An expanded look at the role corporations and hospitable business environments have played in stabilizing the anarchic system of international relations. This work is based on an earlier paper which focused on the rise of the corporation as a key variable in the calculus of global peace and security…
Private Risk, Public Reward:
Stabilizing Frameworks and the Rise of Corporate Hegemony
By Devin DeCiantis | ISP-351 | Economics & Security
“The modern corporation as an institution is entitled to much more respect than it has frequently received.
It is, in fact, an institution at a cross-road in history,
Capable of becoming one of the master tools of society – capable also of surprising abuse.”
– Adolph Berle, Jr. The Twentieth Century Capitalist Revolution, 1954
Traditional theories about power structures have focused on the role of states as principal agents in international affairs. In aggregate, these theories justify most of the major geopolitical incidents that have shaped the modern world order, but none of them effectively do so on their own. That’s not to suggest that existing theories based on political cooperation don’t have their place among the predictive frameworks of the 20th century. Many of them have helped to explain some of the century’s most important economic and security inflections. This paper simply suggests that where prevailing theories break down, a careful examination of the often quiet and understated rise of the modern corporation may offer a compelling supplementary explanation.
One need only look at trends in portfolio and foreign direct investment flows to witness modern corporations driving international stability forward, increasing in power and institutional authority as their patron states struggle with fiscal, political and military balance. At the same time, existing global institutions for stabilizing trade and finance have squandered much of their early credibility. As relics of past hegemonic efforts, they have struggled to foster international stability under the burden of disparate political control and meager tools of enforcement.
Corporations, on the other hand, have spent the better part of the last two centuries finding ways to side-step trade restrictions, discordant legal systems, and countervailing duties in the pursuit of their own economic self-interest. As this paper will argue, a by-product of that unabashed self-interest has been the foundation of a global system of commerce and trade that has spawned a private regime with considerable influence over powerful state actors. Moreover, the preference among corporations for stable and predictable business environments has inspired developments in stabilizing frameworks – like property rights, financial derivatives, and international business standards – which have altered the calculus of war and peace.
While corporations have traditionally been subordinate to states in the hierarchy of global power and influence, and were often recipients of stabilizing policies over the first half of the 20th century, there is little doubt that private enterprise has since become a progenitor of net stability within the international world order by increasing both the benefits of cooperation and the costs of conflict within most advanced economies. Even in less developed countries where multinational corporations (MNCs) are traditionally viewed as instruments of Western exploitation and control (i.e. destabilizing elements), recent evidence of increased prosperity and stability through economic growth and innovation supports the same general conclusion.
As states begin to see the influence that private enterprise now holds in moderating international trade and intra-state relations, there are lessons they can draw from how corporations have handled operational adversity and uncertainty over the past two hundred years. By catering to these non-state actors and their preference for stable property rights, accounting standards, capital markets, and communications and shipping infrastructure, the world’s major powers can facilitate a more dynamic management of global investment capital and the various factors of production. Sovereign states simply aren’t designed to handle complex external coordination and flexible decision-making, and their inherent self-interest typically prevents any Pareto efficient production equilibrium from forming. If properly adopted, however, such coordinated regulatory policies might provide a measure of global stability that has remained unachievable through political strategy alone.
Should this premise hold true, finance may ultimately replace force in the balancing physics of international relations. As minor states tweak their own economic and political policies to attract investment and technology from high-cost producers, in time such a harmonizing institutional force should have the same effect as the European Union in creating a common factor market, a stable political order, and a club of economic collaborators for whom stability and trade is more valuable than militaristic conquest or forceful acquisition.
In order to defend this position, Part I of the paper will explore the similarities between countries and corporations in terms of their core strategic objectives, and briefly examine their development over time. The analysis will focus principally on early interactions – when states were responsible for stabilizing the international business environment – and then explores the inflection after World War II when business began to play a larger role in stabilizing the system of international relations. Part II will briefly explore the systemic and non-systemic risks experienced by states and corporations as a result of these strategic objectives. In both cases, some risk can be mitigated internally and some can be hedged using structured insurance products or the capital markets. As this paper will explore in Part III, the way that companies manage risk has been adopted by countries over the last half century, though their early collaborations stretch back to European imperial conquest. More important still are the developments in other private sector innovation and investment that only takes place when stability in foreign business environments is assured.
