“The only way left to it is to set fire to the capitalist stage”
This document is a commentary on Arghiri Emmanuel’s essay “Multinational Corporations and Unequal Development”.
Prerequisites recommended before starting: Reading the essays “Myth of Development and Underdevelopment” and “Myth of Investment Imperialism” is recommended before starting with this essay. All these works pave the way for understanding Emmanuel’s Chef-d'oeuvre work on this very same topic - “Appropriate or underdeveloped technology”. The concept of “factor endowment” might appear foreign to readers without an academic understanding of economics but in reality, it is not very intricate. While Emmanuel works down the reader with a robust explanation of the concept in his magnum opus “Unequal Exchange” that level of understanding is not an utmost urgency to people concerned with this essay. To elucidate it simply - it is a theory which has developed basing itself as a ‘critique’ (but in reality only compliments) the bourgeois theory of free trade benefiting both countries involved in it (espoused by Ricardo), it limits each country into specialising in its most abundant ‘factors’ for example - a country with abundant labour should give up labour-saving capital-intensive industry and should focus on maximising labour wastage. This has been a doctrine of bourgeois economists ever since the reign of the capitalist mode of production and limits the development of poor countries by ghettoising them to labour-intensive production. With that being said, I won’t be talking about it anymore here, readers can check Emmanuel’s thorough criticism of both - the theory of comparative costs (as espoused by Ricardo) and the theory of factor endowment which builds up on the former.
Emmanuel distinguishes the critics of MNCs into two camps broadly i) Right-wing protestors and ii) Left-wing protestors. While this might come off as largely redundant categorisation because of the overlapping nature of the ‘criticism’ presented by the groups, it's important and I find it exceptionally interesting how the motivations of these two groups are completely radically opposite (but either way converge to the same ends).
First Emmanuel talks about the right-wing critics of MNC - under this group the IMF, World Bank, NATO, and also the labour unions of the rich countries (the AFL-CIO). He further subdivides the group, the IMF, WB, NATO and the rich nation-state as ‘ideological’ oppositions who see the MNC as a ‘distortion’ of the free economic system, in their eyes the MNC is a hindrance to the economic rationality of laissez-faire capitalism, here though there is something important, Emmanuel notes about the rich nation states opposing the MNCs are also not opposed to foreign investment in general but themselves offer very liberal ‘investment codes’ to attract investments as much as possible, so their opposition to MNCs in reality is just a way to guilt-trip the companies into investing in them, self-interest prevails over ‘ideology’ of the ‘common good for humanity’. Emmanuel then talks about the AFL-CIO (The American Federation of Labor and Congress of Industrial Organizations) whom he considers to be the ‘least ideological’ opponent to AFL-CIO in the sense that they are the most self-centred group, they don’t concern themselves about the ‘common good of humanity’ unlike liberals but concerned with “the exclusive interests of that section of the world "labour aristocracy" that is the American workers.” By the end of this commentary, I will show how even the ‘left-wing opponents’ of MNCs insofar as they are concerned with the quasi-religious myth of ‘proletarian internationalism’ also end up converging along the same line even though their intentions might be different. A lot of technical quibble is involved in this section where Emmanuel dismantles the arguments of first-world labour aristocracy opponents. I will try to elucidate them as simply as possible in layman's terms.
