This study by Mr Sanjaya Lall of the Oxford University Institute of Economics and Statistics was commissioned by the Secretariat as an input into Commonwealth consultations, at the ministerial and other levels, in the general area of relations between host Governments and foreign suppliers of investment and technology. The study is partly based on, and summarises the empirical work done by the author, in co-operation with Mr P. Streeten and associates, for UNCTAD.

This paper seeks to examine the nature and main effects of multinational corporations (MNCs), mainly in the manufacturing sector, on the economies of developing countries.

These extracts from two recent studies of the multinational corporation (MNC), eminent by virtue of their status and their comprehensiveness of scope, capture the essential problem posed by the emergence of this phenomenon. The MNC has come of age: it dominates the international economic scene in the non-Socialist world and is even making incursions into many Socialist countries; it has grown far beyond its traditional confines of primary product extraction to many branches of manufacturing industry, commerce, tourism, banking and other services; and it has created around itself an aura of superiority, dynamism and power, all the myths and symbols that accompany the rise of a new social force.

This part is sub-divided into three sections; the first attempts to give a workable definition of MNCs; the second discusses the main features which characterise the modern multinational (manufacturing) corporation, and the third presents some figures on the present size and distribution of MNCs, especially in Commonwealth countries.

We started this paper by remarking on the inherent difficulties of assessing the general implications of a social phenomenon as important as the modern multinational firm. Not only are its effects numerous and sometimes unquantiable, they are also not strictly ‘economic’ and are subject to wide differences in interpretation. This is not, however, the end of the problem.

Unfortunately, most discussions of the effects of MNCs end up being a catalogue of various pros and cons; we are very much at fault for doing this, yet what is the alternative? It would be presumptuous to sum up the entire constellation of diverse effects and present a ‘net effect’; it would be equally unsatisfactory to leave out the unquantifiable and ‘non-economic’ effects and concentrate solely on things which can be measured. The formulation of any policy towards foreign investment and MNCs must, obviously, depend not only on the use of orthodox economics but also, perhaps even more so, on sensitive social, political and cultural judgment.

The policy considerations of developing host countries vis a vis MNCs may be divided into two broad groups: those concerning the attraction of MNCs, and of foreign investment in general, to a particular country, and those concerning their evaluation, control and bargaining by the host government.

It will be helpful at this stage to revert to the distinction between the four ‘levels’ at which MNC effects were discussed (in Chapter III). The taxonomy is mainly for analytical purposes. It is not suggested that the policy issues at each ‘level’ should be clearly demarcated and handled by different administrative units? on the contrary, it will be recommended that dealings with MNCs should, with obvious exceptions of issues which can only be dealt with on a national scale, be entrusted to a centralised body and not spread over various departments.

We have, throughout this paper, laid enormous stress on the role of the government, in finding out what is conducive to social welfare, in specifying policies which would promote it, and in implementing those policies with honesty and efficiency. At no stage have we tried to make it sound easy; however, before finishing we must mention some of the problems inherent in formulating and implementing policies for dealing with MNCs.