Transnational Corporations: Fragmentation Amidst Integration

By Grazia Ietto-Gillies | Go to book overview

8

International production in

the context of the 'new' trade theories

1


8.1Introduction

As mentioned in chapter six the literature on international business and on the activities of multinational companies has, on the whole, remained outside the boundaries of interest of most economics departments for a very long time. The considerable developments we have seen have been sparked off by research in business schools or in non-mainstream economics departments. This was the state of affairs up to the 1980s.

In the last fifteen years or so the situation has slowly been changing: multinationals and their activities have increasingly been the subject of research in more traditional economics quarters.

The reasons for the earlier marginalisation are many and in particular have to do with the approach to economic problems within the established economics profession. Economics is usually studied with a view to reaching equilibrium solutions under optimisation conditions. To this end often drastic, unrealistic assumptions are made. Friedman (1953) using an instrumentalist approach to methodology of science defends unrealistic assumptions on the basis that such assumptions are needed in all sciences, social and natural. He argues that the main issue is not whether in any theory the assumptions are realistic - because they never are - but whether the theoretical model behaves as if the assumptions were realistic. This position was strongly criticised by philosophers of science (Musgrave, 1981) as well as other economists (Samuelson, 1962).

The assumptions of competitive, atomistic markets of most neo-classical economics sit oddly with the real world of large, powerful multinational companies. Equilibrium analysis is usually carried out either at the micro level or at the general equilibrium level. Industry-level studies are not so amenable to equilibrium analysis. Yet this is the level at which the impact of MNCs' activities is strongest and it is the level of study, which has brought most relevant results in the international business literature.

Cantwell (1989, 2000) distinguishes three types of approach to international production and the MNC. A microeconomic approach, which is exemplified mainly by studies of the MNCs in terms of efficient organisa-

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