Their argument goes like this: when an MNC invests in another country, cash outflow takes place (a certain amount of money is taken out from one country and invested in another) this amounts to a ‘loss’ for the investing country, but when the invested capital repatriates the profit on the investment a cash inflow takes place (money enters back into the economy) and hence this ‘phase’ is a net gain for the workers of the investing country, even though this argumentation looks like a truism it is in reality utterly the opposite which happens. When the MNC repatriates profit back into the developed country (from where it originates) it negatively affects the trade balance thereby affecting employment. Here is the catch, profits are money, and money needs to be exchanged for something tangible to move between countries. Although MNCs may initially appear to positively affect the balance of payments through foreign investments(profit flowing back to the country), they can lead to a negative trade balance. This occurs when profits, dividends, and imports associated with those investments increase, often exceeding exports from the originating country. As MNCs repatriate profits, the outflow of capital can result in increased imports of goods(The profit the MNCs receive is in the local currencies of the country they have invested it in, when they repatriate profit back to their home country they need to convert the currency into dollars. To convert the local currency into dollars, the developing country must export goods to the developed country), which can create a trade deficit(imports>exports) for the rich country. This situation is particularly negative for domestic employment of workers in rich countries, as the negative impact on jobs is felt after the capital has been exported and profits start coming back in the form of imports rather than domestic production, leading to fewer jobs being created in the MNC's home country. It is in this sense that the export of capital is harmful to the workers of the rich country (as could be seen in England from 1870 onwards where a negative trade balance[imports>exports] led to the multiplication of inactive and unproductive population).
This is why the AFL-CIO and the other trade unions of rich countries oppose MNCs and the export of capital, there is no amount of ideology in their argumentation - the material interests of the working classes of their nations are what they are bothered about. Emmanuel criticises the labour-aristocracy opponents for their technical misunderstanding of the phases of capital export and points out how it is in the ‘second phase’ where profit is repatriated where the problem for first-world workers lies even if it sounds paradoxical.
“The export of capital influences and greatly accelerates the development of capitalism in those countries to which it is exported. While, therefore, the export of capital may tend to a certain extent to arrest development in the capital-exporting countries, it can only do so by expanding and deepening the further development of capitalism throughout the world.” -Lenin.
The rest of the essay deals with the left-wing opponents of MNCs. This is by far the most iconoclastic portion and proof of Emmanuel’s nonconformism to orthodox doctrinaires of the theory of proletarian internationalism. A detailed engagement with this portion is necessary, I will be quoting passages from the text regularly and explaining it in easy layman's terms.
The starting paragraph is interesting, Emmanuel attacks the advocates of the ‘national path to socialism’, which simply put is an attack on the believers of ‘socialism in one country’ - this he meant for those not only in the first world but also the ones in a poor country (indirect attack on the self-proclaimed Marxist-Leninists and Marxist-Leninist-Maoists). Emmanuel had already ruled out the possibility of revolution in the First World. In the ‘third world’ he believed the ones who advocate an ‘anti-monopoly’ line don’t want the end of capitalism itself but want a pre-monopoly small, independent business-run capitalism. This might be controversial to a lot of people I know, but according to me, this is the only real sense in which we can analyse Emmanuel’s contention towards the idea of a ‘national path’ to socialism because capitalism is a world system and not an aggregation of national economies. A poor country will still be exploited by unequal terms in trade after a socialist revolution and the only way to break out of it is a third-world revolution whereby the whole swathe of poor countries form a common union amongst themselves.
“The "ideological" occultation is found mostly on the left, in the multitude of small groups that claim to be revolutionary Marxists and who, as it always happens in the periods of objective regression of the social movement, are mistaken in their target and end up just blowing hot air.”
Yet another very controversial take by Emmanuel. Here he attacks those on the ‘left’ - I would go as further to say that this is very applicable to self-proclaimed ‘Maoists’ and ‘anti-revisionists’ of the present age. Emmanuel already mentions at the start that he is not bothered by the theorists of the communist parties which are already ‘reformists’ (i.e. revisionist) because they already treat the MNCs in the same way they treat the overall capitalist system, they don’t have any programme for the overthrow of the present system and that is given - he locates the problems to be existing in the ‘left’ of these positions who formulate the MNC model to be something qualitatively and quantitatively different, all the theorists of ‘capital internationalization’ [those who believe that capital export post-70s is significantly different] have been attacked. There is a humorous footnote:
“In the most conservative universities in the world, a doctoral program that criticizes MNCs does not raise any objections. A rebellious student may thus have the feeling that he or she is staying pure without compromising his or her chances of being accepted. Thus, the proportion of students in the social sciences who choose this subject has become frightening.”
