Corporations and Metropolitan Government

The contribution by the international corporations to surpluses on current account forms one basis for their cooperation with metropolitan government in international relations: part of the surplus of foreign exchange created by the operations of the corporations is made available to government for economic, political or military expenditures ab road. The point is made succinctly by the authors of a book published by the International Economic Policy Association, on the U.S. balance of payments.

“Without the income from U.S. direct investments abroad, it is doubtful that the U.S.A. would be able to meet its worldwide military, political and economic commitments.”

In return the investments of the citizens of the metropolitan country are protected by the political and military strength of their government.

In this respect, also, the new mercantilism resembles the old. Economists have created the impression that the European states of the 17th and 18th centuries wished to accumulate gold because their statesmen were not sufficiently schooled in the wisdoms of political economy to understand the difference between real in­ come nod a pile of gold. Is it not more likely that these governments and the mercantile ventures which they promoted and protected, required access to a universally acceptable means of payment to finance both their international expenditures on navies, on armies and foreign supplies and their domestic expenditures on law and order ?

ln discussing some areas of common purpose from the standpoint of the United Stilt and its multi-national corporations, the Government assured the corporations that it ,, as well aware of the magnitude of American investments and of their contribution to increased employment, assets, and earnings of profit.

In making the case for the “guidelines”, Mr. Henry Flower, U.S. Secretary of the Treasury states:

“We count upon riding returns from direct investment overseas to serve as one of our most consistent elements of balance of payment strength in the month. ahead. Furthermore, additional exports have been generated in the form of capital equipment, materials parts and services required to export these investments. Let me make it clear that we fully recognise the fact that current outflows through direct investments will more than pay for themselves over the long run.”

The problem very simply is that we cannot wait for the long run. We do not have the time to wait until the future returns from these outflows equalize or surpass their current heavy cost to our balance of payment.

In referring to the increasingly important role in the expansion of world trade of these “mighty engines of enlightened capitalism”, Mr. Fowler declared that:

“For this nation, therefore, they have not only a commercial importance- but a highly significant role in the United States foreign policy that has met with general approval by the Atlantic countries.”

He elaborated on the reasons why the corporations should, in their own self-interest, assist the Government or the United States in maintaining military expenditures abroad, without running down reserves to a dangerously low level.

“Let no one forget,” he said, “the crucial importance to the multinational corporation of a United States government that commands world respect for its economic and military progress as well as for its commitments to the highest human ideals – a United States government whose political diplomatic and military strength is fully commensurate with its role as leader of the free world … for let us understand that the United States government has consistently sought, and will continue to seek to expand and extend the role of the multinational corporation as an essential instrument of string healthy economic progress through the Free World.”

Mr. Fowler then explained, that the American firms abroad could not long continue to operate without the American political presence:

“Indeed, while it is most difficult to quantify, it is also impossible to over-estimate the extent to which the efforts and opportunities for American firms abroad depend upon the vast presence and influence and prestige that America holds in the world. It is impossible to overestimate the extent to which private American ventures overseas benefit from our commitments, tangible and intangible, to furnish economic assistance to those in need and to defend the frontier, of freedom …in fact if we were to contemplate abandoning those frontiers and withholding our assistance…I wonder not whether the opportunities for private American enterprise would wither – I wonder only how long it would take.”

He went on to warn the corporations that the rising tide of nationalism in both developed and less developed countries was generating public attitudes that could obstruct their growth and expansion.

”There are signs in quite a few developed countries that their political leaders believe they have a diminished need for foreign capital, technology and management. In a number of less developed countries. new political leaders manifest a distinct preference for government to government grants and loans for local or state-owned enterprise over the entry of foreign direct investment.”

While acknowledging that the multinational corporation is subject to the laws of the country in which it operates, Mr. Fowler suggested that the United States’ would assist the corporation by bringing pressure to bear on these governments:

“In the final analysis, the prospect for improving the institutional environment for the multi-national companies depends primarily on the willingness of political host countries to forgo voluntarily as a matter of national policy the exercise of extremes of nationalism, even though within the bounds of sovereignty.”

