Stephen Hymer, the Multinational Firm and Multinational Corporate Capital

By

Christos N Pitelis
*

University of Athens and Cambridge University




*
I am grateful to numerous colleagues for discussion, feedback and
useful suggestions pertaining to ideas discussed in this paper,
notably Keith Cowling, John Dunning and Roger Sugden. Errors are
mine.
1
Abstract

We critically assess the contribution of Stephen Hymer to the theory of the
multinational enterprise (MNE) and the political economy of multinational corporate
capital. We suggest that as concerns the theory of the MNE, Hymers contribution
has in effect predated most extant theory. His contribution to the political economy of
multinational capital is less known, yet of extraordinary insight and foresight. Hymer
pre-dated most important debates on what today is called globalisation, he came up
with analysis of the highest quality and with predictions which in the main stood the
test of time. The main limitations in Hymers work concern the lack of a theory of
(endogenous) growth of the firm and a tendency to emphasise the monopoly attributes
of large MNEs, albeit without failing to see their efficiency advantages. In part
because of this tendency some of his later work involved predictions that did not
necessarily and/or fully follow from his analytical framework, but were arguably
shaped by ideology. Despite limitations, Hymers overall contribution and impact
fully deserves the nearly cult status he has now acquired in the history of economic
thought and international business scholarship.

I. Introduction

Stephen Herbert Hymer is the undisputable leading figure of the theory of the
multinational enterprise (MNE thereafter). It is not an exaggeration to say that he
enjoys a near cult status. All major theories/contributions on the MNE today, see
for example Buckley and Casson (1976), Dunning and Rugman (1985), Caves (1996)
deal explicitly with Hymers contribution. One can speculate on the reasons that gave
rise to such prominence. For example, the failure of MIT to publish his now classic
1960 thesis, until 1976, by which time the thesis was enjoying a notoriety and an
underground existence (Kindleberger, 1976, p.xiv) is but one. Hymers cathartic
commitment to marxism, in 1967-68, the (resultant?) refusal of tenure and promotion
at Yale, and the alleged break in his work between his pre- and post-marxist eras
could arguably be another. His tragic death in a car accident in 1974, at the age of
only 39 and when (despite his by then marxist views!) he had just become an Editor
of one of the professions most eminent journals, the American Economic Review,
could be a third. The saga around the unearthing of Hymers 1968 article,
2
published in French, where he drew and built on Ronald Coases classic 1937 article
on the nature of the firm, to develop explicitly an internalisation theory based on
transaction (marketing) costs arguments, is certainly a fourth reason. Most important
of all, however, was the mans extraordinary powers of analysis, his insight and
foresight, his unprecedented power of extrapolation and prediction.

During the short span of his life, Hymer published over 40 articles and reviews, in
some of the professions top journals (the American Economic Review, The Journal of
Political Economy, The Review of Economics and Statistics and The Economic
Journal) and was actively involved in policy making and the political movement of
his time, for example, as a member of the Union of Radical Political Economics. He
travelled extensively, spent time in developing countries, became an influential figure
in academia and policy-making and Editor of the American Economic Review. What
would his continued contribution, influence and ideas have been, had he still been
alive at 67 is anyones guess.

The aim of this introduction is to celebrate Hymers extraordinary contribution. The
next section provides a brief account of Hymers life and career, as well as his own
perception of the relation between his life, ideas and works. Following on from this,
we critically assess Hymers contribution to the theory of the MNE. Adopting
Kindlebergers (1984) heuristic, we attempt to place Hymers contribution within the
context of todays extant theory of the MNE and compare it and contrast it to the last
mentioned. In order to avoid long lasting confusions in the literature, we deal with
Hymers contribution on the MNE, in three steps; first the PhD thesis, then the 1968
article, third his subsequent and overall work. The conclusion is that on the MNE
Hymer has virtually said it all. In section III, we provide a bird eyes view on
Hymers contribution to the political economy of multinational corporate capital.
This section is at once easier (as it is more homogenous and linked primarily with the
alleged second (marxist) phase of his life, and more difficult, as it covers a huge
number of topics, all of which with extraordinary insight and originality. This part is,
therefore, by necessity, more incomplete than the previous one aiming at assessing
Hymers less well known albeit not necessarily less important contributions. Section
IV, points to some limitations of Hymers work and to ways of dealing with (some of)
these. In particular, we claim that on the issue of the MNE, Hymer could have greatly
3
benefited had he read Edith Penroses (1959) The Theory of the Growth of the Firm.
The insights in this book are perfectly complementary to Hymers and address
limitations in his theory, pertaining mainly to issues of (endogenous) firm growth, the
nature, acquisition and relative efficient properties of advantages, the direction of
expansion, but also the reasons for FDI. Such, and other, insights may help explain
some of Hymers less accurate predictions, on, for example, development and
alternatives to multinational capitalism. The last section V, summarises and
concludes the article and points to issues of policy.

II. Life and Contribution to the Theory of the MNE

i) Life
1


Stephen Herbert Hymer was born in Montreal (Canada) on 15 November 1934 and
died tragically in a car crash in 1974. He father, a Jewish immigrant from Eastern
Europe, ran a small clothing store in which his mother worked as a bookkeeper.

His undergraduate studies were at McGill from where he graduated with first class
honours in politics and economics. He then moved to MIT with his wife Gilda and
their two sons. At the suggestion of his PhD supervisor, Charles Kindleberger, he
decided to combine his interests in industrial and international economics, by working
on the area of the MNE. His now famous PhD thesis on The International Operations
of National Firms: A study of Foreign Direct Investment, though completed in 1960,
was not published until 1976 due to MITs original refusal to sponsor its publication.
2


Following the completion of his thesis, Hymer spent a year in Ghana, returned to MIT
and Yale where he taught for two years and then went back to Ghana in 1963. Back

1
This sub-section draws heavily on Cohen et als (1979) account of
Hymers life. It also makes use of Hymers CV in Hymer (1976) and of
two of Kindlebergers (1976,1984) articles.
2
According to Kindleberge,r (1976) (one member of) the committee
found that the argument was too simple and straightforward
(Kindleberger, 1976, no page number). That was despite
Kindlebergers own argument that to make clear a field in which
theory had long been confused was a first-class contribution to
scholarship. (ibid).
4
at Yale in 1964, he worked at the Economic Growth Center there until 1969. During
this time he was also appointed to the Canadian Task Force in 1967 to examine the
structure of Canadian industry and visited Cambridge (UK) where he worked with
Bob Rowthorn in 1968. The following year he received a research fellowship at the
University of West Indies (Trinidad), worked at the summer Institute for International
Studies of the University of Chile, made a public commitment to marxism, and was
refused tenure and promotion at Yale.
3
From autumn 1970 until his death in 1974 he
worked as a Professor of Economics at the New School for Social Research in New
York. In 1973 he separated, divorced and spent several months in the Max Planck
Institute in Starnberg (West Germany). During his last years he acquired substantial
acclaim, testifying before the UN study group on MNEs and appearing on the CBC
several times. In January 1974 he was appointed Editor to the American Economic
Review.
4
His death left an unfinished book where his various contributions to
economics were to be brought together. A collection of 11 of his best papers was
published in 1979 by a number of his friends and colleagues, entitled The
Multinational Corporation: A Radical Approach.

By his own admission, Hymers work and more general perceptions of capitalism
were shaped by his family background during the early depression years. During his
childhood he recalls how they felt like aliens in a land controlled by big business
and government, coming to understand the importance of money as a social power.
At McGill he and his fellow Canadians were also beginning to realize the special
status of Canada as more than a colony butless than a nation. In Ghana he
experienced problems relating to the British colonial legacy; in particular he
entertained the possibility that Britain constrained Ghanas development. His

3
There is a discussion in the literature as to the exact timing of
his change of heart towards marxism Kindleberger places this around
1966-7.
4
See his CV in Hymer 1976). This appointment itself can provide
potent historical insight on the changes in the economic profession
during the past quarter of a century. Whilst already then
Kindleberger (1976), points to Hymers frustration for failing to
break the main ideas of the thesis to print (with the exception of
the 1970 AER article in the Papers and Proceedings issue, all other
top journal articles of Hymer were joint with B P Pashighian, on more
mainstream issues and with more mainstream methods, see his CV in
Hymer, 1976), it is arguable that today such an appointment might be
considered beyond contemplation.
5
experience in Chile reinforced a feeling that less developed countries (LDCs) needed
more than the regulation of MNEs for survival.