Part IV will explore how countries and companies worked together after the Treaty of Rome in 1957 to create the type of stability that has allowed international enterprise to flourish, namely access to new markets, superior economic returns, a heightened ability to forecast future inputs and outputs, lower costs of production, increased technological innovation, and more efficient responses to changes in factor prices. Relevant historical evidence will be provided to substantiate the corporation’s tendency to flourish in stable, transparent environments, along with specific examples of how countries began pacifying the system of international relations using distinctly private sector tools for public sector benefit.
Finally, Part V will explore the premise that private multinational enterprise will become the ultimate force for stability in the 21st century politics, given the host of economic benefits that accrue to those jurisdictions where openness and transparency has been legislated and institutionalized. That said, for any private sector solution to effectively stabilize competing sovereign interests, collaboration between private innovators and public regulators will also become essential, with effective stabilizing frameworks attracting business and investment to progressive socio-economic jurisdictions.
The Quest for Stability
The relationship between business and government has fluctuated over the course of the 20th century, though both have continued to share a common interest in structural stability. Research into democracies has shown that their populations are collectively risk-averse, preferring stable economic growth to high or low swings in national income. Similarly, corporations have flourished in environments that are either designed for transparency and stability or provide insurance against economic losses. This trend has only increased as the scale, scope, and complexity of international transactions has increased over the past two centuries.
Given these fundamental preferences, it is no surprise that legal frameworks for intra-personal, intra-corporate, and intra-state relations have been increasingly predicated on reducing systemic volatility. Traditionally, it was governments that sought to provide assurances for business that expansion of markets and influence could be done with little risk of loss. Early mercantilist efforts by the British in particular were predicated on the cooperation between the state and so-called joint stock companies. Treaties were arranged and insurance provided for capital willing to risk investment outside the bounds of what traditional banks thought to be safe. The benefit for both state and non-state enterprise was superior risk-adjusted returns, gaining access to important commercial and military resources, and opening up foreign markets to local export industries.
The second major evolution of private influence on public affairs took place in America after the Second World War. Prior to 1914, America operated according to its isolationist tendencies, both politically and economically. Trade policy was relatively protectionist, foreign policy was virtually non-existent, and most major decisions were made to ensure stability at home. At the same time, unlike their British cousins, U.S. corporations were beginning to play an important role in the American Industrial Revolution, and as their influence increased, so too did their appetite for growth and their participation in policy-making.
With the dawn of the 20th century and its involvement in the two major wars, America’s eyes were finally cast outward. Though the Interwar Years saw the U.S. retrench, World War II represented an inflection point in both American foreign policy and economic direction. As future Secretary of State Dean Acheson noted in 1944, there emerged a “complimentary nature” between public and private foreign lending, and he believed that the encouragement of private investment abroad ought to be incorporated into U.S. postwar economic policy. This strategy was institutionalized with the Economic Cooperation Act of 1948 (i.e. the Marshall Plan), Truman’s Point IV program, establishment of the Mutual Security Agency and creation of the Export-Import Bank of Washington. Government and big business were finally looking outward – aligned in the pursuit of foreign influence, repelling the threat of communism, gaining access to new markets, and securing vital natural resources – and these goals were now firmly institutionalized. Reardon describes it well:
As American economic interests, and especially American corporations, began to expand around the globe, more and more attention was given to smoothing the political climate for these corporations. Where there appeared to be a clash of personalities or inherent managerial hostility toward the government or people in power in the host country, the government advised the MNC to replace its current executives….In the final analysis, the Federal government’s efforts to promote direct foreign investments to further its foreign policy objectives pivoted largely on some form of investment guarantees, first in Europe and then in less-developed or underdeveloped regions of the world. Because the government had only limited means of protecting these investments, it tried to anticipate problems by negotiating bilateral or multilateral treaties that it then cited as evidence that a given country had a favorable investment climate for American businesses.
