Voice, exit . . . arbitrage: the politics of the modern multinational firm

In: European journal of international relations

Abstract

Multinational corporations (MNCs) are often seen as singular organizations, with a parent company controlling branches in other countries. But this is an abridged version of decentred corporate groups structured as clusters of separate legal entities in several jurisdictions held together by equity ties. The article argues that while the abridged version of the MNC matches those aspects of those organizations that are of interest to economists, it fails to capture the principal mechanism of interaction between business and the institutional and political environment. I argue that the abridged version is a barrier preventing political scientists from asking salient questions about the power of MNCs and their shareholders. Specifically, while political scientists and international political economists discuss the way these companies use their considerable financial resources to voice their views on unwanted regulatory changes, to threaten exit or if all else fails, to carry through with the threat, they ignore a third approach favoured by corporate groups, setting up subsidiaries in third countries to arbitrage rules.