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Nonstate Actors: The Future of IPE(?)
Lecture 23 – Tuesday, 6 December 2011J A Morrison 1
British East India Co
BP (formerly Anglo-Persian Oil Company)
“In recent years, students of international relations have multinationalized,
transnationalized, bureaucratized, and transgovernmentalized the state until it has
virtually ceased to exist as an analytic construct. Nowhere is that trend more apparent than in the
study of the politics of international economic relations. The basic conventional assumptions have been undermined by assertions that the
state is trapped by a transnational society created not by sovereigns, but by nonstate actors. Interdependence is not seen as a
reflection of state policies and state choices (the perspective of balance-of-power theory), but as the result of elements beyond the control of any
state or a system created by states.” 2-- Stephen Krasner (1976)
“Changing material conditions, however, and the continued variety of
political ideas have also made it difficult to secure any general
agreement on the scope of sovereign authority. While universal institutions
have dramatically weakened, the prerogatives of sovereign states have
been constantly contested…The actual content of sovereignty and the
principle of exclusive control have been, and continue to be, challenged.”
3-- Stephen Krasner (1993)
Lec 23: Actors of the Future
I. Multinational EnterprisesII. Transnational Advocacy
NetworksIII.The Media & MarketsIV.Exam Overview
4
Lec 23: Actors of the Future
I. Multinational EnterprisesII. Transnational Advocacy
NetworksIII.The Media & MarketsIV.Exam Overview
5
“The multinational enterprise (MNE) is defined here as an enterprise that
controlsand manages production establishments - plants - located in at least two
countries.” (Caves, 145)
6
Note about Terminology
• MNCs: multinational corporation– Older term– Less accurate
• MNEs: multinational enterprise– Newer term–More accurate, but less widely used
7
The obvious explanation for the existence of MNEs is
that specific firms find it in their interest to
internationalize production.
But we should be more precise: why is it in their
interest?9
This is a major question for economists in the “industrial
organizations” subfield.
How do we explain firms’ decisions about which
production processes they undertake internally and those
they leave to other independent firms?
10
And it has considerable bearing on IPE: should firms trade with foreign firms for their inputs or should they
acquire those firms and directly control that
production themselves?
11
(This is actually pertinent since Guinness merged into
the international conglomerate Diageo in
1997.)
13
Types of Integration• Horizontal: same process
in multiple countries– E.g. Guinness brews and
bottles beer in more than 50 countries worldwide
• Vertical: different parts of production in different countries– E.g. While the barley is
Irish, the hops come from all over (including the US)
14
So, Guinness must ask:
(1) Should we buy the foreign production facilities or just
subcontract the stout’s production?
(2) Should we own the farms that grow our barley, malt, and hops or just buy it on the open
market? 15
Caves: Transaction Costs Drive Integration
• Proprietary Assets Horizontal Integration– E.g. Guinness might not want to give
out the secret recipe!
• “Impacted Information” Vertical Integration– Impacted information: Primary
producers possess incentives to deceive downstream dependents
– E.g. Producers of special hops might inflate price Guinness pays
16
These are just some of the motivations for
transnational integration.
The key point is that firms often possess incentives to
“multinationalize” their production.
17
We can apply the same logic to consider empire as well:
Should Britain trade with the Indians or should they
acquire India?
Should Japan trade with China for raw materials or
just acquire China?18
Benefits of MNEs for Hosts
• Investment: money!!!!• Intellectual property:
trademarks, patents, production techniques
• New Products: (Guinness!)• Technological Spillover Effects• Training• Infrastructure
21
Costs of MNEs for Hosts
• Disproportionate bargaining power: threat of exit
• Bring “dirty” industry (e.g. waste disposal)
• Profits are repatriated• Competes with domestic industry
22
Benefits of MNEs for Home Countries
• Lower production costs• Access to new markets• Benefits of economic
interdependence: peace!
25
Costs of MNEs for Home Countries
• “Footloose” capital: change in bargaining power
• Cost domestic jobs and/or change in terms of trade
• Loss of tax base• How to keep firms accountable
overseas?– Environment– Labor standards
26
So, we have lots of history and examples to consider.
Here, we’ll look at two interesting multinationals…
29
British East India Company
• Charted in 1600 to compete for access to India
• 1612: Defeats Portuguese• 1670: King grants Co. power to mint
money, conduct foreign policy, command troops, enforce justice
• 1700-1850– Co. expands territorial influence– Parliament continuously exerts
sovereignty over Co. 31
Indian Mutiny of 1857• Sepoy Mercenaries object to
treatment, begin uprising• Civilian rebellion follows—“First Indian
War of Independence”• Rebellion put down; but Co. falls into
disfavor• Government of India Act of 1858– Transfers governance & property to Crown– End of “Company Rule” in India
• 1876: Queen Victoria becomes “Empress of India of the British Raj” 32
United Fruit Company• 1899: United Fruit created (in
Boston) to grow and trade tropical fruits from Latin America
• 1900-1930– UFC acquires companies and territory
throughout Latin America– UFC takes on quasi-governmental role in
“banana republics”
• By 1930, UFC is largest employer in Latin America
33
The Banana Wars• US military frequently intervened on
behalf of MNE’s interests– Nicaragua occupied 1912-1933– Haiti occupied 1915-1934– Veracruz Mexico occupied in 1914
• 1928 Banana Massacre: Colombian government kills 1000s of striking workers
• United Fruit may have orchestrated coup d’éta in Honduras– CEO of United Fruit: “In Honduras, a mule
costs more than a member of parliament.” 34
These two cases show the close affinity between global politics
and the global economy.
But, arguably, they tell different stories:
The East India Company was more often subordinated to political
interests.
United Fruit, by contrast, dictated policy to both its home and host
countries.35
Lec 23: Actors of the Future
I. Multinational EnterprisesII. Transnational Advocacy
NetworksIII.The Media & MarketsIV.Exam Overview
36
In addition to entities organized to secure
economic ends (MNEs), international political
economy is also influenced by nonstate actors
dedicated to achieving non-economic goals…
37
K&S argue that these “complex global networks carry and re-
frame ideas, insert them in policy debates, pressure for regime
formation, and enforce existing international norms and rules, at
the sametime that they try to influence particular domestic political
issues.” (199)
39
The Strategies of TANs• Information– Gather and report reliable information Analogous to int’l regimes!
• Symbolism– Use events to focus attention, build
movement
• Leverage– Link issues– Use powerful friendly governments
• Accountability– Couple behavior with consequences
41
Lec 23: Actors of the Future
I. Multinational EnterprisesII. Transnational Advocacy
NetworksIII.The Media & MarketsIV.Exam Overview
42
The “information revolution” has dramatically increased and
perhaps transformed the influence of the media on markets.
Today, the media has the power to influence actors’ political and
market behavior like never before…
43
Speaking of Apple…
http://www.thedailyshow.com/watch/thu-march-12-2009/jim-cramer-extended-interview-pt--2
47
Lec 23: Actors of the Future
I. Multinational EnterprisesII. Transnational Advocacy
NetworksIII.The Media & MarketsIV.Exam Overview
48
Final Exam Timing
• Distributed: 5:30 PM, Friday, 9 December– http://ipe.jamesashleymorrison.com/
exam/
• Due: 10:00 PM, Wednesday, 14 December
• Tardiness– Exams marked late if received after
10:30 PM– Normal penalties apply!
• Upload to Moodle, as usual 49
Final Exam Format• Format: – Q1 (400 words): Select 1 of several
questions– Q2 (650 words): Everyone answers
same question– Q3 (650 words): Select 1 of several
questions
• See course site for old exams
50