On journeys abroad, and in recent years in Hungary as well, many of us will have found ourselves in an argument with a sales or customer service representative of a multinational corporation (car manufacturer, communications company, bank, insurance company, travel agency, etc.). Not so long before, this individual wanted to be our friend and promised the earth, perhaps even a personal guarantee, if we bought the product in question from his company. On hearing our after-sales complaint, however, he became cold and withdrawn, and announced regretfully that he does not have the authority to satisfy our request. It was not much use reminding him of his promises--he shrugged and, if we were lucky, he would smile apologetically; if we were unlucky he would smile derisively. After arguing with him at length to no avail, we had irredeemably to transfer our anger onto the large company (if we were lucky) or onto all the aggressive multinational companies (if we were unlucky).
Of course, the multinational company is not a living organism with which we can establish a positive or negative emotional relationship, but a socio-economic phenomenon whose actions are directed by many types of lever in directions that may be difficult to see and understand. Such complex and (in the decision-theory sense) almost infinitely rational organizations cannot be judged on first impressions, because to concoct a balanced judgment one would need to be aware of the opinion of all those whose lives have been in some way affected by these companies.
Economics has been dealing seriously with multinational companies for the last three decades, and even at the outset brought our attention to the numerous dangers their existence entails. A major storm was generated at the beginning of the seventies by Sovereignty at Bay written by Harvard professor Raymond Vernon. In this he predicted, on the basis of thorough statistical and company evidence, an intensification of the battle between the economic power and influence of multinational companies and those of nation-states. Few now remember the other two--more emotional--books in this field, published at the end of the sixties.
Richard E. Caves--also from Harvard--published a further fundamental work almost ten years later, in which he used the tools of microenonomic analysis to describe multinational corporations as economic actors. In his preface Caves draws our attention to the fact that while numerous books had dealt with the leadership of multinational corporations, and many more with the environmental and social harm they cause, no one had previously discussed how we should understand the workings of such firms with the accepted modelling tools of economic theory. (Caves, 1982. ix.)
According to the flap of When Corporations Rule the World, David C. Kor ten too was once a Harvard professor. Given this fact it is surprising that his book makes no mention of the wide circle of his academic colleagues (as mentioned above) who have theoretical grounds for their criticism of multinational corporations. Indeed, the widely-cited specialist in this field, John Dunning, is not among the authors mentioned. Of course, references should be based on academic worth, not professional or friendly association. There are directions in economics outside the mainstream which also analyze multinational corporations. This is true of the Marxist school, that is, the school of economics whose point of departure is the perspective of the unbalanced power relationships in the world economy, that of center-periphery relations, and which tries to understand the behavior of these players in the world economy who have become so important.
At the same time it is difficult to make an academic analysis if the author rejects from the outset the analytical conceptions and tools generally accepted within the profession. In the fifth chapter of his book, "Assault of the Corporate Libertarians", Korten expresses a summary judgment on those economists who accept the role of market forces as regulator and coordinator of the economy. In sub-chapter 5.4 ("Economics and Demagoguery") he condemns theories of free trade and all kinds of theoretical modelling in a more general sense, even research attempting rational analysis. This rejection appears in an anecdote (p. 80) which--with a unique leap of logic--is itself a model based on sizable abstraction. This too has no empirical foundation, being an admitted fictional story:
One may wonder how economic rationalists can advocate economic integration if it advances conditions that are at odds with those requried for efficient market function. An important part of the answer is found in their legendary ability to assume away reality. This ability has been immortalized in an apocryphal story about three scientists--a physicist, a chemist, and an economist--marooned on a desert island. They've salvaged a can of beans from the wreck of their ship but, unfortunately, they have no evident means of opening it. They agree that with so much scientific brainpower among them, they can surely complete the simple task. The physicist points to a nearby palm tree and suggests that he will climb the tree and drop the can on a rock below at the proper angle to pop it open. The chemist points out that the beans will be spilled on the ground and suggests that they might use salt water to create a chemical reaction that will rust away the top. Then the economist says, "You are both making this simple task too complicated. First, we will assume a can opener."
