International economy phase IV?

By the end of the 1980s, commentators had invented a new vogue word: ‘globalization’. The international convergence of politics, business and culture, it was argued, had the power to transform human existence. Events overseas could no longer take place in ‘a far-off country’. As countries became, economically speaking, more markedly interdependent, national governments assumed the ‘inevitability’ of cross-border trade and finance being liberalized. The fall of the Berlin Wall in 1989 opened up Eastern Europe, Russia and Central Asia to international business, and policy changes in China increasingly drew a country that had espoused autarky into the global economy.

Foreign direct investment and trade expanded even more rapidly throughout the 1990s, and ‘globalization’ became, in popular usage, associated with the growing reach and seemingly unchecked activities of multinational enterprises. These ever-bigger businesses took greater responsibility for the cross-border movement of commodities and manufactures, and invented complex, more integrated cross-border management systems and operational practices. The scale and spread of their undertakings, it was argued, forced the international convergence of business systems, work methods, spending patterns, government policy and, ultimately, cultural values. Globalization meant, for many, expectations of regular air travel; it introduced new media technologies and sources of information; it transformed consumer expectations and home life, and symbolized the continuous growth of demand and big business; it affected the daily work of the New York banker, the Bangalore software engineer and the Shenzen factory operative.

Phase I of the global economy – approximately from the 1840s to 1914 – was marked by dynamic growth in trade and FDI; investment by leading industrialized economies in primary products and in developing and undeveloped territories was prominent; multinationals in trade-related and commodity-seeking activities took a lead in international business activities; and imperialism underpinned much of the international economic system and the flow of FDI. Following more than thirty years of world wars, economic depression and trade barriers, phase III of the global economy – approximately from 1950 – was marked by the return of trade and FDI as dynamic sources of growth; outside the Communist bloc, by the long-term lowering of tariff and investment controls; investment by leading industrialized economies markedly in manufacturing and in developed economies; and, lastly, the dominance of large-scale multinationals, with market-seeking strategies, based on the transfer of human, financial and technological resources to overseas subsidiaries they directly owned and controlled.

Superpowers and the international system

By the end of the Second World War, having transformed its economy and then gone on to defeat Nazi Germany, the Soviet Union appeared a country of power and significant achievements. The USA had grown in industrial and armed strength, too, and it had assumed a complex mix of global influence and interests. Both democracies and autocracies had participated in the first international economy, prior to 1914, founded on a political economy of private enterprises and of markets open to investment and trade, albeit with increasing deviation from the conventional wisdom and its principles. From 1945, and by 1948, former allies had become military and diplomatic opponents. The incompatible systems of the Soviet Union and the USA represented sharp alternatives to human progress and modernity: was it the communist or the capitalist model – and ties with either of the two superpowers – that offered the greater benefits? In contrast to the nineteenth century, there was a struggle over the fused issues of ideology, international politics, and economics.

The two new superpowers pursued a Cold War of diplomatic suspicion and espionage within the critical European theatre, but elsewhere in the world the rivalry was too frequently more bloody. In 1959, boosted by the Sputnik satellite's triumphant launch, the Soviet leader, Nikita Khrushchev, told the US Vice-President, Richard Nixon, then on a trade mission to Moscow: ‘if you want capitalism you can live that way…We can still feel sorry for you.’ In reality, having already condemned Stalin's terror, Khrushchev knew that socialism in the Soviet Union had brought systematic repression, and failed to meet the material needs of its citizens. The war had placed Eastern Europe in the grip of its powerful neighbour, but this new political and military bloc was unable to match the West for cross-border commerce, investment and economic growth (Gaddis, 1998). Perceiving President John Kennedy's response to the building of the Berlin Wall as weak, Khrushchev decided, in 1962, to test the USA by placing nuclear missiles in Cuba, and provoked the most dangerous and potentially apocalyptic international crisis.

What might be said to distinguish international business from business generally? And how did some of the key features that specifically distinguish international business change over time? Even with a broad and detailed survey, looking at the impact of the multinational through world trends and particular events, it is only possible to focus on some of its dimensions, inevitably downplaying others. Nonetheless, the first key differentiating factor to consider for international business, identifying it as a subject in its own right, is the actions and policies of host governments, or their ability and power to manage relationships with multinationals and, potentially, with the multinationals’ home governments. In assessing any case, the strength and standing of a host government, the stability and coherence of its institutions, the size of the country, the scale of its own security and economic resources are additionally relevant.

In the years between 1870 and 1914, or, if preferred, Global Economy I, Asian polities commonly found themselves poorly equipped to cope with the economic changes and policy demands brought by multinationals that originated, for the most part, in Europe. The history of a nineteenth-century Africa divided by and shared out amongst European states – justified by claims of respecting the rights of local polities and indigenous peoples by formally seeking their ‘agreement’ – makes the point even more strongly.

As transnational contact grew and the search for the ‘normalization’ of trade and investment relations intensified, there was the heightened possibility of the second differentiating factor in international business, the representation or involvement of a multinational's home government. In the context of the period, the transnational forces of traders and investors brought the risk of direct and visible intervention. It would be incorrect to see the foreign policies of interventionist governments as merely determined by the interests of multinationals and merchants: in some cases, consideration of these interests was incidental, although never wholly inconsequential, while sometimes they were at the very centre of events.

As we have noted, the British government commonly intervened in Asia and Africa with reluctance, in response to border instability overseas, domestic political pressures, or the complex game of major power rivalries, and it weighed the dangers of becoming overstretched militarily and economically.