It is interesting to consider a consolidated statement of 19 United States Multinational corporations representing manufacturing enterprises, but excluding automobiles and petroleum. These corporations included such well-known concerns as General Electric Co., Goodyear International Corporation, Eastman Kodac Co., Proctor and Gamble Co., Union Carbide Co., H. J. Heinz Co., and American Machine and Foundry Company. The statement shows that remitted common dividends substantially exceeded the outflow of new capital from the parent companies, in every one of the four years 1957 to 1960. In 1957 dividends incomes together with management fees, royalties and other services were four times larger than the outflow of new capital. By 1960, the outflow of Funds for new direct foreign investment by these companies was three times as high as in 1957. Even in this peak year of Investment, the earnings of the subsidiaries were almost twice as high as the new capital outflows. These earnings show only part of the profit made by direct investment overseas. We have drawn attention to the large export sales from parent companies to their subsidiaries. These sales of course, yield additional profit to the parent corporations. (See Table 14).
This statement refers to a group of corporations whose overseas subsidiaries have been established for a relatively long period of time. In these cases, dividend remittances are large compared “with the outflow of new capital.
One of the 19 companies included in the consolidated statement was the Proctor and Gamble Company. In their testimony, they pointed out that the first Canadian subsidiary was established in 1915, but dividends were not taken from this operation until 1039. The first Cuban investment was made in 1931, but dividends were not remitted until 1939. The Chairman of the Board of the Company explained direct investment policy as follows:
“It is customary in our development of overseas markets for us to use a minimum of United States capital, a maximum of borrowing overseas and re-investment of earnings abroad. Dividends are paid, but necessarily only after a considerable period of re-investment to establish a sound business operation, having an adequate earnings position. It is the policy of our company, and of many other companies, to plow back earnings until a suitable level of profits has been established. At that time, payments can begin on local debt and thought can be given to dividends.”
|Table 14 – CAPITAL OUTFLOW OF 19 PARTICIPATING COMPANIES
(in millions of U.S. dollars)
|Imports of Finished Goods from||24.4||31.3||30.5||61.3|
|CAPITAL INFLOW OF PARTICIP\TINC COMIPANIES|
|Remitted Common Dividends||64.8||64.2||78.6||81.2|
|Receipts for Services and Fees|
|Royalties and Licenses||8.0||8.6||8.8||11.4|
|Other Services and Fees||3.3||3.0||4.5||5.4|
|U.S. Sales of (a) Capitnl Equipment and
(b) Materials for further Processing
to Foreign Subsidiaries
|Other U.S. Firms||53.9||55.1||58.3||65.4|
|Exports to Foreign Subsidiaries for Resale|
|Other U.S. Firms||19.0||16.2||24.4||18.9|
|Other Exports A ttributed to Direct Foreign Investments||152.3||190.6||177.0||171.9|
By the 1950’s this company, like the others in the consolidated statement quoted above, was well established in its foreign operations. Over the ten year period 1951 to 1961 the subsidiaries remitted $47 million in dividends to the United States, while new capital outflows over the same period were only $11 million. In addition, the subsidiaries were able to draw on domestic savings in the countries where the, were located to the tune of $67 million in the form of borrowings and re-investment of undistributed profit.
Reporting on the past 10 years operations the Chairman of the Board of the Company said:
“We have returned to the United States in dividends more than four times as much in dollars as was sent out If we are permitted to proceed as before, this favourable picture should continue, and we would expect the ratio even to improve. In our case, the past three years record has been better than the past 10 year record. All this has been under the careful scrutiny of the fiscal and true authorities of foreign governments, which encourage this kind of development of business activities as a means of strengthening their own economics.”
The spokesman added that in addition to the earning of dividends and the increase in overseas assets from re-investment of profit, the subsidiaries had, over the decade of the 1950’s generated United States commodity exports of $243 million in raw material and equipment. much of it purchased from the parent company.