Brown, Jeffrey L.

English

University of Denver

Denver Journal of International Law & Policy Volume 10 Number 3 Spring Article 16 May 2020 Multinational Enterprises in the West and East Jeffrey L. Brown Follow this and additional works at: https://digitalcommons.du.edu/djilp Recommended Citation Jeffrey L. Brown, Multinational Enterprises in the West and East, 10 Denv. J. Int'l L. & Pol'y 603 (1981)(book review). This Book Review is brought to you for free and open access by the University of Denver Sturm College of Law at Digital Commons @ DU. It has been accepted for inclusion in Denver Journal of International Law & Policy by an authorized editor of Digital Commons @ DU. For more information, please contact jennifer.cox@du.edu,dig-commons@du.edu. BOOK REVIEWMultinational Enterprises in the West andEastReviewed by Jeffrey L. BrownMultinational Enterprises in the West and East, by Leon Zurawicki.Sijthoff & Noordhoff International Publishers, Alphen aan den Rijn,The Netherlands (1979); available in the U.S. from Sijthoff &Noordhoff, 20010 Century Blvd., Germantown, MD 20767. ISBN 90-286-0419-7. Pages xi, 207. $27.50. (hardbound).Rarely outside the classrooms of Macroeconomics 405 can pages ofalgebraic equations be found devoted to the principle that by artificiallycontrolling certain assumptions, an interesting result can be obtained.Programmed into the computer at the University of Warsaw are such as-sumptions as "buyers' decisions are taken at random,"1 and "firms mayreduce their deliveries and production to any extent. . without any costincrease per unit of produce."'3 If the first assumption is true, even in aso-called commodity market, the purchasing departments of most mul-tinational enterprises are grossly overstaffed. Admittedly the latter as-sumption fails to take into account economies and diseconomies of scale.The formula goes on and on and, assuredly, is of unquestioned value tosomeone sophisticated in such matters. For an international attorney con-cerned with multinational commerce, other aspects of the book are likelyto be more relevant.'In an overview, the book is devoted to a detailed description of theperceived characteristics and motivations of the Western multinationalenterprise (MNE) and a comparison with those of the so-called Socialistcommon enterprise (SCE). In the atmosphere of competing demands, theauthor analyzes examples of East-West industrial cooperation and dis-cusses the potential for East-West-South initiatives.Jeffrey L. Brown is associate corporate counsel and director of international law, Johns-Manville Corporation, Denver Colorado. B.A., 1964, Penn State University; J.D., 1967, Uni-versity of Denver College of Law.1. L. ZURAWICKI, MULTINATIONAL ENTERPRISES IN THE WEST AND EAST 13 (1979).2. Id. at 17.3. For an analysis and comparison of variable, marginal, and average costs and theireffect on pricing, see Areeda & Turner, Predatory Pricing and Related Practices UnderSection 2 of the Sherman Act, 88 HARv. L. REV. 697 (1975).DEN. J. OF INT'L L. & POL'YAn MNE, according to the author,' typically enjoys a dominant posi-tion in more than one national market. It exists in an oligopolistic indus-try characterized by "soft" competition in which defensive behavior ispreferred to offensive reaction, and price competition is kept at a mini-mum by adherence to the "rules of the game." Global marketing and cap-ital strategies of MNE's allow for geographical mobility: an internationalpresence economically independent and outside of individual countrieswithin which they operate. Through devices such as transfer pricing,management fees, royalties, research and development charges, and creditpolicies, profits can be allocated among related companies owned or con-trolled by the MNE in such a way as to maximize earnings within juris-dictions having favorable tax laws and strong currencies.Exports are explained as a reflection of the higher fixed costs typicalof large Western MNE's and their corresponding need to expand intoother markets and utilize excess capacity. This applies particularly in astagnant or highly competitive domestic economy.Differences in cost of living (for example, raw material and labor)frequently dictate the desirability of foreign investment or supplementdiminishing export markets. The author regrets that MNE's are betterorganized than international labor, but recognizes the difficulty of or-ganizing workers in another country where the living standards are dispa-rate and differences are accentuated by distance and culture.The author adopts the position