Extrapolating the United Kingdom’s accumulated foreign assets as of 1914 (i.e. 4 billion pounds in Gold) to 1974 - it stands as equivalent to 130 billion dollars (in paper money) in absolute terms comparing this to US foreign assets (all private and public and even short term credits) which is merely 256 billion dollars, we find that the UK in 1914 itself already had almost half of United States’ level foreign asset. This comparison even though logical doesn't make sense because the UK in 1914 was a country of only 45 million people whereas the US in 1974 had over 200 million people.
The figure of 256 billion as Emmanuel shows is not significant in relative terms because the United Kingdom itself did 10 times better 60 years ago. Also, another thing which is to be considered is that - the OECD countries in 1974 collectively invested in the US something around 187 billion dollars, this makes the net capital investment of the US from 256 to 78!
There are further calculations by Emmanuel which the readers can work through, and can also extrapolate the readings to the standards of 2025. The point that Emmanuel wants to establish is that the ‘capital-investment’ done by the US into the poor countries is not significant (in absolute or relative terms) at all compared to the ‘investment of capital’ conducted by rich countries amongst themselves, this is a reality of the world we live in. Even if this is the case, the rich countries can exploit the poor countries and that exploitation according to Emmanuel is not located in the ‘capital investments’ conducted by the rich countries into the poor countries (which is insignificant) but in the capital drain of these countries! The MNCs cannot be blamed for the blocking of development of poor countries but it is precisely the non-existence of these MNCs and insufficient investment in poor countries which furthers their poverty. This is a bold remark to make considering current left discussions on ‘imperialism’ which blame the underdevelopment and exploitation of the poor countries on MNCs investing (negligibly) in poor countries.
The next few paragraphs form the core of Emmanuel’s argument against the ‘left’ opposition to MNC and also is a great exposition of his theory of unequal exchange. I believe an understanding of the concept of “unequal exchange” divorced from its historical content won’t allow people to truly understand it in its essence and this is why this portion of the text under the subheading “The Exportation of Capital and Marxism” is super important in itself. It not only is a historical exposition of the classical Marxist theory of crisis of capitalist accumulation but also shows how the theory of unequal exchange flows from that understanding and is not ‘separate’ from the classical Marxist tradition. I will try to elucidate it:
What Emmanuel claims is that the export of capital from one country to another is not something Lenin ‘invented’ but was present in Marx and even Rosa Luxemburg, it is just a development of Marx’s view of capitalist accumulation. So what happens is that capital accumulation drives down wages in a country to its physical extreme and that paradoxically affects capital itself(if people don’t have enough money to buy the products then capitalists can’t sell their products) - this is what economists talk about when they speak about ‘effective demand’. So historically what capitalists did was invade the freshly formed markets of their colonies and this is how they temporarily ‘fixed’ the crisis Marx was able to look through this - For the "lndias" of the world are not endless. And when all the "Indias" of the world had become "Englands", the system would have exhausted the margins of development of the "productive forces that it is large enough to contain". The industrialised capitalist countries by exporting capital into colonies were unknowingly contributing to the development and industrialisation of the underdeveloped countries and it was only a ‘difference in time’ when all the underdeveloped countries would become industrialised thereby plunging the whole system into crises and eventually its death..
This is standard, the most orthodox understanding - the one Marx himself subscribed to and it was very much true in the time he was writing, but something changed from onward the late 19th century - understanding this ‘something’ is crucial to understanding Emmanuel’s thesis.