Hymers ideological attitudes developed in parallel with his experiences. From an
orthodox but liberal criticism of the MNE in his thesis, through his nationalist
radical proposals to curb US MNEs in Canada, in his Task Force study, he developed
his cathartic commitment to marxism and an associated focus on overthrowing
rather than regulating the multinational corporate capital system.

ii) Contribution to the theory of the MNE

Hymers contribution can be seen to fall in two categories. First the theory of the
MNE. Second, the political economy of multinational corporate capital. Concerning
the MNE his main argument appeared in the 1960 thesis, published as Hymer (1976),
in the 1968 article in French in the Revue Economique and in his 1970 AER article.
From then on he kept drawing on his earlier ideas but with an eye to dealing with
broader political economy issues. His 1972 article on the law of uneven
development is a clear attempt to bring his two concerns together by relying on
two laws of economic development; The Law of Increasing Firm Size and the Law of
Uneven Development (1970, p.113). Besides its sheer brilliance, this paper serves
Hymer to summarise some of his ideas on the MNE in Part I on The Evolution of the
Multinational Corporation, and extrapolate explicitly on the future and in Part II of
the article on uneven development. This suggests that at least in Hymers own mind
there was a clear link between his early and later (marxist) phases, albeit the
emphasis arguably undergoes change.
5


5
In the 1970 and 1972 articles Hymer explicitly mentions Coase (In
1970 footnote 1 and in 1972 in Note 5, p.137). The almost
paradoxical reluctance of scholars on the MNE to deal with Hymers
subsequent work has led to this having gone unnoticed. Accordingly
the unearthing of Hymers 1968 article in French, where Hymer
explicitly quotes, draws upon and builds on Coase (1937) has been
seen as a sort of a landmark concerning the assessment of Hymers
contribution to the MNE literature, see Casson (1990). Various
authors eg Kindleberger (1984), Pitelis (1991) had already pointed
that aspects of Hymers in the thesis were reminiscent of
internalisation-transaction costs type ideas. Given the time lag in
publishing in the AEB, one could speculate that the 1968 and 1970
articles (which both refer to Coase) are more of less synchronous.
While this questions the importance of the 1968 article concerning
6

To avoid some existing confusions concerning Hymers contribution, we adopt the
following procedure. First, we briefly examine extant theory on the MNE. We then
look at Hymers contribution to this debate in three stages. First, the PhD thesis,
second, the 1968 article, third, his 1970, 1972 and subsequent works. By so doing we
aim at showing that whilst much of extant theory was already there in the PhD,
adding-on the 1968 article and the subsequent works, clearly confirms the idea that on
the issue of the MNE, Hymer almost said it all. This statement by eg Kindleberger
(1984) and Pitelis (1991, 1992) is now less controversial, following Mark Cassons
(1990) remarkable recognition of the 1968 paper to the effect that it

is important because it shows that Hymer developed a Coasian theory of the MNE.
In this sense it goes well beyond his thesis (see Dunning and Rugman, 1985). His
theory introduces both horizontal and vertical integration and so clearly anticipates by
several years the work of McManus (1972), Buckley and Casson (1976) and others
(Casson, 1990, p.1).
6




Extant Theory of the MNE

Following on from Hymers thesis and major contributions notably McManus (1972),
Buckley and Casson (1976), Williamson (1981), and others (see below) extant theory
of the MNE can be usefully summarized by drawing on Dunnings (1988, 2000) OLI
paradigm. In this, O stands for ownership advantages. It draws expressly on
Hymers claim that the existence of firm ownership (in Hymer also monopolistic)
advantages is a prerequisite for offsetting the disadvantage of being foreign. I stands
for internalisation, the idea being that for advantages to be internalized, there must
be efficiency savings of so doing, in terms of transaction (vis a-vis internal

reference to Coase, it is perfectly true to say that in the 1968
article Coase receives a far more prominent treatment than in 1970,
see below.
6
Given the extensive controversy of this issue, it is worth perhaps
pointing out that in the 1968 article, Hymer used explicitly the
terms internalisation and marketing costs.
7
organisational) costs. L stands for locational factors; it aims at explaining the choice
of location in terms of locational advantages.

Dunnings perspective serves as a useful framework that encapsulates most of the
main ideas. Related ideas build on Hymers focus on control and oligopolistic
interaction to propose market power and/or oligopolistic rivalry factors, see for
example Knickerbroker (1973) and Graham (1978). A variant of these theories also
deals with (Hymers focus on) MNEs abilities to divide and rule labour, see notably
(Cowling and Sugden (1987). Internalization theories come in a number of variants.
In one of these Buckley and Casson (1976) focus on internalization advantages
resulting from problems associated with protecting the quasi-rents from intermediate
products eg knowledge-related, mainly intangible, assets, due to market failures
related to public goods aspects of knowledge. Williamson (1981) focuses on
transaction costs resulting from ex-post bilateral monopoly problems related to firm
investment in specific assets. Hennart (2000) goes back to Coase, pointing to
differential ability by MNEs to control foreign labour, leading to internalisation
driven from transaction costs reductions. Kogut and Zander (1993) maintain the
focus on differential abilities by firms to suggest that knowledge can be tacit, thus far
from being a public good. If so, what explains internalization in their view is not
market failures per-se, but firms differential capabilities, vis--vis both markets and
other firms, in transferring tacit knowledge across borders.

There are various other theories and views, notable between these another idea
present in Hymer (see below) that of diversification advantages of MNEs, see
Lessard (1982). To these Hymer (1979) himself added later the benefits of
multinationality per-se, to include for example, increased bargaining power vis--vis
states and labour. While our list does not intend to be exhaustive, it does cover we
feel, most eminent ideas present in extant theory. A notable critique of all such
theories, worthy of mention here is that of Edith Penrose (1987) that theories that
draw upon and develop Hymer-type and Coasean ideas, fail to differentiate between
multi-domesticity and multi-nationality. For Penrose, the latter requires focus on the
differentiae-specificae of nation states, an issue these authors and theories fail to
address.

8
Whilst attention to Penroses contribution, has already been drawn by Kindleberger
(1984) and despite Hymers own reference already in the thesis to two of Penroses
articles, little attention has been given to Penroses (subsequent) criticism.
7
More
recently Penrosean ideas have resurfaced in the context of the resource-based
perspective on the theory of the firm and attempts have been made to provide
Penrosean insights into the determinants of FDI and the MNE, see for example, Pitelis
(2000). Kogut and Zanders contribution for example is quite Penrosean, despite
having been developed independently from her ideas.

The crucial question is where does Hymers contribution stand vis--vis these
contributions. His 1960 PhD thesis is the natural starting point.



Hymers Views on the MNE

i) The PhD Thesis

Hymer starts in page 1 of his thesis with a direct and explicit focus on control. He
distinguishes between FDI and portfolio investment in terms of the presence of
control in the former case, and its absence in the latter.
8
He goes on to suggest that
FDI is treated in the then extant theory as portfolio investment, and tries to explain
FDI in terms of cross-border differentials in interest rates. Besides failing to explain
some stylized facts of FDI (like MNEs borrowing in host countries, tending to bunch
in particular industries, and cross-investments within industries), an important
theoretical failing of the interest rate theory is that it does not explain control (p.23)


7
See however, Buckleys (2002) recent observation that the current
absence of big research questions in international business calls
into question the separate existence of the subject area (p. 370)
and Ghemawats (2002) attempt to find scope for international
business scholarship in terms of the observed prevalence and
importance of partial integration of markets across borders.
8
Hymer is not oblivious to the difficulties of defining control and
the arbitrariness of the dividing line between control and no
control. He suggests, that it is the conceptual distinction itself
that matters, however, not the detail of specifying it.
9
Hymer explicitly distinguishes between different types of foreign operations, notably
joint ventures, licensing, tacit collusion and FDI and asks the question of the
circumstances that cause a firm to control an enterprise in a foreign country (p.33)

He distinguishes two major and one minor reasons for this. The first major reason is
the profitability associated with removing competition between firms in different
countries. The second major reason is that some firms find it profitable to exploit
their existing advantages by establishing foreign operations. The third (minor) reason
is diversification. For Hymer the latter is minor because control is not necessarily
involved (p.33).
9
Hymer goes on to discuss his now famous dis-advantages of being
foreign and the three reasons why firms despite the disadvantages find it profitable to
have foreign operations (p.36)
10


It is evident from the above account that already in the thesis Hymer dealt explicitly
with control-oligopolistic interaction (market-power) type arguments plus
diversification plus ownership advantages. This is not controversial, albeit one could
argue that the focus on advantages, has led to a downplaying of the removal of
conflict aspects of Hymers theory (Cantwell (1991), Yamin (1991), Pitelis (1991)).
What is more controversial is whether Hymer dealt with internalization of transaction
costs-related ideas of the various types we discussed under extant theory. For a long
time, the dominant view seemed to be that Hymer focused on structural (monopoly)
not natural (transaction-costs) market failures, see Dunning and Rugman (1985).
This is despite Kindleberger (1984), Yamin (1991), Pitelis (1991) providing various
quotes from the PhD and other writings by Hymer which could be interpreted in
transaction-costs induced internalization terms.

