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The Making of a Transnational Capitalist Class
Corporate Power in the Twenty-First Century
By William K. Carroll, Colin Carson, Meindert Fennema, Eelke Heemskerk, J. P. Sapinski Zed Books Ltd
Copyright © 2010 William K. Carroll
All rights reserved.
ISBN: 978-1-84813-443-0
CHAPTER 1
Is there a transnational corporate community?
At the end of the twentieth century, a wave of literature proclaimed a new phase in the internationalization of capitalism, under the rubric of globalization. This was said to include developments such as (1) increasing international competition, (2) the internationalization of production, now accompanied by increasing levels of international labour migration, (3) the global ecological effect of capitalist production, (4) new forms of international governance, and (5) the decline and disintegration of the nation-state (Therborn 2000). Some scholars, as we saw in this book's introduction, also proclaimed the formation of a transnational capitalist class as a feature of globalization (Sklair 2001).
In this chapter we investigate a more modest theoretical claim. We will see whether, in the last quarter of the century, a transnational corporate community developed. Beyond considering whether a transnational corporate community took shape in the closing decades of the twentieth century, this chapter considers how the global corporate network was reshaped by the changing strategies and structures of corporate governance, which have been associated with the rise of transnational capitalism (van Apeldoorn 1999).
Four bodies of literature serve to situate the analysis. We first consider whether there is actually an economic base, in the patterns of international trade and investment, for the formation of a transnational corporate community. We then take up Sklair's (2001) analysis of the transnational capitalist class, whose ethnographic detail complements our network-analytic approach and inspires our first hypothesis, but whose lack of attention to specific institutional forms of corporate governance leads us into the comparative literature on corporate governance practices. In this literature we find more sensitivity to national and regional specificities that adds nuance to our analysis and enables us to venture four further hypotheses about the shape and form of the global corporate network, interpreted as a marker for voice- and exit-based systems of governance. Finally, we revisit the major research in this field to date, Fennema's (1982) study of international networks of banks and industry, which provides the empirical basis for our analysis of the network in 1976.
Internationalization of ownership
As Hirst and Thompson (1996) have shown, 'globalization' has not been a smooth, continuous economic process. In the perspective of the twentieth century as a whole we see after 1913 a decline of exports and of foreign direct investments (expressed as a proportion of GDP) that is not reversed until well after the Second World War. Foreign investment within the Western world, however, increased spectacularly in the late twentieth century. By 1996 the inflow of foreign capital into the USA equalled the outflow of direct foreign investment (Burbach and Robinson 1999: 17). In Japan, on the other hand, there is still a relatively small amount of foreign investment: even in 1996 less than 1 per cent of GDP (Bairoch 2000: 209). Japan remains predominantly an exporter of capital. As is well known, with the increased volume of foreign investment has come a change in the pattern of internationalization. In 1970 nearly three-quarters of all foreign investment went to developed countries. By 1996 60 per cent of the foreign investment flows was between developed countries (Burbach and Robinson 1999: 18). Although the post-1970 trend is indeed towards more 'globalized' foreign investment, the developed countries still form the principal site of the capitalist world economy.
In the 1960s and 1970s we witnessed yet another form of internationalization of property and control relations. Following the example of Royal Dutch/Shell and Unilever, which had been established as binational firms at the beginning of the twentieth century, several companies tried to form binational corporations in the sixties and the seventies. But none of these new binational firms survived the eighties (Fennema and Schijf 1985: 256). Difficulties that dogged the most illustrious binational merger of the 1990s – Daimler-Chrysler – make a similar point.
It seems, therefore, that the wave of international mergers did not lead to stable transnational firms. Transnational ownership structures did not seem a viable option. This should warn us not to interpret transnational class formation as an irrepressible tendency. When it comes to day-to-day organizational cooperation, differences in national cultures and perceived national interests still carry a heavy weight. What we did see in the eighties, however, was a massive wave of international takeovers that increased the number of foreign subsidiaries.
