4 - Corporate Governance and Multinational Corporations

Summary

Introduction

Analyses of liberal, coordinated, and most other varieties of capitalism focus on large national firms. In Latin America, such a purely domestic focus would miss major players; in most countries, MNCs constitute a third to a half of the largest firms. In terms of complementarities, MNCs often have patterns of interactions with other firms, workers, and governments that do not resemble patterns of domestic business groups. MNCs cannot be assumed to be “institution takers” that come to countries and blend into the corporate landscape (Pauly and Reich 1997).

Debates continue about whether and how MNCs contribute to host country development, human capital, and technological progress. Although more radical views, for and against, persist, a more nuanced middle ground contends that the impact of MNCs depends on the context and that “the search for universal relationships is futile” (Lipsey and Sjöholm 2005, 40). The range of relevant contextual factors is wide, but generally, FDI is more likely to have positive effects in an economy characterized by more-developed financial markets (Alfaro et al. 2004), more technologically advanced local firms, more competitive markets (both locally and internationally), fewer restrictions on FDI flows, and higher stocks of human capital (Moran, Graham, and Blomström 2005). This range of contextual factors begins to shade into the core complementarities in the literature on varieties of capitalism, and this chapter thus takes the contextual analysis a step further to analyze how MNCs fit into hierarchical capitalism.