Transnational Corporations and The Question of Sovereignty: an Alternative Theoretical Framework for...

TRANSNATIONAL CORPORATIONS AND THE QUESTION OF

SOVEREIGNTY: AN ALTERNATIVE THEORETICAL FRAMEWORK FOR THE INFORMATION AGE

Scott Turner University of Montevallo

A central theme related to globalization is the decline of sovereignty. Non-state institutions, particularly transnational corporations, are often portrayed as rivals of the state which threaten traditional sovereignty with their largesse andenhancedmobility. Yet this framework often su#erssfi.om a lack of clarity regarding the meaning of sovereignty and the nature of the evolving relationship between states and corporations. The distribution of power between states and corporations is often portrayed as a zero-sum relation. Thus the persistence of powerful states ten& to undermine the thesis. This article, however, reframes the issue by reconsidering the meaning of sovereignty and the nature of the relationship between states and corporations. Sovereignty, it is argued, refers as much to policy autonomy as to the capacity for adversarial intervention. The relationship between states and corporations is as cooperative as it is adversarial. Transnational corporations undermine sovereignty not only by escaping state jurisdictions, but by constricting the range of policy alternatives available to states.

Globalization is a prominent theme of contemporary international relations and political ecbnomy literature. Technological-developments have helped to facilitate the structural transformations associated with the phenomenon of globalization. This phenomenon has many aspects, but central among them is the dramatic proliferation of transnational corporations (TNCs).' The new global economy that has emerged over the past few decades is defined by increases in both international trade in goods and services and transnational capital mobility. This latter phenomenon, which refers to the relocation and expansion of capital investment, including both production and service operations, across national borders, may have pro-

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found implications for our traditional understanding of state sovereignty and, consequently, our conceptual model of world politics.

The concept of globalization is nothing new. A number of scholars have contributed to this post-realist paradigm. Vernon (1 97 1) portrays the expansion of powerful multinational corporations as a threat to the state’s capacity to control economic activities, thus curtailing sovereignty. Burton (1972) describes a cobweb model of world society wherein a variety of transactions must be taken into account in our conceptual map of social, economic, and political processes, including communication, travel, migra- tion, and cultural exchanges among private groups and individuals, Keo- hane and Nye (1989) attempt to integrate emerging transnational processes and institutions with traditional realist theory in their model of “complex interdependence.” Drucker (1980, 1993) stresses the significance of the floating exchange rate and related economic phenomena which appear to lie outside the scope of domestic policy and national economic management. Rosenau (1990, 1992) develops a theory of “turbulence” which portrays the current period as one of transition from a state-centric to a multi-centric world political system. In the latter, not only states but also corporations, international organizations, and even powerful individuals play significant roles in world political processes and events. Finally, a considerable literature on the related phenomenon of global civil society has emerged in recent years (for example, see Annis 1991; Camilleri and Falk 1992; Frederick 1993a, forthcoming; Lewis 1993; Lipschutz 1992; MacDonald 1994; Ronfeldt forthcoming). These examples reflect the rich and growing body of scholarship on transnationalism and globalization.

Understanding the precise nature of the relationship between transnationalism and state sovereignty requires theoretical clarity. Much of the literature mentioned above engages the sovereignty question from a liberal framework which portrays the distribution of state power and corporate power as a zero-sum relation. In other words, politics and economics are portrayed as mutually exclusive arenas which intersect only when the state intervenes in economic affairs through dirigistic strategies such as regulation, taxation, or nationalization. Accordingly the expansion of corporate mobility is viewed as a threat to the absolute power and functional autonomy of the state in the international system. While such a framework certainly possesses a measure of theoretical utility, this article suggests an alternative framework based on two assumptions: (1) the relationship between states and corporations can be both adversarial and cooperative, and (2) sovereignty implies not only the state’s power to exercise political control over domestic activities, including economic activities, but also state institutional autonomy and independence.

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From Bodin (1992) forward, the theory of sovereignty has implied absolutism. It is explicit in Hobbes ([ 19681 1985), Rousseau (1968), Weber (1946), and Cam (1 964), and it is a cornerstone of the realist theory of international relations. Despite the limits on government found in the liberal tradition exemplified by theorists such as Locke (1690) and Mill ([1975] 1990), the institutional autonomy of the state, which permits it to mediate among domestic social interests, including economic interests, was also central to the theory of state sovereignty through the first half of the twentieth century in the form of Keynesianism and social democratic theory. Furthermore, democracy, whether viewed in terms of general will (Rousseau 1968) or liberal pluralism (for example, see Dahl 1956, 1971), requires an autonomous state that is institutionally independent of particular interests.