In Plus change, for example, Kindleberger (1984) claimed that

9
Hymer is cognisant of the possibility that diversification can be
also effected by shareholders, but claims that one reason why a firm
might choose to diversity itself is that it has more information
(p. 41).
10
Interestingly (perhaps due to an oversight or expediency) Hymer
reverses the order here, placing the minor reason, diversification in
between the two major reasons, removal of conflict and the
possession of advantages respectively.
10

The Hymer argument in its emphasis on market imperfection was general, but
the illustrations used many of the words and virtually all the ideas that have
now emerged as the new theories (1984, p. 181)

Kindleberger went on to trace words like information, holdup problems due to
situations of bilateral monopoly, etc. All these are reminiscent of internalization-
transaction cost-based ideas. For Kindleberger (1984, p. 182)

The word internalisation does not appear in Hymer, although it is hard to
see much difference between this and his emphasis on vertical and horizontal
integration for joint maximisation (p. 183)

Kindleberger also traced location in pre-Hymer theories of FDI, and saw
appropriability, diversification and oligopolistic interaction theories, as extensions
of Hymers ideas. One possible exception addition on Hymer, he felt was Vernons
(1966) product cycle idea.
11


In his latest article on Hymer, Kindleberger (2002) revisits the 1984 article, and
observes that

I decided, perhaps chauvinistically, that while the authors extended Hymers
insights in some directions, and in some cases claiming to have a new theory
of the multinational firm they basically confirmed his initial paradigm
(Kindleberger, 2002, p 1).

Chauvinistically or no, Kindleberger claims are more likely to have underplayed than
overplayed Hymers contribution. This becomes crystal clear in the 1968 article (see
below) but it is already more evident in the thesis than allowed by Kindleberger.


11
Hymer used explicitly product and industry cycle-related ideas in
his subsequent work, see below.
11
First, Hymer does mention internalisation or at least the verb internalize explicitly
in the PhD thesis. In p.48 Hymer suggests that

The firm is a practical institutional device which substitutes for the market.
The firm internalizes or supersedes the market. A fruitful approach is to ask
why the market is an inferior method of exploiting the advantage that is we
look at imperfections in the market (Hymer, 1976, p.48)

Now this is quite Coasian.
12
If anything the quote reads much like a quote from
Coase (1937), a point to which we return later. To drive the point home, Hymer goes
on to provide explanations as to why firms may choose FDI over licensing in these
terms.

If the firm attempts to licence its products, it will encounter the problems
which could be solved by owning the operating enterprises. In the first place,
it will be selling its advantage to entrepreneurs which possess monopoly
power in their markets. A sequential monopoly problem is therefore involved.
Integration could thus increase joint profits (pp. 48-49)

In addition

it is the market impurity which leads the possessor of the advantage to choose
to supersede the market for the advantage
(p.49)

Instead, if these exist


12
In yet another case Hymer suggested that it is profitable to
substitute centralised decision making for decentralised decision
making. Whether or not this will occur depends mainly on whether the
markets are perfect (p.37)
12
Many other firms, licence is almost certain Butcooperation through
licensing is difficult because a bilateral monopoly problem is involved
(p.51)
13


Various other such quotes are for example in pp. 23, 25, 67, 87, 88, 89 etc.
14
They
serve to establish the point that Hymer made use of Coasean ideas and anticipated
Williamsons ideas and others with uncannily similar terminology.
15


Concerning Buckley and Casson's theory of internalization, Kindleberger (1984, p. ),
traces the following quote in Hymer (1976, p.25).

control is desired in order to appropriate fully the returns of certain skills and
ability

A similar statement is repeated in p.26. Other reasons for choosing FDI over
licensing for Hymer include the possibility of conflicting evaluations between buyer-
to-be and seller-to-be of the advantage, (p.58), a situation exacerbated by uncertainty
(p.50).
16


13
In even more Williamsonian vein, Hymer observes that when firms,
of one country sell to firms of another country and where there are
only a few buyers and a few sellers a bilateral monopoly situation
occurs. This is probably an important reason for international
operations where raw materials are involved (p.38).
14
In addition in p.23 Hymer uses the term bilateral oligopoly,
while in p.24 he refers to distrust, especially of foreigners as an
incentive for the capitalist to seek control. More explicit
opportunism-type, and even specific asset-type factors and
Williamsons explanation of the M-form appear in the 1968 paper, see
below.
15
An existing question is whether Hymer has been aware of Coase
(1937) already when writing the thesis Hymer does not refer to Coase
in the thesis and according to John Dunning (personal discussion)
Charles Kindleberger suggested to him that he himself, as well as
Hymer, were unaware of the Coase article. Nevertheless, the
similarity between the quote provided above by Hymer in the thesis,
Hymers own later quotes of Coase (eg, 1968, 1970, 1972) and Coases
own (1937) writings read similar enough to let me fell that one
should declare this issue an open one. For example, Hymer, might have
not read the article, but might have become aware of ideas in it in
discussions with colleagues.
16
Last but not least for Hymer a reluctance to licence may also
arise from the inherent danger of losing the advantage (p.50)
13

Even Penrose-resource-type arguments are present in the thesis. A very characteristic
for example of the resource-based view, of Penrose (1959) and also Teece (1982) and
others (see for example Pitelis (2002) for a recent account) is firm heterogeneity due
to differential resources, capabilities etc. In starting his discussion of the importance
of advantages for international operations, Hymer (p.41) points out that

Firms are by no means equal in their ability to operate in an industry. Certain firms
have considerable advantages in particular activities

Advantages include the possibility of acquiring factors of production at a lower cost
from other firms (ibid) but also knowledge or control of a more efficient production
function (ibid) or better distribution facilities of a different product (p.42).
Importantly unequal ability of firms is a sufficient condition for international
operations; (p.46), albeit not a necessary one. Also at least some (and more likely
most) international operations are due to unequal ability of firms to conduct a certain
activity (p.72). Unequal ability in turn is in part due to the fact that there is an
unequal distribution of skills among people (p.72)
17


In addition to such resource-based ideas (for example skills, differential ability,
activities are all very Penrosean concepts), Hymer touched upon Penroses (1987)
concern that theories of FDI are no more than theories of the growth of the firm, save
for the existence of national borders. Hymer makes a related point in p.28, but points
that the operations are international and the firms national different nations have
different governments, different laws, different languages and different economies
(ibid). This is not the case in interregional economics. Anticipating more recent
debates (eg Ghemawat, 2002), Hymer suggests that the markets of different countries
are much more separate than the markets of different regions.
18
This lack of

17
Other factors include chance discovery (p.73).
18
For Hymer we may be watching the integration of the world economy
at least the economic integration of broad areas than in the past
(P.29). International operations and integration may be furthering
each other, but full integration has not happened yet. Firms are
still national ones. Moreover, the firms which have advantages are
14
integration provides a good deal of interest in the subject of international
operations, especially as it may be fast disappearing (p.28)
19


The above I feel supports the point that there was already more in Hymers PhD than
met the eye (at least of most contributors in the literature). Arguably even
Kindleberger underplayed the extraordinary breadth, depth, versatility, originality and
foresight of Hymers thesis.

ii) Hymers 1968 Article

Hymer (1968) starts by considering Coasean and more mainstream oligopoly theory
as extant. In this sense he sees no new original insight in his own contribution other
than the fact that the theory of the firm and oligopoly theory have not been applied to
the problems of trade and international investment yet (p.9).
20


Hymers first section is explicitly Coasean, it is actually termed The firm as a tool for
saving market costs. (p.9). To avoid being repetitive, the section has a summary of
Coase (1937), to include two extensive quotes, the idea that the make or buy decision
is a function of market imperfections, Coases marginalist principle of integration
versus externalization, and the example of hiring labour over spot-markets, versus the
use of a long-term contract, which saves, marketing costs. Although Hymer refers to
the word transaction he sticks to Coases marketing costs, as opposed to
transaction costs, currently adopted also by Coase. Importantly Hymer observes
that conventional theory of competition assumes a frictionless-world, which is not the

more likely to come from advanced countries that from less developed
countries. (p.74)
19
Hymer goes on to suggest that international operations were
frequently established to replace exports or to produce exports
(p.80). In addition there is also an association between trade and
advantages. Advantages can be thought of as factors of production.
(p.81). Also Not only do the advantages lead to trade, but trade
may lead to advantages. For through the export activities a firm may
establish distribution channels or may establish a differentiated
product. This brings up the infant industry argument, which is in
fact an infant entrepreneur argument (p. 82)
20
Hymer focused on international investment. Applications to
international trade theory had to await the work of Krugman (1986).
15
case. It is expensive to find customers, fix a price, control quality, etc. Additionally,
anticipating Williamsons concept of opportunism Hymer suggests that

There is also the problem of risk, stemming from the fact that people trading
on a market do not know each other, each of them having good reasons for
being secretive, bending the truth and even lying. (p.12)

In the following section Hymer builds on the previous analysis, moving from nature
to growth. This section contains and anticipates insights from Chandler, Penrose and
Williamson. It states what is now known as Williamsons M-form Hypothesis, but in
a way that also involves Chandlerian insights. In a rather Penrosean vein the section
is entitled The large firms has discovered how to discover. (p.13).

