Corporate Nationality
Tyler Cowen had a post yesterday on the basic irrationality of viewing General Motors and Chrysler as “American” and Toyota and Honda as “Japanese.”
He points out that not only do Toyota and Honda manufacture cars in the United States, but these are publicly traded firms. Americans can—and do—own shares in both firms, and could own more if we wanted to. Conversely, an “American” company like Apple actually does very little production in the United States. Nestle is “Swiss” but it’s a giant multinational corporation and Switzerland is a small country so the vast majority of its operations are elsewhere.
What I find interesting, however, is not so much how irrational it is to attribute nationality to a business enterprise but how much nationality really does seem to matter. For example, the oil business is an global business. And the six “supermajor” firms are all global firms. But the CEO of Royal Dutch/Shell is Dutch. The CEO of Total is French. The CEO of BP is British. And the CEOs of ConocoPhillips and ExxonMobil are Americans. It’s a bit hard to understand why a competitive international labor market would work out that way. And beyond CEO nationality, local norms seem to make a big difference. The CEO of Total earns way less money than the CEOs of the other supermajors and to a first approximation the reason is that he’s French, and French CEOs just don’t get paid very well. More broadly, European and Japanese executives earn less money than American executives, with British executives in the middle. I recall that one of the issues with the DaimlerChrysler merger was that the executive pay scales were totally out of whack.
Beyond CEOs, Nestle has 15 directors. Of them one is Indian, one is Swiss/American, seven are Swiss, and the rest are from other European countries. But there’s nothing especially “European”—and certainly nothing Swiss—about the company’s actual operations. They earn a lot of money in Europe, but the majority of their revenue is from outside of Europe, and there’s production all over the world. It’s also totally normal for large multinational firms to be disproportionately owned by shareholders located in their “home country” and home continent.
Corporate nationality, in other words, doesn’t matter. But it seems as if it actually does. And for somewhat mysterious reasons.
44 Responses to “Corporate Nationality”
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May 1st, 2009 at 9:19 am
Well it makes it easier to hit up a specific government for cash should things not work out for you.
May 1st, 2009 at 9:21 am
Because it’s not a competitive labor market.
May 1st, 2009 at 9:27 am
Wonder if shareholders in American firms could recruit overseas talent to staff their country for less money. Carlos Ghosn is in charge of Nissan and he’s Brazilian by way of Lebanon and France. The Japanese tend to be pretty xenophobic but they have no problem putting a foreigner in charge of one of their big companies because he’s successful. Seeing what a drag this bonus-baby nonsense is on the bottom line of US companies, and on shareholder returns, why don’t we put a bunch of skilled and (relatively) low-paid Mexicans in charge of Citigroup and Bank of America and so forth? If they can do the job for less, it would be seriously beneficial for those firms’ financial health. Plus I would love seeing Lou Dobbs’ head explode over this.
May 1st, 2009 at 9:28 am
One exception I can think of is Sony CEO Howard Stringer — one exception.
May 1st, 2009 at 9:34 am
Behold the crazy nonsense of the MORAL PANICKER.
It is not mysterious that a company established in America by Americans and considered to be American would have disproportionately American customers, workers and shareholders. People will go with what is efficient to them but also what is convenient for them. A company would like to go all over the world to find the best workers, shareholders and custoimers to improve its bottom-line, but it is practically limited by the fact that this takes time and money. Companies do go aroudn the world, but the fact you open a factory in South Africa does not mean that all of a sudden the access to the entire world is as good as the access to your historical areas of strength.
As far as whether corporate nationality should matter to policy-makers, that is a tricky question. The USA does have a lot of multi-national firms that are still undeniably American, and we seem to be richer than many smaller European countries who rely for many of their big business products on firms that are best pan-European and at worst have little to no connection to the workers and shareholders of the country itself. But who knows? Maybe the whole thing is corporate welfare nonsense.
May 1st, 2009 at 9:36 am
One thing that isn’t explicit in Cowen’s argument but surely he understands: the public ownership of companies like Toyota and globalization in general make international relations much more stable. If you accept the standard idea of the “military industrial complex” then international ownership of major industry is GOOD for peace. The more international a company’s ownership and market, the less likely they are going to be to lobby for (or support politicians who encourage) major military conflict.