To the degree that transnationalism is characterized by a corporately dominated global economy, sovereignty is challenged as much by state collusion with TNCs as it is by any adversarial relationship between states and corporations. By placing states in a competitive relationship with one another in their efforts to promote corporate expansion and attract foreign investment, the global economy constricts the range of policy options available to states (see Pooley 1991). The state may remain institutionally powerful in its role as corporate ally, yet its political autonomy is diminished. This, I will argue, is the nature ofthe threat to state sovereignty today, and it likewise is a threat to those political values and possibilities that have long been invested in the sovereign state.

TRANSNATIONAL CORPORATIONS AND INFORMATION CAPITALISM

Transnational corporations here are understood as companies with production or service operations in more than one country. They not only export products, they export capital investment. As corporate “individuals,” their bodies extend across national borders and their limbs and organs may be separated by thousands of miles. In the contemporary world of electronic communication, these limbs and organs (or subsidiaries) are linked by computers, telephones, and fax machines, much as the several limbs and organs of the human body are linked by a neural nervous system. Information can be transmitted from a central office in Detroit to subsidiaries in Mexico City, Singapore, and Tokyo as quickly as the human brain can send a message to the hand. In this regard, the contemporary transnational corporation resembles a “leviathan,” a fictive individual, or a “MY- tall God” to a greater extent than Hobbes’ ([1968] 1985) seventeenth century commonwealth ever could.

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Between 1960 and 1980 the share of the GNP of non-planned national economies controlled by the 200 largest transnational corporations rose from 17.7 percent to 28.6 percent. In the 1960s foreign direct investment (FDI) grew twice as fast as GNP in OECD countries. By the late 1980s this ratio had doubled. In 1967 the book value of all FDI was estimated at nearly $110 billion; in 1971 it was $165 billion. In 1975 world FDI inflow was estimated at $21.5 billion. By 1980 this figure had increased to $52.2 billion (Camilleri and Falk 1992; Howells and Wood 1993; Houde and Highland 1992).

In 1980 transactions by transnational firms accounted for over 80 percent of U.S. exports and more than half of U.S. imports. More than 30 percent of world trade, and as much as half of some countries’ imports, is now accounted for by internal, non-market transactions between subsidiaries of single transnational enterprises (Camilleri and Falk 1992). Over a third of U.S. trade in 1990, or $887.2 billion, occurred between U.S. firms and their foreign affiliates (Raghavan 1993). By the early 1990s, there were only eight countries-the United States, Japan, France, Germany, Italy, the United Kingdom, Canada, and the Commonwealth of Independent States- with gross domestic products larger than the assets of the world’s largest banks (Lowe 1992). While size and expanse alone suggest but cannot prove that TNCs have become significant new players in the global political arena with respect to their relations with states, it will be shown that new information and communication technologies permit transnationals to exercise considerable independent volition while at the same time refining the role of the bureaucratic state in the new global economy.

First, it is pertinent to consider those features of corporate power that have led a number of scholars to portray the decline of sovereignty thesis in terms of an adversarial relation between the state and the mobile corporation that is no longer accountable to state regulation. One important component of corporate power lies in technologically facilitated transborder data flow (TDF). For example, TNCs may move billions of dollars in and out of countries in order to take advantage of small interest rate differentials and policies of central banks. They have the capacity to destabilize individual countries’ national balance of payments through transfer pricing (see Camilleri and Falk 1992; Hawley and Noble 1982). They can shift assets from country to country to minimize taxation or to avoid “buy domestic” requirements in service industries (Drake 1993). Data processing functions are easily shifted to cheap-labor regions. Elec- tronic communications may render distance and territory insignificant for many economic processes and thereby undermine national sovereignty to the extent that certain policy goals depend on regulation of international

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information flows (Wilson and Al-Muhanna 1985). For example, telephone calls between Los Angeles and San Francisco can be switched in Japan to save on labor costs, thus skirting national wage laws (Frederick forthcoming). In short, TDF can allow firms to skirt governmental policies in areas such as taxation, interest payments, and investment (Drake 1993).