At this point, government was still shepherding business through a volatile new world. With most of Europe ravaged by war and starved of investment capital, the time was ripe for American multinationals to spread their economic influence beyond domestic borders. The first major phase of U.S. corporate expansion began to take hold, underwritten for the most part by the American government. In the second phase, corporations themselves would assume a much larger role.
Private Risk, Public Reward
In order to understand how and why MNCs have come to assume responsibility for stabilizing global markets, it is important to understand how instability (i.e. risk) affects decision-making for countries and corporations. Briefly stated, the goal is the same for both (i.e. managing internal and external uncertainty) and the process is surprisingly similar (i.e. protecting rights to critical resources and markets through contractual obligations). Each faces the same systemic risks or disruptions, namely war, natural disasters, macroeconomic shocks, and trade disputes. They even encounter similar non-systemic (or agent-specific) risks, such as labor strikes, supply disruptions, management challenges, cash flow balancing, and external competition.
As Haufler confirms, “Risks of all types pose a significant barrier to trade, lending, and investment, and the attempt to reduce or redistribute such risks imposes major costs on participants in global commerce.” Without legal and operational stability, foreign investments in capital, technology, research, and information become considerably less sensible, and their probability-weighted payoffs become less competitive vis-Ã -vis domestic investment (on a risk-adjusted basis). There are essentially three problems with foreign investment as a purely economic proposition: 1) it is harder to ensure that a foreign borrower honors their legal obligations, 2) fundamental information asymmetries are greater the further the lender is from the borrower, and 3) there is a risk that exchange rates unexpectedly fluctuate.
Over time, companies have developed risk-sensitive approaches to managing these uncertainties within their operational environment. Prior to the 1950s, upholding the rights of foreign operations often the elicited no action at all, given the relatively marginal contribution of overseas subsidiaries to overall firm profits and the considerable cost of imposing sovereign influence through military and political action. But as foreign business units became more important to large national enterprises and access to growing markets (like the European Economic Community and European Free Trade Association) made foreign direct investment that much more attractive, countries and companies resorted to private intermediary institutions (such as banks and insurance companies) and public institutions (like the Overseas Private Investment Corporation) to provide them with the stability to pursue further economic growth.
Economic agents…are averse to risk. And governments, seeking to maximize the social welfare, implement policies to reduce risk but are constrained in the policies they can choose by the policy instruments at their command. In the absence of international markets for risk, countries facing higher levels of terms-of-trade instability are likely to turn toward autarky….In the absence of internal insurance markets, governments seeking to enhance economic welfare are likely to prefer protective trade policies to free trade…. Governments in countries unable to afford programs of internal transfer payments should be likely to turn toward protectionism, whereas those in countries able to mount transfer programs are likely to move toward open trade regimes and tolerate higher levels of risk from international markets.
The idea of measuring innovation and stabilization in risk markets during periods of particularly intense political instability is a fairly new one among international relations theorists. Most histories of the private corporation and its relationship with government approach the issue from a legal or contractual perspective. In Dangerous Commerce, Virginia Haufler’s seminal work on the risks inherent in commerce, she focuses specifically on the private insurance industry and explores its effect on the system of international relations during three key eras of geopolitical change: the period from 1970 to 1914 during which British Hegemony began to decline, the Interwar Years during which no state dominated world affairs, and the period between 1979 and 1989 when Western financial and political systems came under repeated external shocks from the Middle East, the Soviet Bloc, and within Western economies themselves. In so doing, she implicates private insurance providers as independent variables within the international world order, either supplying or privately regulating major global markets for risk. However insightful this analysis, the important conclusion to be drawn isn’t necessarily how the management of risk provides incentive for international commerce to expand, though it certainly points in the right direction. The more vital revelation is how any ensuing predictability generates ideal conditions for other stabilizing institutions and infrastructure to emerge, and ultimately to attract multinational businesses to follow.
Beyond Risk: The Rise of Corporate Hegemony
Briefly stated, Hegemonic Stability Theory (HST) as championed in its various forms by Kindleberger, Krasner and Keohane posits that an international system of trade and finance will only function smoothly in the presence of a hegemon or group of cooperative leading powers – whose motives involve establishing an open system out of blatant (“coercive”) or enlightened (“benevolent”) self-interest. The key insight of this model deals with the “public goods” issue, such that the hegemon is inclined to lay down a framework for global stability (i.e. the public good) which protects and expands both its own interests and extends the benefits of collaboration to the rest of the international community.
