Multinational corporations and dependency:a dialogue for dependentistas and non-dependentistas Theodore H.Moran Three assertions about relations between multinational corporations and host countries in the Third World frequently appear in the dependencia literature:1)that the host countries receive too few benefits;2)that foreign investment causes distortions in the local economies;and 3)that foreign investment distorts host countries'political processes.These propositions can be re- formulated as testable hypotheses,to which non-dependency studies of oligopolistic competi- tion,bureaucratic politics,and transnational relations are relevant.Identifying critical areas of disagreement between dependency and nondependency approaches may help scholars to design their research in such a way as to enrich the dialogue between dependentistas and non-dependentistas. Is the theory of dependency built upon propositions that can be tested by research done outside of the dependencia framework?What kind of non-dependency studies are most relevant to the concerns of dependentistas?How can the dialogue between dependentistas and non-dependentistas be expanded? In this essay,I shall concentrate on three assertions about the relations between multinational corporations and host countries in the Third World that frequently Theodore H.Moran is a member of the Policy Planning Staff,Department of State.He is also on the faculty of the School of Advanced International Studies at The Johns Hopkins University in Washington, D.C.This paper was prepared for delivery at the 1976 Annual Meeting of the American Political Science Association,The Palmer House,Chicago,Illinois,September 2-5.1976.An earlier version of this study was presented before the Latin American Studies Association,Atlanta,March 27,1976.This paper draws upon work that will appear as part of the author's contribution to American Multinationals and 4merican Interests,by C.Fred Bergsten,Thomas O.Horst,and Theodore H.Moran,(Washington:The Brookings Institution,1978)
Multinational corporations and dependency: a dialogue for dependentistas and non-dependentistas Theodore H. Moran Three assertions about relations between multinational corporations and host countries in the Third World frequently appear in the dependencia literature: 1) that the host countries receive too few benefits; 2) that foreign investment causes distortions in the local economies; and 3) that foreign investment distorts host countries' political processes. These propositions can be reformulated as testable hypotheses, to which non-dependency studies of oligopolistic competition, bureaucratic politics, and transnational relations are relevant. Identifying critical areas of disagreement between dependency and nondependency approaches may help scholars to design their research in such a way as to enrich the dialogue between dependentistas and non-dependentistas. Is the theory of dependency built upon propositions that can be tested by research done outside of the dependencia framework? What kind of non-dependency studies are most relevant to the concerns of dependentistas? How can the dialogue between dependentistas and non-dependentistas be expanded? In this essay, I shall concentrate on three assertions about the relations between multinational corporations and host countries in the Third World that frequently Theodore H. Moran is a member of the Policy Planning Staff, Department of State. He is also on the faculty of the School of Advanced International Studies at The Johns Hopkins University in Washington, D.C. This paper was prepared for delivery at the 1976 Annual Meeting of the American Political Science Association, The Palmer House, Chicago, Illinois, September 2-5, 1976. An earlier version of this study was presented before the Latin American Studies Association, Atlanta, March 27, 1976. This paper draws upon work that will appear as part of the author's contribution to American Multinationals and American Interests, by C. Fred Bergsten, Thomas O. Horst, and Theodore H. Moran, (Washington: The Brookings Institution, 1978)
80 International Organization appear in the dependencia literature:1 first,that the benefits of foreign investment are"poorly distributed''between the multinational and the host (or that multina- tionals"'siphon off''an economic "'surplus''that could otherwise be used to fi- nance internal development);second,that foreign investment causes economic dis- tortions in the local economy;third,that foreign investment causes"political distor- tions''("perversion of the political process...thwarting of national sovereignty") in the host society.I shall argue that each of these propositions contains hypotheses about the impact of multinational corporations on the host country,or on the policies of the home country,or on the structure of the international system that can be tested with greater or lesser degrees of rigor.Then I shall draw upon non- dependency