce remained in tact and several months after the liquidation, the government and an entrepreneur, Alessandro de Tomaso bought the assets and created the third legal Innocenti - Nuova Innocenti. There are very stiff indemnity payment provisions for many indus- trial workers which acts as a deterrent to dismissals. However, the unemployment rate in Italy has been attacked as misleading and as understating the true figure. CHAPTER IV l. 9. An indication of the dependence of Chrysler UK on the parent is that the former could only spend up to 20,000 pounds without reference to any other part of the multinational. See Gillespie, former Vice President for Europe in House of Commons,(l976b:l23). Ford established manufacturing Operations in EurOpe very early in the twentieth century, with some production in the United Kingdom in I909. General Motors followed by acquiring Vauxhall in the UK and later Adam Opel in Germany. Chrysler did own a small truck company in the UK and an assembly plant in Holland but those were no basis on which to develop a credible European presence. Between I959 and I964 the market for new cars grew by over IO% a year. (The Central Policy Review Staff l975:3l). In fact, the sixties was not a time in which the subsidiaries of Ford and General Motors increased their relative market shares in Europe. They merely kept a fairly constant proportion of an expanding market. This implies that market shares would be hard to win for Chrysler (Young and Hood, l977:3l). Young and Hood (l977:63) suggests that Spain could be used as a “base on which to extend Simca capacity”. D. Lander reported that they had conducted an extensive search, contacting several companies with a view to pruchase, before settling on the three bought. As it was Chrysler bought into Simca surreptitiously via the purchase of shares in Switzerland; Rootes only after intense but hollow political debate suggested there was no other solution. A fuller exposition can be found in Young and Hood (l977). l0. l2. l3. l4. l7. l8. I9. 20. 337 The Rootes dealer network was extensive and loyal. As to the brand names, the Chairman of Chrysler UK Dealers Association commented ”Rootes had one thing they were well-known for. This was the good quality of their product. synonymous with quality”. There is almost unanimous agreement by all the various commentators - The names of Humber and Hillman were (House of Commons, l976b:250). experts, politicians and management, on this issue. See for example iouse of Commons (l976a:30). By the I970's Chrysler had a production capacity in Europe of around 900,000. The CPRS study (l975:23) estimates that an annual production of at least 750,000 is necessary if a company is to compete in volume car markets. D. Lander considered the following as advantages Chrysler could bring to the newly acquired companies to turn them into profitable ones. ”Chrysler know-how (technical, supported by managerial); experience gained, and the potential of complementing the products and distribution through other locations.” The British market was, in fact, the easiest market to penetrate because of the weakness of British manufacturers in keeping their dealers fully supplied with good quality cars and because trade barriers were smaller than on the Continent. The Chrysler UK share of the market decreased from l2.2% in l967 to 9-5% in l973. In I974, 3l% of Chrysler's sales were accounted by foreign subsidiaries, whereas for Ford and General Motors it was 27.6% and l8.9% respectively (Business International Weekly Reports, I0 October 1975:327). It was estimated that for Chrysler UK to earn 40 million pounds over four years it would have had to operate at more than 95% of capcity. In reality for example, it achieved a utilization of capacity of 73.5% at Ryton. 39.4% at Linwood, 65.6% for Trucks, and 44.5% for heavy trucks (House of Commons, I976a:42;l976b:37l). There were of course, several modification of older models, in particular, new bodies placed on tOp of existing chassis (Young and Hood, l977:l09). From”D.H. Lander's Address to Officials and Stewards Representing THE Hourly Paid Unions“ l5 January l974. Information for Chrysler France obtained fromthe said company in a personal communication. l42-3). For Chrysler UK (Young and Hood, l977: 2]. 22. 23. 24. 25. 26. 27. 28. 29. 30. 338 Chrysler workers, shOp stewards and Others sympathetic to their cause formed the Chrysler Action Committee (I975, I976) which prepared several documents. I shall refer to them as The Workers Document. In it they claimed they had evidence that Chrysler dealers in Belgium were ”required to sell seven Simcas for each Chrysler UK model they are allowed - in spite of a waiting list of customers for the UK cars.” Letter from G. Hunt, Managing Director, Chrysler UK to William Wilson, Member of Parliament. Dated 22 May I970. Letter to A. Wedgwood-Benn from J. Riccardo, dated 8 February l975. All data comes from internal company records and documents unless otherwise specified. Interview J. Colin. The same claim was made by G. Gillespie in evidence to the Expenditure Committee. As with all productivity comparisons this one has to be treated very cautiously for although the product was essentially the same, the researchers could not adequately check whether the same methods were used for the 20,000 or so Operations involved. The 'Iine balance' refers to the distribution of workers along a line such that no bottlenecks occur to interrupt the flow or speed of work. The greater versatility and flexibility of the workforce at Chrysler France means that a smaller reserve of workers is needed to cover absences and special situations. All data is from Chrysler UK documents (l976), entitled ”C6 Comparison. CUK vs. Chrysler France” and ”Relief Allowances Ryton and Poissy Assembly Plants.” Dated 