Transborder data flow also challenges national sovereignty by facilitating centralized management of an integrated transnational production process, which may not correspond with the variety of domestic policy interests in either host or home countries. Corporate transnationalization may be more of a centralizing than decentralizing phenomenon. It can mean that the decisions of central managers are increasingly made from a transnational rather than a national perspective (Qvortrup 1984; Ronfeldt 199 1). A relatively early example was IBM’s international horizontal switching strategy in the 1960s and 1970s. Fearing nationalization in Europe, the company was able to render individual plants highly dependent on overseas suppliers, thus ensuring that subsidiaries could not survive within a strictly national context (Howells and Wood 1993).

This illustrates the method of focused production, whereby the production process is divided among plants located in a number of separate host countries. Parts produced in one country may be assembled in another (Schiller 1986). By distributing production across multiple countries, no single national component of the process can stand alone. Similarly, the practice of vertical switching entails an “R&D-production-marketing-sales sequence of interfunctional linkages” (Howells and Wood 1993, 146). Texas instruments, with 60 major manufacturing facilities in 18 countries, coordinates its worldwide resources with a global satellite communication network. Its integrated circuit (IC) design centers in Bedford, Freising, Nice, and Rieti are linked by data and communication systems to headquarters in the United States, India, and the Far East to facilitate integrated use of new design technology. According to the company, as reported by Howells and Wood:

[A] chip may be designed in Europe or Japan (Tsukuba), then the chip specifications can be transferred by satellite to one of its major plants in Texas, where the components are produced and sent to Kuala Lumpur or one of its other plants in East Asia for final integration (1993, 148).

The integrated distribution of production and marketing functions across several countries means that the specifications for partial production processes within individual countries can be stored in electronic databases outside of host countries and communicated to local managers only at the


discretion of central headquarters. As in the case of IBM above, local producers may be dependent upon central managers located outside of host countries. The threat of nationalization, perhaps the state’s last major trump card against capital mobility, is consequently rendered largely impotent. Transnationals could conceivably render national production facilities use- less simply by withholding instructions (Schiller 1986). While transnational enterprises preceded computer communications, new technologies like the internet facilitate unprecedented coordination and control of the transnational production process that undermines the state’s capacity to regulate economic activities on behalf of domestic policy interests that may conflict with the interests of transnational corporations (Finlay 1987; Gillespie and Robins 1989; Wilson and Al-Muhanna 1985).

Prior to the mid-1960s, the transportation costs and inadequate communications associated with offshore production made it difficult to control quality or adjust to rapidly changing markets. Today, TNCs can adjust the production process to avoid high taxes, skirt burdensome regulations, and minimize labor costs. New technologies can make geographical division of labor more cost effective than a centralized production process in a single country (Healey 1991; Qvortrup 1984). For example, TNCs can exploit labor markets in the Third World where workers earn as little as 40 cents an hour (Kame1 1990). Telecommunications and computers permit corporations “to both integrate and decentralize production, distribution, and management in a world-wide, flexible, interconnected system’’ (Castells 1986,303). As Serafini and Andrieu put it, “An apparent decentralization over a vast geographical area would, if the worst came to the worst, in fact amount to an increased centralization of power management” (Qvortrup 1984, 82). Likewise, “the more organizations depend, ultimately, upon flows and networks, the less they are influenced by the social contexts associated with the places of their [physical] location” (Drake 1993,286). Thanks to the “power, flexibility, and decreasing cost” of new technologies, production facilities can be located near target markets, thus avoiding shipping costs and expodimport fees while retaining internal coherence through “easy inter-personal communication and data transmission” (Cas- tells 1986, 307).

Capital flight refers to the ability and tendency of corporations to transfer capital investments and production facilities from one location [country] to another in pursuit of a more favorable investment climate, which may include lower wages, weaker regulations, and smaller tax burdens. For example, when local workers challenged the ban on unions at a Hanes plant operating in an export processing zone in Kingston, Jamaica, the company relocated to Montego Bay (Briggs 1993). Labor is


not the only group that is vulnerable to capital flight, however. BASF shifted its biotechnology research from its home base in West Germany to Cambridge, Massachusetts in response to domestic opposition from the Greens, and it subsequently planned another 250,000-square-foot facility near Worcester, Massachusetts (Holstein et al. 1990). Finally, capital strike in France in response to Mitterand’s nationalization strategy in the early 1980s led to a quick policy reversal by the middle ofthe decade (Cox 1992). Consequently, the protective measures that states took earlier in this century to safeguard vulnerable groups such as the young, the old, the sick and the disabled against the ravages of corporate capitalism are also in jeopardy. While contemporary capital is mobile, labor and other social interest groups are not. The bargaining power of labor is significantly diminished by the technologically enhanced capacity of capital strike (Bowles and Gintis 1987).