We may conclude that the economies of capitalism's core have shown a sharp increase in exports after 1970 and in direct investment after 1985. The import and export flows became more balanced in the last three decades, as did the flows of direct foreign investments among the core countries. This warrants the term globalization to a certain extent, even though this can also be interpreted as a recovery from autarkic tendencies set in motion by two world wars and a Great Depression and reinforced by the Fordist-Keynesian pattern of accumulation and regulation prevalent in the 1950s and 1960s. But does the situation also warrant the term transnational capitalist class (Sklair 2001; Robinson 2004), Atlantic bourgeoisie (van der Pijl 1984) or transnational capitalism (van Apeldoorn 1999)?
A transnational capitalist class?
Scholars who speak of a transnational capitalist class or of transnational classes often focus on strategies and perspectives. Most pronounced in this sense is the work of van der Pijl (1984, 1998), Van Apeldoorn (2000), Gill (1990) and Sklair (2001). Sklair ends his important book The Transnational Capitalist Class with a long chapter on 'Global vision and the culture-ideology of consumerism'. There, he tries to demonstrate that corporate executives think globally and that the ideology of global capitalism is consumerism. He finds this aspect of globalization so important that he includes merchants and mass media in the transnational capitalist class, along with globalizing personnel, globalizing bureaucrats and politicians and TNC executives and their local affiliates. He makes the plausible claim that such groups operate from a global perspective, although it is not quite clear whether they have all disengaged from their national embeddedness. What Sklair does not show, however, is that these corporate leaders really form a transnational community that operates in such a way as to warrant the term transnational class in the structural sense. Sklair does not answer the illuminating question posed by Therborn in his introduction to the special issue of International Sociology on globalization: 'Is the world a system shaping the actors in it and directing their strivings, or is it an arena, where actors who were formed outside act and interact?' (Therborn 2000: 155).
Following Therborn, we should speak of a transnational capitalist class only if there are structural conditions that reproduce a transnational corporate community, independent of its national 'home' base, to such an extent that their collective 'transnational' identity shapes their behaviour more than the identities they carry with them as national citizens. To prove the existence of a transnational capitalist class is a far from easy task and we do not pretend to have a full answer to the question posed by Therborn. This chapter provides some of the pieces of evidence from which the full answer might eventually be deduced. Through a longitudinal analysis of the global network of directorship interlocks, we can gain a clearer sense of whether the closing decades of the twentieth century bore witness to the emergence of a transnational capitalist class in the sense not of strategic vision but of structural condition.
Interlocking directorates come about as a result of corporate or personal strategies, but once established they do much more than serve the interests of the sending or receiving corporations. They may have been established to exercise control over or to monitor another firm, to act in collusion, to create legitimacy or even for reasons of personal career advancement (Mizruchi 1996). But their structural effect goes far beyond that. The network of interlocking directors has a unifying or fragmenting impact of its own, a unity or fragmentation that is not intended by anybody in particular and cannot be disarticulated or ignored by any single player in the field. By mapping the global network of corporate interlocks we will investigate whether or not these interlocks link the world's largest firms in one connected component or whether the network falls apart in separate national components. In the latter case, there is no transnational corporate community even if most corporate executives can be shown to have a global vision and even if they would like to create a transnational corporate community. This brings us to our first hypothesis:
H1: In the closing decades of the twentieth century, the world's largest firms created an increasing number of transnational corporate interlocks that formed a more inclusive, integrated transnational network.
Corporate governance in international perspective
Three trends seem to have characterized the development of the international business system in the 1970s. First, we saw a spectacular increase in the networks of interlocking directorates among firms from the North Atlantic world (to be discussed below). Second, there was the shift of labour-intensive production to global capitalism's semi-periphery (the New International Division of Labour), a tendency that could eventuate in a diffusion of the corporate network to 'newly industrializing' centres such as Seoul and Sao Paulo. Third was the globalization of the commodity and financial markets (illustrated by trade and portfolio investment data) and the move of banks into international consortia. Fennema and van der Pijl (1987) have argued that there was a shift of economic policy and corporate strategy towards rentier investment rather than productive investment. The logic of money capital seemed to replace the logic of productive capital. Such shifts can, however, also be interpreted as a move from what Nooteboom (1999) calls voice-based to exit-based strategies of corporate governance.