A sensitive representative of the economist profession might be expected here to throw down his pen (or his mouse) and look for a physicist or chemist, so that they might continue reviewing the book more objectively. But there is no reason to be sensitive. Particularly because we are discussing an important and--especially in Hungary--influential book, in a genre which provides a simple explanation of the problems in the workings of the world economy and apparently easy solutions. But let us continue the quotation:
Like the economist in this popular story, when the real world diverges from the conditions necessary to support their preferred policy options, economic rationalists are prone to solve the conflict by assuming the conditions that support their recommendations.
The last sentence of the quotation is particularly informative, although its structure--as in many other places in the book--is so unnatural and complicated that it is difficult to extract its precise meaning. But it clearly suggests that free trade thinking and the concept of economic rationalism mean the same thing, and can thus be treated as one. If this really is the author's view, then preparing this review also becomes a much easier job. Since Korten rejects not just a leading economic school, the theory of free trade, but the fundamental academic principle of rational thought in general, we cannot expect, when evaluating the book, this way of thinking from him.
The author also attempts to illuminate the truth of his anecdote with a real-life example (p. 81). In this example Ford is building a car factory in Mexico, on the basis of NAFTA, the North American Free Trade Agreement. The author only cites the views of the losers, the American workers, who are forced to give up their jobs to Mexican workers earning a tenth of their wages. What is left out of the example is that the loss suffered by this one group has to be seen in the context of the three groups who win, and who together are far greater in number: the workers at the Mexican car factory, the car buyers, and Ford's many shareholders.
A guiding principle throughout the book is an impulsive rejection of the whole mechanism and existence of multinational corporations:
[The] dysfunctions [of U.S.-based multinationals] seem to be spreading through the world like a cancer. By May of 1994, a binge of corporate restructuring in Europe, similar to that in the United States, had pushed Europe's unemployment rate to 10.9 percent (p. 234.)
The figure cited is from a specific article in Business Week, but is certainly not valid in this context (the article was published on 2 May 1994). Accepting for a moment economic rationality, there are still two naggling questions I could perhaps raise, without debating the validity of this figure: 1. Is it certain that it was just the reforms to large corporations which increased European unemployment? 2. What figure and period should be used as a reference point for evaluating the cited unemployment figure?
The above example of the sloppy use of numerical information to further an argument is not alone in the text. However, the other similar errors are not enough to represent a fundamental methodical flaw in the work as a whole, as proof-readers for the original or Hungarian version, or the more astute members of the translating team, could easily have filtered them out. Apart from numerical information, the analysis also makes use of much detailed and documented verbal information, which is often very difficult to generalize from. Anecdotal examples are common where the author does not direct the attention of the reader less experienced in economic matters to the unique nature of the event in question; this, whether intentional or the result of negligence, makes the information he provides biased and prone to misunderstanding.
For example, the fourth subchapter ("A Different World", pp. 110-112) of Chapter Seven ("Illusions of the Cloud Minders") depicts the supposedly wasteful indulgences of the executives of multinational corporations. The CEO of Ford and his fellow top executives drive a company car; the CEO of Lone Star Industries, even after significant redundancies in 1989, maintained his expense account and the right to use the company jet for private ends; the CEO of RJR Nabisco ordered the construction of a lavish hangar and guest houses. The most outrageous example: "Ivan Boesky, the global financier, was known to order eght entrés from the menu at the exclusive Café des Artistes, sample each, and then decide which he would eat." (p. 110) The information relating to Boesky is documented precisely, albeit citing a journal (Utne Reader) with little in the way of reputation in the profession. Independent of the obscure nature of the source, it would perhaps be useful for the Hungarian reader to know that Ivan Boesky was found guilty by the US courts in 1989--not of the above charge, but of stock market crimes.
Neither the behavior of the (for various reasons) very rich nor of idiots provide examples of how to analyze the behavior of corporations, not even of those corporations with which the individuals in question are associated. Corporate executives in America and elsewhere can waste their private wealth as they please. If, however, they do this with the corporation's wealth, they can be taken to task by the shareholders, but not by some hypothetical honesty tribunal. Of the four examples of private behavior cited by Korten, the first two are perhaps genuinely extravagant (although the rights and responsibilities of top executives in large American corporations are regulated by contracts as long as short books), while the last really is extreme. This has nothing to do with multinational corporations, let alone the damage they cause.
