But the litmus test of relocation lies not in output but in employment
trends, which provide a second cause for confusion. As Chart 6 show, the
share of US parents in MNC employment worldwide remained more or less
constant during 1982-89, but fell quite significantly (5 percentage
points in ‘all industries’ and manufacturing) during 1989-99. This could
be interpreted to mean; (1) that relocation by MNCs resulted not so much
in a major loss of employment in the US, as in a faster growth of MNC
employment in the periphery than in the core; and (2) that this process
of relocation did not result in any loss in share of parents of US
multinationals in gross product generated worldwide or in the
contribution of these parents to US GDP.
Chart
6 >>
According to the BEAs own interpretation of trends based on its 1994
benchmark suvey, the persistence, despite relocation of production, of a
high share in manufacturing GDP of US parents partly reflects “the
firm-specific intangible assets (such as patents or brand images) that
allow these firms to earn profits that are sufficient to overcome the
additional costs of producing in foreign markets.” This refers, of
course, only to that part of surplus that is repatriated in some form to
the parent country, and not to that which is used either to expand
international assets or to increase the retained surpluses of the
affiliates themselves. Clearly, relocation does not imply lower profits
for US companies, whatever else it may mean for the US economy. Rather,
as has been argued by many, international expansion has been a way of
maintaining or enhancing the surpluses garnered by US parents from the
world market. The value of that surplus also increases in real terms
because of the fall in primary commodity prices associated with
globalization.
An examination of the industrial distribution of US multinationals in
1999 (Table 1) helps clarify matters further. There are just two major
industry groups which account for more than 10 per cent of MNC gross
product worldwide: manufacturing and information. Within manufacturing,
Transportation equipment, Chemicals and Computers and electronic
products are the main sectors of MNC presence. An interesting feature of
MNC presence in manufacturing is that while parent manufacturing firms
account for 50 per cent of aggregate gross product of MNC parents, MOFAs
in manufacturing account for 72 per cent of aggregate gross product of
US majority-owned affiliates. This larger share of MOFAs when compared
with parents in manufacturing as opposed to all industries does suggest
that MNC manufacturing presence relative to overall presence is greater
abroad than at home.
Table 1 >>
Information is a new category in the 1999 survey, which did not exist in
earlier surveys. Its large share in aggregate gross product is true only
of parent firms (13.3 per cent), while the share of MOFAs in this area
in aggregate gross product is still small (3.6 per cent). The sub-sector
is dominated by one industry, broadcasting and telecommunications. This
is an area where “intangible assets”, and the control they provide, may
play a major role in explaining the high share of parent MNCs in gross
product. That possibility is corroborated by the relative importance of
MNCs in the US industry in this sector when assessed in terms of
employment (Table 2). While US parents of MNCs account for less than 20
per cent of all non-bank private employment, and parents of
manufacturing MNCs for 45 per cent of US manufacturing employment, the
figure stands at 53 per cent in the case of the information industry.
This has an important implication. Even as the share of manufacturing
employment generated by US MNCs abroad is showing signs of growing
faster than employment at home, new sectors of MNC activity in the
services areas, particularly information, are helping strengthen
employment in the US. This not only tallies with the growing role of
services in US employment and GDP, but also explains in part the growing
emphasis on liberalization of services trade on the part of US trade
negotiators at the WTO.
Table 2 >>