Corporate governance in a broad sense is commonly defined as 'the rules and norms that guide the internal relationships among various stakeholders in a business enterprise' (Doremus, Keller et al. 1998: 222). The question is whether the global corporate network has been reshaped along the lines of a particular local form of corporate governance that is becoming 'universal'. Here the issue is not whether the global network provides a stronger basis over time for class hegemony in the sense of a cohesive transnational corporate community, but whether a specific form of business organization is becoming hegemonic, i.e. normative, in the world economy. This issue directs our attention to the forms of corporate governance that have persisted at national or regional levels in the world economy, and to the compatibility of these forms with the patterns of internationalized accumulation and neoliberal state management that became predominant globally after the 1970s. Do we indeed find a diffusion of Anglo-American, exit-based corporate governance in the European Union and Japan? Or do we find corporate governance in European countries continuing to take a European form, while corporate governance in Japan follows a Japanese road to globalization? In other words, is path dependency working in the field of corporate governance or is international competition leading to an Americanization of corporate governance? Note that this question cannot be reduced to the problematic of transnational class formation. Americanization of corporate governance does not necessarily lead to a transnational corporate community (although this is what Sklair and other theorists of globalization implicitly assume), while path dependency in itself does not exclude the formation of a transnational corporate community. These are two different questions and they deserve to be analysed separately.
The comparative analysis of Doremus, Keller et al. (1998; cf. Clarke 2007) clarifies how differences in institutional frameworks and business culture have produced an exit-based pattern of corporate governance in the USA, but a voice-based pattern in Germany and Japan. In the USA, banks are traditionally weak because of legal restrictions that go back to the Glass Steagall Act in 1933 and which made the American business system strongly stock market oriented. The monitoring of business is relatively transparent so that the shareholders have an 'early warning system' that allows them to sell their shares in case of poor performance. Shareholders' use of their exit option leads to a lower value of the company's shares on the stock market and an increasing risk of a (hostile) takeover of the company (Nooteboom 1999).
In Germany things work differently. There, non-financial corporations have held large blocks of shares while the relationship between banks and industry has been traditionally very close. In this voice-based system, the banks monitor their industrial debtors and tend to intervene directly and discreetly if things go wrong. But the banks' reaction is in general not as swift as that of the stock market and the restructuring of the firm in trouble is not as rigorously pursued as is the case in the USA. German banks and financial institutions have been more patient owners and they quite often collaborate with German government to solve industrial crises. Such an institutional framework may be slower in reacting to bad management and sectoral crisis, but it is clearly a system that is gentler than the US system and can have a better view on long-term developments. Doremus, Keller et al. (1998) have shown that the German institutional system has hardly moved in the direction of the Anglo-American stock market system. On the contrary, the industrial problems due to economic recession and in particular the reunification of Germany were solved by falling back on the old system of finance capital rather than by Americanizing corporate governance. The same goes for Japan, where the keiretsu system seemed to strengthen in the economic crisis that hit Japanese business in the 1990s:
While there is no doubt that corporations from around the world are increasingly interested in tapping large pools of capital, no matter where they are located, core Japanese and German capital markets are not likely to be overwhelmed by American institutions. (Ibid.: 55)
In this study, we focus on the directors of large corporations and investigate only an aspect of corporate governance. Since we investigate interlocking directorships among corporate boards, however, we also take the concept of corporate governance farther than is conventionally done in the field of business administration. In a system of corporate governance that is stock market oriented and dominated by exit-based strategies there is no need for interlocking directorates to control or monitor corporations. Does this mean that interlocking directors become redundant? We will argue that their function shifts away from the instrumentalities of hierarchy and control, and towards a hegemonic role. Interlocking directorates become devices of consensus- and class formation. In an exit-based system they serve to spread information that is relevant to the corporate community, to hammer out notions of the general interest and to marginalize those firms that seem to 'free-ride' on the corporate community. Interlocking directorates create trust within the transnational business system and are therefore crucial in the formation of a corporate community that lacks state institutions.
In considering how a shift to exit-based corporate governance might register in the global network, we distinguish
1 primary lines – interlocks created when an officer of one corporation sits on the board of another firm – from
2 secondary lines – interlocks created when an outside director of one company serves as an outside director of a second company; and
3 thin (single-director) lines from
4 thick (multiple-director) lines.
(Continues...)
Excerpted from The Making of a Transnational Capitalist Class by William K. Carroll, Colin Carson, Meindert Fennema, Eelke Heemskerk, J. P. Sapinski. Copyright © 2010 William K. Carroll. Excerpted by permission of Zed Books Ltd.
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