The International Economic System and the Multinational Corporation

The multinational corporation (MNC) is neither a new development in the world economy nor an unknown phenomenon in economic history, but its effect on the international economic system is truly revolutionary. The growing size and volume of international transactions undertaken by MNCs are already overwhelming the more traditional forms of international trade and capital flows for many countries. This is causing changes in the location and organizational structure of business activity and is raising public policy issues with which governments have not adequately dealt. MNCs have proven a mixed blessing. As technological leaders, MNCs help to diffuse management, production, and marketing techniques throughout the world. Nurtured by the growing integration of world product and capital markets, MNCs contribute to the further integration of the world economy. This trend reduces the distortions erected by man and nature, but places stresses on the international monetary system and on the efficacy of domestic economic policies. At present, the institutional framework of the international system is unequipped to contend with many of the jurisdictional problems created by MNCs, including excessive market power, distribution of tax revenues, and threats to national sovereignty. Policies are needed to ensure a competitive environment and to reconcile the activity of multinational corporations with national interests and welfare.