Hymer observes that the main innovation of the modern corporation was the
installation at the top of an organisation that was specialized in managing the business
and had full control of its large empire. During the 1920s a new step was made with
the appearance of firms with multiple divisions (p.12).

The main features of these multi-divisional firms are flexibility and the existence of
the brain at the headquarters, mainly a large team dealing with strategic aspects of
growth and development. Importantly this allows firms to avoid the appearance of
very negative economies of scale, in effect removing any limits to the size of the firm,
as in Penrose (1959). This gave a new impetus for growth. The firm also learnt how
to plan growth (p.13). Hymer pursues another Penrosean theme here, the interaction
between internal and external environment. He observes that by reacting to external
conditions, the firm was changing them at the same time. Along with its own
evolution, the corporation has discovered how to discover (p.13)

Hymer goes on to explain M-Form firms in terms of escaping the difficulties of
financial markets. Anticipating Williamsons internal capital market hypothesis,
Hymer suggests that, to a certain extent the headquarters plays the role of the
investment firm managing a portfolio and looking for new uses of savings (p.14).

16
In line with Penrose (1959) Hymer went on to critique the idea of a managerial
revolution, leading to a growth objective, instead of profit maximization.
Anticipating Marris (1967) however, Hymer observed that while management have a
certain margin of discretion a firm can only fail to maximize profits only within
certain limits, first, because growth needs profits, and second because there is a threat
of takeover (p.14).

In the above context, the question for Hymer is

whether, comparatively, multinational firms are a better institution than
international markets for stimulating business, transmitting information and
fixing prices (p.15).

Hymers next two sections are termed firms react to monopoly and to the instability
of international markets by direct investment in the production of raw materials
(p.15) and direct investment in a foreign processing industry protects itself against
competition and helps it maximize the quasi-rent in earns owing to its technological
advantage and product differentiation (p.21)

In the first of these, Hymer builds again explicitly on Coases idea that vertical
integration is explicable in terms of market imperfections. In anticipation of
Williamsons views he explicitly attributes market imperfection to bilateral
oligopoly, leading to the need to negotiate and regulate price and quantity.

in such a bilateral oligopoly, tension may be partly overcome by avoiding the use of
the market thus eliminating losses stemming from negotiation (p.17) (emphasis
added).

Reducing the risk of owning extremely specialised assets (p.17) is yet another
reason for international integration. By combining two stages of production, firms
can also combine their profits, thus making them more stable, thus insuring
themselves against uncertainty (p.17).

17
Financial market imperfections and lack of information are two more reasons for
vertical integration. Concerning the latter, in oligopolistic industries, processes of
negotiation are rarely sincere for it is not in the interest of each party of inform
exactly the other of everything he knowsvertical integration by gathering separate
units into a single multinational firm, makes the circulation of information easier
(p.20).

In the following section Hymer explains horizontal integration in terms of difficulties
in selling advantages, oligopolistic interaction and collusion. He combines here,
effortlessly, ideas associated with Coase, Williamson, Buckley and Casson, Penrose,
Kogut and Zander, as well as the most commonly associated with him power,
control and oligopolistic interaction factors.

One reason for not selling advantages is that the advantage the firm owns may be so
complex and ill-defined that it is extremely difficult and some times impossible, to
sell (p.22)

Also

The strength of the multinational enterprise stems from the fact that it can
trade knowledge internally more quickly than two firms which have to
negotiate conditions each time (p.23).

Different (honest) perceptions concerning the value of an advantage, can lead to the
MNE as a means of minimizing uncertainty. Agreeing on the evaluation of risk is
difficult as each firm is to a certain extent unique(p.2).

These problems are difficult to solve even under the most favourable
conditions. They are particularly hard to solve in the context of negotiation,
given that it is in the interest of each partly to disguise information and cheat
the others to make a better bargain. (p.29).

18
Importantly the MNE, does not suppress completely these factors since they re-
appear under the form of internal tension, but it makes the problem easier to solve.
(p.22).

The risk of a licensee using the information provided by the seller, to outcompete it, is
important, it should be emphasised that in many industries, the concentration of
production on a small number of firms is by itself an incentive to vertical integration
and the elimination of the marketTo a certain extent a firm which sells an
advantage has a monopoly of this advantage. Direct investment may be necessary to
maximize the quasi rent that comes from it when the number of competing buyers is
low (p.24). The essential fact is that there is an advantage in suppressing bilateral
oligopoly (p.25).

While the above emphasise technology and product differentiation, investment in
foreign processing industry may occur even if the firm does not have any kind of
advantage. Increased profits resulting from more perfect collusion may be a sufficient
reason for horizontal international integration through the MNE (p.25-26).

Hymer goes on to state the importance of oligopolistic interaction refers to rivalry
and collusion between eg American and European firms (several large firms - some
from the US and maybe one or two European are both competing and concluding
agreements throughout the world in the context of trade and international investment
(p.20) suggests that the amount of FDI by a firm in part depends on a firms relative
combativity vis--vis rivals and quotes extensively the now well-known case in
Dunning (1958) of the tobacco industry, to show how negotiation determines market
shares (p.26). He goes on to suggest that MNEs can divide markets into spheres of
influence (eg through geographical segregation of markets). Importantly he chooses
to conclude by emphasizing market sharing. The restless competitive period does
not usually last long: after a while it is more than likely that certain stability will be
achieved and that the industry will adopt some formula for sharing the market (p.27)

I feel it is hard to overemphasize the importance of the 1968 article. As Casson
(1990) puts it, the article so clearly anticipates by several years the work of
McManus (1972), Buckley and Casson (1976) and others (p.1). As already
19
suggested others include Williamson and Kogut and Zander. Arguably, the reasons
for internalisation provided by Hymer (tacit knowledge, as compared to public
goods characteristics of knowledge), are closer to Kogut and Zander than to Buckley
and Casson. Crucially, Hymer blends all these ideas with power-control-oligopolistic
interaction factors. Not only he does not see contradictions in this (unlike many
recent authors), he also chooses to emphasise market sharing as the end state. This is
crucial, first because it clearly confirms that despite anticipating all modern
efficiency-based theories, Hymer has already entered his marxist phase, in choosing
to emphasise monopoly. In Marx, competition and monopoly are viewed as a
dynamic dialectical process, whereby competition was leading to monopoly, and
monopoly can only maintain itself by continuously entering the competitive struggle.
These ideas are reminiscent also of Schumpeter (1942) and Penrose (1959), save that
both these last mentioned authors, saw quasi-monopoly situations to be transient and
in any event, a just reward for innovation. We return to these issues later.

iii) Hymer (1970, 1972) on the theory of the MNE

Hymer starts the 1970 article, by quoting Coases (1937) now famous quotation on D
H Robertson, that firms are islands of conscious power in an ocean of unconscious
co-operation (p.49). He maintains the theme of the division of labour between firms,
co-ordinated by markets, and within firms, co-ordinated by entrepreneurs, in section 1
of the article. However his concern here is with the efficiency (contradictions) of the
MNE. The two terms, efficiency and contradictions are seen as synonymous, the
efficiency of the MNE is in effect the efficiency of oligopolistic decision-making, an
area where much of welfare economics breaks down (p.49). MNEs, moreover, bring
into high definition socio-political issues, to include imperialism, that cannot be
analysed in purely economic terms.

Having first dealt briefly with reasons why MNEs can be justified in terms of
efficiency (for example when they specialize in activities where size is a great
advantage and (so) would not be undertaken in the absence of large firms), Hymer
goes on to introduce his law of increasing firm size, which he justifies by relying on
the analysis of Chandler (1962). Building on Chandler, Hymer suggests that firms
have developed from their Marshallian origins to nationwide oligopolies, to
20
multidivisional conglomerates, to MNEs. Bigness, however, is paid for, in part, by
fewness, and a decline in competition, since the size of the market is limited by the
size of the firm (p.54).

