THE MULTINATIONAL ENTERPRISE SYSTEM
International economists have traditionally taken a macroscopic perspective on international economist relations. By considering trade and investment only at the national level,they have impliicitly regarded national the economist as the agents of international transactions. Althought we shall rely on the macroscopic (or national )perspective in parts I,II,and III, we must recognize that this perspective is necessary but no longer sufficient to explain the behavior of the international economy. Multinational enterprises have become responsible for a sizable (and increasing) share of world trade and for most international investment. As big,oligopolistic companies,multinational enterprises possess a market power that makes them independent actors in the international economic system. Unlike firms in purely competitive markets,multinational enterprises enjoy managerial discretion in their decisions; they do not simply respond to market conditions and public policies in a predetermined way. Indeed, their actions force changes in national economies and compel government to respond to them. Thus, to understand the contemporary international economy we must supplement a macroscopic perspective with a microscopic perspective that considers the role of the multinational enterprise. This is the third theme of this book, which is taken up in part IV. Here we make only a few additional comments on this subject.
A firm becomes a multinational enterprise when it extends its productions and organization into foreign countries. The multinational enterprise system, therefore, consists of a parent company; its producing and marketing affiliates in foreign countries; the flows of products ,services ,capital, technology, management, and funds among them. These intraenterprise transfer (flows) cross national boundaries and therefore enter the balance of payments of nations in the same way as international transaction between independent buyers and seller.
Althrougt it has roots in the past, the multinational enterprise has become a dominant institution only since the late 1950s, when the political and economic system of the industrial West began to favor the spread of international production by corporation in the search of market opportunity and lower cost. As a consequence, the traditional international economy of traders has now given way to a world economy of international producers. Our comprehension of this world economy is modest indeed. Part IV will be an exploration of new terrain in international e