23 Things they Don't Tell You About CapitalismBy: Chang Ha-Joon
Major Topic: Economics
Minor Topic: Politics
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Thing 8: Capital has a Nationality
We are told that multinational corporations are the best thing ever for the economy of all countries in which they do business because they are the best: that is how they became multinational. We should support them not hinder them.
The truth is that all multinational corporations have a home country. And that the highest levels of decision making happen and most production happens in the home country. The policy makers in the home country have a natural bias in favor of their country which serves the home country better than the client country. There are many other factors that go into intelligent decisions but failing to recognize a home country bias, when determining national policy is not wise.
If a foreign owned company comes into a country or a national company is bought by foreigners, it is argued that as long as the company is creating wealth in the client country the government should just stay out of its way. The author disagrees due mostly to the home country bias.
The author gives four reasons for the home country bias: 1) top executives, as most people, have a warmhearted feeling toward their country; 2) often there are intangible debts the corporation owes its home community; 3) core capabilities and management personal are often the most expensive to move overseas and therefore rarely ever do leave the home country; and 4) the home country's corporate culture, laws and institutions cannot be moved.
So what should be done about regulating foreign direct investment? The conventional answer is nothing because any foreign direct investment is good. However the author gives a few examples in which it may be a bad idea. 1) When a foreign firm buys out a local firm, the foreign firm is not increasing production unless it invests in the local firm: we should be aware that the foreign firm may be trying to eliminate a competitor or to strip the local company of its assets. 2) When a foreign firm starts a new venture in a foreign country it sets the stage for what will be produced in that country. Low end production and labor intensive production may be more of a curse if there is no room to move up the production ladder. The curse comes as damage to the environment or as being locked into a low position in the production chain
The intention of the foreign direct investment is very important due to the home country bias. Most multinational corporations will not consider the interests of the client country above those of the home country.
Added on: 2012-10-05 12:14:14
Text Crawl by: James McLaren
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