Multinationals

Book reviews Fungurume

and

Peruvian

Cuajone

copper projects, with two tables relating to

Cuajone.

(Excluding

there are 47 tables -that’s Consequently,

for

professionals, analysts

book

this

recommended

appendixes, nice).

can

novices

for

observers

as well as miners.

be or and

The

only

difference may be that some people will skim more sections than others. William Science

Page

Policy Research

University

of Sussex,

Unit UK

Multinationals EUROPE

+ LATIN AMERICA

+

THE MULTINATIONALS A

Positive

Sum

Game

Exchange

of

Raw

Technology

in the 1980s

for

Materials

the and

by 8. Lietaer Saxon House for the European for

Study

Multinational

and

Corporations

Farnborough,

Centre

information

UK,

1979,

on

(ECSIM), 273

pp,

f9.50

This book deals with the future of the economic relationships between the developed countries of the North and the less developed countries (LDCs) of the South. These relationships are already clearly strained. During the 1960s differing North-South interests became obvious but were predominantly contained in the relatively orderly debate of the newly formed UN Conference on Trade and Development (UNCTAD). In the 1970s the energy crisis and the problems over other basic resource supply made the conflict of North-South interests in these areas publicly obvious. Professor Lietaer builds these existing tensions, and the familiar analyses of them, into what he terms the ‘normal’, ie most commonly propounded, scenario for North-South relationships in the 1980s. In addition to continuing resourcebased stresses the developed and developing countries are seen to realize a new area of confrontation over the

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POLICY December

now critical debt position faced by Lietaer LDCs. Professor many documents carefully his argument that, operating as a coordinated unit, the developing countries will have the economic power to default on their debts to the developed countries without viable retaliation. In practice, and through its effect on the monetary system and inflation, this represents a redistribtuion of wealth from the rich North to the poor South, but in a disorderly and disruptive fashion. For this type of reason the normal scenario is characterized as a negative sum game, ie a series of redistributive mechanisms in which the gains of the gainers (the South) are less than the losses of the losers (the North). Within this scenario Professor Lietaer analyses in greatest depth the position of three actors, Europe in the North, Latin America (LA) in the South, and European multinational corporations (MNCs) as a leading agent in the North-South relationship. All face major problems in the 1980s in any scenario. European MNCs face stagnant home markets and will be in the cross-fire of North-South dissent as propounded in the normal scenario. Europe faces problems of structural unemployment and vulnerability in external trade to which there are no obvious solutions in the normal scenario. LA needs to find a new basis for economic development as the growth potential of the already faltering import substitution policies fade completely, and with the growing realization that measurable growth in gross national product (GNP) often does not mean true development.

Massive

transfer

The second part of the book elaborates some ideas which could help generate a positive sum game for North-South relations; one in which the total of world output grows so that the gains of the South can exceed the losses of the North. Such a desirable, ‘normative’, scenario, Lietaer argues, must involve a massive, orderly redistribution of resources from the North to the South. It is suggested that the North will realize the desirability of such redistribution, not so much on (valid) humanitarian or

1980

political grounds, but because it will result in a considerable boost to their export markets and help alleviate their unemployment problems (the Marshall Plan is cited as a worthy precedent). Lietaer proposes an Professor the World mechanism, interesting Development Exchange (WDE), to effect this redistribution. In the briefest of summaries the WDE is proposed to work as follows. A LDC proposes a project requiring a development determined amount of imports. An authority, eg the World Bank (IBRD), vets the project, and if it approves arranges with WDE that it can be paid for by the export of a determined amount of ‘any raw material, semimanufactured product or manufactured product which can be standardised and not likely to change which is significantly over the medium term’. The WDE itself provides a future market in the good in question at an administered price which may be artificially high to include a specific ‘aid’ content. The good is, however, still traded at a (probably lower) free market spot price with the spread (covered by a WDE Fund financed mainly by the North) representing the redistributive subsidy by the North to the South. This isolates the LDC from the dangers of planning in a situation where its foreign exchange earnings may be subject to either unpredictable fluctuations or a steady downward trend in price of its staple exports. The proposal is apt because much of the empirical work on the subject does not demonstrate that higher levels of export earnings instability lead to lower growth, yet case studies illustrate many cases where important projects need to be truncated, delayed or abandoned because of unexpected shortfalls in foreign exchange. Thus a mechanism that guarantees individual projects without interfering in commodity markets may be appropriate. The preservation of free spot markets would be welcomed by the North. The concept is also similar to the South’s demand for indexation of their export prices, which in turn would help avoid worsening of LDC debt problems, somewhat alleviating that source of tension. The other main strand in Professor Lietaer’s ‘normative’ scenario is the elaboration of a new ‘geographical