4 September and 25 November l976. A document reporting a press conference given by members of the communist union CGT claims that a former doctor at Simca had stated that the instruction medical staff received was: ”don't interfere with production.” In this context the document cites examples of accidents which did not lead to the stopping of work for the injured, a refusal of a card to visit the factory clinic, returning men to work before complete recovery, sacking men who refused to work because work was too hard. (L'Union Departmentale des Syndicats, l974:lO,64-6). Data on the severity rate at Chrysler UK was obtained from the company's publication ”Safety News”. Data for Chrysler France was obtained in an interview with J. Colin at Poissy, France. The severity rate is calculated on a base of 200,000 manhours worked. Therefore, multiplying by five we can get the number of days lost per million hours worked. 3l. 32. 33- 34. 35. 36. 37. 38. 39. 40. 339 Interestingly all three are now in the same group. Personal communication from Chrysler France, dated l0 June I978. Chrysler UK workers earned an average of 280 pounds per month which could be increased to 308 pounds by overtime. Chrysler France workers earned a baic of 2822 French francs per month ( at an exchange rate of about 8.5, 332 pounds) which averaged about 4052 per month ( about 476 pounds ) with premiums. On an hourly basis the comparison is of 2.20 pounds at Chrysler UK versus 3.75 pounds at Chrysler France. Data are for 1977. Chrysler UK market penetration for cars fluctuated wildly in the years of l975 but were essentially on a downward trend. For example, in September it was at a low of 4.29%, as opposed to an average share of 8.89% in I974 (House of Commons, l976a:40,42). The ISO million pounds was made up of 60 millions for social security payments, 80 millions for lost revenue and lO millions for a statutory redundancy fund at Chrysler UK (House of Commons, l976a:8l). Interview with Covernty shop stewards (E. McClusky, D. Simpson and D. O'Gorman) l5 June 1977. Other than the introduction of the Alpine, a new car was to be laun- ched in I977 (424) a new van/truck in l978 and a new light car in 1979. This expression was reportedly used by J. Riccardo, Chairman of Chrysler, and was mentkmed in an interview with a Chrysler UK executive. Figures are from company records. I am grateful to the Commission for allowing me to cite these results. CHAPTER V l. Imperial Typewriters made profits every year from l960 to I966 but they declined from 57l,OOO pounds in I960 to l00,000 pounds in I966. By the early seventies the company was divided into four groups - Business Systems and Equipment, Professional Services and Equipment, Industrial Systems and Equipment, and Defense and Marine Systems. Each of these was in turn composed of several divisions. For example the Business Systems and Equipment group comprised Business Furnishings and Fixtures, Speciality Paper, Printint and Forms, l0. II. 340 Retail and Revenue Systems, Business Machines and Systems, and Typewriters and Office Copiers (Litton Annual Report, I97l). The financial press was truly infatuated by Litton's early per- formance. They refer to its 'breathless' growth and to its policy of exploiting the technological revolution with a massive staff of scientists. For example, see The Financial Times (l4 April l967) and Heller (l969:36l) where the President of Litton is quoted as saying, “where technical innovation can be expected to continue at a rapid rate, we're interested. If you can't innovate, we're not interested”. This statement and much of the article has fairy-tale quality in view of Litton's later troubles. Labor Research (May l975:ll6) calculates that Litton controlled some 30% of world typewriter production and reports ”In recent years they have taken interests in plants in Singapore, Brazil and Portugal. Heller, (l969:368) reports that Royal's share of the UK market had dropped from 40% pre war to 2 or 3% in I965. Document submitted to the consultants. Author not indicated but almost certainly an ex-manager at Imperial. Undated and Untitled. From here referred to as (Ex-Manager, l975). A feasibility study into the viability of Imperial conducted by private consultants at the time of the closure crisis commented, ”None (of the manufacturers) have a complete and closely-knit agents' network as do Imperial” (Urwick, Orr and Partners l975:4). The Federal Trade Commission regarded the take-over of Triumph- Adler as ”an alternative to original research and to deveIOping a suitable machine based on the present state of the art” quoted in Craypo (l975:9). The same could be said about the acquisition of Willy Fei ler. The data on the typewriter industry are hard to find and inadequate when found. Unlike the automobile industry about which there is an abundance of data and research, the typewriter industry has been badly neglected. There is a need for a published research project on this very interesting industry. Surprisingly Bain (l956:l70) classified the industry as having high entry barriers, and this at a time when typewriter companies were complaining about the intensity of price competition - a phenomenon not associated with high entry barriers. The classification can only make sense if import competition is excluded. For example, Underwood Business Machines was taken over by Olivetti, Olivetti went out of business and of course, Litton took-over three smaller companies. The emerging giants included, Olympia, Olivetti, l2. l3. l6. l7. l8. I9. 20. 2l. 22. 