attributed to trade unions that in thelong run, activities of MNE's tend to reduce employment opportunities athome even though foreign subsidiaries often provide a short-term sourcefor exports of components, materials, and intellectual property used inthe manufacturing process. This assumes, of course, that the host countrywill be content to import foreign goods and services indefinitely, a pro-position which is clearly contrary to the goals the author describes for theSocialist countries, that is, the members of the Council for Mutual Eco-nomic Assistance (COMECON).5In summary, the author sees MNE's as a threat to the economic sov-ereignty of the countries within which they operate, both developed anddeveloping. Against the concerns of MNE's for maximizing profits, ex-ploiting local markets, repatriating earnings, safeguarding investments,and control over management, is the interest of the host country in rais-ing employment prospects (particularly in depressed areas), utilizing do-mestic sources of supply, maximizing tax revenue, increasing exports, pro-viding technological advancement, and minimizing foreign control. Whilein the short term, foreign investment will bring needed capital; in thelong term,6 profits will exceed initial investment and there will be a re-4. The author received his doctorate in 1971 from the Netherlands School of Econom-ics, and now teaches at the Institute of Economic Science, University of Warsaw.5. The author uses the abbreviation CMEA instead of COMECON.6. Approximately five years.VOL. 10:603BOOK REVIEWsuiting negative flow of capital.7 The author concludes as to the mutualrelations between MNE's and the states within which they operate, "onecannot foresee much." sWhile disclaiming any universal model, the author describes the SCEas a large-scale, diversified entity characterized by a sharing of skills, lackof competitiveness, and high efficiency. "In the framework of the plannedeconomy, the state as the owner of the productive capacities of the coun-try is in the position to use its investment funds in a way which enablestheir optimal utilisation and allocation, whereby the economies of scaleare realized. '"'Western prices, according to the author, rely less on the cost of man-ufacture than the principle of supply and demand (an intrinsic or socialvalue greater than the sum of its parts). By comparison, the main objec-tive of the SCE should be production at reduced costs on as large a scaleas possible, with price predicated on the lowest cost of production withinCOMECON countries.It is, of course, difficult to describe SCE's, as they are stated to be arelatively recent phenomenon 0 and still in the formative stage." The au-thor would like to see COMECON-wide ownership of SCE's, providingcommon Socialist goals while recognizing employment, revenue, and otherinterests peculiar to the host country. In 1976, the Comprehensive Pro-gram for the Development of Socialist Economic Integration and the Uni-form Principles of Creation and Functioning of the International Eco-nomic Organizations were worked out. In the words of the author, thesewere "rather vague and flexible."'The author also poses the question whether or not foreign investmentis prompted by the initiative of the host country or that of the MNE.1' Inthe case of the Eastern European countries, the recurrent theme is a needfor hard currency-money with which to buy Western goods and technol-ogy. Hence the stress is on compensatory trade, counter-purchases, buy-back arrangements, and even barter transactions. In any agreement totransfer technology to the East, the level of reciprocal purchases will de-termine the available limits of royalties and sales into socialist countries.7. This conclusion seems to ignore the benefit of an ongoing operation in terms of em-ployment, reduction of imports, capital growth, etc.8. In fact, the respective goals of each may not be as antagonistic as they appear at firstglance.9. L. ZURAWICKI, supra note 1, at 99.10. Within the last six years.11. As of 1978, there were no more than a dozen SCE's.12. L. ZURAWICKI, supra note 1, at 115. Actually, the Comprehensive Program was for-malized in 1971. The best analysis of these documents in the overall Socialist context is R.BysTmCKy, LE DROIT DE L'INTEGRATION ECONOMIQUE SocIAusT (1979). (Ed. note: ProfessorBystricky's book will be the subject of a review in an upcoming issue of the Denver Journalof International Law and Policy).13. Generally, a country's efforts to encourage foreign investment are inversely propor-tionate to full employment and a favorable balance of payments.1981DEN. J. OF INT'L L. & POL'YThese purchases often take the form of component sales to the Westernlicensor-in the words of the author, the Eastern producer becomes a"peripheral supplier of marginal components for the final product. 