Beginning in the 1970s and continuing to the present, U.S. TNCs began redirecting hi-tech FDI to periphery states in the Third World in search of cheaper labor, thus generating a new international division of labor (Castells 1986; Eden 1993). Asian and Latin American developing countries have courted this investment by setting up export processing zones and supplying them with low-wage, docile workers, tax breaks, and minimal regulations (Eden 1993). There exist similar processing zones for U.S. production facilities in Mexico, and NAFTA promises more of the same. U.S. computer companies such as ITT, Hewlett-Packard and Digital have plants in Mexico and Southeast Asia, where basic assembly functions are performed by cheap local labor (Healey 1991).

The tendency of capital to expand abroad, as suggested by the preceding examples, corresponds with the diminished capacity of the state to act as institutional mediator between capital and labor, and between capital and other competing social interests. A full understanding of the emerging relationship between transnational capital and the state requires considera- tion not only of the technological empowerment of TNCs but also state policy transformations of recent decades. It will be argued that an interactive relationship exists between economic liberalization and capital mobility. While liberalization facilitates mobility, economic globalization in turn promotes competition among states to attract FDI, which means further liberalization. Thus a relationship between states and corporations that may appear adversarial to traditional sovereignty theorists, is actually characterized by a high degree of cooperation. The state remains institutionally powerful, but its policy autonomy is steadily circumscribed by an increasingly competitive global economy whose facilitating institutions are themselves the product of multilateral state interventions.


GLOBAL CORPORATE LIBERALISM AND THE STREAMLINING OF STATE SOVEREIGNTY

From Bretton Woods forward, non-communist post-war international- ism has been predominantly liberal in its economic orientation. While permitting limited national management of economic activities, the domi- nant regime has been one of free trade, or a minimally regulated international market. The collapse of Bretton Woods and subsequent rise of a floating exchange rate, along with the series of GATT negotiations, only further liberalized international trade and finance, with the over-arching goal of minimizing international trade barriers, and ultimately facilitating the uninhibited activities of transnational corporations.

Yet this is not to say that the state plays no significant role in economic activities. For example, according to a National Labor Committee investi- gation, since 1980 the U.S. government has obligated more than $1.3 billion to 93 investment and promotion projects. At least half of these projects have been targeted toward Central America and the Caribbean for the purpose of developing low-wage assembly production sites for TNCs fleeing U.S. wages, employee benefits, unions and environmental regulations (Briggs 1993). Even as early as the mid-l960s, articles 806 and 807 of the U.S. Tariff Schedule were amended to reduce import duties on U.S. products shipped abroad for assembly and then reimported into the U.S. for sale. The Generalized System of Preferences was established in 1976 to allow duty-free imports of specified products from developing countries, and since 1984 the Caribbean Basin Initiative has permitted duty-free imports from qualifying Central American and Caribbean countries. Al- though these programs ostensibly are intended to promote Third World economic development, vast benefits accrue to U.S. based TNCs in search of cheap labor and other comparative advantages (Kame1 1990).

The Caribbean Basin Initiative provides an effective illustration of the complex nature of corporate transnationalization and its relation to sovereignty. The program was officially intended to promote economic development in the Caribbean Basin through export promotion. Nevertheless, from the outset U S . foreign policy interests were integral to eligibility requirements. First of all, no country designated communist would be eligible for the program. This included Cuba, Grenada, and Nicaragua. Furthermore, no recipient could provide preferential treatment to imports from developed countries other than the U.S. if trade with the U S . would be negatively affected (Bakan, Cox, and Leys 1993). The CBI was gener- ally intended to discourage protectionism, replace aid and loans with foreign direct investment, and promote privatization and free market reforms (Ramnarine 1993). Export-led growth was to be promoted by pro-

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viding tariff-free entry into the U.S. for specified products. While overall exports from the Caribbean Basin to the U.S. fell in the years following the establishment of the CBI, they grew for non-oil-producing countries. How- ever, qualifying products were quite limited, and the conditions for quali- fication largely limited beneficiaries to U.S.-based TNCs. For example, the Super 107 program for textiles initiated in 1985 required that eligible products include only fabric cut and formed in the U.S. Furthermore, only the firm importing the fabric was permitted to export the finished product back into the U.S., thus benefits accrued mainly to U.S. producers (Ram- narine 1993).