Corporate HST (CHST) takes that theory one step further, distinguishing between state openness based on trade and corporate openness based on investment. The corollary is that trade can wax and wane depending on political risk but investments by large multinationals (particularly in illiquid assets or structural technologies) are less likely to decline in the absence of their original investors. Consequently, longevity and resiliency of any emerging private infrastructure are critical for providing structural stability, creating an international climate conducive to substantial economic interaction. Unlike the United Nations or the World Trade Organization, the semi-private goods established by leading MNCs (e.g. telecommunications infrastructure, shipping infrastructure, airports, capital markets, and private intranets) represent the foundations of a common system of trade, communication, and information sharing, and provide particularly fertile ground for subsequent foreign direct investment.
It could be argued that the lack of openness during the Interwar Years was exclusively the result of American corporations’ shifting risk appetite, given the negligible scale of trade and foreign direct investment abroad. Corporations were certainly crippled by unemployment, a liquidity crunch, waves of bankruptcies, underutilized capital, and eroding markets for their finished goods. However, if private insurance was truly a stabilizing force on its own, commerce should have bounced back to pre-war levels shortly after the Treaty of Versailles was signed, particularly given all the innovation taking place in London’s mature financial markets. Instead, American corporations withdrew from foreign markets out of necessity and fear, reducing foreign investment in everything but key natural resources and financial services, and choking off the global system of trade from the inside out. Even a healthy supply of insurance products and a host of government incentives weren’t enough to jumpstart private international investment, at least not until the late-1950s and the birth of a lucrative new foreign market.
The Birth of The Common Market
After World War II, new public agencies sprang up to encourage American capital to migrate overseas in search of superior returns, political influence, and the resuscitation of European markets for expanding American exports. Prospective investments were intended to inject vital capital into markets experiencing a vacuum of political power, as America and its allies sought to create fertile ground for the economic and political expansion of Western capitalist ideals.
Aside from extractive industries, however, America had virtually no MNCs outside of Canada and Latin America in 1953. In spite of the Marshall Plan and all of the other public incentives, nearly 40% of total private investments went to Canada in the ten years following World War II, and roughly a quarter went to Latin America – more than was destined for all of Europe. The establishment of NATO and the Mutual Defense Assistance Program in 1949 were further signals to private enterprise that certain countries weren’t hospitable places for foreign direct investment, particularly those susceptible to expanding Soviet influence. The political intentions of big government and the economic preferences of private industry were less congenial than either had initially hoped.
That dynamic quickly changed with the Treaty of Rome in 1957 and the advent of the European Economic Community, particularly during a period of American recession. Competitive self-preservation and a more stable unified market in Europe drew considerable capital flows toward the newly minted Common Market. Corporations couldn’t afford to ignore an economic block that had purchased $3 billion in goods only the year before. As Reardon asserts:
What the Federal government had failed to accomplish over a period of fifteen years through investment guarantee programs, limited tax benefits, selective enforcement of antitrust, the generous funding of the World Bank, and the Development Loan Fund of the Agency for International Development, the Treaty of Rome was accomplishing in a matter of months. The cartelization of Western Europe, America’s principal market, meant corporate America had to rethink its corporate structure.
If American corporations wanted competitive access to the Common Market, they needed to invest within the EEC. Domestic enterprise was being forced into multinational enterprise, creating strong, stable, illiquid structural ties between economies where years of public incentive and private insurance had previously failed. After the large, international corporate giants proved that superior profits could be gained from targeted investment abroad, it was only a matter of time before the idea spread to smaller companies and more distant countries. Multi-nationalization, it turned out, was merely a geographical extension of corporate growth, and private America embraced these expanding markets with considerable enthusiasm.