studies in three areas-theories of oligopolistic competition among multinational corporations,theories of "bureaucratic politics'2 in the formula- tion of US foreign policy and theories of "'transnational relations"-to suggest how the idea of dependency might be tested,strengthened,and/or made more dynamic.In addition,I shall try to indicate,along the way,what kind of new research might be most fruitful in enriching the dialogue between dependentistas and non-dependentistas. Dependencia proposition I The benefits of foreign investment are "poorly''(or "'unfairly"'or "un- equally'')distributed between the multinational and the host,or the country pays 'too high''a price for what it gets,or the company siphons off an economic 'surplus''that could otherwise be used to finance internal development. The predominant non-neo-classical framework for analyzing international cor- porate behavior-the theory of oligopolistic expansion developed by Hymer, Kindleberger,Vernon,Stobaugh,Wells,and others-predicts,as the dependentis- Cf.Andre Gunder Frank,Capitalism and Underdevelopment in Latin America:Historical Studies of Chile and Brazil (New York:Monthly Review Press,1967);Latin America:Underdevelopment or Revolution (New York:Monthly Review Press,1969);S.Bodenheimer,Dependency and Imperialism: The Roots of Latin American Underdevelopment,'in K.Fann and D.Hodges,eds.,Readings in U.S. Imperialism (Boston:Porter Sargent,1971);F.H.Cardoso and Enzo Faletto,Dependencia y desarrollo en America Latina (Mexico City:Siglo XXI Editores,1969);T.Dos Santos,Dependencia economica y cambio revolucionario en America Latina (Caracas:Editorial Nueva Izquierda,1970);O.Sunkel, "Politica nacional de desarrollo y dependencia externa"';Revista de Estudios Internacionales.(San- tiago),Volume I (May 1967);"Big Business and 'Dependencia':A Latin American View,"Foreign Affairs Vol.50,No.3(April 1972);and Francisco Weffort,"Notas sobre la 'teoria de la dependencia': Teoria de clase o ideologia nacional?',Revista Latinoamerica de Ciencia Politica Vol.I,No.3 (December1970):389-401. As we shall see,the study of the politics of policy formation toward the Third World in general and toward Latin America in particular must focus closely on various committees in the Congress and not merely on the bureaucracies of the executive branch. aStephen Hymer,The International Operations of National Firms:A study of Direct Investment," (Ph.D.dissertation,Massachusetts Institute of Technology,1960);Charles P.Kindleberger,American Business Abroad:Six Lectures on Direct Investment,(New Haven,Conn.:Yale University Press,1969)
SO International Organization appear in the dependencia literature:1 first, that the benefits of foreign investment are "poorly distributed" between the multinational and the host (or that multinationals "siphon off" an economic "surplus" that could otherwise be used to finance internal development); second, that foreign investment causes economic distortions in the local economy; third, that foreign investment causes "political distortions" ("perversion of the political process .. .thwarting of national sovereignty") in the host society. I shall argue that each of these propositions contains hypotheses about the impact of multinational corporations on the host country, or on the policies of the home country, or on the structure of the international system that can be tested with greater or lesser degrees of rigor. Then I shall draw upon nondependency studies in three areas—theories of oligopolistic competition among multinational corporations, theories of "bureaucratic politics"2 in the formulation of US foreign policy and theories of "transnational relations"—to suggest how the idea of dependency might be tested, strengthened, and/or made more dynamic. In addition, I shall try to indicate, along the way, what kind of new research might be most fruitful in enriching the dialogue between dependentistas and non-dependentistas. Dependencia proposition I The benefits of foreign investment are "poorly" (or "unfairly" or "unequally") distributed between the multinational and the host, or the country pays ' 'too high'' a price for what it gets, or the company siphons off an economic ' 'surplus'' that could otherwise be used to finance internal development. The predominant non-neo-classical framework for analyzing international corporate behavior—the theory of oligopolistic expansion developed by Hymer, Kindleberger, Vernon, Stobaugh, Wells, and others3 —predicts, as the dependentis- *Cf. Andre Gunder Frank, Capitalism and Underdevelopment in Latin America: Historical Studies of Chile and Brazil (New York: Monthly Review Press, 1967); Latin America: Underdevelopment or Revolution (New York: Monthly Review Press, 1969); S. Bodenheimer, "Dependency and Imperialism: The Roots of Latin American Underdevelopment," in K. Fann and D. Hodges, eds., Readings in U.S. Imperialism (Boston: Porter Sargent, 1971); F.H. Cardoso and Enzo Faletto, Dependencia y desarrollo en America Latina (Mexico City: Siglo XXI Editores, 1969); T. Dos Santos, Dependencia economica y cambio revolucionario en America Latina (Caracas: Editorial Nueva Izquierda, 1970); O. Sunkel, "Politica nacional de desarrollo y dependencia externa"; Revista de Estudios Internacionales, (Santiago), Volume I (May 1967); "Big Business and 'Dependencia': A Latin American View," Foreign Affairs Vol. 50, No. 3 (April 1972); and Francisco Weffort, "Notas sobre la 'teoria de la dependencia': Teoria de clase o ideologia nacional?", Revista Latinoamerica de Ciencia Politica Vol. 1, No. 3 (December 1970): 389-401. 