The regulation of international capital fl ows has been more controversial than the regulation of international fi nance and international trade and most of the attempts by governments to come to international agreements failed.
It is even more curious since capital investment in international economic
27 GILPIN, Robert: Nemzetközi politikai gazdaságtan, Budapest, 2004, BUCIPE Rt, p. 229.
28 RODRIK, Dani: A globalizáció paradoxona, Budapest, 2014, Corvina, p. 92.
relations existed centuries ago and contributed to the development of inter-national trade. The opening of sea transportation lines from the end of the 15th century demanded new fi nancial resources for the building of merchant ships on the one hand and the fi nancing of overseas trade on the other. Series of trading companies were set up in Europe, the best known among them were the British East India Company and the Dutch East India Company.
Both companies were established by private investors at the beginning of the 17th century and got exclusive rights from their governments to conduct trade with the Far East. The two companies played a major role in the in-clusion of the Indian Sub-Continent into the British Empire and Indonesia into the colonial possession of the Netherlands.29
The capital required by large scale foreign investments accumulated fi rst in Great Britain. British capital played a vital role in building railroads in many parts of the world fi rst of all in the colonial territories. Another impor-tant area of British capital export was the building of ports required by the expanding oceanic navigation, which was an important strategic asset for Great Britain. Mining and agriculture also became important target areas of foreign investments in the second half of the 19th century. At the beginning of the 20th century the growing US economy accumulated suffi cient capital for foreign investment and began to expand to Central America at the expense of British interests. In agriculture the United Fruit Company was among the fi rst investors and has had a prominent economic and political role until today30. Among the fi rst US investors the Bell Telephone, the Standard Oil and the General Electric companies became internationally known. In the period preceding the First World War multinational companies of the US invested 7 percent of the American GDP abroad.31
According to the defi nition of Spero and Hart a multinational corpora-tion is an enterprise which conducts or controls value added activity in more than one country. The level of multinationality can be characterised by a number of factors. Such factors are: the number of affi liates abroad,
29 BUZAN, Barry – LITTLE, Richard: International Systems in World History, Oxford, 200, Oxford University Press, p. 311–312.
30 BUZAN, Barry – LITTLE, Richard: Regions and Powers, Cambridge, 2003, Cambridge University Press, p. 280.
31 SPERO, Joan – HART, Jeffrey: The Politics of International Economic Relations, Bel-mont, USA, 2003, Wadsworth/Thomson, p. 118.
the share of property abroad and the ratio between income abroad and the total property abroad. Indicator of multinationality can also be the number of countries where the employees originate from.32
The worldwide expansion of American multinational companies in the area of industrial production has been added to the earlier assumed leader-ship role of the US in international fi nance and trade after World War Two.
From the 1980s European and Japanese multinationals and also companies of some newly industrialised countries increased their activities and infl u-ence in the world economy. Increased activities of the multinationals is explained by a number of arguments in professional literature. Among the major driving forces the following factors are mentioned: to shorten the distance to markets, to cut the expenses on trade, to use the advantages offered by different levels of tariffs and to cut the expenses of production with the employment of cheap labour. According to the “production cycle theory” after the demand for new products began to decline, they should be exported as a fi rst step, than in the second phase the production should be taken abroad to an affi liate. Beyond the internal strategic consideration of MNCs, economic policies of governments also have impact on invest-ments, either impede or encourage them. Economic policies of governments also infl uence the direction of capital fl ows, which changed considerably in the past decades.33
MNC’s impacts on the host courtiers have intensely been disputed in international forums. Those debates put forward opposing views about the infl uence of foreign capital on national economies. Views supporting foreign investments highlighted the creation of job opportunities, introduction of new technologies and management skills and the contribution to export income. Views opposing foreign investments emphasized the negative impact on national enterprises, the expatriation of capital, the impediment to national research and development and the development of research capabilities on the home country. Beyond those negative effects foreign capital intervenes into the domestic affairs of the host countries. The most intense fears developed in connection with the activities of MNCs of the
32 SPERO, Joan – HART, Jeffrey: The Politics of International Economic Relations, Bel-mont, USA, 2003, Wadsworth/Thomson, p. 117.
33 SPERO, Joan – HART, Jeffrey: The Politics of International Economic Relations, Bel-mont, USA, 2003, Wadsworth/Thomson, p. 122–129.
US, since they have been perceived as the strongest and most aggressive and ethically most questionable. MNCs of Europe have been considered more humane and more sensitive to the needs of business partners.34
Governments adopted different practices for the control of MNCs. The most important form of control has been the assessment of the effects of foreign investment on national economy, especially on the most vital sec-tors of economy. The US President is empowered to prevent any foreign investment which he considers a threat to national security. Strictly protected branches are the military, nuclear, aviation and informatics industries. In Canada there are traditionally strong fears of the US MNCs not only for economic but also for cultural reasons. The Canadian government’s restric-tive policies led to disputes with the US government on several occasions.
Among the industrially most developed countries Japan implemented the strongest control and restrictions over foreign investments. Only from the middle of the 1960s under the pressure of the US did Japan begin to decrease the number of branches of national industry, which were totally or partially protected. In the fi nancial sector restrictions were eased only from the middle of the 1980s, but the process of control was maintained.
The ministry of International Trade and Industry represented an effi cient government mechanism in the area of screening and approving international investments. Beyond government control the Japanese fi rms also created their system of control, the “Keiretsu” system. In this system of self-defence Japanese fi rms purchased the shares of a company which was threatened by hostile takeover of a foreign company, thus preventing the acquisition of Japanese property by foreign investors. Foreign investment is prohibited in such branches of the Japanese economy as agriculture, fi shery, forestry, mining, leather industry and oil industry.35
In the European Union there is no common system of control over foreign investments because governments reserved their right of sovereign deci-sion regarding the activities of MNCs. The efforts in the EU are directed at the maintenance of competitiveness with MNCs of the US and Japan.
Great Britain implements traditional permissive policy regarding foreign
34 SPERO, Joan – HART, Jeffrey: The Politics of International Economic Relations, Bel-mont, USA, 2003, Wadsworth/Thomson, p. 136.
35 SPERO, Joan – HART, Jeffrey: The Politics of International Economic Relations, Bel-mont, USA, 2003, Wadsworth/Thomson, p. 146.
investments. Since 1979 regulation has been left to the market. Member states of the EU accepted the recommendations of OECD in connection with the liberalisation fi rst in the area of long term later in the area of short term investments.
During the Cold War developing countries made attempts to regulate the activities of MNCs in the world economy in the United Nations. In accordance with the proposal of the Group of 77 Economic and Social Council of the UN established the Committee of Transnational Corpora-tions, which put the rules of behaviour of MNCs on its agenda in 1974. The question of the “Code of Conduct” of MNCs was on the UN agenda until the beginning of the 1990s when the whole initiative failed and the question was taken off the agenda. Discussions on the “Code of Conduct” revealed that the group of Western countries was not interested in the international regulation of NCs, instead of concentrating on professional issues the UN debates focused on ideological issues. Events from the beginning of the 1990s demonstrated that home countries remained uninterested regarding international regulation of foreign investments.36 Deliberations on the ques-tion of new internaques-tional economic order on different UN forums also failed and the developing countries joined the “Washington Consensus” and also joined international fi nancial and capital markets in the hope of pursuing a more successful economic model.