CHST: Evidence and Predictions
Given the evidence provided so far, for CHST to hold water as a legitimate theory of international relations, a distinction must be drawn between the stabilizing role that private corporations play and the public role of stabilizing frameworks (i.e. established property rights, transparent accounting standards, non-volatile political climates, mature capital markets, insurance products, foreign investment credits, and so on). As the early experience post-WWII clearly illustrates, fabricated incentives to invest overseas aren’t always initially effective. It is only once larger corporations see the writing on the wall and risk some of their capital on competitive new markets that the average private enterprise will follow. Even then, it takes a considerable amount of time and political effort before stability frameworks emerge, and MNCs are always vulnerable to the shifting preference of consumers and their growing aversion to exploitative foreign trade, as well as the often volatile nature of foreign regimes.
To get a better sense of how these corporate stabilizers emerge, it is useful to examine the role that corporations have played within states over the years (see Appendix I for more detail). Pre-1945, corporations were essentially “Traders and Cash Cows”, generating taxes from trade and eventually income. At the time, land was still a valuable factor of production and hot wars were a clear security issue, and few viable institutions emerged to stabilize the anarchic world order. Between 1945 and 1989, companies have evolved to become “Investors and Innovators”, looking outward for growth as labor and capital became increasingly valuable resources. Given the growing ties between economies on either side of the Iron Curtain, hot wars may have been unlikely, but Cold War posturing still funneled resources toward security and away from economic growth.
Between 1989 and the present, corporations took on an expanded role as “Asset Managers and Facilitators”. Governments privatized the commanding heights of their economies and companies were entrusted to acquire and organize assets wherever factor pricing and supply was strategically optimal. They still served their country’s interests, though increasingly preference was given to consumers over legislators in setting the agenda for international enterprise. As developing countries began to compete to attract eager foreign capital, the major security feature became “Green Wars”, characterized by economic sanctions, incentives, and posturing rather than military conquest. It is during this period when stabilizing frameworks finally began to take hold on a worldwide scale, with the dawn of the ISO 9000 and global standards for industrial quality, along with considerable progress in communications and transportation infrastructure, and a dramatic increase in outward foreign direct investment (from roughly $200 billion in 1989 to $1.2 trillion in 2006).
Looking forward beyond 2010, with stabilizing frameworks now firmly in place across most advanced economies – and increasingly within emerging markets as well – corporations are becoming “Global Factor Managers”, making decisions about trade, investment, wages, and social security where governments have traditionally underperformed. As Thomas Friedman’s so-called Electronic Herd grows in capital and capacity – including “long-horned” MNCs and “short-horned” institutional investors – the fear of a “no-confidence vote from the herd” could spell disaster from an emerging economy as vital investment capital flows to competing jurisdictions. As with the European Union’s growing regional clout, the positive incentives to emulate are typically enough to elicit stabilizing reforms, often where political or military action has previously failed.
Such will be the nature of global integration in the years going forward, with the cost of war – even Green War – dwarfing any possible sovereign gains. After decades of iterated interactions, states are finally seeing the benefits of mutual cooperation, as MNCs spread wealth, innovation, information, and infrastructure to the furthest reaches of the planet. Even isolated North Korea has begun to attract foreign investment capital with the launch of a new website on December 31st, 2007: www.dprk-economy.com.
The principal risk of allowing MNCs to act as stabilizers in the realm of international relations is similar to the challenges of coordinating what amounts to global anarchy for states. In a sense, corporations are only beholden to themselves and their own narrow pursuits. Their charters are financial and their fiduciary responsibilities are to stockholders not stakeholders. Numerous examples of corporate negligence, greed, usurpation, bribery, and impropriety have emerged in the last century alone, outside of the mercantilist exploits of the previous four hundred years. Enron, WorldCom, Countrywide, Standard Oil, IT&T, the United Fruit Company, and others have all shattered consumer faith and destabilized the capital markets. But unlike the many treaties that coalesce after major world conflicts, public legislation in advanced economies has immediately sprung up to guide subsequent private enterprise toward more socially beneficial ends. Moreover, punitive regulatory powers can force profit-seeking capital to immediately adhere to any new rules.
To be sure, this evolution has been slow and the gains not always obvious, but legislation like the Sherman Antitrust Act of 1890, the Federal Trade Commission Act of 1914, the Robinson-Patman Act of 1936 (governing price discrimination), the Sarbanes-Oxley Act in 2002 (regulating the management of public companies) and other legislative efforts over the years have attempted to correct the abuses of corporate charters in their original, unregulated form. The net effect of such legislation is rarely acute, except for those specific corporations whose actions it is trying to restrict. However, as legislation accumulates, it directs the entire body of private enterprise in a slightly different direction.
