The Political Sociology of Foreign Direct Investment: Global Capitalism and Capital Mobility, 1965-1980

By London, Bruce; Ross, Robert J. S. | International Journal of Comparative Sociology, December 1995 | Go to article overview

The Political Sociology of Foreign Direct Investment: Global Capitalism and Capital Mobility, 1965-1980


London, Bruce, Ross, Robert J. S., International Journal of Comparative Sociology


Originating with concern for the restructuring and deindustrialization of the U.S. and other "core" countries, but holding significant implications for "noncore" countries, the theory of global capitalism focusses on the destination of mobile capital (FDI) rather than on the consequences of its arrival. While considerable empirical work on the consequences of FDI has been done (Bornschier, Chase-Dunn and Rubinson, 1978; Rubinson, 1976; Bornschier and Chase-Dunn, 1985; London, 1987; Bradshaw, 1987; London and Williams, 1988; by contrast, Firebaugh, 1992), very little empirical sociological research has been undertaken on the determinants of FDI location. One recent exception is Crenshaw's (1991) study of FDI (or multinational penetration of noncore economies) as a dependent variable. While this study was an interesting exploratory search for plausible determinants of change in FDI, it was not formulated in terms of a coherent theory. In sharp contrast, the present study attempts to define, operationalize, and test one aspect of a theory of global capitalism that has, as one of its main defining characteristics, a coherent, theoretically-informed explanation of the movement of capital.

Historical Context: Global Capitalism, 1965-1980

As presented by Ross and Trachte (1990), the theory of global capitalism proposes that the relations of (a) labor to capital and (b) capital to the state engendered by the structure of monopoly capitalism had begun to pose serious problems for capital by the late 1960s. Unionization, wage gains, increases in the social wage, and social democratic advances (especially in Europe) were depressing profits, especially at the "core of the core" - in the highly-unionized monopoly sector industries. The process of deindustrialization, the appearance of a "rust belt" in the US, and depressed industrial regions elsewhere in the OECD countries, indicated some of these problems. Price competition reappeared in many branches of industry as the giant firms sought to penetrate previously stable foreign markets. Under the new competitive conditions of worldwide trade, concerns about the cost and control of labor became a high priority for firms and their leaders (Storper and Walker, 1983, 1984; Peet, 1983; Harrison and Bluestone, 1988). The mobilization of (i.e., mobility to) lower-cost, less potent labor forces produced a change in the structure of FDI from the First World to the Third: manufacturing became a more important fraction of FDI, and low-wage export platforms and export-led industrialization became, in the 1970s, a route to increases in GNP in formerly poor countries, and to job losses in vulnerable sectors in richer ones.

In contrast to dependency (Cardoso, 1972; Cardoso and Faletto, 1979; Evans, 1979) and world-system theory (Wallerstein, 1974a, 1974b; Hopkins and Wallerstein, 1982; Chase-Dunn, 1984, 1989; Bornschier and Chase-Dunn, 1985), the model of global capitalism sees an outward flow of manufacturing capital from core to periphery - or its threat for bargaining or political purposes - as a major feature of recent world development. The transition period claimed by Ross and Trachte (1990; Ross, 1990, 1995) was roughly the late 1960s to the early 1980s. This period appears to be the turning point for the role formerly agrarian and extractive regions played in the world economy. The transition may be measured by the rapid growth of manufacturing in many of those economies; by the growth of manufactured exports from the "periphery" as a proportion of total manufactured exports in world trade; and by the growth of investment in manufacturing as a proportion of total FDI from the core to the periphery (see below, and Ross and Trachte, 1990:86, 96-110).

Contentions about the factors which drove the transformation in the global location of manufacturing can, in some respects, be tested empirically using many of the same methods as those pioneered in the cross-national quantitative studies of the consequences of FDI (cited above). …

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