May 1st, 2009 at 9:37 am
Do you also wonder why so many Popes have been Italian?
May 1st, 2009 at 9:39 am
Conservatives seem kind of aware of this phenomenon–in response to calls for price ceilings on medicine, they claim this will hurt American medical research. Liberals counter that it shouldn’t matter whether the firms doing research are European or American, they’d still be able to cash in on American prescription drug prices.
Conservatives counter-counter that in practice it doesn’t work that way–that nationality still matters, and the country that pays for most of the commercial drug research is going to have most of the commercial drug researchers.
May 1st, 2009 at 9:40 am
And for somewhat mysterious reasons.
I don’t find it mysterious.
With quite a few economists in the blogosphere, I never can be sure if they are kidding or not. That is, in this case, if Tyler Cowen says “now I’m saying something as an economist : you’ll accept I take for granted such and such assumption about rational economics agents, about contracts, and that I accept this all makes a company, and now what is want to say is etc” or if they really really mean “stupid stupid people not getting that companies exits only as knots of contracts or optimization of something or another”.
On a side note, glad to see the econ profs with this mindset are not in business : they’d be dangerous/separated from their money.
May 1st, 2009 at 9:42 am
It seems that there’s a pretty straightforward explanation for the observed phenomena.
Corporate nationality doesn’t matter for blue-collar workers.
But it does matter for white-collar workers.
And the reason for this would be: the managerial class isn’t terribly interested in outsourcing or globalizing their own profession. Arguments about efficiency that seem compelling, where factories are concerned, somehow turn out to be less compelling when applied to home-office operations.
May 1st, 2009 at 9:44 am
Of course they don’t.
– Chris
May 1st, 2009 at 9:47 am
1) In spite of massive corruption in campaign finance, it is still true that the world is divided into nation-states and that the government of a nation-state is still supreme over corporations within its borders. It can imprison their CEOS , seize their assets, or regulate them out of business.
2) It also matters who receives the profits of a corporation and who makes the decisions. If you think that is the small shareholders, you haven’t been paying attention.
May 1st, 2009 at 9:49 am
You and Tyler are being overly general. It’s true that GM and Toyota are both truly global enterprises, in that they have a strong sales presence around the world, with roughly similar market shares, for example, in the US (I think GM’s is still a few points higher).
But where do the most important activities of the business take place?
Senior management — GM’s senior management is in Michigan. Toyota’s is in Japan. Consequently most of GM’s management is American while Toyota’s is Japanese.
Design engineering — GM’s design engineering is largely in Michigan. Toyota’s is in Japan.
Procurement — GM’s key supplier is Delphi, an American auto parts company which is only global in any sense because they sell to GM (in Michigan), who then puts Delphi parts in cars all over the world. Toyota’s key supplier is Denso, a Japanese auto parts company which is only global in any sense because they sell to Toyota (in Japan), who then puts Denso parts in cars all over the world.
Production — Both companies have plants globally, but GM has far more in the US than Toyota, and Toyota has far more in Asia than GM.
One could do a similar analysis with Exxon and Total. So yes, they are both global companies on a first-order assessment. But look a little closer and you see there are still important regional biases to almost any major multi-national.
May 1st, 2009 at 9:56 am
But the CEO of Royal Dutch/Shell is Dutch. The CEO of Total is French. The CEO of BP is British. And the CEOs of ConocoPhillips and ExxonMobil are Americans. It’s a bit hard to understand why a competitive international labor market would work out that way.
It’s pretty easy to understand this. GM has had a management team in place in Michigan for almost 100 years. The most important role here is the CEO which runs this team of managers. So while it’s possible to find a foreign car exec who is more talented than any available American alternative and (a) is willing to move to Michigan, and (b) is effective at working across a cultural divide with a team largely made up of Americans, it’s simply less likely than finding an American to do the job.
That said, there are clearly exceptions. The CEO of Nissan is Brazilian-French-Lebanese. Ten years ago the CEO of Ford was Lebanese-Australian.
May 1st, 2009 at 10:00 am
Despite 50 years of various forces (represented here by Mr. Cowen), actual work is done by real, live, breathing, eating, smelly human beings working in teams, groups, and organizations. Effective teams require knowledge, experience, and communication to work. The most effective way to ensure that knowledge, experience, and communication can be brought to bear is proximity (and preferably colocation) over time and across functions.