Over time, the natural tendency for companies to innovate has consistently emerged, with companies now spontaneously creating their own Corporate Social Responsibility officers, measuring and managing their carbon footprints, and optimizing their business strategy in line with a Triple Bottom Line (i.e. financial, environmental, and social performance) in place of a singular focus on profits.
The Way Forward: Public-Private Partnership
“Capitalists prefer peace and 3 per cent to 10 per cent with the drawback of bullets in the breakfast room.” So spoke the Marquess of Salisburby in 1859, and portfolio theory has changed little since. Regardless of how uncomfortably business and government have worked together since the dawn of the private corporation, their roles as facilitators of organized civilization have been inextricably intertwined. As the economic realities of the 21st century unfold, low-cost communication, transportation, and information are combining with computers and professional management practices to lower the cost and increase the stability of international business. Those business relationships, in turn, have shifted the strategic focus of states toward attracting capital and labor through trade rather than acquiring it by force. Corporations alone aren’t systemic stabilizers, but operating within the stabilizing frameworks implemented by progressive, trade oriented states, both can better advance their own economic ends without recourse to war.
One clear example of the strategic partnership between commercial and national interests took place in 1957 off the coast of Indonesia, where President Sukarno’s nationalistic government seized forty Dutch ships in protest over continued Dutch control over Western New Guinea. Aside from the obvious damages to Dutch merchants and local traders, the destabilizing action also spelled near disaster for Lloyd’s of London, insurers of the captured Dutch fleet. In the end, it was the relationship between key Lloyd’s employees and senior Indonesian officials that averted financial disaster, while states were essentially helpless spectators watching the drama unfold.
Another stabilizing collaboration between business and government takes place daily in the world’s major commodities markets. As financial markets have become more liquid, securities transaction costs have fallen and diversifying and hedging can be now done far easier than in the past. Among other private benefits, one considerable public benefit has been the use of the futures market by less developed countries to generate superior returns on their exports. These benefits aren’t distributed uniformly across commodities or markets, and they’re anything but certain. However, as developing countries mature and their stock of financial capital and foreign exchange grows, private enterprise – along with the stabilizing influence of free and liquid markets – may come to provide positive “spillover” effects from risk reduction.
Beyond these two small examples, it’s clear that corporations have finally come of age. Armed with established structural assets, existing and emerging technologies, and evolving information requirements, the 1970s and 80s witnessed corporations becoming a force for global stability, in the face of retreating hegemonic state power. Free markets and the efficiency of private enterprise were embraced as a means of jumpstarting sluggish economies around the world, and they did so with full support of their jurisdictional governments. This arrangement produced some of the dominant political features of the era: Thatcherism, Reaganomics, privatizations, free enterprise, Indian economic liberalization, Chinese economic liberalization, and even the collapse of the Soviet Union. Over the ensuing two decades, that same trend continued apace, with technology reducing the cost of economic integration as stabilizing frameworks were rolled out across the globe, from first tier economies like the European Union to emerging economic powers like South Korea, Slovenia, and Chile.
Given that corporations are inherently more nimble than states, their ability to adapt to a changing hegemonic climate is likely to ensure their continued existence as powers swell and recede. Should capitalism experience a backlash from citizens and smaller states who think free markets have gone too far in the unbridled pursuit of profit (as Keohane suggests) companies can simply embrace social and environmental responsibility in addition to profits and compete and innovate around the Triple Bottom Line.
That shift from profit seeking toward socially responsible enterprise would involve corporations adopting elements of paternalism and traditional public goods from their sovereign administrators. For instance, Wal-Mart is already the largest private sector employee in America, and moves to provide its workers with health insurance could change the fundamental nature of Medicaid. This is obviously speculation, but it reinforces the idea that the corporations and their functional connections are likely to remain in place, despite hegemonic flux. In fact, given their entrenched role in the modern global economy, they may eventually overpower states as a reflection of their stakeholders’ wishes, and reduce government to the role of employer of last resort and arbitrator of domestic disputes.
