Magazines: Going Global

The masters of the world these days are not governments but corporations. The largest of the world's corporations may not have as many divisions as the U.S. military, but in their financial strength, their ability to instantaneously transfer capital around the globe, and their ability to adapt to change, global corporations are among the largest and most dynamic institutions in existence.

Liberals and conservatives both like to use multinationals as convenient foils. On the left, global corporations are seen as ruthless, rapacious Scrooges whose only joy in life is stealing jobs from the First World and giving them to Third World workers at miserable wages. The faction of the right that distrusts anything that exists in more than one country (governments, businesses, the World League of American Football) considers multinational corporations to be but the newest members of the sinister cabal of the world's secret masters, along with the Council on Foreign Relations, the Trilateral Commission, and the ever-scheming Bilderbergers.

But the fact that a business is huge and global does not necessarily mean that it is remote and domineering. Not all large organizations resemble the Pentagon. The best multinational businesses, like superior businesses in general, delegate authority and devolve power whenever possible. The result is a large enterprise that, in its structure and organization, looks more like a symphony orchestra than a government bureaucracy.

In a lengthy, meaty interview conducted by William Taylor in the March/April Harvard Business Review, Percy Barnevik, CEO of Asea Brown Boveri (ABB), an engineering firm with annual worldwide sales of $25 billion, explains how his "multidomestic" corporation is organized. At the top is an executive committee of 12 people—Swedes, Swiss, Germans, and Americans. (All meetings and memoranda are in English.) This council of 12 oversees 50 heads of "business areas," each of whom oversees all of ABB's products in a given field. The leader of the business area in power transformers, for example, is a Swede who works in Mannheim, Germany; the electric meter business area is led by an American in North Carolina.

But ABB is simultaneously divided into national companies organized in time-honored ways. German customers order from ABB Aktiengesellschaft, a company that, like most German firms, employs apprentices and prepares "financial statements compatible with those from any other German company." In Finland, ABB Stromberg is staffed by Finns; in the United States, ABB Combustion Engineering is as American as apple pie. In each country, ABB divisions are divided by product; the head person who produces each product reports to the business-area leader and to the national company. The head of ABB's Norwegian power-transformer firm reports both to the CEO of ABB Norway and to Sune Karlsson, the power transformer business-area head in Mannheim.

Why such a complex structure? Barnevik explains that "business areas" are useful simply because they are efficient ways of transmitting vital information. If ABB needs a plant manager for a new power transformer plant in Bangkok, Karlsson would know the three or four people (in Muncie, or Helsinki) who would be best qualified.

But national companies are needed because national differences matter; if 500 of Barnevik's top managers are trained to leap across national boundaries, fighting the lethargy of Spanish unions or the Japanese Ministry of Finance, the other 14,500 managers are definitely residents of their homelands. "I have no interest in making managers more 'global' than they have to be," Barnevik says. "We can't have people abdicating their nationalities, saying 'I am no longer German. I am international.' The world doesn't work like that."

The lessons Barnevik teaches were learned by successful American exporters a long time ago. A shopper in a supermarket in Strasbourg or the Hague will find as many of H.J. Heinz's relishes and ketchups as in America, but few breakfast cereals. Heinz successfully convinced European consumers that eating pickle relish was an ordinary part of their lives. But Frosted Flakes and raisin bran remained something that, to a European, only parvenu Americans eat.

Even if most people aren't willing to try "foreign" goods, they are certainly willing to buy items made by foreigners if they are less expensive than their "domestic" counterparts. And the meanings of foreign and domestic are murkier than they used to be. This is largely because—as William B. Johnston of the Hudson Institute observes in the same issue of Harvard Business Review—labor is becoming increasingly globalized as the work forces in the West and in Japan grow older and families shrink.

While some markets (chiefly for such low-skill jobs as janitor and dishwasher) will remain local, Johnston says, the market for high-skill jobs is already international. American hospitals are hiring nurses from Dublin and Manila; the engineers at Bell Laboratories are as likely to be English or Indian as they are to be schooled in the United States. These immigrants, far from stealing jobs, are providing human capital that can be "deployed where it can be used most productively." A smart Thai computer programmer might spend years in Bangkok doing boring office work, but in America he could be designing computer systems.

