Point/Counterpoint from chapter 15. Take a stand. Do you agree or disagree? Write a minimum of one paragraph.

Chapter 15

Should Countries Limit Foreign Control of Key Industries?

Point

Yes I believe they should, because a key industry affects a very large segment of the economy by virtue of its size or influence on other sectors. Im not talking about either foreign control of small investments or noncontrolling interest in large investments. If countries need foreign firms resources technology, capital, export markets, branded products, and so onthey can get them by requiring collaborations without ceding control to foreigners. In turn, the foreign companies can still achieve their objectives, such as gaining access to markets. Of course each country should and does define key industries. For instance, the United States prohibits foreign control of television and radio stations and domestic transportation because of security concerns. Canada limits foreign control of sectors that are sensitive to maintenance of its culture. Chile prohibits foreign investment in its economically dominant copper industry because of negative experiences with past foreign control therein. The rationale for protecting key industries is supported by history, which shows that home governments have used powerful companies to influence policies in the foreign countries where they operate. During colonial periods, firms such as Levant and the British East India Company often acted as the political arm of their home governments. More recently, governments, especially the United States, have pressured their companies to leave certain areas and to prohibit their subsidiaries from doing business with certain countries, even though the prohibition is counter to the interests of the countries where the subsidiaries were located.50 At the same time, some companies are so powerful that they can influence their home-country governments to intercede on their behalf. Probably the most notorious example was United Fruit Company (UFC) in so-called banana republics, which persuaded the United States to overthrow governments to protect its investments. Miguel Angel Asturias, a Nobel laureate in literature, referred to UFCs head as the Green Pope who lifts a finger and a ship starts or stops. He says a word and a republic is bought. He sneezes and a president... falls.... He rubs his behind on a chair and a revolution breaks out.51 Whenever a company is controlled from abroad, its decisions can be made there. Such control means that corporate management abroad can decide such factors as personnel staffing, export prices, and the retention and payout of profits. These decisions might cause different rates of expansion in different countries as well as possible plant closings, sometimes with subsequent employment disruption. Finally, by withholding resources or allowing strikes, MNEs may affect other local industries adversely. In essence, the MNE looks after its global interests, which may not coincide with what is best for an operation in a given country.

Counterpoint

no The passionate arguments against foreign control of key industries dont convince me that such control leads to corporate decisions that are any different from those local companies would make. Nor do they convince me that limits on foreign ownership are in the best interests of people in host countries. Certainly, companies make strategic global decisions at headquarters, but typically they depend on a good deal of local advice beforehand. Further, MNEs staff their foreign subsidiaries mainly with nationals of the countries where they operate, and these nationals make most routine decisions. Regardless of the decision-makers or companies nationalities, managers decide based on what they think is best for their firms business, rather than based on some home-country or local socioeconomic agenda. At the same time, their decisions have to adhere to local laws and consider the views of their local stakeholders. Of course, MNEs sometimes make locally unpopular decisions, but so do local companies. In the meantime, governments can and do enact laws that apply to both local and international companies, and these laws can ensure that companies act in the so-called local interest. Although preventing foreign control of key industries may be well intentioned, the resultant local control may lead to the protection of inefficient performance. Further, the key-industry argument appeals to emotions rather than reason. Thats why arguments in the United States for security make little sense on close examination. Although foreign propaganda through foreign ownership of radio and television stations is the rationale for ownership restrictions, there are no such restrictions on foreign ownership of U.S. newspapers or on material appearing on the Internet. (Is this because people who read the news are presumed to be less swayed by propaganda?) The protection of U.S. domestic transportation for security reasons is a sham, just to protect the shipbuilding industry and maritime employees. For instance, U.S. merchant flagships must employ only U.S. citizens as crews because of ships vulnerability to bombs in U.S. waters, but foreign flag carriers regularly use U.S. ports, while foreigners can join the U.S. Navy. The banana-republic arguments are outdated and go back to dependencia theory, which holds that emerging economies have practically no power in their dealings with MNEs.52 More recent bargaining school theory states that the terms of a foreign investors operations depend on how much the investor and host country need each other.53 In effect, companies need countries because of their markets and resources, while countries need MNEs because of their technology, capital, access to foreign markets, and expertise. Through a bargaining process, they come to an agreement or contract that stipulates what the MNE can and cannot do. I completely disagree that either countries or companies can necessarily gain the same through collaborative agreements as through FDI. Although collaborative agreements are often preferable, there are company and country advantages from foreign-controlled operations. For example, with wholly owned operations, companies are less concerned about developing competitors, so they are more willing to transfer essential and valuable technology abroad.