the visible hand

it is the theory which decides what can be observed – einstein

U.S. multinationals… decoupling from the U.S. economy

Posted by ecoshift on March 4, 2008

Multinationals: Are They Good for America?
Business Week: Cover Story February 28, 2008, 5:00PM EST
by Michael Mandel

They’re productive, innovative, and loaded with cash. But that doesn’t mean they’ll bail out the U.S. economy


Multinationals have been the wild card in the economic deck for a decade. Back in 1997, four years after the passage of the North American Free Trade Agreement, the economists at the Bureau of Labor Statistics in Washington put out their biennial projections of job growth over the next 10 years. With a touching note of optimism, they assumed that exports, adjusted for inflation, would double over the next decade—a boom that would have produced a sizable number of good-paying American jobs.

But like almost everyone else, the BLS economists missed an unexpected strategy shift at the handful of big companies that account for most of the exports. Instead of ramping up American operations to sell into global markets, giant U.S. companies such as General Electric (GE), IBM (IBM), and United Technologies (UTX) took their operations overseas, expanding in Asia and Europe and becoming global enterprises with international workforces. The result: U.S. export growth fell 50% short of the BLS economists’ prediction. The much prophesied job boom never happened.

In effect, U.S. multinationals have been decoupling from the U.S. economy in the past decade. They still have their headquarters in America, they’re still listed on U.S. stock exchanges, and most of their shareholders are still American. But their expansion has been mainly overseas.

At Emerson Electric (EMR), for example, international sales more than doubled, to $11.6 billion, from 1997 to 2007. But exports from the U.S. rose by about 20%, to $1.3 billion. At United Technologies, which ranks among the top 20 companies in terms of foreign revenue, export revenues rose by 62%, to $6.2 billion, from 1997 to 2007. But total sales outside the U.S. jumped from $13 billion to $34 billion.

Some executives are quite clear about their strategy. “We have clients who need work done in other parts of the world to serve their clients,” says Ronald A. Rittenmeyer, who serves as chairman, president, and CEO of Electronic Data Systems (EDS), which last year granted early retirement to 2,400 U.S. workers. “Our employee base will continue to shift, with the number of jobs located in high-quality, lower-cost areas outside the U.S. growing.” EDS expects to have 45,000 offshore employees by the end of 2008, up from 14,000 at the end of 2005.

As the big companies have moved abroad to expand their global operations, smaller U.S. companies haven’t taken their place as exporters. According to data from the Census Bureau, exporting is just as dominated by big companies as it ever was: In 2006 companies with 500 or more employees accounted for 71% of goods exported, the same as in 2000.

Only a relatively small number of U.S.-based corporations have established a substantial global presence. When the nonfinancial companies in the Standard & Poor’s 1500 are ranked by their reported foreign sales, the top 150 account for 84% of the total. Virtually all of the names are easily recognizable. “There are only a few truly global companies,” says John Dowdy, a partner in McKinsey’s London office who recently helped lead a study on multinationals.


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