By Keshav Krishnamurty.
Two weeks ago, UMass Boston played host to the Academy of International Business (AIB) US-Northeast 2015 Frontier Conference themed “Bringing the Political Economy back in” (October 22-24), facilitating a broad discussion and engagement on the issue of Political Economy and International Business amongst leading academics from top universities across the world. The first highlight of this conference was the panel “Challenges to International Business Research: Bringing the Global Political Economy back in”, featuring panelists Mona Makhija (Fisher College of Business), John Cantwell (Rutgers University), Rajneesh Narula (University of Reading, UK) and Ravi Ramamurti (Northeastern University), with Suhaib Riaz (UMass Boston College of Management) as the panel moderator. This panel underlined the great importance of political economy perspectives and raised some fundamental issues for future research.
In his inaugural address to the conference, AIB Vice-President Prof. Ram Mudambi (Temple University) acknowledged the great relevance of this theme, stating “I think this is one of the most important themes, one that all IB scholars should think of very seriously”. He considered the question of how political economy may impinge upon business and vice-versa. Historically, this had been understood well, with the famous example of how what was good for General Motors was good for America, due to GM’s sheer size and influence. Yet, with the disaggregation of the value chain into even more specialized activities, it has become apparent that firms and locations are fundamentally different. With firms being mobile and increasingly so, the interests of firms and locations no longer converge. This has resulted, he said, quoting the poet Thomas Grey – in creating clustered high-skill, high-wage, high-technology sectors and disconnected hinterlands.
The first panel “Challenges to International Business Research” further elaborated on the changing role of political economy. John Cantwell compared the Global Political Economy (GPE) with a phoenix dying and arising again from the ashes in the context of international business (IB) research, from the focus of attention in early foreign direct investment (FDI) locational studies to an eventual renewal. According to him, the unrealistic nature of national political ideologies has not helped business and has led to a fraught relationship between corporate tax regimes and international profit shifting between locations. He also stated that there is more in the tradition of classical GPE that is rather in the sense of the work of classic economists like Adam Smith and David Ricardo. GPE has now been usurped to refer to a subdiscipline of political science.
Mona Makhija stated that GPE was key to IB, with the latter dealing explicitly with the context in which business operated. For the past 20 to 30 years there had been an increasing amount of development in this regard. She further stated that scholars needed to explicitly consider context. The theories being used in this regard were very strongly related to this, such as Institutional Theory from Sociology. The flows of knowledge are not being adequately studied and the impetus to the flows is not adequately understood at present.
Rajneesh Narula added that the study of economics has become a separate entity, with IB having become distanced from economics. Speaking with an incredibly rich selection of examples from history, he spoke about the lack of talk about trade and its relegation to being a subject under economics. There remain policy implications of trade to be thought about. Much of these policy implications, he added, are dependent upon history and the actions and behavior of existing governments, corporations and policymakers are path-dependent on previous events, which in turn are inadequately researched and poorly remembered, in turn citing various examples.
Ravi Ramamurti added that the role of GPE came naturally from its historical background. He spoke on how the actions of the Chinese government had succeeded in bringing so many issues of state-owned companies back to the forefront of discussion. He also spoke about how multinational enterprises have become very influential in changing their context in the way they operate, however, this area was poorly researched. He gave the example of the enormous influence one single pharmaceutical corporation, Pfizer, had in mobilizing its counterparts and associates in both the United States and Japan that led to the TRIPS (Trade Related Intellectual Property Rights) legislation under the World Trade Organization rather than the World Intellectual Property Organization, therefore being able to change the rules of the game globally. Such attempts to harmonize rules and therefore cause global standardization are advantageous in that fashion to companies, he said.
Jonathan Doh (Villanova University) asked a question regarding the ability of corporations to do business with extent of corruption and the difficulty of doing business in developing countries, with the example of Venezuela. In response to that question, Mona Makhija pointed out that although the institutional environment in Venezuela has indeed gone through a number of changes in the past century, the enforcement of laws and standards in a country matters as well. Paying attention to evolving conditions of a country’s environment was a priority, she added. Rajneesh Narula pointed out that the obsession with economic behavior and the idea that all humans are profit maximizers is a problem and that business is not always about mere opportunism, with our understanding of business in developing countries being inadequate. Neither the traditional economic view nor the idea of democracy function as a cure-all for developing economies.
Ram Mudambi then asked whether it would be advisable, hypothetically, to create uniform corporate taxation and policies across countries given the multinational nature of modern corporations, highly confusing disparities between different countries and the tendency for companies to deliberately search for the country with the most beneficial tax policy or to exploit the use of tax havens. Ravi Ramamurti, taking the question, pointed out that even hypothetically reducing corporate taxes to zero was a problem but company harmonization mattered to prevent corporations from playing one country off against the other. John Cantwell further added that the issues of corporate taxation and policy lobbying were not going to go away, but that companies should be taxed in regions where they made their sales.
David Levy (UMass Boston) added to the question by pointing out the question of power and politics in the field. He stated that major issues of the powerful and the powerless exist, while scholars tend to look at such issues in International Business as a Corporate Social Responsibility issue rather than a power issue, making specific reference to the question of subsidies. Rajneesh Narula pointed out that any answer to such a question would have to deal with powerful dogmatic assumptions, with power being derived from the inequality between countries. He questioned the purpose and efficacy of CSR initiatives and quoted Bertrand Russell on hubris, suggesting that a great deal of hubris was involved in corporate dealings with both developing and developed countries.
This panel thus demonstrated how deeply connected international business is with the global political economy. While in the past, many political economy issues remained rather dormant in international business research, the analytical force of this perspective has indeed been woken again.