Five of the six parts in the book, and 20 of its 24 chapters, deal with the various damaging effects of the global operations of multinational corporations. This long list includes serious environmental damage, differing degrees of deception, legally usually unsanctionable, of the consumer, and the ambitions of numerous multinational companies, recognized since Vernon's day, to achieve power in developing countries. In many large corporations we really do observe management hungry for short-term profit, which brings ethical, environmental, and often legal considerations in its wake. There are a great many examples in the book of how--especially in South-East Asia and Latin America--the big corporations investing there threaten the condition for survival of the natural environment and the local population.
At the start of the seventies, during the trend for "world models", literature on the global economy dealt very carefully with multinational companies, and in general with the damaging effects of the international expansion of Western industrial culture. No general solution has since been found, although multilateral international agreements have been made to restrict certain environmental problems. In most countries, multinational corporations uninhibitedly exploiting the environment around them have, both as employer and polluter, to restrain themselves under increasingly effective legal regulation.
As can equally be seen in Hungary, the best-known and most significant companies do in fact do this. When weighing up the activities of those companies that continue to cause destruction we must bear in mind their positive effect on job creation and increasing consumer choice. To ignore these considerations is to make Luddites of ourselves. This is logically not very far removed from sweeping arguments that reject modern industrial societies, together with, for example, their advanced health care that prolongs life.
No one can argue with the examples in the book which reflect the inhuman effects of the expansion of industrial society and multinational corporations as a key component of it. Many of these are based on the author's experience in the Philippines in the eighties. But Korten seems to have forgotten the old saying that "it takes two to tango". Without the active or passive cooperation of corrupt, irresponsible governments, or governments rendered helpless by their inability to effectively attract incoming working capital, multinational corporations would not be capable of causing the damage of which they stand accused. For the destruction of the environment, and for the suffering of those who are forced to migrate to the metropolises of the Third World through a lack of permanent employment and modern welfare systems, domestic political groups are also to be held responsible, not just foreign economic interests.
Neither can the failures of these political groups be simply laid at the feet of the multinational corporations they enter into alliances with. Sadly, opportunities are limited for the correction of the damage caused by the elites of soveriegn countries from the outside. An increasing number of developing countries (Somalia, former Belgian colonies in Central Africa, more recently Albania) bear witness to the fact that removing failed ruling groups in the absence of satisfactory successors can lead to so strong a political vacuum that the state itself collapses and gives way to uncontrollable carnage.
The ultimate question when judging the global activities of multinational corporations is, of course, what could be the way out of the economic and social crisis that, in the vast majority of Third World countries, shows little sign of improvement. Korten has a low opinion of the established recipes for political development of the World Bank or the IMF, which, while usually very costly, are at least suitable for initiating solid economic growth. He illustrates this with the World Bank's credit to South Africa to support the construction of homes for the black population (pp. 169-171). He distinguishes between three options:
1. Houses are built for the blacks from the foreign exchange loan provided by the World Bank, using foreign building materials and foreign contractors. Later the repayment of the foreign exchange loan necessitates a policy that boosts exports, which is primarily beneficial to white firms, thus further strengthening the divided nature of the economy.
2. The loan is exchanged into South African rand, which is used to pay domestic (primarily white) contractors, who use domestic building materials. The blacks are provided with some temporary employment, while the foreign exchange is used to import arms and luxury items as desired by the whites. In the long term, the undertaking leads to the same dualization as in the first alternative.
3. The government rejects the foreign exchange loan, and orders the houses to be built using domestic building materials and black labor, with domestic training programs to prepare the workforce. In this way the economy is not later burdened with the need to repay the foreign exchange loan, while the blacks are afforded long-term employment, thanks to which they will be able to afford to look after their new homes.
Reading through these three options brought old American westerns to mind. In that genre the audience could precisely categorize each and every protagonist as friend or foe from their very first appearance, from their facial expression and costume; the audience did not have to trouble itself with more complex recognition or understanding. The three options are similar, because as they are presented only the third can be friendly. We could impertinently demand from the author why he is so happy to use the modelling tools he so damningly rejects, if it were not the case that these options are too far removed from reality for us to call them models.
