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Multinational corporations and the Third World: the case of Japan and Southeast Asia

Published online by Cambridge University Press:  22 May 2009

Franklin B. Weinstein
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Abstract

The dramatic transformation of the climate surrounding relations between rich and poor nations since the OPEC oil embargo in 1973 has raised new hopes that MNCs may be made to energize development in the Third World. Improved information about the vulnerability of the rich nations and about techniques for dealing with MNCs, some writers argue, will enable underdeveloped countries to ensure that foreign investment serves as an “engine of development.” This view exaggerates the strengths of Third World states. A lack of information about opportunities and techniques is a small part of the burden which underdevelopment imposes on poor countries in their dealings with MNCs. A case study of Japanese MNCs in Southeast Asia raises doubts concerning the likelihood that the poor countries will be able to harness MNCs for their development. Southeast Asia's growing dependence on Japan in the fields of trade, official development aid, and private investment tends to impose constraints on efforts to influence the behavior of MNCs. A more basic problem resides in the “softness” of underdeveloped states, which renders ineffectual regulations intended to control MNCs. Because MNCs in certain important respects inhibit the process of building viable indigenous institutions and even contribute to the perpetuation of soft states, they may do more to impede than to stimulate development, at least in the softer Third World states. It may well be that more serious attention should be paid to studies of how Third World states might develop if the role of MNCs were circumscribed.

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Articles
Information
International Organization , Volume 30 , Issue 3 , Summer 1976 , pp. 373 - 404
Copyright
Copyright © The IO Foundation 1976

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References

1 Address by Secretary of State Henry A. Kissinger on “Global Consensus and Economic Development,” delivered by Daniel P. Moynihan, US Representative to the United Nations, at the Seventh Special Session of the UN General Assembly, September 1, 1975, distributed by Bureau of Public Affairs, Office of Media Services, Department of State.

2 Bergsten, C. Fred, “The Threat from the Third World,” Foreign Policy, 11 (Summer 1973): 111Google Scholar.

3 Bergsten, , “The Response to the Third World,” Foreign Policy, 17 (Winter 1974–1975): 3–34CrossRefGoogle Scholar.

4 Barnet, Richard J. and Müller, Ronald E., Global Reach: The Power of Multi-national Corporations (New York: Simon and Schuster, 1974), pp. 123–210Google Scholar.

5 Barnet and Mūller base this argument to a large extent on the Product Life Cycle theory. A useful discussion of that theory is found in Moran, Theodore H., “Foreign Expansion as an ‘Institutional Necessity’ for US Corporate Capitalism: The Search for a Radical Model,” World Politics, 25, 3 (04 1973)CrossRefGoogle Scholar.

6 “Wealth and Power: The Politics of Food and Oil,” The New York Review of Books, August 7, 1975, p. 29.

7 Bergsten's failure to take account of the fact that these countries are not merely poor but underdeveloped is evident in his suggestion that Third World countries with “booming industries” are “replicating the transition of Japan in the 1960s from a developing to an industrial country.” It scarcely needs mentioning that Japan, though economically prostrate after the war, was not an underdeveloped country. Barnet and Müller show considerable sensitivity to the problems of underdevelopment through most of their discussion, which makes it hard to understand how they came to such an optimistic conclusion concerning the prospects for a decisive shift in power toward the Third World.

8 There was assumed to be agreement among the ASEAN nations that a limited free trade zone and complementarity in planning the region's industrialization would work to the common advantage of all ASEAN members, but the Indonesians suspected that cooperative economic arrangements would actually benefit the economically stronger, especially Singapore, at the expense of Indonesia. See Far Eastern Economic Review, February 6, 1976, and New York Times, February 11, 1976.

9 Coffee producers, even with a promise of financial backing from Venezuelan oil revenues, have yet to devise a cooperative structure capable of maintaining high prices. See “The Coffee Cartel and How It Fell,” San Francisco Chronicle, March 24, 1975. CIPEC witnessed a decline in copper prices during the course of 1974 from $3,290 a ton in April to $1,410 in September. Because of the ease with which copper can be stockpiled, it is not difficult to thwart efforts by producers to maintain a higher price. For an excellent discussion of the problems confronting non-oil cartels, see Krasner, Stephen D., “Oil is the Exception,” Foreign Policy, 14 (Spring 1974): 68–84CrossRefGoogle Scholar, and Varon, Bension and Takeuchi, Kenji, “Developing Countries and Non-Fuel Minerals,” Foreign Affairs, 52, 3 (04 1974): 497–510CrossRefGoogle Scholar.