The purchasing power of the average European worker around 1830 differed very little from that of the worker in Byzantium, Rome or Pharaonic Egypt. In the next century and a half, it was multiplied tenfold. The trade union struggle of the working class in the industrialised countries was developing progressively (at the same time when brutal repression was being unleashed in the colonised nations) - this unequal development of the working class movement led to the unequal rise in wages of the workers in the rich countries. These movements of the working class in the industrialised countries brought the system out of an impending doom - the anti-capitalist movements led to the strengthening of capitalism - paradoxical but true nonetheless. From this point itself the ‘export of capital’ really stopped being a necessity for capitalists but became more or less like a ‘snack’ and as Emmanuel has already shown in preceding passages with the quantitative data and all - rich countries don’t invest significantly into poor countries anymore because they don’t need to! It was important at one time, but it is not important anymore, they can very well ‘realise’ profits by investing in their own countries or amongst themselves, and capital flows into places with the highest demands (i.e. the rich countries)
Stating this historical shift in the reality of capitalist accumulation, Emmanuel charges against those on the left who blame the ‘export of capital’ for the underdevelopment of poor countries. It is precisely the underinvestment of capital, the underdevelopment of productive forces which is to be blamed here. The left according to Emmanuel is confused and fails to understand the distinction between the ‘development of productive forces’ and its ‘appropriation by the people’, as far as we are concerned with ‘development’ under capitalism we should be only worried about the former, blaming the non-existence of the latter on capital is just simply foolishness.
The next few paragraphs just build up on this above formulation of Emmanuel. He takes up a hypothetical scenario of a small country being financed by international capital may be able to reach a level of development like the United States, but this level of ‘overdevelopment’ is only possible because there would be still underdeveloped countries (if all underdeveloped countries become developed to same level that would mean an end to the system itself) - but such an attempt would be ‘materially futile’ according to Emmanuel and I would like to add that it is even ecologically impossible.
“The only way left to it is to set fire to the capitalist stage”
Emmanuel then takes up another point from the ‘left’ who criticises the MNCs while preferring the ‘National enterprises’ of the poor countries. I think this is a good criticism of modern Maoists who claim that the ‘National bourgeoisie’ of the poor countries are a progressive force against the ‘imperialist’ MNCs. Two countries Canada and India are considered - “Two-thirds of all the existing capital in Canada is owned by foreigners, 80 percent of which went to the Americans. India, on the other hand, is the country par excellence where industry has been the almost exclusive domain of the national bourgeoisie.” (Micheal Kidron’s book Foreign Investments in India is a great exposition on this topic - it documents succinctly the reaction that Indian capital had towards foreign capital post-independence). Canada is more developed than India even though it hardly has any ‘indigenous enterprise’ which is powerful - the nationality of the board of directors of a company hardly makes any difference, states Emmanuel. “It is not clear what the Canadian people - among the richest in the world - would gain if the "decision centres" were to move from the skyscrapers of Manhattan to the buildings of Montreal, nor what the Indian people - among the most wretched in the world - could still lose, if its capitalists gave up their factories to others, equipped with a Japanese or German passport.”
The next portion is controversial, Emmanuel here for the first time considers the ‘specificity’ of the MNCs and he shows how they are more ‘advantageous’ than other forms of enterprise for development even though the opposite is believed to be true in leftist circles.
I will now be elucidating the sub-sections: Technology Transfer, “Autonomous" Technology, and The Precondition of Local Market Opportunities. Here, the concept of ‘factor endowment’ which I mentioned at the start would come into play. We should be able to understand it with an example - millions of rural households in India have no electricity and they rely on kerosene lamps, firewood, and manual labour. The theory of ‘factor endowment’ (which is espoused as a doctrine by neoliberals) would state that these rural households should engage in more and more labour-intensive work rather than focusing on capital-intensive electrification (like building power grids and transmission lines). This is simple capitalist logic - capital would be invested only where it has a demand, where it is immediately ‘economical’, and only where it is ‘appropriate’, in the example where we have in mind a rural area of India where people hardly make their ends meet is surely not an ‘economic’ option for capital to be invested in and hence ‘inappropriate’. Breaking out of this capitalist rationality, the employment of this ‘inappropriate’ technology is what contributes to development, this is precisely what the Soviet Union did in its first five-year plan and so did China, the socialist project, the planned economy which transformed ‘feudal’ backwaters into economic giants was precisely based on overturning capitalist logic of investment, by employing the most ‘inappropriate’ of technologies and thereby breaking off from the chains of underdevelopment.