Work is not done by interchangeable resource units, much as some would like it to be so.
May 1st, 2009 at 10:06 am
The more corporations become “global” the more WE need to become locally minded. Society needs to realize that Capitalism is good in some ways but has no loyalty to a region hence, need stricter controls. The “good old” “ma and pa stores” are great for the locals but have limitations. We need to mix these ideas to create a better economy – one based on rewarding hard work while maintaining responsibility to those it affects.
There are more protections for to-big-to-fail corporations than humans and nature! This needs to change.
I’ll go hug a tree now
May 1st, 2009 at 10:11 am
Some firms — especially defense contractors — are chosen instruments of governments or, in the case of the Anglo-Dutch and American petroleum marketing cartel, of two royal families and the keepers of their privy purse and other affairs.
The French-Russian exception sort of illustrates this: Their “supermajor” oil firms are, like their defense contractors, led by “executives” drawn from military, diplomatic, intelligence, and engineering schools, and the regular, reserve, or auxiliary officer corps.
Drawing executives for enterprises deemed important for national or international security from patriotic and meritocratic organs of the state rather than from academic or clerical elites or a plutocratic patronage-chain — where mere wealth, status education, or theological conformity are taken as proxies for morality, patriotism, or professional and administrative or market competence — seems smart to me.
French executive/bureaucrat/officers may be less well paid, but they enjoy considerable prestige within society and respect within their firms and actual professions. This gives them more capacity for acutal leadership and less problems with bogus “experts”, dubious “agents” or plain “looters” and “frauds” than the overpaid, entitled poseurs we have wholly unjustified faith in.
Mere cronies like Summers, Geithner, or Rattner would not likely be found running major French enteprises or organs of the state … in France — Brothels, fine restaurants, or racy tabloids, maybe.
May 1st, 2009 at 10:11 am
In what way does this contradict Cowen’s argument? He’s not suggesting that location doesn’t matter to how a company is run. He’s suggesting that when asked to put their money where their mouths are, most people don’t care what that location is. Few Americans care enough about having a successful “American” car company to actually build one (either by buying GM cars or Toyota stock).
May 1st, 2009 at 10:12 am
Bob Reich makes the same point:
Source:
http://robertreich.blogspot.com/2009/04/auto-bailout-is-going-off-road.html
May 1st, 2009 at 10:19 am
You mean, “French CEO’s get paid well, they just don’t get paid exorbitant salaries like their counterparts in other countries.
May 1st, 2009 at 10:23 am
… French CEOs just don’t get paid very well.
While it’s always be a mistake to read Matthew as if he’s chosen his words carefully, it’s worth pointing out that French CEOs are paid very well indeed. They’re just not paid the obscene sums that “U.S.” CEOs have been getting.
May 1st, 2009 at 10:25 am
Toyota and Honda do not manufacture cars in America. They build their cars in the Confederacy. If you’ll permit the pun, they don’t like unions.
May 1st, 2009 at 10:31 am
[...] Nationality Matter? Matt Yglesias, responding to the automotive bailout debate, argues that it does:What I find interesting, however, is not so much how irrational it is to attribute nationality to a [...]
May 1st, 2009 at 10:38 am
the current management of a firm has a large degree of influence on the make up of the future management. It seems reasonable that a manager is more likely to be well-acquainted with the capabilities of an underling who works down the hall than with those of one who works on the other side of the world. This gap might be closing but it’s also easier to form personal relationships with someone in close proximity.
Also, could it also be a factor that these companies are becoming more international as time progresses whereas upper-level management has a high proportion of longstanding employees? It seems that there would be some kind of lag there.
May 1st, 2009 at 10:51 am
Few Americans care enough about having a successful “American” car company to actually build one (either by buying GM cars or Toyota stock).
This is libertarian market fundamentalism at its stupidest.
May 1st, 2009 at 10:59 am
One component of this is the impact of national culture upon corporate culture. The business styles of Mobil versus Total are radically different internally, because corporate expectations, managements styles, personality and conflict negotiation, etc., reflect the countries of origin. Ask anyone who’s been in an American company absorbed by a foreign corporation–those cultural rubs have a big impact and create a lot of conflict when you try to hybridize two. Ultimately, one tends to win out because it’s (superficially) coherent and comes prepackaged as an extension of national culture.
