Bill Warren

The Internationalization of Capital

and the Nation State: a Comment

The central thesis of Robin Murray’s essay in NLR 67 is to the effect that the
postwar ‘internationalization of capital’1 has tended to weaken the (capitalist)
nation State. His argument may be summarized as follows. Since the Second
World War there has developed an increasing territorial divergence between the
activities of nation-states and those of large international firms, which are
becoming the economically dominant institution of the capitalist world. An
analysis of the economic functions of the nation State shows, firstly, that these
functions need not always be performed by a firm’s ‘own’ nation State and are
in fact being progressively less so performed; and secondly, that the increasing
operational divergence of international firm and nation State significantly
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weakens the State and reduces its ability to control the major firms and
the economy in general.
It should be noted that the discussion of territorial non-coincidence
suffers from the lack of any preliminary definition of an ‘international
firm’ or indeed of ‘international capital’, or even of the ‘internationaliza-
tion of capital’. Unfortunately, even with the utmost philological
goodwill, this cannot be dismissed as simply a terminological nicety
since the absence of such a definition leads Murray to treat as some-
thing new a phenomenon long characteristic of British imperialism; and
permits the inclusion of the EEC as an aspect of the ‘internationalization
of capital’ even though it clearly represents an extension, via co-opera-
tion, of the power of the nation-states concerned vis-à-vis the large firms.
The point about British imperialism is, of course, that no one ever
doubted that, however ‘internationally’ imperialist firms operated, they
were British2 and their fortunes were in a sense the fortunes of the
British economy. Murray seems from time to time to have an inkling
that something is wrong somewhere as his international Jekyll becomes
on occasion an American Hyde, but in the absence of prior definition
the two are necessarily indistinguishable and the difference between
‘national’ and ‘international’ firms disappears.
Nevertheless, something new has happened, even if a non-definitional
approach tends to obscure it, and this is that within the post-war
advanced capitalist world, the firms of individual nations, especially in
the US and the UK, have increasingly tended to locate manufacturing
activities in other advanced capitalist countries. This is not, of course, a
completely unprecedented phenomenon either.3 But it is new on the
scale it has assumed since the Second World War, even though
compared with total domestic sales or investment that of subsidiaries located
abroad remains an extremely modest proportion.4 This is the appropriate
comparison if one wishes to gauge the significance of this phenomenon
for the nation State. The figures are, in fact, quite remarkably low.
Thus the annual average rate for the years 1960–64 of direct invest-
ment abroad as a percentage of gross domestic capital formation was

1 Variously dated by Murray from 1904 and from 1950.

2 i.e. they were owned by British capitalists and their profits contributed to British
national income and foreign exchange.
3 For example, between 1870 and 1914 branch industrial factories were established by

German firms in many countries. ‘The great establishments (Allgemeine Elektrizitäts

Gesellchaft, Siemens and Schuckert) had plants in Austria-Hungary, Russia, Italy,
Spain, and elsewhere, to make and instal electrical equipment. Electrochemical
works were established in Russia, Austria-Hungary, Spain, Sweden, Norway and
Switzerland.’ H. Feis, Europe; The World’s Banker, 1970–1914, 1930, p. 78.
4 UN Economic Bulletin for Europe, Nov. 1967, p. 65. The figures given by Murray are

extraordinarily vague. Thus we are told of firms with productive facilities in six or
more nations (why not 4 or 8 or 15?) and, ‘sales revenue from abroad’ with no
indication of whether or not this includes export sales or just sales of subsidiaries.
‘Even more significantly,’ Murray goes on, ‘in 1965 81 US firms operating inter-
nationally had over 25 per cent of their sales or earnings derived from overseas
operations with 11 others over 50 per cent and International Packers deriving as
much as 96 per cent of their sales revenue from abroad.’ The significance of this
statistic escapes the present writer since no information is given which would permit
a quantitative assessment of the importance of these firms in the US economy.

