National Loyalties in a Global Economy

A fundamental debate in this election is about what the government should do about our economy. Of course, by “our economy”, we mean the economy of the United States. However, if we were to examine how corporations organize their activities, including the search for resources, labor, or markets for their products, we would realize that the reach of our economy extends far beyond the physical borders of the United States. For instance, Apple Inc., an “American” company, manufactured all of its 70 million iPhones that it sold in 2011 overseas1, and The Coca-Cola Company sold its products in more than 200 countries2. We live in a world where an increasing number of companies are transnational, and the accumulation of capital is globalized.

Globalization allows transnational corporations to escape the surveillance and regulatory constraints of a single government. This independence has two important consequences: (1) Transnational corporations can allocate capital more freely and increase their profitability; and (2) This profit can be generated independent of the economic fate of their “home” countries, and sometimes even at their expense.

In support of the latter, consider the following: Last April, The Wall Street Journal published an analysis of the hiring practices of US based transnational corporations over the last decade3. The report found that these corporations, which employ a fifth of all American workers, have been gradually shifting their jobs abroad – whereas in the 1990s, they created 4.4 million jobs in the US and 2.7 million jobs overseas, in the following decade, they cut 2.9 million jobs in the US while expanding their work forces by 2.4 million overseas3. Moreover, when revenues contracted during the recent recession in 2009, American transnational companies laid off 1.2 million workers in the US, and 100,000 workers abroad3.

Several factors underlie this shift. Traditionally, transnational corporations have exploited international differences in the cost of production, especially labor costs, as an important source of profits. More recently, however, companies are citing an increasing demand for their products as the main reason for expanding outside the US. For instance, in 2000, General Electric (GE) conducted 30% of its business overseas. As of 2011, that number jumped to 60%3. Accordingly, GE’s international workforce increased from 46% in 2000 to 54% in 20113.

Because the interests of transnational corporations are not necessarily linked to the welfare of the citizens in their “home” countries, transnational corporations create a dilemma for their home governments. On the one hand, allowing them to maximize their revenues would also benefit the State because these corporations are subject to national taxation4. On the other hand, expansion overseas occurs at the expense of employment and growth at home, which are also essential for a nation’s economic health4. Which of these options should our government encourage? Is there a middle path that allows for reasonable expansion both domestically and overseas? If so, how can we get there? And what roles can the government play in this process? These are questions I intend to address in the upcoming posts. Meanwhile, I hope that our prospective representatives will also illuminate our understanding in these matters by providing their own perspectives.

References

1. The New York Times

2. Wikipedia

3. The Wall Street Journal

4. Heilbroner R.L. (1993). 21st Century Capitalism

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2 thoughts on “National Loyalties in a Global Economy”

  1. Excellent Ram, I felt like I was sitting at your table having an after dinner chat.
    I think our government should police those who manufacture abroad, but it’s really really hard to find a way to do that without breaking from our accepted capitalistic model. Or maybe the answer is to give incentives to those who have their products manufactured at home. Does this already exist??

    1. Just today, the Obama administration announced its plan on corporate taxes. This plan has incentives such as a 20% tax credit for US multinational companies that move their operations back to the US. It is worth debating if incentives like this will encourage companies to invest more at home. The Wall Street Journal article that I mentioned cites several other reasons why companies could be hiring abroad. Some of them include crumbling infrastructure in the US, and deficiencies in education and training of high-skilled workers. Perhaps it is in this area that government can focus its efforts.

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