2 As we shall see, the study of the politics of policy formation toward the Third World in general and toward Latin America in particular must focus closely on various committees in the Congress and not merely on the bureaucracies of the executive branch. 'Stephen Hymer, "The International Operations of National Firms: A study of Direct Investment," (Ph.D. dissertation, Massachusetts Institute of Technology, 1960); Charles P. Kindleberger, American Business Abroad: Six Lectures on Direct Investment, (New Haven, Conn.: Yale University Press, 1969);
Multinational corporations and dependency 81 tas assert,that the question of the"proper price''to be paid to foreign investors must inevitably be a crucial policy issue for public officials within host countries.What insights does this analysis have to offer to the dependency school? Hymer first postulated that foreign direct investment took place not because of a higher marginal rate of return in perfect capital markets (as the neo-classicists assumed)but because the corporation making the investment possessed some spe- cial skill or technique not available to local entrepreneurs that it could exploit only through direct ownership.That special skill or technique constituted a barrier to the entry of competition in the host country and generated an oligopoly rent(a'higher- than-normal''return on investment)to the investor.Corporations undertook direct foreign investment,therefore,because it enabled them to enlarge,or defend,their ability to extract oligopoly rents. How much of the oligopoly rent should the foreign investor be entitled to keep in payment for his services?Edith Penrose tried to set an empirical standard for making this normative judgment by arguing that the host country ought to allow the foreign company to receive only the amount necessary to induce it (and others)to invest and/or to prevent it from withdrawing.s Anything more,she claimed,would constitute "'exploitation.'' Charles Kindleberger challenged the Penrose formulation.5 For him,the prob- lem was one of bilateral monopoly (the company has control over the services;the country has control over access before the investment is made,and over taxation or expropriation afterwards)in which the solution would depend upon the relative bargaining power of the two sides.The lower limit of the price that would have to be paid to the foreign investor would indeed be what Penrose had characterized as the "just''price.The upper limit,however,would be the scarcity value of the for- eigner's services to the country,i.e.,the price at which the country would rather do without those services.A price anywhere between those two extremes-which might be quite far apart-could not be criticized by any objective standard,accord- Raymond Vernon,"International Investment and International Trade in the Product Cyele,Quarterly lournal of Economics,Vol.80 (May 1966);Sovereignty At Bay:The Multinational Spread of U.S. Enterprises.(New York:Basic Books,1971);Robert B.Stobaugh,The Product Life Cycle.U.S. Exports,and International Investment,(Ph.D.dissertation,Harvard Business School,1968);Louis T. Wells,Jr.,ed.,The Product Life Cycle and International Trade,(Boston:Harvard University,Division of Rescarch,Graduate School of Business Administration,1972). Hymer argued that a company would choose direct foreign investment only if that offered the easiest way to exploit some market imperfection.If markets were reasonably competitive in a particular indus- try,Hymer assumed that corporations in one country would make portfolio investments (rather than direct investments)or license whatever proprietary technology they controlled to local firms whose familiarity with the customs(and language)in another country would give them a natural edge.Hymer's analysis,and the theory of the product cycle that grew out of it,account for the phenomenon of cross-investment between two countries where the average rate of return on capital is identical better than does neo-classical analysis,and explains the drive of American companies into other developed (i.e., capital surplus)countries rather than into the (capital deficit)Third World better than does neo-Marxist analysis.Cf.Theodore H.Moran,"Foreign Expansion as an'Institutional Necessity'for U.S.Corporate Capitalism:The Search for a Radical Model,"World Politics,Vol.25,No.3 (April 1973). SEdith T.Penrose,Profit Sharing between Producing Countries and Oil Companies in the Middle East,"Economic Journal (June 1959). sCharles P.Kindleberger,Economic Development (New York:McGraw-Hill,2nd ed.,1965),p.334