According to Korten, the lesson to be learnt from comparing the three options is that the smaller the role of the World Bank (that is, foreign capital) in a country's development, and the smaller the extent to which the country depends on foreign trade, the better the outcome, and the faster and more balanced the country's development. The options seemingly support this, but the author has designed them too arbitrarily. For example, he takes it as a given that domestic production will achieve better results than imports, doing so more cheaply. He assumes that the whites will spend the foreign exchange borrowed from the World Bank on harmful imports. He similarly takes the adequate supply of domestic capital as given, and assumes that a wide-ranging and significant improvement can be made to the skills of the black workforce within a short period of time. It also gives a unique flavor to the three options that in general they make the whites look like thieves and servants to foreign capital, while they make the blacks--with a similar generalization--appear oppressed and exploited. Is the author here trying to construct some kind of "black economic policy"?
The concept of self-sufficient economic policy is not a new one--it was tested on a whole list of newly independent black-African countries in the sixties (Tanzania, Republic of Congo, Ghana, and other, generally dictatorial, states). The results were not good, authoritative international statistics showing them to be the least developed, and a comparison with the monocultural economies (those capable of exporting one or two goods) shows that then as now the better results were achieved by export-orientated countries.
According to methodologically thorough international analyzes, the effects of the influx of working capital on economic development are positive. This is in spite of the fact that in countries working for rapid integration into the world economy through the import of capital and the export of goods, social inequalities, crime, and environmental pollution increase, and the influence of multinational corporations often becomes decisive. But societies desirous of modernization and development have to accept these side-effects, because, given a lower level of development, the homo oeconomicus model unfortunately becomes all too valid. Economic policy based on the desire to increase private wealth is in most countries still much more attractive than environmentally-oriented economic development that assumes altruistic social cooperation.
No one in the modern world economy has ever successfully created an economic policy as utopian as that proposed by the sixth and last part of Korten's book to promote a "people-centered" development. An economic policy with a certain degree of global awareness that remains within national limits, the requirement of sustainable development achieved with the reduction and "rationalization" of consumption, and the power of the economic rules of civil self-organization to replace markets: these are all concepts too idealized to be applied to the world economy before being tested in rather smaller waters.
We also have to consider other important points such as who will decide the choice of goods to be produced and who should say which kind of structure of production is most suitable to sustainable development. It is most unlikely that such decisions could be socially optimized.
Allow me to introduce an example that initially looks like demogoguery but is all too difficult to avoid in economic policy in practice: if the only existing treatment of a dangerous illness requires grave damage to the environment, the individual's short-term interests clash with society's long-term interests. In today's industrial society the result of the decision is certain, and the multinational pharmaceutical company, the doctor and nurse entrusted with the task, and (not least) the patient are the winners--these players are all currently present. Society, the environment, and the future, on the other hand, all lose. If we were only to pay attention to these losses, we would unambiguously see Korten's book to be true.
In his orations following the Third Carthage War, Cato insisted on Carthage being destroyed at all costs. True, by then the only question was whether they should salt the ruins of the destroyed city. But the Roman senator became one of the first great rhetoricians by reaching this conclusion through surprising twists, drawn from the widest possible range of disputed issues. It is as if Korten sees in multinational corporations the same abstract enemy that Cato saw in the completely extinct North African empire.
Multinational corporations offend all kinds of political and social sensibilities, and their expansion often seems to be completely unrestrained, but their effect on job creation, and the role they play in the expansion of modern global production and consumer culture, mean that in today's world economy we could only do without them at a very high cost indeed. Realistic modern analyzes are written that professionally and soberly weigh up the advantages and disadvantages of their role, in the style of Vernon, Caves, or Dunning. Economic rhetoric that outrightly denies rationality, however, can only really bring pleasure to the reader who expects what he reads to confirm his prejudices and preconceptions.
In the past twenty-five years, processes of regime transformation, democratization, and consolidation of democracy have proved to be areas of great interest to political scientists and theorists. In this light Southern Europe, Latin America, and now Central and Eastern Europe have been key geographical foci of attention for comparativists in particular, but for political philosophers as well. Meanwhile, the study of the role of elites has been a favorite topic for scholars from Plato to Dahl and Pareto. It is therefore not surprising that the study of elites in societies under transformation is receiving considerable attention. If only because of the nature of their subjects, writings on contemporary constitutional change, shock therapy, and party formation and transformation at least implicitly draw on the theory of elites. It is thus not difficult to see what contribution a book entitled The Rise and Fall of the Regime-transforming Elite might make to our understanding of the transformational processes in Hungary (and perhaps beyond). This review of László Lengyel's latest book looks at the subject very much from the perspective of political science.