In a global labor market, Johnston contends, conditions for workers are likely to improve, not decline. The German transferred to New Jersey will want her five-week paid vacation; the Californian sent to Madrid will still have his flex-time schedule. Johnston also notes that emigrants from the Third World have not caused a "brain drain" in their native lands; losing thousands of scientists and engineers, for example, does "not seem to have any appreciable impact" on the economies of South Korea, Taiwan, or China. Many emigrants return at some point in their careers and use their experience to enrich the economies of their homelands.

Johnston shows that protectionist labor policies, such as bans on immigration, harm economies and retard growth. Two other recent articles also discuss how economic globalization encourages dynamism. In the spring Policy Review, Gary Saxonhouse, an economist at the University of Michigan, shows how Japanese investment has improved the American economy. Japanese manufacturing efficiency and a falling yen ensured that the prices of American imports fell by 1.1 percent annually between 1981 and 1986, the first time this had happened since the Korean War. Because Japanese computer chip prices plummeted, prices for all manufactured goods in the United States dropped by 4 percent between 1982 and 1990, the first sustained deflation since the Great Depression.

Thanks to Japanese competition, Saxonhouse argues, American manufacturers have become more efficient and less complacent. Japanese products (semiconductors, steel, machine tools) have improved American factories. Japanese management techniques, such as just-in-time inventories, have not only saved space and capital but ensured that deploying labor more efficiently is a more profitable strategy for American manufacturers than investing billions in automation.

Finally, foreign competition "has proved to be the most effective form of antitrust policy." Before Japan's exchange-control laws were liberalized in 1980, American monopolists would meet with their counterparts from labor, engage in "unattractive public battles," and raise prices, resulting in "cost-push" inflation. By freeing markets and intensifying competition, Japanese capitalists have forced their American rivals to hold the line on prices and dramatically reduced union clout. In the 1980s, less than 0.1 percent of American labor-force time was lost to strikes, one-third as much as a decade before.

If foreign corporations are improving the American economy so dramatically, why fight them? Brookings Institution visiting fellow Pietro S. Nicola shows in the spring Brookings Review that most government-sponsored attempts to battle purported foes—by "picking winners," encouraging "strategic trade," and so on—turn out to be boondoggles. French, Belgian, and Italian efforts to subsidize their steel industries resulted in "inefficient management, uncompetitive wages, and mounting debt payments." German industrial policy, says the Kiel Institute of World Economics, redistributes income from strong companies to weak ones.

Even the "high-tech megaprojects" sponsored by Japan's Ministry of International Trade and Industry have frequently failed. Japanese government efforts to create world-class pharmaceutical, chemical, and aluminum companies have not worked, and even some of MITI's computer schemes have picked losers. Nine years of subsidies to its Fifth Generation Project have not produced a computer with artificial intelligence, and such heavily subsidized supercomputer firms as Fujitsu are being crushed in the world marketplace by Intel and Cray Research, American firms that beat Japan without burdening the taxpayer.

An American industrial policy, says Nicola, might well ensure that the United States would be number one-in government waste. Far from dispassionately scanning the country for innovative projects, politicians are likely to use industrial policy as a way to grab goodies for their own districts or states. As Sen. William Roth (R–Del.) observes, "The trouble with picking winners is that each congressman would want one for his district." This "propensity to spread benefits" would ensure that industrial policy would resemble federal aid to universities, which goes to institutions in 46 states, or defense procurement, which gave us a B-1 bomber made from parts produced in 48 states and 300 congressional districts.

Efforts to prevent globalization by imposing immigration barriers or boosting corporate welfare amount to nationalist economic planning. Like more familiar socialist economic plans, they are based on the false assumption that a small cabal of bureaucrats (in Washington, Whitehall, or the Quai d'Orsay) is better able to supervise your life than you are. And flag-waving appeals to protect the lifeblood of the American economy from being polluted by foreign rivals are, at their core, calculated attempts to arouse the dark emotions that have fueled many of the foul political movements of our century. Such nationalistic appeals for the corporate state, observes Grover Norquist of Americans for Tax Reform, are part of "the politics of envy and hate that belong in the slums of the Weimar Republic—not America."

Martin Morse Wooster is Washington editor of REASON.