Multinational corporations and dependency 81 tas assert, that the question of the ' 'proper price'' to be paid to foreign investors must inevitably be a crucial policy issue for public officials within host countries. What insights does this analysis have to offer to the dependency school? Hymer first postulated that foreign direct investment took place not because of a higher marginal rate of return in perfect capital markets (as the neo-classicists assumed) but because the corporation making the investment possessed some special skill or technique not available to local entrepreneurs that it could exploit only through direct ownership.4 That special skill or technique constituted a barrier to the entry of competition in the host country and generated an oligopoly rent (a "higherthan-normal" return on investment) to the investor. Corporations undertook direct foreign investment, therefore, because it enabled them to enlarge, or defend, their ability to extract oligopoly rents. How much of the oligopoly rent should the foreign investor be entitled to keep in payment for his services? Edith Penrose tried to set an empirical standard for making this normative judgment by arguing that the host country ought to allow the foreign company to receive only the amount necessary to induce it (and others) to invest and/or to prevent it from withdrawing.5 Anything more, she claimed, would constitute "exploitation." Charles Kindleberger challenged the Penrose formulation.6 For him, the problem was one of bilateral monopoly (the company has control over the services; the country has control over access before the investment is made, and over taxation or expropriation afterwards) in which the solution would depend upon the relative bargaining power of the two sides. The lower limit of the price that would have to be paid to the foreign investor would indeed be what Penrose had characterized as the "just" price. The upper limit, however, would be the scarcity value of the foreigner's services to the country, i.e., the price at which the country would rather do without those services. A price anywhere between those two extremes—which might be quite far apart—could not be criticized by any objective standard, accordRaymond Vernon, "International Investment and International Trade in the Product Cycle," Quarterly tournal of Economics, Vol. 80 (May 1966); Sovereignty At Bay: The Multinational Spread of U.S. Enterprises, (New York: Basic Books, 1971); Robert B. Stobaugh, "The Product Life Cycle, U.S. Exports, and International Investment," (Ph.D. dissertation, Harvard Business School, 1968); Louis T. Wells, Jr., ed., The Product Life Cycle and International Trade, (Boston: Harvard University, Division of Research, Graduate School of Business Administration, 1972). 4 Hymer argued that a company would choose direct foreign investment only if that offered the easiest way to exploit some market imperfection. If markets were reasonably competitive in a particular industry, Hymer assumed that corporations in one country would make portfolio investments (rather than direct investments) or license whatever proprietary technology they controlled to local firms whose familiarity with the customs (and language) in another country would give them a natural edge. Hymer's analysis, and the theory of the product cycle that grew out of it, account for the phenomenon of cross-investment between two countries where the average rate of return on capital is identical better than does neo-classical analysis, and explains the drive of American companies into other developed (i.e., capital surplus) countries rather than into the (capital deficit) Third World better than does neo-Marxist analysis. Cf. Theodore H. Moran, "Foreign Expansion as an 'Institutional Necessity' for U.S. Corporate Capitalism: The Search for a Radical Model," World Politics, Vol. 25, No. 3 (April 1973). 5 Edith T. Penrose, "Profit Sharing between Producing Countries and Oil Companies in the Middle East," Economic Journal (June 1959). 'Charles P. Kindleberger, Economic Development (New York: McGraw-Hill, 2nd ed., 1965), p. 334