While improved communications are breaking down barriers to trade and widening
the marketdirect foreign investment tendsto stay the forces on international
competition (p.54). FDI has a dual nature. It is an instrument that allows business
firms to transfer capital, technology and organisational skill from one country to
another, and it is also an instrument for restraining competition between firms of
different nations (p.54).

Hymer suggests that the anti-competitive effect inherent in FDI constitutes a reason
for international anti-trust policies and provides support for the infant entrepreneur
argument, supporting protection (p.55). Indeed given the benefits to competition of
temporary protection and the fact that the world benefits from this while the cost is
borne by the protecting country, one can reverse the usual argument, suggesting that
myopic behaviour will lead to too little protection rather than too much (p.55).

Hymer devotes the rest of the 1970 paper to international trickle down, the
international hierarchy of decision-making the relationship between MNEs and
small countries, and the issue of supra-nationality. We deal with these issues in the
next section. For our purposes here it is important to note that despite reference to
Coase, in the 1970 article, much of the efficiency-related arguments for the MNE
have gone, the focus being squarely on global monopoly. Similar considerations
apply for the 1972 article.

The last mentioned paper is in three parts. First the evolution of the MNE, second
uneven development and third the political economy of the MNE. In Part 1,
Hymer recapitulates and extends ideas from 1968 and 1970 (indeed the introductory
paragraph to this part is, in effect, the same as paragraph one of the 1968 article.)
21


21
Save for the translation, which seems to suffer here a bit. For
example, Hymer starts by asking the question what is the name of the
beast, (thing in the 1968 article) while the expression The US
Corporate Monsters (in Hymer 1970), appears as The Giant American
Firm in the 1968 article.
21
Hymer repeats the distinction between the market and the factory (p.116), stresses
the advantages of the factory in terms of its ability to reap the benefits of cooperation
and division of labour (ibid) and deals with the question of whether the capital-labour
relationship is voluntary (as suggested by Marshall), or conflictual (as suggested by
Marx). He goes on to examine the evolution of large firms, from Adam Smiths pin
factory to the MNE, building on Chandler. He explains diversification in terms of
the product and industry life cycles, points to the advantages of the M-form in terms
of flexibility, and even refers to product proliferation as a means of increasing
market share, while maintaining the illusion of competition. He observes that US
corporations began to move to foreign countries almost as soon as they had completed
their continent wide integration (p.121). Their new administrative structure and great
financial strength gave them the power, their large size and oligopolistic structure, the
incentive. Much like in 1968 reasons for FDI involve

the security implicit in control over their raw material requirementsto control
marketing outlets and thus maximize quasi-rent on their technological discoveries and
differentiated products[and] simply to forestall competition (p.121). A further
reason for US firms rushing abroad was the rapid growth of Europe and Japan. This
combined with slow growth in the United States economy in the 1950s altered world
market shares and firms confined to the US market found themselves falling behind in
the competitive race (p.121). This non-American challenge led to foreign
expansion, first in Europe, which unlike Japan, had an open doors policy for US
FDI.

Like the conclusion in 1968 and in 1970, here too Hymer presents a period of rivalry,
leading to a new equilibrium between giant US firms and giant European and
Japanese firmsbased on a strategy of multinational operations and cross-
penetration (p.122).

Hymer went on to apply location theory to the analysis of the evolution of the large
firm of Chandler, with an eye to identifying the relationship between the structure of
microcosm and the macrocosm. He did so, not with an eye to explaining the choice
of location of MNEs, bur rather the impact of MNEs on the macro-economy. Other
than the occasional references to locational factors, in the case of raw materials,
22
and/or conditions of growth in various countries, to which we have already referred.
Hymer did not examine the choice of location or MNEs. This is currently a hugely
important topic in the international business literature.
22
Other than this, it is,
however, fair, I feel, to agree with both Kindleberger (1984) and Casson (1990) that
in effect Hymer anticipated and indeed dealt in some detail with much of extant
theory, in fact more than suggested by the aforementioned authors, notably the
Williamsonian and, up to a point, resource-based theories.
23
Importantly, he did so in
a way that emphasized the complementarity of these theories, not their apparent
differences.

Given the above, perhaps less clear is why Hymer delegated references to
internalisation-type arguments, and even the whole of the 1968 analysis, to occasional
summaries and footnotes (eg the 1972, p.121 reference and note 12) and why he so
clearly chose to emphasise control, monopoly and dominance over efficiency. It is
not possible to provide a definitive answer to this, but here are some possibilities.
First it is arguable that Hymer felt that despite the efficiency-related advantages of the
institution of the MNE, vis--vis the market, the subsequent structural market failures
due to monopoly could tend to be the dominant features of a world dominated by
MNEs. Accordingly, he chose to focus on the final result, not the raison dtre. The
very choice of monopoly over efficiency could be explainable in terms of his personal
and family background, as described in section II, and importantly his epoch, the
1960s and early 1970s being a quite radical period. Given the prevalence of
marxian ideas in intellectual circles, Hymer chose to side with Marxs view that
monopoly can maintain itself through competition, and felt that monopoly will
indeed do so. Granted this, he then focused on the impact of MNEs on global socio-
political issues, to include the relationship between MNEs and labour, MNE and
nation states, economic development etc. All these for Hymer followed directly from
his previous analysis they were not separate bodies of thought, unrelated to his

22
See Dunning (1998); indicatively it was the special theme of the
Academy of International Business Annual Meeting in 2002.
23
Kindleberger (1984) does not seem to have been aware of the 1968
article or of Oliver Williamsons ideas on the MNE. Cassons (1990)
book was published before Kogut and Zanders (1993) resource-based-
flavoured theory on the MNE.
23
previous work, as much literature seems to suggest. These issues are the subject
matter of the next section.

III. Hymer and the Political Economy of the Multinational Corporate
Capital

Hymer built on the ideas described in previous sections in order to analyse a number
of important issues, to include economic development, the relationship between
MNEs and labour, MNEs, the state, and international state apparatuses, and the
possibility for an alternative economic system. The main sources of these ideas are
the 1970 and 1972 article, and the 1979 collection of 11 articles by Hymer in Cohen
et al (1979) (which includes the 1970 and 1972 ones). The last two articles focus on
similar issues, the international trickle-down, the core-hinterland concepts, the
relationship between MNEs, nation states, and international organisations, uneven
development and alternative economic planning. In 1970, Hymer first dealt with the
Schumpeterian notion of creative destruction, in order to justify his views on
monopoly. He suggested that while creative-destruction-based competition may
appear to be good for innovations and thus dynamic optimal allocation (p.56), the
question of efficiency hinges on the direction of change, rather than the rate of
change (p.56). This is unexplored terrain, as we have no theory of how MNEs
choose between alternative paths of innovation. Accordingly, it cannot be assumed
that market forces will choose the optimal path. Instead the private interest of the
MNEs would be to foreclose competition, to restrict the choices offered, and to
insure the survival of their own organisation. (p.57).

Concerning the international hierarchy of decision marking Hymer anticipated recent
debates in international management (eg Bartlett and Ghoshal (1989)) in observing
that MNEs are torn in two directions. On the one hand, they must adapt to local
circumstances in each country. This calls for decentralized decision making. On the
other hand they much coordinate their activities in various parts of the world and
stimulate the flow of ideas from one part of the empire to the other. This calls for
centralized controls. They must therefore develop an organisational structure that
balances the need to co-ordinate and integrate operations with the need to adapt to a
patchwork quilt of languages laws and customers (p.58). One solution for MNEs is
24
to divide labour by nationality. This can generate problems that Hymer develops
further in his 1972 uneven development article. In that Hymer also sets off to
explore the spatial dimension of the corporate hierarchy (p.122). Building on
Chandler and Redlich (1961), he proposes that the application of location theory to
the Chandler-Redlich scheme suggests a correspondence principle relating
centralization of control within the corporation to centralization of control within the
international economy (p.123). According to Chandler-Redlich, one could
distinguish between day-to-day firm operations (level III), operations that separate the
head from the field office, and involves control of the latter by the former, (Level II)
and Level I operations, which in effect is the head-office dealing with strategy and is
completely split-off from Level II. For Hymer, location theory suggests that the
MNEs power-control and rationalisation abilities would lead them to diffuse level III
activities, and spread production more evenly over the worlds surface over time, but
keep Level II activities more concentrated in large cities, because of their need for
skilled personnel, information and communication systems. This would apply even
more to Level I activities, which need to be located near to the media, the
government, the capital market. The outlook would be that geographical
specialisation will come to reflect the hierarchy of corporate decision making, and
the occupational distribution of labour in a city or region will depend upon its
functions in the international economic system (p.124). MNEs will thus shape the
globe to their image with superior and inferior cities. Moreover the structure of
income and consumption will tend to parallel the structure of status and authority
(p.124). Through a trickle-down or demonstration effect new products-innovations
would be introduced first in the metropolis, then trickle-down to the hinterland.
This would serve to reinforce patterns of authority and control.

