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Wary Days for Multinationals

By Jock O'Connell

jockoconnell@gmail.com


This commentary was published in the Opinion section of the Los Angeles Times on Sunday, October 13, 2002.

PORTLAND, Maine -- Jeffrey Garten, dean of the Yale School of Management, recently remarked that defeating terrorism would require "Washington and corporate America to work more closely together than ever before." While such an alliance is bound to emerge, especially now that war against Iraq seems inevitable, corporate America might not be all that eager to share the rhetorical foxhole that the White House has been digging of late.

The uneasiness of business leaders stems from more than their customary anxiety about the unpredictable effects of war or from their concern that an administration preoccupied with foreign affairs might give the domestic economy short shrift. Rather, what may most trouble a corporate America that is more multinational than ever is the threat the administration's unilateral approach to foreign relations poses to the future of global economic integration.

Eighty years ago, President Calvin Coolidge proclaimed that the business of America is business. Today, a substantial share of that business involves foreign companies as customers, suppliers, investors and partners in developing, producing and marketing goods and services. The full extent to which the U.S. economy has become enmeshed in the global economy is hard to comprehend because the relevant numbers are so large. For example, the value of U.S. exports of goods and services has reached the $1-trillion mark, roughly 10 times the size of California's current budget.

Consider that the value of these exports pales in comparison with the amount of business U.S. companies do through their subsidiaries abroad. In 1999, the latest year for which numbers are available, these overseas affiliates had revenues of $2.2 trillion. Equally remarkable, the volume of trade among the foreign affiliates totaled $451.9 billion, an amount approximately equal to the combined annual economic output of Los Angeles, Orange, Riverside and San Bernardino counties.

The commercial activity of U.S. affiliates overseas is matched by that of foreign-owned subsidiaries operating within the United States. According to the latest government figures, the gross product of these firms amounted to $522 billion in 2000, or 5.3% of America's gross domestic product.

Even these figures don't fully capture just how internationalized the U.S. economy has become. Progress in transportation and communications technologies has eroded the barrier of distance to the point that global supply chains have emerged. These chains enable the production of virtually any product to be divided into separate tasks for completion wherever the work can be done most efficiently and economically.

In short, the stereotype of global trade as finished goods moving across international borders is obsolete. Today, such trade largely consists of raw materials, parts, components and semi-finished goods moving through global supply chains. The products we eat, wear, drive or otherwise use are likely to have pedigrees as complicated as the ancestral roots of most Americans. The economic dislocations caused by labor strife at Pacific Coast seaports testify to this new reality.

These developments also mean that the U.S. economy has become increasingly vulnerable to disruption at points too numerous to defend. In the wake of Sept. 11, U.S. corporations reviewed their foreign operations as well as their dependence on international transportation systems. Some observers predicted that the companies would retrench to safer ground or at least relocate vital operations to North America.

The opposite has occurred. Most U.S. multinationals have continued to pursue their pre-Sept. 11 business strategies despite the added risks. For example, Boeing plans to shift a greater share of its aircraft design, engineering and production work to countries such as Russia and China. Intel will expand some chip-design and chip-development operations in India. And PeopleSoft will substantially augment its software operations in Malaysia.

U.S. multinational corporations are not courting disaster. They have a keen appreciation of the dangers they face overseas and have accordingly devised methods for managing the risks. But there is mounting concern that President Bush's campaign to oust Iraq's Saddam Hussein could set off a spiral of terrorist attacks and military countermeasures that could seriously affect their businesses.

Beyond this lies the more far-reaching question of whether U.S. economic interests in the age of globalization are served by the administration's harsh brand of unilateralism. True, the president has reached out to other nations in his quest to disarm Iraq. But for the most part, his seemingly instinctive disdain for constructive engagement with other countries on anything but his own terms has become a hallmark of his administration.

Such an approach hardly promotes U.S. commercial interests worldwide through free trade agreements and greater global economic integration. If there is one administration official who may feel conflicted about his boss' generally dismissive attitude toward foreign opinion, it is Robert B. Zoellick, the U.S. trade representative. Zoellick has the unenviable task of negotiating trade agreements with nations in Europe, Latin America and Asia whose relations with the United States have soured since Bush took office. As recent electoral outcomes in Germany and Brazil suggest, running against U.S. policies can be politically rewarding. It's not a stretch to argue that major trade talks may be similarly hurt by the administration's unilateralism.

At home, the administration's take-it-or-leave-it posture toward foreigners regrettably nourishes the xenophobic, isolationist impulse that has long haunted U.S. politics and hamstrung American foreign policy. Yet, what is singularly perverse about the administration's unilateralist rhetoric is that it presents foes of globalization with a strong populist rationale for resisting further entanglements, economic or otherwise, with other nations. The irony is that an ostensibly business-friendly Republican administration may turn out to be a thorn in corporate America's side.


Biographical Information on Jock O'Connell