Now Emmanuel deals with the specificity of the MNCs - he admitted so far that the MNC is just like any other capitalist enterprise i.e. it works on the same logic of capitalist rationality but this is the time he accepts the critics at face value. The critics say “The MNC is independent from the local market of the host country” To this Emmanuel says “Okay, this specificity if it exists is not a disadvantageous thing for the development of the poor countries but rather a thing to rejoice about”. Emmanuel argues: that the MNC model truly doesn’t concern itself with factor endowment because its foreign marketing network is not affected by the limiting market of the poor countries but can “benefit, both from the low wages of the periphery and the center's high salaries.” then in fact it is not to be opposed but accepted because it breaks down the vicious cycle of under-development and unequal exchange. If the MNC is truly apathetic to the difference in market between Canada and India - then to it there would be no difference in investing in either country as far as profit maximisation is concerned.
Emmanuel also criticises those who advocate for a ‘national technology’ stating that if there is an option for a country to choose then undoubtedly importing technology from the international market would be a much cheaper option than building a ‘national technology’. Even though advanced technology is produced in developed countries, it is sold at artificially low prices. Governments in rich countries heavily subsidize research and development (R&D), these subsidies cover a significant portion of the real costs, making the final price of the technology much lower than its actual value. Even after accounting for the profits of technology sellers, the price remains lower than it would be if the market had to bear the full cost. As far as capitalist development is concerned, a “copycat” technique that Japan and Italy employed is far more beneficial than spending money on National technology.
“Investing opportunities are an increasing function of development”. What does this mean? Emmanuel just reinstates what he has been describing throughout the article, it is the most basic Marxist formulation of capital. Capital invests where it has a market, MNCs even if we consider their specificity into question are not distinct from capitalist enterprises in question and Emmanuel shows how: Basically when MNCs invest in poor countries, it is mainly an ‘enclave’ i.e. doesn’t concern itself with the market of the host country. The positive thing about it being an enclave is that no matter how the market condition is it will still invest in a ‘free trade zone’ (the SEZ) - what does this mean for an underdeveloped country facing chronic underemployment? It means there will be jobs, wages, and royalties in the form of taxes and profits which the multinational will acquire. The jobs, wages, and royalties are not factors upon which anyone can dispute the MNCs for ‘blocking’ the development of poor countries; quite the contrary is the truth. Unless someone operates from a purely different philosophy to understand ‘development’ - it is clear to any Marxist that ‘development’ is the growth in material products - goods and services. Now Emmanuel shifts focus to discuss the ‘negative’ side of MNCs. The MNCs are capitalist enterprises - they hire wage labour and they extract surplus labour in the form of surplus value which is realised as profits, I won’t be describing how this happens, one can pick up Marx’s Volume 1 of Capital - I think no other book describes the generation of surplus value better than that - but that being said, this extraction of surplus value and making profit is not something ‘new’ even if there was a ‘Native company’ they would have extracted profit nonetheless, so it is not something one can reproach the MNC but a systematic critic of the whole capitalist system is necessary. Now critics will bring up ‘but the profit the MNCs make is not reinvested in the host country but taken away in its home country!’ very well observation by the critics but again this is not something the MNC is responsible for rather capitalist rationality on which it operates - businessmen in poor countries also send away their capital to tax havens (offshore shell companies), this happens precisely because of the limited market of the poor country - this reveals the true nature of the MNCs that they are not anything ‘different’ from any other capital. MNCs operate and reinvest profits continuously in countries like Canada, the US, Germany, France, and Italy more often than they do in India, Bangladesh, and Africa - the reason is the limited market opportunities - in form, it might appear to be somewhat ‘different’ than other capitalist enterprises but in essence, it is not.