Dependence, and (thus) uneven development could be attributed to technology, which
could facilitate poly-centricity as opposed to hierarchy, but to control. By spanning
many countries, MNEs can escape national regulation and weaken political control.
They can also reduce options for development (p.127). One way is through
educated personnel in developing countries which tends to be attracted to developed
ones, leading to emigration. In addition, there will tend to be a limit as to how high
these people can reach. Very few will be able to the top of the ladder for the closer
one gets to the top, the more important is a common cultural heritage (p.128).
25
Another way through which uneven development ensues, is because MNEs through
transfer prices, can evade taxes. Importantly, although MNEs erode the power of all
nation states, they do so asymmetrically. Strong states governments in the metropolis,
have higher bargaining power so can capture some of the surplus generated by the
MNE and use it to further improve their infrastructure and growth.

Hymer (1972, 1979) observed that, unlike the earlier years of capitalist development
when LDCs were banana republics, MNEs now needed industrialized LDCs in order
to create new markets and extend their productive base globally. New markets are
very important for MNEs for three reasons. First, the existence of fixed costs in the
production of new products implies high marginal profits when these are sold in new
markets. Second, in contrast to what income statistics suggest, a relatively wealthy
middle class exists in MNE with similar aspirations and tastes to its counterpart in the
developed countries, thus providing a ready clientele. Third, oligopolistic
preemption: MNE operations in LDCs can be seen as a device to preempt potential
rivals from entering these markets. The importance of LDCs for MNEs, however,
need not imply development and/or equality. To the extent that MNEs control the
process of development, LDCs, will tend to lose their economic independence and
enter a condition of self-perpetuating dependency. The benefits moreover will be
spread between the core and the hinterland, unevenly.

Although the hinterland might have been better off choosing an independent path to
development, the chances of this happening through a national capitalist class are
grim. According to Hymer, middle classes in the LDCs prefer to seek promotion
within the multinational corporate capital system to independence and for good
reason! Local capitalists are better off becoming shareowners of an MNE (possibly
even running the local branch) than trying to compete. An obvious reason is that they
are no longer locked in their firms and can thus join the international wealthy in
diversifying their portfolios so as to share in the general social surplus. This results
in a branch-plant outlook in LDCs. It is not technology that leads to uneven
development on the contrary, technological developments in communications could
make it easier for LDCs to develop independently. Rather, it is centralization of
control by TNCs that leads to dependency. The latter in turn increases TNCs control
26
over the labour aristocracy at home, since they can always threaten to draw on the
reserve army of labour in the LDCs.

Concerning the issue of the relationship between MNEs and labour. Hymer was in
agreement with both Marx and Marshall in claiming that the division of labour was
the key to solving the economic problem and viewed the factory (firm) as a better
means of coordinating the division of labour than market forces. He observed that the
division of labour stemmed from the principle of divide and rule and was based on
the division between mental and manual labour. Control over labour was through
spatial, horizontal, vertical and temporal divisions. Sexism, racism and hierarchical
divisions among occupations extended this control. He regarded the MNE as a means
of achieving a more productive division of labour, thus unleashing great sources of
latent energy, by eliminating anarchy in international markets. Simultaneously,
MNEs further reduced the power of labour through extending its spatial division.

For Hymer (1979) market economic power grows out of the barrel of a gun. In his
mind, the subjugation of labour to capital was originally achieved through an alliance
between the merchants (the emerging capitalist class) and the feudal monarchs, based
on mutual benefit. Ever since then, the capitalist class and the state had grown hand
in hand. The emergence of the new industrial state helped to complete the process
of primitive accumulation, and led to the strengthening of the nation-state. This
gave rise to national rivalries externally and the use of the visible hand of the state,
along with the invisible hand of the market, internally.

However, the MNE has put an end to the symbiotic relationship between capital and
the ability of nation-states to pursue autonomous policies. This erosion of power
applies to all states, but asymmetrically. Strong states, such as the US, are in a better
position in relation both to their own and to foreign MNEs. For example, Hymer
observes, the US can stop its MNE from trading with the enemy whereas a less
developed country cannot hold a US firm hostage for actions of its parent company.
Concerning the bargaining power of MNEs vis--vis small, weaker nation-states (in
DCs or LDCs), the MNE is always dominant both because of its locational flexibility
of operations and its superior organization. More generally, MNEs may no longer
operate under the state, but alongside it, or even above it!
27

The erosion of the power of nation-states generates a need for MNEs to mobilize new
power bases to fill the vacuum. This implies a need for international institutions such
as the UN and so on. Still, it is not a foregone conclusion that MNEs will supersede
the state. Hymer with Rowthorn (1970) ask the question whether France or IBM will
have survived in a hundred years. They observe that MNEs and/or international
organizations still need to find an effective substitute to good old nationalism. The
struggle between nation-states and MNEs is thus an ongoing one.

From his early inclination to regard the MNE as an institution of capitalism, Hymer
gradually moved towards the view that the MNE was simply an institutional form of
the tendency towards the internationalization of capital, a tendency arising from the
interest/needs of capital to expand its productive base, the source of potential profit
(labour power). Internationalization, Hymer observed, introduced profound changes
in the world capitalist order. First, it reduced national capitalist competition, through
interpenetration of investments. He specifically stressed the concept of
interpenetration (rather than US imperialism) due to the growing power of European
and Japanese capital. The former, he suggested, had had the opportunity to choose
self-sufficiency but chose interpenetration; Japan was facing a similar situation, with
all the pressures being for it to choose the same road. One such pressure was its stake
in trade with the US. Interpenetration did not serve the national interest of any
country; rather it served the interest of the 1 per cent of the worlds wealthy who
invest their money in the international social surplus. Unlike earlier periods, the
wealthy had realized that their interest lay not in war, but rather in international
market sharing and collusion, in particular the maintenance of the capitalist order
through the MNE. Concerning the LDCs in particular, Hymer observed that the
developed countries competed in providing loans but presented a united front in
collecting debt repayments.

The new emerging world system, Hymer suggested, tended to create an international
capital market, international production and international government. Competition
and credit were the two levers of concentration of capital. Credit in particular was the
prerequisite for expansion on a world scale. He regarded the joint stock company as a
means of enhancing the ability of capital to obtain access to social saving without on
28
the whole sacrificing control. By exchanging shares, he observed, the wealthy form a
common front, thus generalizing their interests. Similar to the national corporation
abolishing private property, the MNE was now abolishing national capital.
Although rivalry among capitals to obtain above average rates of return still existed, a
dominant common interest for the general profit rate had emerged. While European
and (probably) Japanese capital, together with the middle classes of the LDCs,
became partners in this new world system, trade unions promised little challenge
due to the exclusive interest with their members. An important implication of this
new world system was a tendency towards the globalization of the concentration and
centralization of capital.

With remarkable foresight, Hymer (1979) identified a shift of emphasis in the new
world order, away from production as such and towards marketing and new product
development. This would allow MNEs to move away from production (thus allowing
small firms to own the plants and take the risks) but still to control the intangibles.
This independence of small firms, would increase both the flexibility of the MNEs
and their planning capacity, thus extending their control of the market (through
externalization rather than internalization!). The relevance of this for current debates
on the MNE and the recent observed increase of outsourcing should be obvious. A
further means of enhancing control over the market, Hymer suggested, was an attempt
by MNEs to extend the duration of their product cycles by having projects in all
stages, moving to cheap places, controlling marketing and so on.

It will come as no surprise that Hymers feelings for capitalism were not sympathetic.
He quoted approvingly Keyness views on capitalism (that it is not beautiful, not just,
not virtuous and that it does not deliver the goods) and of self-sufficiency. His
proposed alternative to multi-national corporate capitals strategy to integrate one
industry over many nations was the integration of many industries over one nation
and the use of socialist planning. Regarding in particular the issues of efficiency, he
asked the question efficiency for whom? He claimed that the efficiency issue hinged
not on the rate of change but rather on the direction of change, pointing to too much
(rather than too little) innovation under the system; the absence of consumer
sovereignty, dependency and the international trickle down; and the social, political
and environmental costs of MNEs control of the system. A way out for the LDC, he
29
suggested, was to try and change the flow of information and to pursue a strategy of
producing sufficient basic goods.