341 Scott, Corona Marchant (SCM), IBM and Litton. From I964 to I970 Japanese production increased four fold, from 302,000 to l,203,000. Exports increased almost tenfold in the same period, with between 60 to 70% going to the US. For example, SCM was successful in the cheaper, light weight portable electric sector of the market producing in Singapore for export. See for other examples, the special report in The Financial Times (3 February l975). This comment by the president of Royal is cited in The Times (24 August I970). Exact cost comparisons are not possible given the unavailability of data. However, both Olympia and IBM achieved high economies of scale by concentrating their production at one or two locations. Department of Employment (I976) Humberside, which includes Hull, had a male average wage of 46.2 pounds and a female average wage of 24.8 pounds. These examples also demonstrate Litton's willingness to use low- cost labor areas as offshore assembly operations. Some of these points are made in a letter from the Hull plant manager, F. J. St. Clair to K. McNamara, Member of Parliament. Dated IO December I974. The pound-dollar exchange rate was fixed at l pound equal to 2.4 dollars till l97l at which time the dollar was devalued to l pound equal to 2.6057 dollars. However, by April, l973 the rate had changed to 2.4888, with further devaluation of the pound to 2.3279 at the end of I974 and a larger drop in l975. (Organization for Economic Cooperation and Development, I976b). Letter to Lord Beswick, Minister of State for Industry, from J. Gilluly. Dated l7 January, l975. I could not find detailed figures on Triumph-Adler'slfinancialper- formance. However, a recent article in The Economist, (l7 March l979) noted that the subsidiary had paid out an unchanged annual dividend of 20% since I969. No wonder Litton fought hard to keep Triumph-Adler. The case of SWEDA is also reported in the Internation Metalworkers Federation document (l977). See also Business Week (l7 September I974). The Litton report for Six months ending January l977, notes that the Svenska Data Register facility in Solna, Sweden was sold to a Swedish group that included former employees, sub- sidized by the Swedish government. It adds that the company 23. 24. 25. 26. 27. 28. 29. 30. 3I. 32. 3142 ”will continue to supply electromechanical cash registers to Litton'sSweda International Division on an exclusive basis as long as there is a demand for them.” This is the expression used by the workers to describe Imperial's role in Litton's international strategy. See Union Document (l976). One private research group noted about the typewriter industry, ”... it is characteristic of the industry that product life cycles are often affected by technological change, and this can have a dramatic impact on the fortunes of individual companies”. In this case Litton prepared one subsidiary to meet such changes, but left another at their mercy. The quote is from Scott, Geoff, Hancock (l976). Letter from F. J. St. Clair to K. McNamara (M.P. for Hull) dated lO December l974. Letter from J. Gilluly to Lord Beswick. Each letter was accompanied by information on legal redundancy procedures and entitlements. It also promised that employment officers would visit the factory to help workers find alternative jobs. Letter from D. M. Markus, Chairman and Managing Director of OEM to Imperial dealers. Dated l7 January l975. One neWSpaper report in The Guardian (3l January l975) refers to the ”wounds that had been opened up and liberally salted by Leicester's virulent National Front” and suggest, ”The mental and financial exhaustion caused by the dispute and lack of unity at the plant excluded any organized response to Litton's bombshell.” Participants referred to civil servants I'ignoring Benn's instructions because they knew he would be removed,” and to the enormous authority of civil servants to frustrate ministers.” Interviews with David Cairns, Tony Topham, and John Prescott. There was also a suggestion that Adler plants in Germany were badly organized and with a high prOportion of immigrants in the workforce. The Imperial dealers in the UK wenesupplied,sometimes within days of the closure, with models made elsewhere but carrying the Imperial label - e.g. the Imperial 90, a manual to replace the old 80 model previously made in Britain; the Imperial 800, a new electric, the older Imperial 970 electric, and a Silent elect, the Imperial 5000. See The Hull Daily Mail (3 March l975). 33. 34. 35. 36. 343 Circular to Employees from Imperial Typewriter Company Ltd. l7 January l975. A report in The Guardian, (3l January l975) on the effect of the closure on Leicester cites an estimate that "Imperial supported directly and indirectly more than l0% of the towns estimated 30,000 Asian population.” In some cases as many as five members of a family worked for Imperial. The lack of detailed information (e.g. on the length of unemploy- ment and the level of payment, both of which vary across workers) precludes the giving of exact figures. The balance of payment effects were mitigated by the increase in the exports of Olivetti and Olympia at this time. CHAPTER VII l. Cyert and March (l963:274) put great emphasis on ”historical pre- cedents” as determinants of allocation among sub-units. Brooke and Remmers (l972:l62-5) also consider various 'rational' approaches available. These include 'rating scales' and 'sensitivity and risk analyses'. That is, they would be tied to foreign capital by owning a small part of the capital invested in their countries. BIBLIOGRAPHY 344 BIBLIOGRAPHY Books, Journals and Official Publications Adam, Gyorgy. l975 ”Multinational Corporations and World Wide Sourcing” in Hugo Radice, (ed.) INTERNATIONAL FIRMS AND MODERN IMP- ERIALISM. Middlesex, England: Penguin. Adams, J.D.R. and J. Whalley. l977 THE INTERNATIONAL TAXATION OF MULTINATIONAL ENTERPRISES IN DEVELOPED COUNTRIES. Westport, Conn: Greenwood. Aiken, M, L.A. Ferman and H.L. Sheppard. l968 ECONOMIC FAILURE, ALIENATION AND EXTREMISM. 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