(Average annual amount and growth rates for batch years 1983–1987 and 1988–1992)
SOURCE: As reported by: UNCTAD World Investment Reports, 1996, 4; UNCTAD, 1997, 4. 1997 figure from UNCTAD 1998 report, 19. 1998 figures from UNCTAD 1998 report, as reported in The Economist, June 26, 1999, 7.
Until the 1980s, most merger and acquisition activity occurred within national boundaries, but within the last two decades cross-border acquisitions and mergers have become one of the most important ways for firms to expand their activities transnationally (Dicken, 1998, 222) and are an essential mechanism in the transnationalization process. The concentration of capital is not new. It is part of the very process of capitalist development and was an integral aspect in an earlier period of national class formation and the rise of national bourgeoisies. The transnational concentration of capital through global mergers and acquisitions has a similar importance for transnational class formation and the rise of a transnational bourgeoisie. Some cross-border acquisitions involve the merger of TNCs, but many entail the acquisition of national companies by TNCs, which draws local social forces into the transnationalization process.
Of the $589 billion in total global FDI outflows in 1997, $342 billion, or 58% of the total, went into mergers and acquisitions. This means that just about two-fifths of FDI was in new or start-up investments: the remainder was used to buy up other companies across national borders. In the case of mergers, it meant the integration of capitals from at least two distinct countries. If an acquisition, it meant that a given firm incorporated a foreign company with its employees, managers, and “national” interests. Summarizing the current “merger mania,” Business Week noted: “In industries ranging from autos to telecoms, analysts predict the merger craze will continue” (1998, 53). Cross-border mergers and acquisitions have involved not just the most globalized sectors of the world economy, such as telecommunications, finances, and autos, but also mega-retailers, companies trading in primary commodities, chemicals, and numerous services, from legal firms to insurance and management. Some of the largest cross-national mergers and acquisitions in recent years have been: the record-breaking merger of British Telecom and MCI (telecommunications); Daimler Benz and Chrysler (autos); Dupont and Herberts (chemicals and paints); Alcatel and Motorola (phone and telecommunications equipment), and Alcatel’s subsequent acquisition of DSC Communications; the acquisition of MCA by Seagram (entertainment); and the purchase of Marion Merrel Dow by Hoeschst (pharmaceuticals) (UNCTAD, 1996, 12). In the first nine months of 1998, such transnational merger and acquisition deals across the world totaled $383 billion, more than the total for
1997. As this process deepens transnational capital gains increasing control over every sector of the global economy and transnational class formation accelerates. Commenting on the wave of global mergers during an interview in which he announced the take-over of Random House by Berttelsman, Thomas Middelhoff, Berttelsman’s chair, noted: “There are no German and American companies. There are only successful and unsuccessful companies” (White, 1998, 1).
Importantly, there has been a high degree of cross-investment between the major capitalist countries (Dicken, 1998, 45–46), which indicates a high degree of interpenetration of “national” capitals in the process of FDI expansion. The developing world absorbed four-fifths of pre–World War II FDI through the old colonial “spheres of influence” structure of world order. But most FDI flows from the 1960s into the 1980s took place between core regions.17 This is important because the first pattern of FDI reflects a situation in which core national bourgeoisies were in rivalry, whereas the latter indicates a key mechanism in the transnationalization of these “national” bourgeoisies.