Hymers predictions for the future of the MNE and the multinational corporate capital
system were gloomy. He foresaw a tendency for wage rates in the LDCs not to grow
in the future, partly due to the increasing costs of administering the empire. This
would lead to workers disillusionment with the system, as well as to a realization on
their part of the need to control the investment process, thus provoking a politicization
of the class struggle. Although the possibility of international trade unionism was
there, the fact that most of labours historical gains were country-specific implied a
tendency for labour to become more nationalist and possibly socialist. Further,
difficulties arose from the increased emancipation of LDCs capital and thus their
increased claims to a share of the social surplus, an example of which was OPEC. In
this sense Hymer anticipated that the MNE might well be the swan song of capitalism.
The final outcome (capitalism versus socialism), however, was by no means a
foregone conclusion. Labour in particular could well choose to shift to the right,
joining with capital to create a new imperialist alliance in order to get higher
benefits in return for suppressing labour in LDCs and the various minorities in the
centre. Accordingly, Hymer claimed, the question for scientists (equal radicals) was
not to predict what will happen, but rather to choose sides.

To summarise, Hymer used his analysis of the MNE (the microcosm) as a basis for
analysing a world dominated by MNEs (the macrocosm). He saw important
efficiency aspects of such a system, but felt that on balance the case for a world
controlled by MNEs was weak, raising the issue of potential alternatives for the MNE.
Such an alternative, he felt, could be planning under socialism. Whilst that might be a
better alternative to planning by MNEs, its difference was less than obvious, given the
ability of MNEs to control, divide and rule, erode nation states, and undermine the
power of labour. Importantly, in his mind all these were not alien to his earlier
analysis, but rather the macro-implications of his micro-foundations. The overall
analysis allowed him to come up with predictions of outstanding originality, yet of
varied degrees of accuracy. To ascertain why, it is useful first to assess critically
Hymers overall contribution.

30
IV A Critical Appraisal of Hymers Contribution to the (political economy of
the) MNE

When looking at Hymers work as a whole, it is now not controversial to claim that
on the MNE Hymer anticipated all major contributions to-date (save perhaps for
locational factors, which he arguably underplayed). That he said it all does by no
means slight the most significant contribution of authors such as Buckley and Casson,
Williamson, Kogut and Zander and others, it rather points to the extraordinary
originality, foresight and versatility of the mans work. Granted this, it is also
arguable that there are various limitations in Hymers work both as concerns his
analysis and predictions. It is an interesting exercise to attempt to identify and
perhaps remedy (some of) these.

It is often implied in the literature that there has been a break in Hymers thought,
between his PhD and his marxist phase, apparently attributed to ideology. It is also
recognised that save for his ideology, Hymers mainstream (neoclassical) knowledge
and powers of analysis, was of the highest standing (see Kindleberger, 1984 and
Casson, 1990). In this sense it is implied that analysis suffered from ideology. My
claim in this section is that there is much less of a break in Hymers thought than it is
often believed. I also suggest that ideology did not influence Hymers continuity of
thought, but his conclusions concerning the final state of an economy dominated by
MNEs (global competition versus global collusion), and some of his predictions.
Last, and importantly, I suggest that some limitations of Hymers analysis could owe
more to his neoclassical than to his classical training!

Starting from the phases issue, it is clear we feel that some of Hymers most
mainstream ideas (internalisation, transaction-costs etc), were written when he was
already a marxist. Importantly all these ideas were already present in the thesis, and
were being used throughout his subsequent (marxist) writings
24
. What changed was
his focus; from the nature of the MNE and the mode of entry issue to the political

24
For example footnote 1, in Hymers efficiency-based 1968 paper is
to a marxist classic by Baran and Sweezy (1966), from which Hymer
seems to have been influenced (see below), and to John Kenneth
Galbraiths Affluent Society (1958) and The New Industrial State
(1967).
31
economy of the MNE, to include its relationships with other economic agents, labour,
the state, LDCs, etc. Hymer never questioned the efficiency properties of MNEs and
FDI vis--vis markets. However he linked efficiency to control (in that the efficiency
properties of FDI vis--vis markets, stemmed from its control potential) and asked the
question efficiency for whom? In his view the answer was efficiency for the sake of
private interests, which would be inimical for the interests of the society at large.

Ideology arguably does come in, with regards to Hymers idea of eventual dominance,
through market sharing, collusion and interpenetration of investments, an apparently
marxist view. Even this argument, however, is debatable. First, it is clear that the
above ideas of Hymer were present already in the PhD thesis. In addition, it is
interesting that Marx himself did not express a similar view. Marx felt that
competition and monopoly were dialectically linked, in a dynamic way, with
competition leading to monopoly, and with monopoly being able to maintain itself
only by continuously competing. There is no final state of rest in this argument, as
the process of monopolistic big-business competition could go on and on. In this
context it is not surprising that some marxist authors, notably Baran and Sweezy
(1966) have adopted the monopoly view, while other marxists, eg Clifton (1977),
have taken the view that competition is rather on the increase under advanced
capitalism. Hymer refers to Baran and Sweezy in his 1968 paper, and it is arguable
that his views might have been influenced by this monopoly capitalism variant of
marxism, see Pitelis (1986, 1991) for more on these issues. In the above context if
ideology did influence Hymer, that was one particular variant of marxism. This
variant is often termed by some neoclassical marxism, in that it views the world in
terms of the neoclassical model of monopoly.

The above bring me to my third point, that Hymers limitations would indeed owe
more to his strong neoclassical training and background as opposed to his classical
views. To illustrate this statement, I rely on two modern classical contributors,
Allyn Young (1928) and Edith Penrose (1959) and explore implications from their
writings on Hymers work.

I start with Allyn Young (1928). In this classic article Young put to test Adam
Smiths famous dictum that the division of labour is limited by the extent of the
32
market, proposing that it is also the size of the market that it is limited by the division
of labour. Put this differently, Young proposed that it is in effect the division of
labour in the market that determines the size of the market. This is a dramatically
more dynamic view of the world than allowed by neoclassical thinking, that relies on
static equilibrium. As already mentioned, Hymer adopted Smiths dictum for the case
of the firm, and claimed that the size of the firm limits the size of the market. In this
perspective it follows inevitably that increasing firm size will imply reduced scope
for the market, thus concentration and potential firm dominance. However, and in
line with Allyn Young, it is the actions of firms that extend the size of the market. In
this context concentration, only follows if firm actions increase their size by a higher
rate than they increase the size of the market. This is not self-evident.

Another limitation of Hymers work concerns his failure to look inside the firm. This
might have had important implications on his analysis of firm ownership advantages,
the direction of expansion and the issue of competition, efficiency, market power and
monopoly. In all fairness to Hymer, that was not only his limitation, but a limitation
of economics and management as a whole. It was Edith Penrose (1959) who dealt
with these issues, and from most who did not, it is arguable that Hymer came as close
to Penrosean ideas as one could go, without adopting a Penrosean intra-firm
perspective.

Penrose (1959) was the first and only analysis in economics to claim that in order to
appreciate the firms external environment, we need to start from the firms nature,
its insides. For Penrose, firms are bundles of human and non-human resources under
administrative co-ordination and authorative communication. The interaction of
human resources, and between human and non-human resources within firms, gives
rise to knowledge-creation through the division of labour, learning and teamwork.
This generates productivity gains, thus excess resources that entrepreneurs-
managers can put to profitable use at zero-marginal cost. In this sense, firm growth is
endogenous, the result of knowledge, innovation, productivity and (thus) efficiency.

Intra-firm advantages are engendered by this very process, they determine the
uniqueness of each firm and in part its direction of expansion. There exists a
dynamic link between firms internal and external environment, the latter being an
33
image in managers minds. The perceived internal and external environments define
a firms productive opportunity. There is no limit to the size of the firm, only to its
rate of growth. The latter is due to limited managerial resources and (thus)
productive opportunity. To compete in an uncertain, changing environment firms
build relatively impregnable bases (unique to the firm combination of technology,
skills, competencies, resources). In a dynamic, changing world big business cannot
take advantage of all productive opportunities, thus allowing interstices where small
firms can operate and grow. Provided these interstices are not thwarted by
monopolistic restrictions, big business competition is the best system available from
the point of view of innovation. Restrictive practices, could/should be a matter of
public policy.

The above clearly do not exhaust Penroses seminal contribution and insights. They
suffice, however, to point to some further limitations in Hymers thinking. First, they
suggest that firm growth is an endogenous, efficiency-based process by definition.
Second, advantages resulting from this process are efficiency-based advantages.
Third, to the extent that the direction of expansion is linked to such advantages it also
has efficiency properties. Fourth, even apparently monopolistic-type actions, such as
the building of dynamic barriers to entry, like relatively impregnable bases can have
efficiency properties in terms of innovations. Fifth, the existence of interstices and
the possibility for public policy questions the inevitability of a final state,
characterized by global collusion. Instead, big business competition, small firm
growth and anti-restrictive practices public policy could be the best system yet, at
least in terms of innovativeness and productivity.

