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III

PRODUCTION

Productive activity is at the center of any economy. Agriculture, mining, and
manufacturing are the bases on which domestic and international commerce, finance,
and other services rest. No society can survive without producing. Thus, production
is crucial to both the domestic and international political economies.
In the international arena, production abroad by large corporations gained
enormously in importance after World War I. The establishment of productive
facilities in foreign lands was nothing new, however. The planters who settled the
southern portion of the Thirteen Colonies under contract to, and financed by,
British merchant companies were engaging in foreign direct investment in plantation
agriculture. Indeed, before the twentieth century, foreign investment in primary
production—mining and agriculture—was quite common. In particular, European
and North American investors financed copper mines in Chile and Mexico, tea
and rubber plantations in India and Indochina, and gold mines in South Africa
and Australia, among other endeavors.
Around the turn of the century, and especially after World War I, a relatively
novel form of foreign direct investment arose: the establishment of overseas branch
factories of manufacturing corporations. In its origin the phenomenon was largely
North American, and it remained so until the 1960s, when European, and then
Japanese, manufacturers also began investing in productive facilities abroad. These
internationalized industrial firms were called multinational or transnational
corporations or enterprises (MNCs/TNCs or MNEs/TNEs), usually defined as firms
with productive facilities in three or more countries. Such corporations have been
extraordinarily controversial for both scholars and politicians.
By the late 1990s, there were some 53,000 MNCs in the world, with 450,000
foreign affiliates. Most are relatively small, but the top several hundred are so
huge and so globe straddling as to dominate major portions of the world economy.
MNCs’ foreign affiliates are worth about $3.5 trillion, and they produce goods
worth $9.5 trillion every year. These foreign affiliates account for one-third of
world exports and a very substantial proportion of world output. Indeed, the largest
MNCs have annual sales larger than the gross national product (GNP) of all but a
few of the world’s nations.^1
One major analytic task is to explain the very existence of multinational
manufacturing corporations. It is, of course, simple to understand why English
investors would finance tea plantations in Ceylon—they could hardly have grown
tea in Manchester. Yet, in the abstract, there is little logic in Bayer producing