It is in the Third World where transnational class formation is weakest and where “national” bourgeosies may still control states and organize influential political projects. However, even here trans-national class formation is well under way. In a recent report, the ILO noted that FDI has “increased sharply, especially to developing countries. The average annual flows have increased more than three-fold since the early 1980s for the world as a whole, while for developing countries it had increased fivefold by 1993” (ILO, 1996–97, 2). National capitals in the South have themselves increasingly trans-nationalized by their own FDI and by integrating into global circuits of accumulation. In 1960, only one percent of FDI came from developing countries. By 1985, this figure had increased to around three percent, and by 1995 it stood at about eight percent (Dicken, 1998, 44). Southern-based TNCs have invested $51 billion abroad, while developing countries have absorbed an increasing proportion of FDI in the 1990s (Burbach and Robinson, 1999). The Third World bourgeoisie of countries such as Singapore, South Korea, Taiwan, Brazil, Chile, and Mexico are becoming important “national” contingents of the TCC (ibid.). In 1996 for the first time two third-world companies, Daewoo Corporation of South Korea and Petroleos de Venezuela, joined the ranks of the top 100 transnational corporations. The top 50 TNCs of the Third World augmented their foreign assets by 280% between 1993 and 1995, while those of the top 100 corporations based in the core countries increased by only 30% (ILO, 1996, xvii).18
Another important aspect of the transnationalization of Third World economies is the growing importance of foreign portfolio equity investments (FPEI), which are not counted as FDI flows. These are international investments mainly by stock brokerage firms and mutual funds in foreign stock markets managing the capital of investors generally interested only in securing an ample return on their investments and exercising virtually no direct role in the company in which they invest. FPEI flows therefore represent a pronounced transnationalization of capital in that they are carried out by an array of investors with origins in a large number of countries. Many third-world countries in the 1990s as part of the drive to implement neoliberal, free market policies have facilitated FPEI inflows by establishing or liberalizing their stock market exchanges. Referred to as “emerging markets,” these represent a dramatic transnationalization of national firms and assets that accelerates the formation of the TCC.
The growth of direct and equity investment flows is part of the dramatic and growing integration of world capital markets through the commodification of financial instruments. One study found that the total market value of securities traded in world capital markets tripled between 1980 and 1992 (Akdogan, 1995, 9). The same study revealed that international gross equity flows doubled between 1986 and 1989, and that in 1991 they were equal to more than one quarter of the capital in the world capital markets. Aside from equity in-vestments, other components of world capital markets are bond and debt financing as well as derivatives, stock options, warrants and convertibles. The rise of a new globally integrated financial system since the 1980s has been truly phenomenal. National stock markets have all but disappeared. Between 1980 and 1990 the volume of cross-border transactions in equities alone grew at a compound rate of 28% per year, from $120 billion to $1.4 trillion. The stock of cross-border bank lending rose from $324 billion to $7.5 trillion over the same period, and offshore bond markets (where companies issue IOUs offshore) increased by 537% from $259 billion to $1.6 trillion. As Hoogvelt notes, if we add up all these categories of world financial integration plus the stock of principal derivatives and FDI, “the total exceeds the total of the combined FDI of the OECD economies” (Hoogvelt, 1997, 78–80). Transnationalization is reflected as well in ever-greater trade in-tegration. World trade has grown much faster than output, and this growth, after slowing briefly in the early 1990s, a consequence of the worldwide downturn, picked up again in mid-decade, as Table 2 indicates.
TABLE 2: Growth of World Trade (Goods and Services) and Growth of Real GDP
SOURCE: ILO (1997:3)
World trade can indicate internationalization and not transnationalization. But once we note that between one-third and two-thirds of this world trade is conducted as intra-firm trade (World Bank, 1992, 22) it becomes clear that data on the growth of world trade is itself a commercial expression of globalized production. The ILO report emphasizes: “These increased flows of direct investment have been accompanied by the growth of globally integrated production systems characterized by the rapid expansion of intra-firm trade in intermediate products and of subcontracting, licensing and franchising arrangements, including new forms of outsourcing of work across national frontiers” (ILO, 1996–97, 2).
This phenomenal spread since the late 1970s of diverse new economic arrangements, such as outsourcing, subcontracting, transnational intercorporate alliances, licensing agreements, local representation, and so on, parallels the proliferation of FDI, mergers and acquisitions, and underscores another major aspect of the trans-national linkage of capitals. These arrangements result in vast transnational production chains and complex webs of vertical and horizontal integration across the globe. According to Dicken: TNCs are also locked into external networks of relationships with a myriad of other firms: transnational and domestic, large and small, public and private.
