MULTINATIONAL ENTERPRISE AND STRIKES: THEORY AND EVIDENCE
| DOI | http://doi.org/10.1111/j.1467-9485.1992.tb00604.x |
| Published date | 01 February 1992 |
| Author | F. Carmichael |
| Date | 01 February 1992 |
Scoirish
Journal
of
Pohrical
Economy.
Vol.
39,
No.
I,
February
1992
-
1992
Scoltirh
Economic
Society
MULTINATIONAL ENTERPRISE AND STRIKES:
THEORY AND EVIDENCE
F.
CARMICHAEL
Department
of
Economics and Agricultural Economics,
The University College
of
Wales, Aberystwyth
I
INTRODLICTION
In spite
of
the growing literature on multinational enterprise and economists’
interest
in
strike behaviour in general, the theoretical links between the two
have not been thoroughly investigated. Some work has been done on the strike
proneness
of
foreign owned firms (see Section
111
below) but the concern
of
this
paper is with multinationality per se rather than ownership nationality.
A
multinational enterprise (MNE) is here defined as
a
multiplant firm with one
or
more subsidiaries in a country or countries different from that in which the
parent company is based. When looking at a particular country subsidiaries
of
MNEs that are based in a different country are called foreign owned firms.
Whilst subsidiaries
of
MNEs that are based in the country
of
interest are called
indigenous MNEs.
For
example,
ICI
is an indigenous MNE in the UK and its
subsidiaries are indigenously owned but they are foreign owned firms
elsewhere. Whilst subsidiaries
of
Nissan are foreign owned firms in the UK but
indigenous to Japan. Non-MNEs
or
uninational firms are always indigenous.
Although strikes can happen for a variety
of
reasons not all
of
them
economic, this paper is concerned with strikes that centre around the wage
bargaining process. In this context there are
a
number
of
reasons why MNEs
might be more strike prone than indigenous firms. First, there exists a potential
for conflict between labour relations practices in source and host countries.
Second, there may be lack
of
trust in management on the part
of
workers when
the parent company is based in a foreign country. Third, there may be a lack
of
sensitivity on the part
of
the parent company to
local
needs and traditions.
Lastly, MNEs are associated with ‘lack
of
transparency’ in corporate decision
making processes and financial policies (Bomers and Peterson, 1977; Gennard,
1976). Lack
of
transparency is attributed to the complexity
of
the MNE’s
global operations, centralized decision making, the possibility
of
transfer
pricing and the absence of adequate union and governmental structure at the
international level. The links between the first three factors and strike
proneness should be self explanatory. The relationship between lack
of
transparency and strike incidence is not
so
obvious. But only lack
of
Date
of
receipt
of
final manuscript:
30th
May
1991.
MULTINATIONAL ENTERPRISE AND STRIKES
53
transparency has a bearing on the industrial relations situation in indigenous
MNEs. Unless the link between lack
of
transparency and strike incidence can
be demonstrated, there is no reason to expect indigenous MNEs
to
be more
strike prone than uninational firms.
It is a central claim
of
this paper that lack
of
transparency is an important
determinant
of
strike proneness.
It
impacts on the industrial relations
environment by creating
a
situation in which unions bargaining with MNEs
find
it
difficult
to
obtain accurate information about the company’s true
bargaining position. The bargaining environment is, therefore, one in which
information about one party, the employer, is asymmetric. In an abstract
model Rubinstein
(1987)
shows that in these circumstances
a
period
of
costly
disagreement, such as a strike, can be used to reveal information to the
disadvantaged party about the other’s true bargaining position. In the present
context, this implies that lack
of
transparency in MNEs creates
a
strategic
motive for strikes which is not present when the union bargains with a
uninational firm. The bargaining environment will, therefore, be inherently
more strike prone when the employer is an MNE. Inasmuch as lack
of
transparency is a feature
of
indigenous as well as foreign MNEs the theory
predicts that both will be more strike prone than non-MNEs. This argument
is formalised in Section
11
where a model is presented in which the union
optimises by choosing wagelstrike combinations that give less strike-resistant
MNEs an incentive to agree to higher wage demands. Bargaining is initially
assumed to take place on a once and for all basis. This is unrealistic and the
analysis is subsequently extended by modelling MNE/union bargaining as
a
repeated game. In Section
Ill
the existing evidence relating to the strike
proneness
of
MNEs is discussed. In Section
IV
new evidence drawn from data
covering
138
3-digit industries in the
UK
manufacturing sector is presented.
Section
V
interprets the results and Section
VI
concludes.
WAGE
BARGAINING-A
MODEL
Wage bargaining with a multinational
Whether multinationality enhances the firm’s bargaining position depends on
the rents that accrue from international diversification and the structure
of
production
of
the individual MNE. The former determine the profitability
of the MNE and thus its ‘ability to pay’. The greater the MNE’s ability to pay,
the higher the relative costs
of
enduring a strike or other industrial action and,
the less credible the MNE’s threat to resist the union’s demands. The MNE’s
structure
of
production affects its ability to resist a strike and the credibility
of
the relocation threat. The MNE has essentially four choices in this respect:
vertical integration; horizontal integration; diversification across product lines
or a mixture
of
these. Because
of
the interdependencies that it implies, vertical
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