May 1st, 2009 at 11:04 am
Saying Toyota is not “Japanese” is akin to saying the British Empire wasn’t fundamentally English because the majority of the Queen’s subjects lived in India.
May 1st, 2009 at 11:10 am
As I pointed out on MR, Tyler_Cowen completely ignored the facts and failed to properly research his claim before stating it. Toyota can’t just up and become American through share purchases for the simple reason that nations have restrictions on how much of their corporations can be foreign-owned.
So Japan has a veto on what fraction of Toyota can be owned by Americans. America does not. America has a veto on how much of Exxon can be owned by foreigners. Japan does not. And so on.
We do not live in a world in which Americans can make a “silent takeover” of Toyota; the nationality does, sadly, matter, which is hard to notice from one’s armchair.
May 1st, 2009 at 11:12 am
[...] on the relevance of corporate nationality from Matthew Yglesias via Tyler Cowen: What I find interesting, however, is not so much how [...]
May 1st, 2009 at 11:20 am
How ’bout we ignore nationality and only pay attention to union membership?
…says the guy who drives a Civic. Maybe Chrysler will make something affordable that isn’t garbage.
May 1st, 2009 at 11:26 am
It’s not just CEO nationality that matters: culture in these multinationals is deep and self-reinforcing. Remember about 15 years ago when there was a big scandal at Texaco for the outright racism of their execs? IIRC, tapes came out with VPs and the like saying explicitly that they wouldn’t be promoting n—–s, etc. My dad, who spent his whole career in the oil industry, wasn’t surprised in the least – Texaco was notorious for a corporate culture or reactionary assholism. To expand that a bit – In the oil industry, full of Texans and the like, Texaco stood out for being a bunch of assholes.
Point being, decisions in those executive suites and the corporate boardroom are only tangentially related to best practices and sound management, much less where stockholders are located. They are much more a product of corporate culture (which, incidentally, is also tied to GM’s problems and why Chrysler’s marriage to Daimler was such a failure – in Cowen’s sense, Chrysler was a German company for a few years, yet its corporate culture didn’t budge one inch – or even a centimeter).
May 1st, 2009 at 11:29 am
I think this is a valid explanation for the bias towards regional clustering of executives. It’s rational that in the face of real disadvantages to cross-cultural and geographically diverse teams, a company would tend to pick a company or geographic location and run with it. If a company happens to pick Michigan, then there would be obvious forces that lead them to hire more Americans who don’t mind working in Michigan, which reinforces the cultural homogeneity and makes it even more beneficial to hire someone in Michigan.
I’m not saying that I think this is “right” in a moral sense, but it makes some sense as an explanation of the real-world phenomenon.
May 1st, 2009 at 11:46 am
I think the origin of a company has more to do with the culture the company. Regardless of the where it is located, Toyota has a organizational culture that it instills within its employees. Because of it Japanese origins, it is likely to have a heavy component of Japanese culture embedded within it. So I think that it is important to distinguish the origins of the company, because it does have impact on how it operates. WSJ recently wrote an article about this cultural impact on Anheuser-Busch/ InBev deal. http://bit.ly/6f0RG
May 1st, 2009 at 11:49 am
The New York Times is all over the Chinese knock-off iPhone menace. But the real iPhone is made in China too. It’s no less a Chinese product than the knock-off “HiPhone” that bothers the Times so much.
The Chinese government doesn’t enforce Apple’s patents. The United States government shouldn’t either. The trade policy of begging China to enforcing American patents on “American” products made in China should be reversed. Instead, the United States should reform its own intellectual monopoly laws and refuse to honor the patent of anything manufactured outside the United States, even if the importer is an “American” firm.
If that happened, the HiPhone could be a near exact duplicate with full iTunes and App Store functionality, instead of just a superficial piece of crap designed mainly to trick your friends into thinking you are cool enough to own the real thing.
I suspect that Apple and lots of other “American” companies would rather manufacture in the U.S. than be subjected to real competition.
