Nonstate Actors: The Future of IPE(?)

1. Nonstate Actors: The Future of IPE(?) Lecture 23 – Tuesday, 30 November 2010J A Morrison British East India Co BP (formerly Anglo-Persian Oil Company)

2. “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.” -- Stephen Krasner (1976)

3. “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 theprinciple of exclusive control have been, and continue to be, challenged.” -- Stephen Krasner (1993)

4. Lec 23: Actors of the Future • Multinational Enterprises • Transnational Advocacy Networks • The Media & Markets • Exam Overview

5. Lec 23: Actors of the Future • Multinational Enterprises • Transnational Advocacy Networks • The Media & Markets • Exam Overview

6. “The multinational enterprise (MNE) is defined here as an enterprise that controlsand manages production establishments - plants - located in at least two countries.” (Caves, 145)

7. Note about Terminology • MNCs: multinational corporation • Older term • Less accurate • MNEs: multinational enterprise • Newer term • More accurate, but less widely used

8. I. Multinational Enterprises Why MNEs? (Caves) Are MNEs good or bad? A Tale of two MNEs

9. 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?

10. 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?

11. 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?

12. Let’s work through this using a simple example…

13. (This is actually pertinent since Guinness merged into the international conglomerate Diageo in 1997.)

14. 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)

15. 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?

16. 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

17. These are just some of the motivations for transnational integration.The key point is that firms often possess incentives to “multinationalize” their production.

18. 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?

19. I. Multinational Enterprises Why MNEs? (Caves) Are MNEs good or bad? A Tale of Two MNEs

20. First, we ask this question with respect to the host countries.

21. Benefits of MNEs for Hosts • Investment: money!!!! • Intellectual property: trademarks, patents, production techniques • New Products: (Guinness!) • Technological Spillover Effects • Training • Infrastructure

22. 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

23. What do Strange & Fieldhouse say?

24. Second, we ask this question with respect to the home countries.

25. Benefits of MNEs for Home Countries • Lower production costs • Access to new markets • Benefits of economic interdependence: peace!

26. 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

27. I. Multinational Enterprises Why MNEs? (Caves) Are MNEs good or bad? A Tale of Two MNEs

28. MNEs are not new!They are at least as old the medieval joint-stock trading companies.

29. So, we have lots of history and examples to consider.Here, we’ll look at two interesting multinationals…

30. British East India Co. United Fruit Co.

31. (British) East India Company • Charted in 1600 to compete for access to India • 1612: Defeats Portugese • 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.

32. 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”

33. 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 Amer

34. 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.”

35. 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.

36. Lec 23: Actors of the Future • Multinational Enterprises • Transnational Advocacy Networks • The Media & Markets • Exam Overview

37. In addition to those entities organized to secure economic ends, international political economy is also influence by nonstate actors dedicated to achieving non-economic goals…

38. Keck and Sikkink (and others!) call these actors Transnational Advocacy Networks (TANs).

39. 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)

40. But how are TANs able to achieve their objectives?

41. 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

42. Lec 23: Actors of the Future • Multinational Enterprises • Transnational Advocacy Networks • The Media & Markets • Exam Overview

43. 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…

44. The 2009 Iranian Election Apple’s Environmental Campaign Grand Theft Auto

45. And, of course…

47. Speaking of Apple…http://www.thedailyshow.com/watch/thu-march-12-2009/jim-cramer-extended-interview-pt--3

48. Lec 23: Actors of the Future • Multinational Enterprises • Transnational Advocacy Networks • The Media & Markets • Exam Overview

49. Final Exam Timing • Distributed: 5:30 PM, Friday, 3 December • http://ipe1011.jamesashleymorrison.com/exam/ • Due: 10:00 PM, Tuesday, 7 December • Tardiness • Exams marked late if received after 10:30 PM • Normal penalties apply!

50. 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 • Old exam has the same format: • http://blogs.middlebury.edu/ipefall09/assignments/final-exam/