1 4This, the author claims, is inequitable to the licensee since it is presumedthat the end product is more profitable than the individual component.On a dollar invested basis, this premise might be challenged, particularlywhen one views the relative profits made by the suppliers of small vendoritems to the auto industry in the United States. To better neutralize thebalance of payments, the author suggests that a list of components beprepared and ranked by value, with the Eastern partner getting its fairshare of the higher value components."Ideological antagonisms" stand in the way of extensive joint ven-tures and capital cooperation between East and West. Capital investmentnormally carries the expectation of ownership participation-a conceptincompatible with state-owned enterprises. MNE's are generally unat-tracted by passive investments and will not normally favor minority par-ticipation in the control of the venture, even with a more positive divisionof profits. The limited duration of joint venture participation inCOMECON countries is an additional feature which discourages partici-pation by Western MNE's, and in Yugoslavia repatriation of profits islimited to a percentage of foreign exchange earned by the venture. Essen-tially, central economic planning, which is a prerequisite of socialist econ-omies, forecloses any large-scale equity participation by Western enter-prises.15 More realistic is the possibility raised by the author of an East-West joint venture, limited to research and development, whereby tech-nological exchange benefits both parties without the stress of foreignintrusion.The discussion ultimately points to the dilemma faced by developingcountries in attracting capital and technology and acquiring foreign-madegoods, while at the same time maintaining consistency with national eco-14. L. ZURAWICKI, supra note 1, at 146.15. While it is probably unfair to review economic projections with the benefit of hind-sight, it is interesting to note that the author refers to certain advantages of capital invest-ment in Socialist countries, including "labourers, who as a rule do not go on strike," id. at155, and "the fact that the socialist countries h'ave a good payment record, especially withrespect to large contracts," id. at 163. The former requires little comment in light of thethreat of Soviet intervention in Poland occasioned by chronic strikes over a number ofmonths. With respect to the record of payment, the Wall Street Journal has reported: "To-gether with Poland's staggering foreign debt and near bankruptcy, the shortages make eco-nomic conditions here among the worst faced by any industrial nation in recent history."Wall St. J., June 18, 1981, at 1, col. 1. Summarizing the status on both points, a recentnewsbrief reported:Moscow stepped up pressure on Poland, as Soviet Marshal Viktor Kulikovsaid the Eastern bloc's military unity is needed 'to protect Socialist gains.' Po-land's debt problems, meanwhile, are due to be addressed by Western creditorsin Paris. U.S. bankers favor freezing repayment until year-end if Poland dis-closes financial data.Id., June 22, 1981, at 1, col. 3.VOL,. 10:603BOOK REVIEWnomic goals. Fundamental differences in underlying philosophies(planned economy versus private enterprise) accentuate stresses inherentin uneven rates of economic growth. Still, accommodation of competinginterests is more likely if motivations are clearly understood. In addition,economic planning can be facilitated by introducing a level of predictabil-ity to the market place. Unfortunately, such an analysis is only as good asthe underlying premises, and not even pages of formulae can reduce mar-ket behavior to a mathematical science. In balance, the exercise is proba-bly worthwhile, but ultimately the author concedes: "It is by no meanseasy to plan in advance the volume of sales in Western markets as muchdepends upon business cycles, the strategy and particular steps taken byrivals, as well as on other more or less random factors."'16. L. ZURAWIKI, supra note 1, at 166.1981

Multinational Enterprises in the West and East

https://digitalcommons.du.edu/cgi/viewcontent.cgi?article=2036&amp;context=djilp

Multinational Enterprises in the West and East

Abstract

Similar works

Full text

Available Versions

University of Denver