10 The field research took place from September 1972 to August 1973. As part of a broader study of the Japanese-Southeast Asian relationship, the author interviewed some 350 individuals, including roughly equal numbers of Japanese and Southeast Asians and about 30 Americans. Although a diverse group was interviewed, particular attention was given to those involved in economic decision making. Included were representatives of major Japan-based firms operating in Southeast Asia, as well as their local partners and competitors.

11 These statements are based on the latest IMF/IBRD figures available. IMF/IBRD, Direction of Trade, May 1975 (for Indonesia), September 1975 (the Philippines), October 1975 (Malaysia), November 1975 (Thailand), and December 1975 (Singapore).

12 Ibid. The statistics on the importance of the Southeast Asian trade to Japan come from the December 1975 issue of Direction of Trade. By way of comparison, the United States is the second most important trading partner for Indonesia (with 19 percent), Thailand (with 11 percent), and the Philippines (with 22 percent). Malaysia's major trading partners other than Japan are Singapore (14 percent), the United States (13 percent), and the United Kingdom (9 percent). The United States leads in Singapore with 15 percent, followed by Malaysia at 14 percent.

13 See Okita, Saburo, Economic Development in the 1970s: Japan and Asia (Tokyo: Japan Economic Research Center, 06 1972), pp. 46–47Google Scholar.

14 In 1974 Thailand's imports from Japan were valued at $986 million, while exports to Japan amounted to $630 million. In 1973 imports totalled $732 million and exports $408 million. Direction of Trade, November 1975.

15 In the words of the chairman of the Thai trade delegation, “we felt we had no bargaining cards at all.” Board of Trade President Charoon Sibunruang opened the 1973 private sector talks on trade targets, at which the Japanese delegation was led by Keidanren representatives, by expressing the hope that the “giant will not glare too menacingly at the dwarf when he presents his Export Package for acceptance.” Investor (Bangkok), 06 1973, p. 169Google Scholar.

16 Far Eastern Economic Review, August 22, 1975.

17 Indonesian oil exports to Japan fell during the first half of 1975 by about 40 percent, owing to the recession in Japan and competition from Chinese crude oil priced $.50 a barrel below Indonesia's. Bulletin ofIndonesian Economic Studies (Canberra), 11 1975, pp. 3–4Google Scholar.

18 For statistics on exports of the above commodities to Japan, see Indonesian Perspectives (Singapore), 12 1974, p. 67Google Scholar; February 1975, p. 47; March 1975, p. 19; and April 1975, p. 48.

19 See the article by Panglaykim, J. in Far Eastern Economic Review, 11 15, 1974Google Scholar.

20 In Thailand the very small percentage of trade with Japan carried on Thai ships has been a continuing irritant in Thai-Japanese relations. The Thai appeared to have made some progress when the Thailand-Japan Maize Agreement of 1972–73 called for up to 25 percent of maize sold to Japan to be carried by Thai ships, but only 7 percent of this business was actually given to Thai shipping companies by Japanese importers. And the Thai complained that their vessels were sent to smaller northern Japanese ports, not to the major ports. See Investor, June 1973, pp. 170, 173–74.

21 Indonesian Perspectives, December 1974, p. 67.

22 Not only did the Indonesians fail to implement the 10 percent price hike decided upon at the September 1975 OPEC meeting; after raising the price by less than 2 percent, they offered a de facto reduction by extending the usance period.

23 Far Eastern Economic Review, May 23, 1975 and November 15, 1974.

24 On the Philippines, see Far Eastern Economic Review, May 23, 1975, p. 35; on Malaysia, see Singapore Trade and Industry, May 1975, p. 47; on Singapore, see Far Eastern Economic Review, August 15, 1975, p. 40, and August 29, 1975.

25 Bangkok World, May 22, 1972.

26 See Far Eastern Economic Review, October 17, 1975; The Fookien Times Philippines Yearbook, 1975 (Manila), p. 94Google Scholar; and Bulletin of Indonesian Economic Studies, July 1974, p. 25.