Like GATT and NAFTA, the CBI illustrates the role of the state in facilitating capital mobility through the creation of international regimes and institutions. With the CBI, the U.S. appears to have pursued a neo-mer- cantilist agenda in the pursuit of regional hegemony. The policy was aimed at promoting growth among ideologically acceptable regimes on U.S. terms. Furthermore, the arrangement favored U.S. capital over domestic producers. While having a detrimental effect on the sovereign autonomy of recipient countries, the policy enhanced U.S . influence in the region by promoting particular reforms and U.S. capital investment. Yet by promoting capital expansion, the U.S. may have hastened the erosion of its own sovereign autonomy. The question becomes, sovereignty for whom? For example, as U.S. labor increasingly faces the threat of capital flight to low-wage labor markets, the state appears less and less to be an institutionally neutral and autonomous arbiter among domestic social interests. The proliferation of free trade regimes and export processing zones highlights the central role that the state plays in the globalization process, while likewise illustrating the state’s increasingly narrow range of policy autonomy. As Panitch argues:

The premise that globalisation is a process whereby capital limits, escapes or overtakes the nation state may be misleading ...[ because] there is a tendency to ignore the extent to which today’s globalisation both is authored by states and is primarily about reorganising, rather than by-passing, states (1994, 63).

The question of sovereignty should be evaluated in terms of who the state represents. From the standpoint of labor, environmentalists, and similar social rights advocates, the state’s representative capacity is significantly circumscribed by the globalizing processes that facilitate capital flight and which the state itself is promoting.

In 1988 the U.S. government approved more than $32 million for the construction of 129 factory buildings in El Salvador for assembly operations


targeted for U.S. markets. A $5 million aid package from U.S. Food for Peace was used to construct an additional free trade zone factory now used by a U.S. company. A Foreign Investments Incentives package described by the FUSADES (Salvadoran Foundation for Economic and Social Devel- opment) offers 100 percent exemption from all corporate income tax, all import and export duties, and all dividend and equity taxes. The U.S. Agency for International Development (AID) created the Salvadoran Foun- dation of Entrepreneurs for Educational Development to assist U.S. firms with worker training in El Salvador. This organization has provided $27 million in U.S. funding and provides a 50 percent subsidy to offset the cost of worker training for U.S. firms that relocate to El Salvador. Such state sponsored capital promotion is in addition to the strictly economic advantage of cheap labor-in the early 1990s the average manufacturing wage in El Salvador was about 40 cents an hour, $3.20 a day and $91 5 a year (Briggs 1993). The U.S. also provides direct tax incentives for U.S. companies to relocate abroad. For example, corporations which pay taxes to foreign governments may subtract an equal amount from their U.S. taxes. They can also delay payment of U.S. income taxes on foreign profits until those profits enter the United States. This encourages companies not only to shift their operations abroad but also to reinvest foreign profits abroad (Kame1 1990).

The global shift to privatization also offers enormous opportunities for TNCs to absorb significant portions of domestic economies. The collapse of state bureaucracies in Eastern Europe may simply transfer economic resources to new hierarchies that are also undemocratic and often unrepre- sentative of social interests. For example, by 1992 significant sectors of the Hungarian economy were controlled by TNCs, including brewing, cement, glass, bread, vegetable oil, sugar, confectionery, paper, and refrig- erators. In 1991 nine of the ten largest privatizations were purchased by Western TNCs. Eighty-five percent of all privatization proceeds were derived from foreign investors such as Electrolux, Unilever, and General Electric (Avery 1993).

Elsewhere, in depressed parts of northern Europe, competition among regional and national governments to attract Japanese TNCs has led to tax advantages for foreign capital vis a vis domestic business, thus threatening to drive out local industries and perhaps offsetting expected employment increases from foreign investment (Healey 1991). Less-developed countries compete for expected benefits of foreign direct investment such as technology, access to foreign markets, capital, and employment (Billet 1991). The new global economy is the product of both technological innovations and national policies. But the policy transformations of recent


decades may ultimately derive not fiom democratically sanctioned ideology or even free market theory, but from the particular economic logic of the technologically supported corporate domination of the global economy and its multilateral political institutions (i.e. IMF, IBRD, WTO, CBI, NAFTA).