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only 3·5 per cent for the US, 4·7 per cent for the UK, 3·3 per cent for the
Netherlands, 0·7 per cent for France and 1 per cent for Germany.
Apart from this development of overseas manufactures, the creation of
the Common Market must also evidently be accounted a new
phenomenon.
Now the crucial aspect of both the frontier-crossing productive
activities of manufacturing firms and the creation of the Common
Market is that both were in large part the direct and intended consequences of
deliberate policies adopted by nation States. The post-war liberalization of
world trade and finance was the consequence of deliberate state policy,5
and it is this liberalization which underlies the ability and incentive of
firms to locate productive activity abroad to take advantage of varia-
tions in market size and growth, of levels of cost and differences in
technology. Furthermore, the merger movement of recent years in
most advanced capitalist countries, associated with the expanded com-
petition of the liberalized world capitalist economy, has been very
much a product of national State policy, Britain itself being a notable
example. The idea of national States cowering before the Paul
Chambers of this world is wholly fanciful: the reality is national states
deliberately encouraging the creation of gigantic competitive units.
Another equally widespread and yet incorrect notion is that the Com-
mon Market was the product of the ‘demand’ of European capital for a
more effective State than the existing nations. The Common Market
originated as a political initiative, whose underlying reasons related not
only to the economic but also to the diplomatic-strategic interests of
France and Germany. Subsequent economic developments owed little
to business pressure as such and have occurred mainly as a result of
developments in the political and bureaucratic superstructure of the
EEC, which has evolved policy in part-response to US economic
dominance.
State Economic Policy

There seems little historical perspective in Murray’s treatment of the

‘internationalization of capital’. But at least it is characterized as a post-
war phenomenon. Not so with State economic policy. Six economic
policy functions are identified which are to be ‘found in some form at
all stages of capitalist development’ in any century from the 16th to the
20th—and indeed for any country from Japan to Iceland. Since inter-
nationalization of capital is a post-war phenomenon while the six
primary State economic functions have always been there, the implica-
tion is that the former must have recently grown while the latter have
remained stationary through the ages and that the former is accordingly
weakening the latter. Murray’s unhistorical approach and impression-
istic classification6 of State economic functions has here led him serious-
5
Especially it was the result of the policy of the US State.
6 There appears to be no principle of classification separating one category of
economic policy function from another, so that the elementary logical principle of
making the different categories mutually exclusive of one another is not followed.
Thus ‘economic orchestration’ (e.g. full employment policy) overlaps with ‘inter-

85
ly astray. Throughout their comparatively short lives industrial
capitalist societies have suffered a series of shocks—war, revolution,
competitive decline, international depression and many more. Those
problems were and are not solved of their own accord. Their solution
involved the steadily increasing intervention of the State in economic life
generally—especially the post-war adoption of Keynesian policies
which have helped sustain high employment levels and growth rates
throughout the capitalist world, together with the public promotion by
the State of individual industries and firms for competitive purposes on
a scale never before seen. For ideological-psychological reasons,
sections of the ruling class inevitably attempt to reverse this interven-
tionist trend, but this cannot be done except on a limited and temporary
basis. Because the solution of each economic contradiction eventually
raises new ones, driving the State further along the road of control, so
eventually the disappearance of steep trade cycles and mass unemploy-
ment in the long-run remorselessly exerts pressure for control of
wages, prices and profits to deal with the inflation which is the conse-
quence of Keynesianism.
Indeed we may pause here to remark in passing that there are a number
of reasons to argue exactly the opposite thesis to Murray’s, i.e. that the
power of the nation State vis-à-vis the large firms is greater now than ever
before (and increasing). This indeed is what one might expect with
the growing size of firms, accompanied as it is by the expansion of state
economic activities, since the smaller the number of firms in an industry
and the larger their size the easier for the state to control them by
administrative fiat, monetary and taxation policy and so on.7 A glance
at some of Britain’s principal industries shows the powerful role of
State policy.8 The ship-building, aircraft, British computer and atomic
energy industries would not exist without State support, or at best
would be reduced to a fraction of their present size. The present shape
of the textile industry is the result of government rationalization. The
financial losses and consequent threat to the very existence of the
British steel industry are the results of government policy in holding
down prices. Large sections of heavy engineering are crucially depen-
dent on government orders for their profitability, e.g. from the Central
Electricity Generating Board. The steadily deteriorating international
competitive position of the British motor-car industry has been in large
part the result of a home market continuously depressed by govern-
ment policy despite never-ending protests from the industry. This last point is
crucial since it illustrates the fact that, while the relationship between
large firms and the State is a two-way one involving a degree of
mutual accommodation, the upper hand will generally be that of the
State since it must of necessity look to the interests of the system as a
whole (however imperfectly)9, and will therefore be able to act with
vention for social consensus’ and ‘economic liberalization’ overlaps with ‘manage-
ment of the external relations of the system’.
7
Compare the ease of controlling the motor-car industry with the difficulties of
tackling the machine-tool industry.
8 That is, in relation to the constituent firms of an industry. But that is not necessarily