82 International Organization ing to Kindleberger.What that price would be,empirically,would be a function of the relative bargaining strengths of the two sides.(Penrose ultimately agreed with Kindleberger's argument.)7 This suggests that the concern of dependencia analysts about whether the price paid to multinationals is "high''or "'low''resolves itself into a question of what determines the relative bargaining power between foreign investors and host coun- tries,and how that bargaining power changes over time.But Kindleberger's formu- lation also provides a way of addressing a separate conceptual issue-specifically, whether foreign investors"drain off'an economic surplus that could otherwise be devoted to internal development.The outcome of a calculation of this sort depends upon the alternative against which one measures the services of foreign corpora- tions.For some dependentista writers,e.g.,Andre Gunder Frank,the cost of foreign investment appears to be measured against hypothetical state industries of a socialist government that could perform all the functions of the foreign investors at the same or lower cost in terms of local resources,and with less leakage (via imports or profit remittances)abroad.8 If that is a realistic alternative,then even within the Penrose-Kindleberger framework,the value of foreign investment should clearly be placed at zero (or less).But if that is not a realistic alternative,then public policy analysts must compare the minimum price to which foreign investors can be pushed with the scarcity value of their services to the country.The calculation of that minimum price''brings us back to the question of what determines the bargaining power of host countries and foreign investors. There have been three major sets of hypotheses to try to account for relative negotiating strength.The first focuses on characteristics of the project under negoti- ation:absolute size of fixed investment,ratio of fixed to variable costs,stability of technology,and complexity of marketing (or degree of product differentiation).3 These characteristics are treated as independent variables predicting the outcome of the bargain.Firms contemplating projects with low fixed investments,low fixed costs,changeable technology,and complex marketing (or some combination thereof)will be less vulnerable to host country demands than will firms contemplat- ing projects with the opposite characteristics.As a corollary,one would expect that firms considering ventures with the latter characteristics would require a larger risk premium before they would invest (i.e.,would not commit the large amounts of 1.'International Economic Relations and the Large Intemational Firm,"in E.F.Penrose,Peter Lyon, Edith T.Penrose,eds.,New Orientations:Essays in International Relations(New York:The Humanitics Press,1970). "For the citations for Andre Gunder Frank,see footnote 1.For a case where a domestic state agency both wasted local resources and allowed a larger loss of foreign exchange abroad than did foreign multinationals,see James E.Zinser,"'Alternative Means of Meeting Argentina's Petroleum Require. ments,"in Raymond F.Mikesell,ed.,Foreign Investment in the Petroleum and Mineral Industries: Case Studies of /nvestor-Host Country Relations (Baltimore,Md.:Johns Hopkins Press for Resources for the Future,1971).For contrary evidence from the same industry (petroleum),see Michael Tanzer,The Political Economy of International Oil and The Underdeveloped Countries (Boston:Beacon Press, 1969). "The hypotheses on bargaining strength that have been separated here are frequently mixed together in the literature.For an overview that includes project characteristics as independent variables see C.Fred Bergsten,Thomas O.Horst,Theodore H.Moran,American Multinationals and American Interests (Washington,D.C.:Brookings,1978)
82 International Organization ing to Kindleberger. What that price would be, empirically, would be a function of the relative bargaining strengths of the two sides. (Penrose ultimately agreed with Kindleberger's argument.)7 This suggests that the concern of dependencia analysts about whether the price paid to multinationals is "high" or "low" resolves itself into a question of what determines the relative bargaining power between foreign investors and host countries, and how that bargaining power changes over time. But Kindleberger's formulation also provides a way of addressing a separate conceptual issue—specifically, whether foreign investors "drain off" an economic surplus that could otherwise be devoted to internal development. The outcome of a calculation of this sort depends upon the alternative against which one measures the services of foreign corporations. For some dependentista writers, e.g., Andre Gunder Frank, the cost of foreign investment appears to be measured against hypothetical state industries of a socialist government that could perform all the functions of the foreign investors at the same or lower cost in terms of local resources, and with less leakage (via imports or profit remittances) abroad.8 If that is a realistic alternative, then even within the Penrose-Kindleberger framework, the value of foreign investment should clearly be placed at zero (or less). But if that is not a realistic alternative, then public policy analysts must compare the minimum price to which foreign investors can be pushed with the scarcity value of their services to the country. The calculation of that "minimum price" brings us back to the question of what determines the