The Third World debt crisis is an illustrative example. While the 1970s witnessed dramatic efforts by OPEC countries to reassert national economic sovereignty over the activities and profits of transnational oil companies operating within their jurisdictions, the subsequent huge deposits of petro- dollars in private banks led to irresponsible lending to Third World governments. By June 1984 the 209 largest U.S. banks held $132.6 billion in outstanding loans to Third World countries. A mere 24 banks accounted for 84 percent of the debt, and 9 banks accounted for almost two-thirds. To prevent default and the associated collapse of these leading institutions and the highly centralized world financial system they support, the International Monetary Fund (IMF) extended structural adjustment loans to debtor countries. To avoid arrears, the collapse of national credit ratings, and cutoff of new loans, debtor nations were required to carry out reforms such as currency devaluation, cuts in domestic social welfare programs, privatization of government enterprises, higher taxes and interest rates, and export promotion (Camilleri and Falk 1992; Cox 1992). Currency devaluation can devastate local economies, curtail the bargaining power of labor, and reduce the purchasing power of the poor. Export promotion means that local governments become particularly interested in attracting foreign companies, which typically are the largest exporters (Kamel 1990). If subsequent World Bank and IMF loans are made conditional on adherence to the pro-TNC regime to be administered by the new World Trade Organization (WTO), the discipline applied to recipient states will be virtually absolute (Peng 1994).

The jobs created by TNCs help to mitigate popular discontent and offset political instability (Kamel 1990). This only heightens an already acute crisis of national sovereignty for Third World countries which must seek to attract foreign capital and its technology with low-wage labor and weak regulations (Castells 1986). It also encourages disregard of other domestic social interests, such as those of debt-ridden farmers in Mexico. The combined pressure of the IMF and NAFTA negotiations led the Mexican government to repeal Article 17 of its 191 7 Constitution, which prohibited enclosure of communal lands. This made it possible to auction off fore- closed land to local agribusiness and TNCs, which in turn helped to generate foreign exchange needed to continue paying Mexico’s foreign debt. Through such cyclical global processes, the traditional principle of sovereignty, understood in terms of institutional autonomy, is severely under-


mined for vulnerable Third World countries. The chief beneficiary of all this is the transnational corporation.

None of this is to say that states are no longer significant economic institutions, or even that liberalization and globalization necessarily imply less intervention. Japan provides a contemporary example of “an extraor- dinarily close, symbiotic relationship between the state and private capital” (Camilleri and Falk 1992, 13 1). Its Ministry of Trade and Industry (MITI) has overseen a cozy relationship between state and industry, with government bureaucrats identifying and promoting those industries deemed most likely to promote national economic competitiveness. Indeed, all industrial states continue to intervene to promote economic competitiveness through measures such as “procurement practices, R&D [subsidies], import controls and non-tariff barriers, educational budgets, anti-trust legislation, and by the transport and communications infrastructure they help provide” (Dunning 1988,336). Furthermore, the European Union has enacted much of the Social Charter, which imposes regulations that include worker health and safety standards, worker participation rights, and paid maternity leave (Addison and Siebert 1994). While Pooley argues that regional integration is intended to “break the hold of labour at the local level’’ (1 99 1 , 76), the European Union Social Charter demonstrates that the processes of region- alization and globalization, while transforming the role and nature of the state, need not necessarily erode the social protections embodied in the state in the Keynesian era. Nevertheless, as illustrated by the sundry examples discussed earlier, information society is spawning a particularly cozy relationship between big business and government, which may frequently undermine those social protections secured by the Keynesian state. The new TNCs are mostly interested in workforce skills, communication facilities, and the quality of technology, which governments are more able to influence than they were traditional factor inputs (Dunning 1988). But national economic strategy cannot necessarily be equated with sovereignty.

According to Camilleri and Falk (1992), contemporary state intervention may only illustrate the narrowing of the state administrative function in accordance with the stringent economic logic of global corporate interests. In this sense, the relative decline of state sovereignty is not so much a matter of its losing power or functional significance per se, as it is a matter of its losing institutional autonomy and independent political volition. Rather than representing or mediating a range of domestic interests and values, the contemporary state is increasingly limited by the need to promote a favorable investment climate. The state is reduced to the role of a competitive consumer of capital investment. Democracy, where institu- tionalized in the state, is reduced to a choice among slight strategic vari-

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ations in the pursuit of a single objective: global economic competitiveness. Even social democratic parties in western Europe have discovered the necessity of managing national economic affairs in accordance with the demands of the global economic system, often at the expense of competing domestic social interests (Camilleri and Falk 1992). Despite the impressive provisions of the European Social Charter mentioned above, regional integration has resulted in dramatic cuts in public sector employment and social services within individual countries, resulting in massive popular protests in both France and Germany. The consequence of all of this for politics is that the power map of the world must be adjusted to reflect the flow of economic resources, including information capital.

