In class we discussed Raymond Vernon and his theory of the obsolescing bargain model. This model provides a theoretical framework in which countries and MNCs go through an initial bargain stage. In this stage the MNCs are able to often negotiate positive terms for themselves and are able invest their foreign capital into the domestic markets of other countries. At the initial time of this dealing, MNCs often hold most of the bargaining power as they are in the position of power due to their mobility to invest in other countries if needed. However, once an MNC has decided to begin the process of foreign direct investment in another country, this capital will turn into sunk costs such as factories, farms and ports. Because these sunk costs are not as mobile as the MNCs, this can leave the MNC more vulnerable as they build a sort of reliance on their host nation. These sunk costs act as a sort of hostage allowing countries to raise taxes and tariffs which were once lowered to attract foreign direct investment and the bargaining power of the MNC obsolesces.

One piece of evidence supporting the Obsolescing bargain model is all the countries, especially in Latin America, who began nationalizing their natural resources and seizing the sunk costs of MNCs. However, weaker states who had foreign investment set up manufacturing infrastructure within their country had much worse results when attempting to nationalize industry. Even in countries like Chile where they successfully nationalized markets such as copper, the MNCs were able to dictate market conditions so that Chile had a hard time bringing their copper to market as MNCs controlled key marketing channels. Among other reasons, countries no longer believe the OBM to be an accurate model which is evident in the fact that most countries no longer restrict FDI. Susan Strange once said that “the only thing worse than being exploited by MNCs is not being exploited by MNCs” and that has certainly become the case. In present day bargaining usually takes place at a home/host state level so that bilateral investment agreements can ensure liberalized trade going forward. Export processing zones also show the lengths to which certain countries will go to attract foreign direct investment and MNCs. Although this model has obsolesced, it does highlight the downside of having no actual territory to call your own. Although mobility allows for the changing of environment when needed, it also means that MNCs are always ‘visitors’ and may have to be concerned about the safety of their sunk investments. One way around this is attempting to create trade agreements which are beneficial both to MNCs and their host states so that the hosts feel no reason to confiscate sunk capital.

It has become clear from the onset of this course that there is much debate within political science on the importance of MNCs. I for one usually find my beliefs and arguments aligning with that of realists. However, in the case of Multi-National Corporations there is a clear lacking within the realist perspective. This is a hole that Gilpin has seemed to fill from my point of view. Gilpin begins by crediting MNCs as the powerful economic actors which they are and describes the dangers that can befall a nation which does not keep them in mind. By exporting jobs and hollowing out industries, Gilpin argues that MNCs must be taken into account. However, unlike other theorists who believe MNCs should be left to their own devices, Gilpin believes the state must play a strong role in controlling these actors. I found this train of thought quite interesting because it still assumes nation states as the all powerful and supreme actors on the global stage but also recognizes the threat to national sovereignty which MNCs pose. Gilpin proposes constraints such as taxes and trade regulations be put on these companies so that the United States can remain in control of their economic future.

This prompted me to think about the national control which China maintains over their nationalized corporations. Although Gilpin is not proposing for nationalized or socialist enterprises, the aspect of control is shared between both cases. I wonder if a world which is increasingly globalized and economically interconnected, the US may adopt these strategies. Because MNCs are able to move freely from one state to another, the nationalization of industries may become necessary to ensure sovereign economics for a state. Without any sort of constraints or restrictions placed upon nations and their economic back bone, corporations could leave nation states stranded with no source of jobs or taxes. This to me is ironic because the free market capitalist system which has been supported by the US for so long may bite them in the back. with a market so free and with increased mobility, the US may be forced to take on aspects of the socialist policies which they have fought for so long. I would argue the only reason Americans and other western governments supported a free market is because at the time they benefited from it. If these key actors cease to gain the same benefits from a truly fluid global economy, would they also cease to support its functioning. We may already be seeing this in the mercantilist type policies of trump.