The Rise and Fall of the Regime-transforming Elite is a confusing book in several respects. Firstly, it lacks a coherent layout. I often begin reading a book by turning first to the introduction, then the conclusion. If these are interesting, I study the table of contents and the index, looking for the themes and topics which seem central to the argument or theory of the work. This approach usually gives me a basis for reading the book from start to finish with some awareness of the author's intentions. Lengyel provides us with a three-page introduction full of abstract ideas and references to Shakespeare's A Midsummer Night's Dream, but without actually outlining his thesis. His conclusion, or at least the final pages of the book where one would expect a summing-up, is a series of anecdotes which seem to express a desire for integrity in the public sphere. But this gives almost no indication as to what has been presented and argued in the preceding pages. A glance at the table of contents reveals little; and as for the index--it's simply not there.
This inevitably raises the question: what is Lengyel's argument? Or, from a social science perspective, what is his underlying theory? But Lengyel does not present a theory, perhaps because he does not have one--the second source of confusion. Or maybe he is leaving the task of elucidating his theory to the reader. So it is hardly surprising that the book contains very few references to empirical work. The only thing approaching an analysis is a classification of discourses and the values and attitudes behind those discourses. What Lengyel expounds is a series of anecdotes, descriptions, literary references, political and social critiques, categorizations of discourse, and observations. This ends up being neither journalistic, nor empirical, nor philosophical. The book does not read like the work of an economist, or political scientist, historian or social philosopher, but at best like that of a rhetorician. Thus, the third source of confusion is expressed in the question: what audience was Lengyel addressing when he wrote The Rise and Fall of the Regime-transforming Elite?
The book is laid out in essentially chronological order. The first six chapters cover the Kádár years, from consolidation in the 1960s through to Kádár's death. In a sense Lengyel examines the distribution of power in the Kádár years on the basis of the following premise: prestige and power under Kádár were assigned not primarily through party cadres (as in other Soviet satellite states) but through diverse elite networks. These networks were characterized by their role in securing the interests of their elites. Given the diversity of patrons and clients in the system, and the aversion of Kádár and his leaders to universal, historical, and philosophical questions, the Hungarian elites were compelled to master numerous discourses, each dealing with a different aspect of Hungarian political and economic life (e.g., the relationship to the Soviet Union, industrial cadres, the second economy, etc; see Chapter One). Both the elite and non-elite Hungarian discourse of the time were characterized by a unique set of lebenslüge, or denials, regarding the Holocaust, the national question, 1956, etc., (Chapter Two). The party's withdrawal from the private sphere and the drive to increase the Hungarian standard of living also influenced discourse by introducing a boastful attitude to life in Hungary, especially in relation to the material position of Hungarians vis-à-vis Romanians, Bulgarians, etc. (see Chapter Three). Chapter Four reviews the impact on discourse of the reform wing of the Hungarian Socialist Worker's Party (MSzMP) in the late 1980s, while Chapter Five considers Kádár's last days, comparing his fate to those of Macbeth and Richard II--a story of the transfer of power and demise.
Chapter Six deals with the Antall years (1990-94). Here Lengyel claims that one of the Hungarian Democratic Forum's biggest mistakes lay in the construction of its discourse. The broad and relatively accessible language of nation and nationality was transformed into the language of accusation and exclusion. The labeling of diverse groups as "anti-Christian" and "anti-Hungarian" succeeded in alienating the majority of Hungarian voters by 1994. Further, after a time severe critiques of Kádárism were no longer so popular with Hungarian citizens; Lengyel claims that much of the Kádárist social and public value system of the 1980s survived into the 1990s.