To be sure, the contemporary situation is not so cut and dried as it is sometimes portrayed. The purpose here is to illustrate a tendency rather than to describe specifically the current balance between corporate hegemony and substantive national sovereignty. Corporate activities do not always conflict with social interests, and governments do not always bow down to the interests of global capital. For example, the use of AID funds to promote foreign assembly operations discussed earlier was prohibited by Congress only six days after the story broke in the press in September, 1993 (Briggs 1993). Furthermore, the CBI illustrates how capital promotion can serve as an instrument of regional hegemony for the United States, which is consistent with the realist, state-centric theory of international relations. In some cases corporations may offer social benefits in exchange for market access. Finally, capital flight is not an absolute capacity of TNCs. Relo- cation of production facilities can still prove more costly than conditions imposed by host governments. Thus the power and mobility of capital remain at least partially subject to national laws and regulations, which may sometimes favor competing domestic social interests over corporations.

Nevertheless, substantive democracy and sovereign autonomy appear to be increasingly marginalized and constricted by a particular form of economic rationality-that associated with corporate giantism and globalization. Furthermore, global corporate expansion and market concentration are particularly prevalent within the information industry. The global information economy appears to be shaping up as corporate oligopoly.

CORPORATE GIANTISM IN THE GLOBAL INFORMATION ECONOMY

New technologies are making information processing and communications media ever more significant components of the global economy. They are also facilitating ever greater centralization of related industries. But corporate expansion is not confined to the growth of single companies or

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industries. The boundaries between service and manufacturing industries are increasingly blurred in the global information economy. TNCs control huge portfolios of stocks in banks, the insurance industry, and investment companies. What is more, banks own a growing percentage of the world’s largest corporations, which increased from 13 percent in 1965 to 26 percent by 1978. The American bank, Morgan Guarantee Trust, reportedly has a controlling interest in 12 TNCs and at least significant ownership in 60 other large companies. Such banks play a considerable role in coordinating investment and providing credit to large firms (Camilleri and Falk 1992).

The nature of new technology industries, particularly microelectronics, computers, and telecommunications, is directly related to the push toward globalization and industry conglomeration. For example, the competitive expansion of corporate giants such as IBM and AT&T requires them to move into industries with which they have little experience. In the mid- 1980s, both formed alliances with Asian, American, and European firms through joint ventures, marketing agreements, takeovers, and stock pur- chases. To compete with AT&T, IBM has had to move into the telecommunications industry, which it could not do successfully by starting from scratch. Telecommunications technologies are research and development intensive. Developing a public telephone exchange system, for example, costs around $1 billion. Thus a firm like IBM which seeks to enter the market must bring in experienced companies from the industry to minimize R&D, and it must expand beyond the national market to make up investment costs (Khan 1987).

Such routinization of innovation (Schumpeter 1950) is further illustrated by the current convergence ofthe telephone and cable industries. The divested Baby Bell U.S. West, for example, has teamed up with both TCI and Time Warner; AT&T is working on an interactive television experi- ment with Viacom; and Southwestern Bell has acquired two cable companies near Washington, D. C. (Stix 1993). Such technology and industry convergence is a central component of the Clinton administration’s Na- tional Information Infrastructure (NII) program, which is spawning a kind of merger mania among high-tech media industries (USOVP 1993). It is also the promise of ambitious communication satellite projects such as Motorola’s Iridium system, which would provide integrated digital telecommunications service to every point on the globe (Holderness 1993), or Teledesic’s joint venture with McCaw Cellular Communications to place 840 small satellites in orbit to provide near-universal service (Associated Press 1994).

Furthermore, globalization in the information sector is closely tied to globalization in the manufacturing sector. Telecommunications giant

Transnational Corporations and Sovereignty 31 7

Cable & Wireless, for example, is “laying thousands of kilometers of fibre-optic cable from Hong Kong into the Special Economic Regions of China, so that plants built by Western and Japanese businesses in Shenzhen and other parts of Guangdong will communicate with their head offices” on 64-kilobit-per-second channels, or up to 1000 words per second (Holder- ness 1993, 38). Mosco views the convergence of previously separate and distinct industries as “part of a far wider restructuring of society and social relations” (1988, 47). Not only are information industries such as data processing and telecommunications being united within single corporate administrative hierarchies, but even companies as disparate as IBM, AT&T, Xerox, RCA and Exxon are experiencing a convergence of interests. As an indication of overall oligopolization in the information sector, Frederick (1993b) points out that two-thirds of the industry’s gross product is controlled by eighty-six corporations.

