Re-viewing Multinationals

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Private Power, by Axel Madsen, New York: William Morrow, 1980, 258 pp., $12.95.

Private Power probably would not have been published in the 1970s. In a decade where everything from coups to pollution to poverty were blamed on multinational corporations, a book with the subtitle Multinational Corporations for the Survival of Our Planet would have found only the smallest of audiences. But perhaps now, with Americans' evident wearying of governments' grand plans, the idea of global companies being more useful than governments in bringing about a prosperous and peaceful world will receive a warm reception in at least some circles. And that is precisely Mr. Madsen's theme in Private Power.

In the introduction he states: "The strongest defense of global enterprise is that it stands in stunning contrast to government power.…National governments are inadequate when it comes to dealing with the planet's necessities, and we may legitimately wonder whether the importance of nation-states isn't greatly exaggerated and whether politicians deserve star status."

Madsen chronicles the failure of governments large and small to achieve their plans and details how political jealousies and nationalistic narrowmindedness lead to policies that harm their own citizens. In contrast, says the author, "Multinational corporations suffer none of these ills.…If the world economy can be characterized by slow growth, chronic underemployment, large trade deficits, and pronounced instability, the 'transnationals', as U.N. bureaucrats like to call them, give every appearance of permanence and stability."

What seems to fascinate Madsen most, and leads him to the conclusion that the multinationals are our last best hope, is their ability to "roll over," to cope with change. Much of the book is taken up with examples of the resiliency of the successful multinational—how they change the products and services they offer to meet shifting demands and new technology; how they survive wars, government takeovers, etc.; how they manage to profit despite operating under widely varying systems of taxation and regulation.

Curiously, Madsen employs arbitrary criteria for determining what is and is not a true multinational: Over 50 percent of earnings must be outside the corporation's home country, and revenues must be at least $10 billion. He comes up with a list of only 18 firms (and a 10-corporation second-string whose members need only a little growth or earnings reallocation). Neither General Motors nor Ford is on the list, but Volkswagen and Daimler-Benz qualify.

Although his brief sketches of the chosen 18 are sometimes quite interesting and serve to back up his central theme, Madsen must realize that GM, Ford, and many other companies consider themselves multinational in scope, as do the governments of the countries in which they operate. Both the standards and the list seem rather unimportant to the matter at hand.

Of course, through all this Madsen is guilty of a selection bias. Many large corporations do suffer from instability, slow growth, deficits, etc., but they don't stay large for long, and several have disappeared. Corporations are not successful because they operate around the world; they operate around the world if and when they are successful.

Several chapters are devoted to the ways in which governments try to control business and trade or enter into business themselves. Comparisons are made between free trade and protectionism, private and government ownership, democracies and dictatorships. Many governments are seen as needing the International Monetary Fund to control their largesse. The United Nations is depicted as a meaningless squabble ground, producing no workable solutions to the problem of the ever-widening wealth gap between First- and Third-world nations.

The reader is left to draw his own conclusions, and the following are fairly obvious: (1) resources, technology, capital, and skills will flow to the areas where they will be most profitable, and this is usually where they are least encumbered by taxes and state controls; (2) because of multinationals and the Eurocurrency market, governments are somewhat helpless to manipulate this flow for their own purposes; and (3) multinationals do not exploit less-developed countries but are in fact the most efficient means enabling people to build wealth in the Third World.

Madsen has done an admirable research job, and he writes in a lively style, which makes Private Power interesting and thought-provoking. It is disappointing, however, that he did not seem to be carrying the book's theme with him as he conducted his research. He didn't ask the leaders of the multinationals about the grand design of a near-stateless world and a global marketplace. Thus we get few ideas about how to get from here to there, or, more importantly, whether the multinationals see that as a goal to strive for. (I suspect many would not. Most of Madsen's chosen elite owe much of their success to an ability to manipulate "the system," winning government contracts, gaining trade restrictions, or becoming partners with government in major enterprises.)

The future role of multinationals, governments, and quasi-governmental organizations in the world economy can be thought of as a puzzle. Private Power gives us a good look at the pieces of the puzzle but barely begins to put them together.

Don Markley has a Master's in Business Administration and works for a Los Angeles-based corporation.

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