The last three chapters examine the leadership and style of discourse of Gyula Horn and his post-transition Socialist Party (MSzP). Lengyel claims that a shift from a discourse which perhaps did not directly address, but was at least understood by Hungarian citizens, to a discourse constructed for and directed towards Western and international powers (the EU, the IMF and World Bank, NATO, etc.) is partly responsible for a lack of credibility in contemporary Hungarian public life. Politics as practised in the Kádár age consisted of introducing reforms only after the onset of crises. Lacking a moral foundation, public life simply became amoral, as it has in the West. In a sense, according to Lengyel, this has led to the final stage of transformation of the Kádár reforms and regime, in which crisis--in terms of economic life, corruption, overweening self-interest and lack of morality--has become the constant underpinning of the political system.
Lengyel does present a skeleton of a theory rather indirectly, but adds little meat to its bones. The skeleton appears as follows: despite changing institutional structures and external circumstances, the Hungarian political and economic elite, at least from the consolidated Kádár years through the transformation of regime into the present, has remained remarkably consistent. The main strand of consistency is the elite's ability to adapt to circumstances by being fit for everything. It is quite possible to see Lengyel's homo kadaricus as Kenneth Arrow's rational actor in the flesh. But, as we have already pointed out, Lengyel does not clearly advance any theory, nor does he systematically attempt to verify one. Thus, the book ends not with validation or refutation, but with something of an anti-conclusion, predicting continuing chaos, corruption, and unprofessionalism in Hungarian public life. The most striking part of his conclusion, and perhaps the most disturbing part for those interested in systematic study and conclusions, is Lengyel's prophetic wish for a Messiah of Hungarian politics:
...nowhere do we find the positive, strong, and decisive "hero," who, with accumulated political, economic and moral capital, could give a spur to the economy [...] But perhaps [...] the future will breed leaders who consider the construction of enduring buildings more important than that of private swimming pools (p. 201)
As this quote shows, in a sense Lengyel is hoping that self-interested rational choice will cease to be the guiding principle among the Hungarian business and political elite. He seems to be casting himself in the role of political soothsayer--a John the Baptist of Hungarian politics.
Nowhere in the book does Lengyel actually define the precise constitution of the regime-transforming elite. He deals extensively with leading figures of the MSzMP (particularly János Kádár), poets and writers, cadre leaders, and, to a lesser degree, with factory managers and the Hungarian public at large. Lengyel thus casts too wide a net for analysis, even discourse analysis. By not positing a clear idea of the nature of the elite (or elites), he is unable to give a systematic account of their attitudes or roles. It is perhaps this ambiguity that prevents Lengyel from reaching a coherent conclusion. He seems to be left with the sole option of saying that country and society are now based on a new eclecticism and a postmodern foundation (an "easy way out" as far as conclusions go). He groups vastly different formations and figures under one "elite" umbrella rather than pointing out the characteristics which mark the vast differences between diverse elite subgroups.
Since it lacks an empirical base, The Rise and Fall of the Regime-transforming Elite tends to become rather rhetorical and descriptive. However, some of Lengyel's comments and observations are insightful, and deserve further reflection and study. His introduction of the concept of "lifestyle nationalism," on page 27, which he develops further in Chapter Three (on "lifestyle-boasting"), seems an interesting approach to the study of national self-consciousness in the Kádár years, particularly vis-à-vis Austria and Romania. Essentially, the discourse of "traditional" or ethnic nationalism was largely suppressed during the period, while national pride expressed itself through boasting about the consumerist merits of Hungarian life, e.g., the strength of the forint, the weekend cottage and foreign travel. Unfortunately, Lengyel does not go far enough in deepening and substantiating this concept. The reader is left with the impression that she/he has not read a potentially valuable exposition by a political scientist, but rather a series of comments by a mere observer, albeit an astute one, of Hungarian society.
Imre Lakatos asserts that "...intellectual honesty consists [...] in specifying the conditions under which one is willing to give up one's position."
Lengyel falls short of Lakatos' standard in two ways. First, he neglects to give a clear account of his theory or position. This, of course, leads to the second shortcoming: nebulous theories and positions are not subjected to the empirical world for testing. There is enough useful and accessible data on elites and political knowledge and culture in Hungary. But The Rise and Fall of the Regime-transforming Elite neglects to draw on this data. In this sense, Lengyel's contribution with this book is to the realm of journalistic commentary, and not to the field of political (or social) science/philosophy. Lengyel's hypotheses remain to be clearly articulated and tested, perhaps by his successors in Hungarian political science.