The convergence of telephone and cable industries leads us to a similar trend among related media industries. Already 43 national and transnational corporations control 25,000 media outlets in the United States, including daily papers, magazines, radio and television stations and networks, book publishing companies, and movie studios. The $3.5 billion Capital Cities Communications’ purchase of ABC in 1985 represented the first convergence of a large publishing company with a major network. The combined company has total revenues of $4.5 billion, which includes 90 radio, television and cable stations, 37 weekly newspapers and shoppers, and 10 daily newspapers and many magazines. Other media mergers and acquisitions during the same period include The Washington Post’s purchase of 17 percent of Cowles Media; Advance Publications’ purchase of New Yorker magazine; Rupert Murdoch’s purchase of 50 percent of 20th Century Fox; Gannet’s purchase of The Des Moines Register; Time’s purchase of Southern Living; CBS’ purchase of a dozen consumer magazines; General Electric’s purchase of RCA and NBC; and Sony’s purchase of Columbia Pictures (Gonzalez-Manet 1992; Redman 1994; Toffler 1990). Furthermore, the Times Warner merger in 1989 established the largest information conglomerate in the world (Sussman 1993). Finally, Bell Atlantic won a lawsuit in 1993 enabling media carriers legally to control content. Lines which once prevented media oligopolies and ensured market competition are being steadily eroded by legal reforms designed to pave the way to a corporately dominated and highly concentrated information economy.

As discussed earlier, the nation-state retains some capacity to influence corporate activities. But national economic policies appear to be oriented more toward promoting corporate expansion and conglomeration in the


information industry than balancing these phenomena with competing social interests (i.e. cultural integrity, privacy, public access). The reason for this may again lie in the narrowing of the state’s function and autonomy within the corporately dominated global economy in which it must act. Thus the tendency toward global corporate oligopoly is supported both by new information technologies and government policies that may themselves be the product of forces inherent in the information age global economy.

Again, state sovereignty, understood in terms of state autonomy, and the associated capacity to mediate a range of social values, is increasingly marginalized and constricted by technologically empowered global corporations. This is true of both Third and First World countries. The near universal policy shift toward privatization and liberalization both reflects and promotes the expansion and concentration of global industries, whether in the manufacturing or information sectors. The emergence of new information and communication technologies is integrally related to this process. Ultimately, the forces set in play by corporate globalization may demand a redrawing of the power map of the world.

CONCLUSION This article has shown how contemporary developments in information

and communication technology have contributed significantly to the rise of transnational corporations and giant conglomerate industries. This phenomenon challenges the autonomous character of sovereignty and highlights the need for a new model of world politics which recognizes the significance of powerful actors other than the state.

To be sure, the corporate challenge to state sovereignty does not imply that the state is ceasing to be an important economic actor. Rather, the state may remain institutionally powerful while finding that its range of policy options is significantly circumscribed. This condition is the product of both new enabling technologies that support corporate expansion and the liberal international economic order that the powerful states themselves created. Assuming that sovereignty implies autonomy of choice, whereby the state may mediate or choose among a range of social values and domestic interests, the pressures embodied in the corporately dominated global economy significantly challenge that sovereignty by narrowing the state’s range of policy options.

Increasingly, economic growth is becoming the overriding functional necessity of the state. More often than not, this is assumed to mean that industrial regulations and corporate taxes should be minimized. It means that corporate giantism and foreign direct investment are necessarily desir-


able. Consequently, policies which promote these ends are likewise deemed desirable, irrespective of their impact on other domestic interests such as labor, the environment, cultural integrity, or substantive democracy. Both politicians and the corporate media routinely trivialize and marginal- ize the groups representing these latter interests, portraying them as special interests at odds with the national interest. The national interest is, of course, identified with the interest of transnational corporations. In sum, within corporately mediated political discourse, national interest is increasingly equated with the interests of global capital. Thus sovereign autonomy, or the state’s effective mediation of competing social interests, is steadily diminished.

NOTES ‘Here the term transnational is chosen over multinational to imply that

economic processes are increasingly organized across national borders with relatively little respect for political jurisdictions or the political autonomy associated with the sovereign state. The term multinational remains rooted in a conception of world politics centered on the sovereign state, whereas the term transnational implies a diminution of the state-centric order and the inclusion of other actors, such as TNCs, in the model of world politics.

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