May 1st, 2009 at 11:53 am
A ranking, by employment, for the top auto industry manufacturers in Ohio, is:
Honda, 14,000
GM, 12,300
Ford, 9,900
Delphi (parts), 6,200
Chrysler, 5,600
Honda is the largest “American” auto company in Ohio.
May 1st, 2009 at 12:17 pm
Well, Yglesias just doesn’t know what an M-Form corporation is. (Using Chandler’s classification system). This was something already encountered by Singer Sewing Machines, for just one example, by 1880 or 1890 – they had huge operations in Europe, which was clearly a region of incredibly massive opportunities for Singer. But Singer’s core executives were all Americans – because the Singer New York HQ is where all the real critical decisions were made, even as Singer’s operations overseas became more imporant than their US operations.
It’s simply a necessary output of an M-Form organization – the people who make the capital decisions must be a relatively small group of people operating out of no more than a handful of locations. It’s difficult to move from the periphery to the center, and that’s made much more difficult if you’re on another continent (i.e., it’s not as unusual for Swiss firms to have German or French executives or vice versa, or HK firms to have Taiwanese or Malaysian or Singaporean executives or vice versa).
May 1st, 2009 at 12:32 pm
Ohioan:
I think the divide between American and non-American really only usefully applies to employment and the kind of employment in each company’s plants. Generally speaking, the Big Three have more of their workforce in the U.S than other automakers. It’s true that since the 1980s, a number of so-called “runaway plants” have opened in a belt running from Ohio down to the deep South. Alabama’s got Honda, Mercedes-Benz, and Toyota, Tennessee’s got Nissan, and so forth.
However, there are three major differences that I think should be highlighted, even if “American” isn’t the best terminology. First, foreign-owned plants in the U.S tend to be assembly plants not design or parts or manufacturing – and their supply chains tend to be outside the U.S, which limits the multiplier effect of their presence. Second, they’re almost all in states that are politically conservative (right-to-work, low minimum wage, low taxes, less social spending). And this leads to point number three, they’re almost all non-union and they much less in wages and benefits than union workers.
The concern for me, therefore, isn’t whether management happens to be from the same country as the workers – it’s what quality the jobs are, and how many of them there are. If the foreign-owned plants went union and upped their wages and benefits, I doubt anyone would care about this issue.
May 1st, 2009 at 2:12 pm
“…and French CEOs just don’t get paid very well.”
Uh huh. I’d like to see some evidence of this. I’ll bet he gets paid better than me.
May 1st, 2009 at 3:04 pm
[...] 5. How and why does corporate nationality matter? [...]
May 1st, 2009 at 4:48 pm
Your list of mega oil firms is missing ChevronTexaco
May 1st, 2009 at 6:43 pm
Governments treat companies which have a local nationality in favorable ways which depend on them maintaining their nationality at least publically. If GM was not an American company our government wouldn’t be helping it out.
May 1st, 2009 at 6:59 pm
Pernod Ricard owns, among other things, Chivas Regal Scotch whisky and Jameson Irish whiskey. It is an international firm based in France. Does that mean that Chivas Regal and Jameson are really French whiskeys? If a Chinese firm buys Pernod Ricard, would that make Jameson and Glenlivet Chinese whiskeys? If I follow Tyler’s stupid logic, the answer is yes.
May 1st, 2009 at 8:18 pm
Simple answer:
Path Dependency is a bitch.
May 2nd, 2009 at 5:11 am
Corporations make up about half of the world’s 100 largest economic entities and their share is growing. I consider this a most ominous trend.
Many if not most corporations are countries unto themselves. Most seek to detach themselves from their country of origin so they can roam the world and avoid taxes, regulations, oversight, pollute at will, and most importantly, find the cheapest labor possible.
I cannot in anyway fathom how the rise of world corporate power could be a good development for the United States. Yet we are the country that most enthusiastically promotes it. It seems to me we are advancing the cause of our own destruction.
To me, it’s all about jobs. Without jobs we die. Presently, American jobs are being hauled off at an exponential rate by corporations and then deposited elsewhere. And this a good thing. I read, I study, but I cannot wrap my mind around the efficacy of this concept. How exactly is this good for America?
I’ve come to believe I am an anachronism. A silly fool who doesn’t get it. America? It doesn’t really exist, not even in abstract form. I believe in a non-entity.