The areas in which countries may expect to experience pressure to ”forgo voluntarily” the exercise of their national sovereignty were clearly defined by the American Government in the same speech.

There will be pressure to create or enlarge regional marketing areas. These, it was specifically pointed out “are conducive to the infusion of capital, initiative and technology from external, as well as internal sources.We have already referred to the remarks of Mr. George Ball to the effect that the interests of the multi-national corporation are in conflict with the political sovereignty of the nation state.”

The corporations were warned by Mr. Fowler that failure in the effort to reduce trade barriers, “will bring the multi-national corporation hard up against national or larger regional interests seeking self-containment and self-sufficiency and turning away from the post-war movement toward increasing interdependence.” These remarks appear to be addressed as much, if not more to the countries of Western Europe and Canada, as to the so called developing countries.

Pressure will be placed on the less developed countries to understand “by word and deed” that “an institutional environment which accepts state confiscation or state operation of competitive units on an unrestricted basis as a national policy” is incompatible with the interests of the multinational corporation .

Further, a stable international monetary system will be maintained. With this comes pressure to maintain free convertibility, fixed exchange rates, balanced budgets and stable price levels in developing countries.

 “It is on the stability and soundness of the American dollar as much as on any other single factor – that the entire international monetary system is anchored. Our ability to shoulder the burdens of world leadership – economically, politically and military, must rest as much upon the firm foundation of a strong dollar as upon any other aspect of national strength.”

Despite the substantial surplus of external purchasing power earned by the multinational corporations for the United States economy and policy, military expenditures abroad have been rising faster than the ability of American business to finance them in terms of foreign exchange earnings.  There has been a continuing drain of gold from the vast stores buried under Fort Knox. U.S. dollar reserves declined from $22.9 billion in 1957 to $15.5 billion in 1964 and continue to diminish.     Furthermore, foreign dollar holdings, both official and private, increased from 13.6 billion to $25.9 billion over the same period.   This dramatic fall in reserves reflects a basic shortfall in the country’s receipts from abroad needed to meet its foreign obligations. The situation is precarious because a continuing dollar drain might set off a run on the dollar and force a devaluation. The damage to America’s financial and general prestige would be irreparable.

Whereas commercial capital outflows from the United States generate, after a period, inflows of dividends, interest, and similar incomes as well as commodity exports, government expenditures military purchases abroad do not produce any compensating inflows. These foreign military expenditures have been rising rapidly. Between 1946 and 1950 the U.S. spent an average of $589 million per year between 1951 and 1955 foreign military spending rose to an average of $2,300 million. Since 1956 these expenditures have been running at $3,100 million per year. If we add the net effect on the U.S. balance of payments of foreign aid the deficit is raised to at least $3,500 million per year.

The cost of protecting the “enlightened engines of capitalism” is increasing. The message of the various “guidelines” show the rate of capital accumulatio, and in fact liquidate assets. The request by the government brought and charge that the restriction of U.S. investment abroad “will not only kill the goose that lays the golden eggs but will serve to deplete out store of golden eggs as well.” To this complaint by the Machinery and Allied Products Institute, President Johnson replied in the following terms:

“In spite of some pain and some cost, and some loss in business and some loss in profits, I believe I know you well enough to say that you will feel that you are getting something really invaluable in return. I believe that you will improve the prospects for your own business future by removing a threat that could block out future expansion.”

America’s closest friends have been harnessed in the effort to finance the rising costs of American Empire. Canada, which has contributed more than any other country to the overseas expansion of U.S. corporations, and whose share in world trade of manufactured goods has declined in the past decade, agreed to restrict its official exchange reserves no matter what the cost in terms of inflationary pressures of deflationary counter-measures. Heavily geared to the continuing inflow of American capital, Canada is highly vulnerable to a reversal in the established patterns of capital investments in the service of protection of the U.S. balance of payments and the U.S. dollar.