It is through such interconnections, for example, that a very small firm in one country may be directly linked into a global production network, whereas most small firms serve only a very restricted geographic area. Such inter-relationships between firms of different sizes and types increasingly span national boundaries to create a set of geographically nested relationships from local to global scales. . . . There is, in fact, a bewildering variety of interorganizational collaborative relationships. These are frequently multi-lateral rather than bilateral, polygamous rather than monogamous. (Dicken, 1998, 223.) What Dicken’s authoritative study underscores is the increasing inter-penetration on multiple levels of capitals in all parts of the world, organized around transnational capital and the giant TNCs. It is increasingly difficult to separate local circuits of production and distribution from the globalized circuits that dictate the terms and pat-terns of accumulation worldwide, even when surface appearance gives the (misleading) impression that local capitals retain their autonomy.
There are of course still local and national capitals, and there will be for a long time to come. But they must “de-localize” and link to hegemonic transnational capital if they are to survive. Territorially restricted capital cannot compete with its transnationally mobile counterpart.
As the global circuit of capital subsumes these local circuits, through numerous mechanisms and arrangements, local capitalists who manage these circuits become swept up into the process of trans-national class formation.
The diverse new economic arrangements in the global economy have been associated with the transition from the Fordist regime of accumulation to new post-Fordist flexible regimes (see, inter alia, Harvey, 1990; Amin, 1994; Hoogvelt, 1997; Dicken, 1998). As many have noted, the structural properties of the emerging flexible regime are global in character, in that accumulation is embedded in global markets, involves global enterprise organization and sets of global capital–labor relations (especially deregulated and casualized labor pools worldwide) (see, inter
alia, Hoogvelt, 1997, 109–113). Competition dictates that firms must establish global as opposed to national or regional markets. As Hoogvelt shows, competition in the global economy increasingly compels them to operate full production systems in all three regions of the global triad (North America, Europe, and East Asia). The leading TNCs are becoming “multi-regional” companies, operating multiple and integrated production as well as financial and commercial operations throughout the triad (ibid.). These multi-regional companies are emerging through the strategy of alliances, mergers, and other forms of integrative coordination among TNCs, as a general transitional form in the process of the transnational integration of capital.
Meanwhile, each shock in the unfolding world economic crisis, from Mexico to Asia, from Russia to Brazil, has tended to result in an accelerated transnational integration of local capitalists of affected countries into the ranks of the TCC. These crises clearly bring into sharper relief the process of fractionation among local elites. For instance, the Asian crisis is leading to a restructuring of many of the region’s major corporations and economies that facilitates and advances the consolidation of transnational capital. The “chaebol,” the powerful financial–industrial groups of South Korea, for instance, have been compelled to sell off national assets to TNCs and at the same time they have forged partnerships with corporations from other areas of the world (Business Week, 1998a). As Lawrence Summers stated in 1998 when he was undersecretary of the U.S. Treasury Department,
“In some ways the IMF has done more in these past months to liberalize these [Asian] economies and open up their markets to U. S. goods and services than has been achieved in rounds of negotiations in the region” (cited in Bello, 1998–99, 138).
Increasingly, the leading strata among the TCC have come to occupy a variety of interlocking positions within the global corporate structure. Fennema, for instance, identified for the early 1980s an international network of interlocking directorates among the leading transnational banking and industrial firms (1982). This process parallels a similar one in an earlier period, when the rise of national bourgeoisies involved national-level interlocking directorates that congealed the objective links and the subjective identity of national bourgeoisies, as documented in a wealth of literature, Marxist and non-Marxist, on the subject of national “power elites,” ruling blocs, the “inner circle,” and so on (see, inter alia, Domhoff, 1967; Useem, 1984; Dye, 1986; Mills, 1959). The evolving composition of the directorates of the leading TNCs is an area ripe for research.