to say that State policy is necessarily successful—only that its power vis-à-vis that of
the firms is large and growing.
9 While the individual firms look to their market shares subject to minimum profit

constraints.
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authority vis-à-vis individual industries or firms,10 provided it is felt to
be in fact looking to the general (capitalist) interest.
‘Extending Capital’ and its Status
Returning to the main line of the argument, Murray is, of course,
correct in pointing out that ‘extending capital’ can have various public
functions performed for it by institutions other than its domestic state,
including the states of other territories in which it operates. However,
this is not a new phenomenon and it does not imply a weakening of
either of the states concerned,11 or that ‘there is no necessary link
between the extended capital and its home government’. To argue that
one or other of the states concerned in such a relationship is weakened
by it is to ignore the fact that many of the public functions needed by
the firm abroad are simply the same as those it needs at home,12 while
governments are just as likely to play firms off against one another as
the reverse. Moreover, contrary to Murray’s belief, there is always
necessarily a link between the ‘extended capital’ and its home govern-
ment by virtue of the inter-connections between national taxation
systems, international (company) law and private appropriation of
profits—with their ramifications into the balance of payments and
growth rate of the domestic economy.
This is not to say that there are no contradictions between the capitalist
State and private firms (of a non-antagonistic variety in general) or that
such contradictions are always resolved in favour of national states.
There are and always have been such contradictions throughout the
history of capitalism, for obvious reasons related to the difference
between the whole and the sum of its parts. Moreover, post-war
international free-trade and macro-economic control have undoubtedly
created certain new problems for nation-state economic policy. How-
ever, two points should be noted. First these new problems principally
relate either to excess aggregate expansion (balance of payments and
exchange rate difficulties, inflation) or to declining relative international
competitiveness, and are not therefore problems generated by greater
independence of large firms vis-à-vis the State.13 Secondly, in so far as
international economic liberalization has given some extra room for
manoeuvre to large firms, State authorities have rapidly been evolving
counter-measures. Thus the financial press reports that the tax authori-
10 e.g.
Kennedy over steel prices.
11 Indeed,
since the War most advanced capitalist states have welcomed direct
investment from other advanced economies as a direct accession of economic
strength to them, except in the case of certain strategic sectors. It is also important to
remember that the two states concerned in an act of direct investment may actually
derive mutual benefit by improving their relative position as compared with third
parties.
12
Foreign direct investment may thus in certain circumstances strengthen a host state.
13
Moreover, in so far as the new problems essentially concern aggregative control
they do not throw into doubt the ability of the State to maintain full employment
except in so far as competitive decline and balance of payment deficits lead to a
special and new kind of government-created ‘structural’ unemployment, which is
itself in principle solvable by a capitalism more prepared to control trade, payments,
incomes and prices directly, besides stimulating production and productivity. How-
ever, for various reasons, the British ruling class or its agents seem unlikely to be
capable of the necessary creative response to their problems.
87
ties are rapidly getting control of the internal transfer price problem
and it is clearly not going to be long before the central bankers,
international organizations and State policy-making bodies chain down
the Euro-dollar monster so that it is no longer available to do the
bidding of large firms.

The Position of National Economies

The central paradox of the important problem Murray has posed is
this. The increasing economic interdependence between economies,
which Murray so rightly emphasizes, precisely because it does make for
greater uncertainty and new problems of economic control, forces the
national States to become ever more active in their internal economies
and their external economic relations. The declining room for man-
oeuvre of national economies, determined by the exceptionally rapid
expansion of trade14 and financial flows which render their fortunes
constantly more dependent upon one another, provokes an ever
greater degree of manoeuvring by the respective national states in
resistance to the narrowing of their policy options. This in turn means
both an ever closer relationship between the State and the large firms
(both domestic enterprises operating abroad and foreign enterprises
operating domestically) and, on the whole, a strengthening of the national
capitalist State in relation to the constituent firms of the economies
concerned.

The alternative interpretation—that increasing economic interdepen-

dence tends to weaken the national capitalist State—is incapable of
explaining the developing pattern of increasingly acute economic
rivalry and related governmental conflict between the USA, Japan and
Europe—as well as the lesser, but growing conflicts within Europe and
including Britain. The danger of the thesis that ‘the national state is
weakening vis-à-vis international firms is that it may lend credence to the
reformist belief that the capitalist State could have interests different
from the national capitalist economy and society as a whole and may
thus have to be defended against the cosmopolitan monopolies15.

14
Considerably faster than the growth of national products.
15
This is not to deny the relative autonomy of the state without which indeed it
could not effectively perform its class functions.

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