That said, it would be grand hyperbole to suggest that all this was the result of corporate stabilization alone, but the rising international influence of the chartered company from its humble position almost a century before is certainly an intervening factor in the growing stability of the world system. Along with the tremendous progress states have made to adopt international standards for trade, communication, transparency and property rights, private enterprise could help to shepherd humankind through its most peaceful era yet. What’s needed now is for states to embrace stabilizing policies to attract more foreign capital, though without the no-strings-attached approach that many developing nations have adopted to date. Drawing in private investment at all costs may win vital outsourcing contracts, but without establishing a climate for responsible business (including the provision of adequate labor conditions, social services, and environmental protection), the next generation of socially responsible private enterprise might be more inclined to invest elsewhere, or even start reinvesting back home.
Footnotes:
Global cross-border M&A activity was roughly $880 billion in 2006 – second only to a record-setting $1.1 trillion in 2000 – an increase of nearly 1200% since 1987. – “World Investment Report”, unctad.org, 2007 Similarly, outward FDI was $1.2 trillion in 2006, having grown by more than 860% over the same time frame. ibid The US ran an estimated deficit of $423 billion in 2006 and the national debt now sits at over $8 trillion (or roughly 2/3 of GDP), “BUDGET FOR FISCAL YEAR 2007,” whitehouse.org
Principally, the World Bank, IMF, and WTO
Virginia Haufler, Dangerous Commerce: Insurance and the Management of Risk, 1997, p10-13
Demand for oil during WWII provides a sound example. Seven months before America entered the war, the President of California Arabia Standard Oil Company (later ARAMCO) urged President Roosevelt to offer aid to King Ibn Saud to ensure political stability and stable resource supply. Roosevelt only relented when it became clear that British influence in the region might supplant American access to Saudi oil.
Robert S. Waters, International Organizations and the Multinational Corporation in Annals of the American Academy of Political and Social Science, Vol. 403, The Multinational Corporation. (Sep., 1972), p127
Angel GurrÃa, Innovation, Growth and Equity: The Equation for Prosperity, OECD, (May 2007) http://www.oecd.org/document/12/0,3343,en_2649_201185_38587148_1_1_1_1,00.html
Virginia Haufler, Learning to Cope: Risk Management in History, 1995
Systemic risk is market risk that cannot be diversified away. Non-systemic risk is particular to a given company or enterprise.
Quinn and Woolley, Democracy and National Economic Performance: The Preference for Stability, 2001, p634
Haufler, Dangerous Commerce, p13
John J. Reardon, America and the Multinational Corporation: The History of a Troubled Partnership, 1992, p8
Collins, The Business Response to Keynes, p80-81
“In the absence of complete markets for risk, rational actors who are risk averse will structure non-market institutions – “governance structures,” in the words of Williamson – in an effort to reduce the welfare losses incurred from variability in economic environments.” Bates, Brock, and Tiefenthaler, Risk and Trade Regimes: Another Exploration, 1991, pp. 1-18
Niall Ferguson, The Cash Nexus, p266
Wilkins, The Maturing of Multinational Enterprise, 1974, pp253-255
Numerous examples abound: Britain’s defense of the East India Trading Company, The Virginia Company and the Royal African Company, Japan’s defense of the South Manchurian Railway Company, and America’s defense of the United Fruit Company and IT&T, to name but a few.
Bates, Brock, and Tiefenthaler, p17
Especially for export credit and war risks insurance. Haufler, p67
Whitman, Government Risk Sharing in Foreign Investment, 1966, p331
United Nations Conference on Trade and Development (Outward FDI flows 1970 – 2006)
Thomas Friedman, The Lexus and the Olive Tree: Understanding Globalization, 2000, p133
The site is named “Chollima,” a reference to a mythical winged horse said to be capable of leaping 250 kilometres in one bound. Channel NewsAsia, January 1, 2008
Richard N. Rosecrance, The Rise of the Trading State: Commerce and Conquest in the Modern World, 1986, p58
Sarahelen Thompson, Use of Futures Markets for Exports by Less Developed Countries, p968