The only possible ‘counter’ which comes to my mind is that people might say “Oh but what about the small businessmen in poor countries who just invest and reinvest in their own countries” - the problem with this way of thinking is that i) in the portion “Autonomous” Technology Emmanuel has demonstrated already that investing in the creation of a ‘National’ enterprise is significantly costlier than simply being able to import a ready-made technology from international market. Let's say I have 100 rs in my pocket and I want to eat a cake - I can buy the same cake from a shop for 50 rs or I can go and buy ingredients, and utensils, and considering all other costs including a significant portion of my labour into making the cake, thereby I am exhausting 90 rs in total to make the same cake from scratch. Then in which case am I more ‘dominated’? Buying the cake and eating it would leave me with 50 while making the same thing with rudimentary utensils would leave me with 10 - a Marxist response would be that in the latter case, I am more ‘dominated’ and ‘exploitable’ because of my financial constraint while on the former where I have achieved similar (or higher) results with less exhaustion of resources - I am then effectively breaking out from my condition of underdevelopment. ii) we are dealing here with capitalist development, the main indicator for ‘development’ under capitalist relations is the growth in material products (reflected in gross national income) - simply put this way - productivity growth is the increasing function of development and that productivity growth is inconceivable without the most advanced technologies - and the ‘small businesses’ simply are not repository of that. Bullock carts are more ‘exploitative’ and relying on them makes the population more ‘subjugated’ than the tractor - a condition whereby we have a ‘capitalism’ without Monsanto is significantly worse than capitalism with Monsanto.
There are some remarks about Allende, the Arab oil embargo, nationalisations etc. I won't be delving much into these historical remarks - these are pretty straightforward and obvious. In conclusion, Emmanuel accepts that the MNC is not anything ‘different’ from capitalist enterprises - it has a double aspect (a positive, and a negative as stated above) just like any other enterprise, which makes it ‘distinct’ (on form) from other capitalist enterprise is not something responsible for ‘blocking’ development of poor countries but rather the opposite - it is advantageous marginally and relatively compared to preceding forms of enterprise.
So few things are clear:
There are a set of countries which are rich and hence developed and there are a set of countries which are poor and hence underdeveloped. ‘Capital export’ as a phenomenon was obsolete by the end of the 19th century when trade union movements of the working class of rich countries plunged the system out of the crisis of accumulation.
From that point onwards the thesis that ‘imperialism is moribund capitalism’(capitalism heading towards its death) stopped reflecting reality - capitalism got a new life, a new reality.
Investing capital into poor countries is not a ‘necessity’ for capitalists anymore in fact to expect a capitalist to act against his own nature of maximising profitability is idiocy.
MNCs are not ‘special’. They work in the same way as any other capitalist enterprise. In form, they tend to showcase a ‘specificity’ that they are not bothered with the limited market of the poor countries - this specificity doesn’t exist in essence (because they don’t reinvest their profits) but if it does then it is a matter to rejoice about and not complain.
The advocates of ‘national’ capital forget firstly that any capital be it national or international works according to the same scheme of capitalist rationality and secondly international capital has within its clutches not only the most advanced technology but is significantly cheaper compared to building the same thing from scratch and thereby any recourse to ‘national’ capital is in essence an advocacy for ‘appropriate’ technology - which is exactly what poor countries should oppose, or wastage of resources which benefits absolutely no one.
Marxist criticism of MNCs cannot be divorced from the criticism of capitalism itself. It is this capitalist rationality which should be criticised, opposed and overturned in the course of the socialist revolution. The employing of the most ‘inappropriate’ technology in underdeveloped places to plunge the country out of poverty is not possible under capitalism but only under a system whereby the decision of investment follows a social plan and not with private companies.
Original text by Emmanuel : MNCs