Another potential limitation of Hymers concerns his views on firm co-operation.
Building on Penroses work, George Richardson (1972) criticised the neoclassical
view of co-operation as collusion, and pointed to the varying forms of firm
cooperation as well as their potential efficiency advantages, in terms of productivity.
In particular Richardson suggested an efficiency-based division of labour between
markets, integration (hierarchy) and co-operation, on the basis of similarity and
complementarity of activities. For example, similar (in terms of underlying
resources) and complementary activities will favour integration, while dis-similar but
34
complementary activities will lead to cooperation. In this context, firm co-operation
involves far more than collusion as it can have important efficiency advantages.

As already shown in previous sections, Hymer discussed extensively the issue of
advantages, firm uniqueness, growth and even hinted to the direction of expansion
and non-collusive forms of firm cooperation. However, he chose to stress monopoly
and collusion. This is arguably explicable as much in terms of his neo-classical as it
is in terms of his classical (marxist) training. The failure to look inside the black
box, the static perspective on the relationship between firms and the size of the
market and the focus on firm co-operation and collusion, are all neo-classical, not
classical themes. Hymer could have benefited from the classical insights of Allyn
Young, Edith Penrose and George Richardson.

Related to the above is Hymers failure to deal with small firms. This is a contrast,
for example, to Penroses (1959) focus on interstices , to recent literature on co-
operation between small firms, and the focus of networks, clusters, webs, etc, see eg
Martin and Sunlay (2002) for a critical survey. Small firms in interstices enjoying
themselves the benefits of growth, and clusters of small firms enjoying some of the
advantages of large size (notably unit costs economies) can be seen as an extra source
of innovation, knowledge, and competition and even an alternative to multinational
corporate capital, especially if supported by suitable public policy actions. At the
very least, the pressure of interstices, clusters, anti-restrictive practices and pro-
cluster public policies, make the realization of Hymers vision of global dominance
and collusion by MNEs more problematic.

The above are not to say that Hymers prediction have proven wrong. There is still
plenty of discussion on this and I feel insufficient evidence to declare the issue settled.
Reliable evidence on aggregate concentration at the global level by the top eg 500
MNEs, is not readily available. What evidence there is is subject to the problem of
defining the firm and control. Concentration, need not imply collusion, etc.
Indeed, some of the difficulties in measuring global concentration is associated with
Hymers other impressive prediction that over time firms will tend to outsource. It
appears that this has come true, yet there is the remaining issue whether one should
consider sub-contractors as part of the firm or as independent firms, see Cowling and
35
Sugden (1987). Clearly the answer to this affects the measurement of concentration.
To conclude, while Hymer seems to have been right in predicting a tendency for a
handful of large global MNEs from the USA, Europe and Japan with their
headquarters concentrated in few large metropoles, vying for global dominance,
whether dominance has stifled big-business competition is an open question.

Hymers other major prediction of dependence and uneven development can also be
seen to have proven only partly correct. At one level, the very fact that large MNEs
export growth to LDCs implies some sort of dependency at least in the beginning.
Moreover, the very advantages of such firms makes it logical to expect that they will
aim, and probably be successful in benefiting unequally from the bargain. Yet, this
analysis suffers from conceptual and empirical limitations. Empirically, we have
experience over the past thirty years of cases of countries which have managed to
break away from dependency, some times by making use of the very advantages from
FDI. The tigers of the Far East, notably Singapore Taiwan are cases in point. From
an analytical point of view the unequal development concept, fails to account for the
possibility that LDCs, can gain disproportionately from the importation of ideas,
management, skills, norms and attitudes, and even whatever sort of good practice
they receive, exactly because they start from a lower level, from which improvement
can be faster and after a certain threshold level, easier. The evidence on dependent
and uneven development is certainly also mixed. One way to approximate unequal
development is in terms of convergence of per-capita incomes across countries. The
evidence shows that the issue of convergence or divergence is still open, and much
depends on definitions. Sala-I-Martin (In The Economist, July 20, 2002, p.70), for
example, weights cross country measures of divergence by population, and finds
convergence, not divergence.
25
.

The above leads us smoothly to Hymers last major prescription socialism of the
central planning type. Hymer did not quite predict socialism and central planning, he

25
This he attributes to the exceptional performance of populous
China. A problem with the above finding is that it seems to be the
outcome of quasi-socialist planning, and certainly not the market.
Whilst this in part supports Hymer it also shows the potential role
of public policy measures to counteract Hymers very predicted
tendencies.
36
felt that the issue of transition to socialism was an open one, for reasons explained in
the previous section. However, in view of the inefficiency and inequities of
multinational corporate capital he felt he should advocate-prescribe it as a better
system. On this he was wrong. Not only this became patently clear from the collapse
of central planning, more importantly Hymer failed to see that such a collapse would
only be inevitable.

Hymers advocacy of central planning is arguably the one argument which owes more
to marxist as opposed to neo-classical ideology. Like Marx before him, Hymer spent
the vast majority of his time analyzing capitalism, but precious little time in analyzing
his proposed alternative centrally-planned socialism. He felt that once a state of
global collusion comes about, one could replace private planning with state planning
without loss of efficiency. This suffers from two limitations. First, is the assumption
that there is a stage of equilibrium where capitalism exhausts its potential. Second, is
the idea that central planning can replace markets without loss of efficiency (or other
problems). None of these are uncontroversial, and they are very likely wrong. First,
it is possible to have a perennial state of big business, competition, combined with
small firm creation and growth, and suitable public policies. Second, it is nave to
assume that the productivity-innovation record of big business competition, itself
predicated upon the pursuit of profit, would simply remain intact in the absence of
both big-business competition and the profit motive.

The above is neither to underplay the significant problems associated with
multinational corporate capital, some so vividly portrayed by Hymer, nor to suggest
the end of history or the need for the quest for alternative organisations of economic
activity. It is rather to emphasise that despite extraordinary abilities, Hymers
analysis, predictions and prescriptions, suffered from a combination of neoclassical
and marxist ideology. The former has led him to a rather static final equilibrium
perception of the world, characterized by global collusion, global monopoly and thus
both inefficiency and inequality. The latter has led him to an uncritical acceptance of
centrally planned socialism as the answer to the problem of multinational corporate
capital. He showed too little faith in the possibility of public policy in capitalism and
too much in public-state policy under centrally planned socialism. While all these do
not question his unique contribution to the theory of the MNE and his analysis of
37
multinational corporate capital, they point to the challenge of devising an economic
system that can replicate the advantages of big-business competition, without
suffering from its downsides.

Building on the classical tradition, drawing on Allyn Young (1928), Penrose (1959)
and Richardson (1972), and in line with Pitelis (1998) it could be suggested that an
economic organisation that combines the benefits of big-business competition, with
the creation of small firm (clusters), of competition and cooperation and which is
supported by public-policy actions that thwart restrictive practices, could be both
more feasible and realistic and yet radical in its implications and with potential for
perennial innovativeness, productivity and convergence. Practical applications of
such policies at the national and global levels, are possible, but beyond the scope of
this paper.

38
II. Concluding Remarks

Hymers contribution to the theory of the MNE and multinational corporate capital is
arguably the best yet. On the MNE, he has predated most major theories. On the
political economy of multinational corporate capital, he both raised and attempted to
answer todays most pressing problems (under)development, in(equality),
convergence, the microfoundations of globalisation and alternative economic
organisation. His analysis, predictions and prescriptions were of the highest standard,
insight and foresight. Limitations in his analysis cannot detract from such an
achievement. Such limitations concern a failure to appreciate the dynamism and
potential of big-business competition, the underplaying of small firms, a distrust of
public policy under capitalism, accompanied by a little scrutinised faith in centrally-
planned socialism. In contrast to conventional thinking, Hymers main limitations
may have as much to do with his neo-classical as with his classical (marxist) one.
This is particularly the case concerning the relationship between firm actions, the size
of the market, the possibility of intra-firm generation of advantages and non-
collusion-related inter-firm cooperation, to include cooperation (and competition) of
small firms in the form of clusters. Hymers marxist ideology played a role mainly on
his prediction of collusion by MNEs and his prescription for central planning. A
reliance on classical thinkers, such as Allyn Young, Edith Penrose and George
Richardson, could help provide remedies to some of Hymers less accurate
predictions. This does not detract from Hymers outstanding and unique contribution
39
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