bargaining power of host countries and foreign investors. There have been three major sets of hypotheses to try to account for relative negotiating strength. The first focuses on characteristics of the project under negotiation: absolute size of fixed investment, ratio of fixed to variable costs, stability of technology, and complexity of marketing (or degree of product differentiation).9 These characteristics are treated as independent variables predicting the outcome of the bargain. Firms contemplating projects with low fixed investments, low fixed costs, changeable technology, and complex marketing (or some combination thereof) will be less vulnerable to host country demands than will firms contemplating projects with the opposite characteristics. As a corollary, one would expect that firms considering ventures with the latter characteristics would require a larger risk premium before they would invest (i.e., would not commit the large amounts of '"International Economic Relations and the Large International Firm," in E.F. Penrose, Peter Lyon, Edith T. Penrose, eds., New Orientations: Essays in International Relations (New York: The Humanities Press, 1970). 8 For the citations for Andre Gunder Frank, see footnote 1. For a case where a domestic state agency both wasted local resources and allowed a larger loss of foreign exchange abroad than did foreign multinationals, see James E. Zinser, "Alternative Means of Meeting Argentina's Petroleum Requirements," in Raymond F. Mikesell, ed., Foreign Investment in the Petroleum and Mineral Industries: Case Studies of Investor-Host Country Relations (Baltimore, Md.: Johns Hopkins Press for Resources for the Future, 1971). For contrary evidence from the same industry (petroleum), see Michael Tanzer, The Political Economy of International Oil and The Underdeveloped Countries (Boston: Beacon Press, 1969). 9 The hypotheses on bargaining strength that have been separated here are frequently mixed together in the literature. For an overview that includes project characteristics as independent variables see C. Fred Bergsten, Thomas O. Horst, Theodore H. Moran, American Multinationals and American Interests (Washington, DC : Brookings, 1978)
Multinational corporations and dependency 83 capital necessary unless they were promised the possibility of a mini-bonanza if the investment were successful).But one would also expect that such firms would be more defenseless to the renegotiation of an investment agreement once their oper- ations were in place because they could not credibly threaten to withdraw,and because they could not withhold some new technology or marketing technique to protect themselves. The second set of hypotheses to account for relative bargaining strength be- tween foreign investors and host countries focuses on the characteristics of the host country:the size of the local market and its rate of growth,the extent of social mobilization within the local population,the degree of sophistication of the local bureaucracy,and the breadth of alternatives to foreign investment within the domes- tic economy.10 A small and stagnant local market,an unmobilized populace,an unskilled governmental bureaucracy,and a limited indigenous industrial capacity would predict weak bargaining power.A booming economy,on the other hand, would increase the attractiveness of the country to the foreign firm.A population demanding jobs and social programs(financed,in part,by revenues from foreign investors),would intensify the pressure on local politicians to push foreign corpora- tions for greater benefits,and would heighten the value of nationalistic successes. An experienced bureaucracy would be less likely to be hoodwinked by transfer pricing,restrictive business agreements,or other corporate manipulations.And a strong domestic industrial sector would both increase the credibility of nationaliza- tion(if nationalistic demands were not met)and lower the opportunity cost of failure if nationalistic demands were pushed too far. The third set of hypotheses focuses on exogenous factors:the degree of uncer- tainty in the investment,and the extent of competition in the international indus- try.12 High uncertainty and low competition among multinationals predict a weak bargaining position for the host government.Lower uncertainty or increased compe- tition (either at the beginning of a project or over the course of its life)would strengthen the hand of local authorities. These three sets of hypotheses can be used in a static sense to try to predict the distribution of benefits from any particular investment negotiation or they can be used in a dynamic sense to try to forecast the evolution of the distribution of benefits Cf.Robert B.Stobaugh,Jr.,"Where in the world should we put that plant?,"Harvard Business Review (January-February 1969);Louis T.Wells,Jr.,"The Evolution of Concession Agreements in Developing Countries,Harvard Development Advisory Service,March 