114 International Investment and Colonial Control: A New Interpretation
some assets can be more easily appropriated or protected by force than the rents
accruing to other assets. To some extent, the appropriability of the asset and its
income stream is related to the asset’s specificity to a particular site or corporate
network. For example, the income stream created by a copper mine is specific to
the place where the copper is located. The mine, and the resource rents associated
with it, can be seized by a host country with relative ease. On the other hand, the
income stream accruing to a branch plant of a manufacturing multinational
corporation typically is specific to its participation in a global enterprise—it relies
on managerial, marketing, or technological inputs available only within the firm.
While the host government can seize the factory, it cannot appropriate the rents.
By the same token, site-specific assets can be protected by force on the part of
investors or their home countries. A mine or plantation can be retaken from a host
government by force, and it can continue to earn income once retaken, especially
if it is producing for export. While a branch factory can be retaken by force,
inasmuch as it is integrated into the local economy—perhaps with networks of
suppliers and customers—it would be unlikely to continue to earn income in such
circumstances.
This leads me to expect that investing country governments will tend to use or
threaten force more the easier it is for the income accruing to the asset in question
to be physically seized or protected. The more the rents earned by an asset are
site-specific, the more the use of force will serve to protect them, and hence the
more likely it is to be used.
Net Expected Benefits of Investor Cooperation
Leaving aside whether or not investors and their home countries use force, we
want to understand the circumstances under which investors cooperate with one
another instead of pursuing unilateral solutions (including colonialism). I assume
the goal of cooperation would be to monitor and enforce the host country’s
compliance with explicit or implicit contractual commitments. I expect cooperation
among investors to be more common when the net expected benefits of collaborative
action compare favorably with those of private enforcement by a single investor.
As discussed above, one important determinant of the benefits of collective
action is the degree to which monitoring and enforcement become easier for each
investor as more investors participate. At one extreme, the cost of monitoring an
agreement can be the same for each investor no matter how many there are. This
might be the case when each firm must observe aspects of the contract specific to
itself; no matter how many firms are in similar situations, no one firm’s efforts
affect those of any other firm. At the other extreme, there may be significant
economies of scale in monitoring and enforcing an agreement, such that the cost
per firm declines steeply with the number of investors.
This continuum applies to monitoring and enforcement costs. If a debtor threatens
default on foreign loans, information about the government’s solvency,
macroeconomic conditions, and other contingencies may be valuable to all creditors.
This information is essentially the same for all creditors, and if they each contribute