Nation-States and the Multi-National Corporation: A Political Economy of Foreign Direct Investment

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Nation-States and the Multi-National Corporation: A Political Economy of Foreign Direct Investment Nathan M. Jensen Princeton University Press, 2006

It is the subtitle "A Political Economy of Foreign Direct Investment" that tells the reader what this book is about. The main title might lead one to expect deep philosophical discussions about the future of nation-states and of their peoples in the face of the growing power of multinationals in a globalized world economy. But the author does not attempt to speculate on such a major scale: instead he restricts himself to the more modest task of studying the factors that influence the direction of international investment. Multinational corporations, as Jensen states in the first paragraph of his introduction, already account for one fourth of the world's output and one third of the world's trade. That being so, and with the expectation that this proportion is more likely to grow than diminish, he gets down to brass tacks and asks what makes multinationals invest in one country rather than another.

Vast sums of money are today transferred from the pockets of citizens of prosperous countries by their governments, both by direct government aid or through the medium of international institutions such as the IMF and the World Bank, to the governments of failing countries. Much of this is either wasted by mismanagement, or even by outright misappropriation, by the recipients. Although generally described as "loans," the funds so transferred are seldom repaid.

It is private direct investment that is most likely to make economic sense. But what induces the directors of multinationals to invest in a foreign country? There is an established myth, Jensen says, that multinationals are heavily influenced by financial incentives such as low tax rates, and the governments of countries seeking to attract private investment mostly believe that the only way they can do so is by offering fiscal benefits. His research leads him to dispute this, with seeming justification.

International investments by multinationals generally involve relatively long-term commitments - quite unlike simple movements of money that can be speedily reversed (although even banks that make loans to unstable countries often find that they cannot recover their investment unless they can persuade international bodies such as the World Bank to step in and assume the financial burden in their place). …