29,1971.For the idea of a host country"learning curve"that accompanies social mobilization,see Theodore H.Moran,Multinational Corporations and the Politics of Dependence:Copper in Chile (Princeton,N.J.:Princeton University Press,1974);and Franklin Tugwell,The Politics of Oil in Venezuela (Stanford,Calif.:Stanford Univer- sity Press,1975). At least,a booming economy would increase the attractiveness if the foreign investor were producing goods for local consumption because it would enlarge the market.It would be interesting to test whether a booming economy raised or lowered the attractiveness of a country to an investor looking for a site from which to export manufactured products. Edith T.Penrose,The Large International Firm in Developing Countries:The International Petro- leum Industry (London:Allen and Unwin,1968):Raymond Vernon,"Long-Run Trends in Concession Contracts,"Proceedings of the American Sociery of International Law (April 1967);Sovereignty at Bay, Chapter 3;and Raymond F.Mikesell,ed.,Foreign Investment in the Petroleum and Mineral Industries, Chapter 2
Multinational corporations and dependency 83 capital necessary unless they were promised the possibility of a mini-bonanza if the investment were successful). But one would also expect that such firms would be more defenseless to the renegotiation of an investment agreement once their operations were in place because they could not credibly threaten to withdraw, and because they could not withhold some new technology or marketing technique to protect themselves. The second set of hypotheses to account for relative bargaining strength between foreign investors and host countries focuses on the characteristics of the host country: the size of the local market and its rate of growth, the extent of social mobilization within the local population, the degree of sophistication of the local bureaucracy, and the breadth of alternatives to foreign investment within the domestic economy.10 A small and stagnant local market, an unmobilized populace, an unskilled governmental bureaucracy, and a limited indigenous industrial capacity would predict weak bargaining power. A booming economy, on the other hand, would increase the attractiveness of the country to the foreign firm.11 A population demanding jobs and social programs (financed, in part, by revenues from foreign investors), would intensify the pressure on local politicians to push foreign corporations for greater benefits, and would heighten the value of nationalistic successes. An experienced bureaucracy would be less likely to be hoodwinked by transfer pricing, restrictive business agreements, or other corporate manipulations. And a strong domestic industrial sector would both increase the credibility of nationalization (if nationalistic demands were not met) and lower the opportunity cost of failure if nationalistic demands were pushed too far. The third set of hypotheses focuses on exogenous factors: the degree of uncertainty in the investment, and the extent of competition in the international industry.12 High uncertainty and low competition among multinationals predict a weak bargaining position for the host government. Lower uncertainty or increased competition (either at the beginning of a project or over the course of its life) would strengthen the hand of local authorities. These three sets of hypotheses can be used in a static sense to try to predict the distribution of benefits from any particular investment negotiation or they can be used in a dynamic sense to try to forecast the evolution of the distribution of benefits 10Cf. Robert B. Stobaugh, Jr., "Where in the world should we put that plant?," Harvard Business Review (January-February 1969); Louis T. Wells, Jr., "The Evolution of Concession Agreements in Developing Countries," Harvard Development Advisory Service, March 29, 1971. For the idea of a host country "learning curve" that accompanies social mobilization, see Theodore H. Moran, Multinational Corporations and the Politics of Dependence: Copper in Chile (Princeton, N.J.: Princeton University Press, 1974); and Franklin Tugwell, The Politics of Oil in Venezuela (Stanford, Calif.: Stanford University Press, 1975). "At least, a booming economy would increase the attractiveness if the foreign investor were producing goods for local consumption because it would enlarge the market. It would be interesting to test whether a booming economy raised or lowered the attractiveness of a country to an investor looking for a site from which to export manufactured products. 1JEdith T. Penrose, The Large International Firm in Developing Countries: The International Petroleum Industry (London: Allen and Unwin, 1968); Raymond Vernon, "Long-Run Trends in Concession Contracts," Proceedings of the American Society of International Law (April 1967); Sovereignty at Bay, Chapter 3; and Raymond F. Mikesell, ed., Foreign Investment in the Petroleum and Mineral Industries, Chapter 2