27 Bulletin of Indonesian Economic Studies, July 1975, p. 9; Bangkok Post (supplement), April 29, 1973; and Far Eastern Economic Review, May 23, 1975, p. 40. Data on the Philippines up to 1973 was provided by the US embassy in Manila.

28 Up to 1973, Japan had supplied 54 percent of all goods and services procured under ADB loans. The United States was second with 8 percent. Statistics supplied by the ADB in Manila.

29 This is especially true in certain fields, such as telephone systems. The Japanese bid for the expansion of Bangkok's telephone system under a government-to-government credit was 50 percent lower than that of the nearest competitor, exemplifying the willingness of the Japanese to sacrifice an immediate return to establish a profitable position for the long run. Thai and Indonesian officials assert that Japanese prices on spare parts tend to be unusually high, but they say that they are willing to pay more later in order to enjoy the advantage of a low price for the basic project.

30 Bangkok Post, April 27, 1972.

31 See Wernstein, Franklin B., Indonesian Foreign Policy and the Dilemma of Dependence: From Sukarno to Soeharto (Ithaca: Cornell University Press, 1976), Chapter 8Google Scholar.

32 See Indonesian Perspectives, December 1974, p. 151.

33 Myrdal, Gunnar, The Challenge of World Poverty (Penguin Books, 1970), Chapter 7Google Scholar. See also Huntington, Samuel P., Political Order in Changing Societies (New Haven: Yale University Press, 1968), p. 1Google Scholar.

34 This paragraph is based mainly on data from Bulletin of Indonesian Economic Studies, March 1975, pp. 3–18, 15–17, and July 1974, pp. 1–15.

35 For example, the Thai government declared at the end of 1972 that foreigners could no longer own a controlling interest in companies in certain fields. In the Philippines, foreign shareholding has been limited to 30 percent in particular fields, and Indonesia, where the shortage of local capital has been most severe, announced recently that 51 percent of the shares in all joint venture companies must be in the hands of Indonesians within 10 years.

36 According to US embassy sources, such ratios in the case of Japanese companies often reach 8:1 or 10:1.

37 The Japanese initially held the positions of President-Director, Marketing Director, Operations Director, and Finance Director, while the Indonesians were responsible for Government Affairs, Personnel, and the Vice-Presidency. After the Indonesians gained a majority, they were to provide the President-Director, Director of Government Affairs, and Director of Finance and Administration (defined so as to exclude any special responsibility for raising loans). The Japanese would provide a Vice President-Director, a Director of Marketing and Operations (now combined) and Personnel. No significance is to be attached to the transfer of the Presidency to an Indonesian. It is usually an honorary position when not held by a Japanese.

38 See Fabrikant, Robert, “Production Sharing Contracts in the Indonesian Petroleum Industry,” Harvard International Law Journal, 16, No. 2 (Spring 1975): 303–51Google Scholar.

39 Most of the criticism of global corporations expressed by Barnet and Müller in Global Reach is based on data concerning the activities of US corporations in Latin America.

40 Fabrikant, , “Production Sharing Contracts,” p. 348Google Scholar.

41 More will be said on this subject below.

42 For example, according to a very reliable Japanese source, the secret Indonesian partner in a particular joint venture was the army general through whom most Japanese capital is channeled. And there are persistent reports, though unconfirmed, that presidential wives in both Indonesia and the Philippines are secret partners in a number of ventures undertaken by the Japanese.

43 Some of these studies are summarized in Grant, James P., “Development: The End of Trickle Down?” Foreign Policy, 12 (Fall 1973): 43–65CrossRefGoogle Scholar.

44 Far Eastern Economic Review, November 15, 1974, p. 12.

45 Indonesia Raya, August 24, 1973.

46 Collier, William L., Colter, Jusuf, Sinarhadi, , and Shaw, Robert d'A., “Choice of Technique in Rice Milling on Java,” Bulletin of Indonesian Economic Studies, 03 1974, p. 116Google Scholar.

47 These textile investments seem labor intensive only when compared to investments in such fields as mining. For example, a firm that invested $225 million in copper mining in West Irian created jobs for 2,000 Indonesians.

48 For a discussion of the advantages of “voluntary quarantine,” see Mende, Tiboi, From Aid to Re-Colonization: Lessons of a Failure (New York: Pantheon, 1973), pp. 194–212Google Scholar.