337

Book reviews diagonal’, in the form of a special relationship between Europe and Latin America. The areas of complementarity are elaborated in some detail. Here we note the suggestion that LA needs to replace import substitution by a policy of export of products embodying those raw materials and energy forms in which it is strong and Europe is weak. A weak Europe is seen as an acceptable partner for external connections in a LA which fears the ‘dependencia’ of external links with stronger partners. For LA this approach is seen as making viable economic growth that also has a developmental content in the form of a more equitable distribution of income, and is also complementary with necessary programmes for development of its agriculture and hinterland. European domestic production must, in the positive scenario, make the inevitably painful transformation to a high technology specialization in content industries, while the MNCs should also seek to generate alternative products and production processes suitable for use in its LDC-based affiliates. The role of MNCs in the ‘normative’ scenario is backed but regulated by a new General Investment Agreement which includes ‘a set of tough but sfable rules under which the and multinationals would operate, would also establish norms of conduct for the host countries vis ci vis MNCs’. Professor Lietaer ends his book by detailing a proposal for the ‘Eurofutures’, a establishment of European-based ‘think tank’ oriented to the solution of medium-term problems. This complements his suggestion that, with most to lose from the negative ‘normal’ scenario, it should be Europe that initiates the discussion necessary to the implementation of the positive ‘normative’ scenario. In detail, parts of the book are more completely and persuasively worked out than others. But, as Professor Lietaer frequently suggests, the purpose is not to provide the complete answer but to demonstrate that answers still can be found given the will. The value of the book is to demonstrate that an exposition of the pessimistic received wisdom can be used not to support nihilistic defeatism, but as the platform for positive and constructive alternative proposals.

338

THE ROLE OF MULTINATIONAL COMPANIES

IN LATIN AMERICA

A Case Study in Mexico by

R.

Montavon

collaboration

with

of M. Wionczek

the and F.

Piquerez Saxon

House

Farnborough,

for

ECSIM,

UK,

1979,

Teakfield, 128

pp,

f8.50

This study of foreign investments in Mexico was limited to two cases, because of lack of response from other potential participants. Fortunately the two enterprises observed provide interestingly contrasted cases. Danone Mexico (DM) is a 49% owned of BSN-Gervais affiliate Danone, but the disposition of the other shares is such that BSNGervais Danone has effective control over the firm. It was established in 1973 to manufacture yogurts and other milkbased products following the great success of a similar affiliate in Brazil. Fibras Quimicas (FQ) was established in Mexico in 1959 to manufacture synthetic fibres. FQ is 40% owned by AKZO and is a subsidiary of the Mexican chemical CYDSA, the 20th largest group Mexican firm by sales in 1975. Other CYDSA subsidiaries have similar minority holdings by other foreign multinational corporations (MNCs), eg Bayer and Goodrich. Unlike DM the local holding in FQ clearly represents an experienced and powerful economic entity. The wish of CYDSA to enter the nylon market led it to seek a partner with the necessary technology. AKZO possessed this technology and was prepared to accept a minority holding as this was its first, experimental, entry American production. Latin into AKZOs 40% share in FQ was purchased largely in kind, through manufacturing licences and know-how.

Value to economy The background to the creation of and FQ is clearly both DM documented, as is their performance up to 1976. The real test of value of such studies, however, is the extent to which they permit realistic assessment of the value of the foreign association to the

local economy. Some useful deductions can be drawn from the information outlined by Montavon. Both enterprises seem to have generated extra employment. Although the employment of DM is small (170 in 1977) there is some presumption that this is a net gain to the overall level of employment in Mexico. Thus it seems that the demand met by DM was also created by it (and a Nestle subsidiary which began marketing yogurt more or less simultaneously). A small local firm produced yogurt at this time but with no attempt to create a mass market. It is interesting to note that, in the wake of the advertising campaigns of the foreign firms, this local firm more than doubled its sales between 1974 and 1977.

Employment effects The employment effects of the foreign contribution to FQ are less easy to assess. FQ employed 2 700 in 1977 based on the use of AKZO technology. Other foreign sources of technology might have been used to generate similar levels of output and employment, but there is no indication that FQ could have existed on the basis of indigenous technology. Therefore it could be concluded that foreign technology has provided the generation of significant employment for Mexico. However, a further question follows here. Namely whether, given the basic benefits to employment obtained from the foreign technology, the particular mode used to obtain that technology, ie a minority ownership share with board representation, has additional cost or benefits compared with other modes, eg arms length licensing agreements, or turnkey management contracts agreements, or, indeed, a 100% owned AKZO subsidiary. Montavon is unable to analyse such alternatives but makes the valid point that in an industrial with evolving sector constantly technology it is likely to be easier for AKZO to keep FQ appraisal of the new it needs to keep it technology within the existing competitive arrangement than it would have been in any arms-length contract. So some suggestion exists from the study that FQ, as constituted, generates jobs for Mexico that would not have existed without the AKZO technology, and

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POLICY

December

1980