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The Evolution of International Business: An Introduction

Author(s):Jones, Geoffrey
Reviewer(s):Taylor, Graham D.

H-NET BOOK REVIEW Published by H-Business@cs.muohio.edu (July 1996)

Geoffrey Jones, The Evolution of International Business: An Introduction . London and New York: Routledge, 1996. xii + 360 pp. Bibliographical references and index. Cloth, ISBN 0-415-10775-X; paper, ISBN 0-415-09371-6.

Reviewed for H-Business by Graham D. Taylor, Professor of History/Dean of Arts and Social Sciences, Dalhousie University, Halifax, Nova Scotia

During the 1960s multinational enterprises emerged as a focus of interest (and much controversy) both for economists and for the general public. Much of the literature of that era (leaving aside the important pioneering works of Raymond Vernon, Charles Kindleberger, and John Dunning) provided a very time-bound perspective on this phenomenon. Economists tended to treat multinationals as byproducts of post-World War II international financial integration and improvements in communications and transport technologies. To the broader public, in the United States and elsewhere, they were associated with U.S. economic expansion and indeed were perceived as reflecting a particularly “American” form of business organization.

Since that era, the international economy has changed dramatically: multinational enterprises became truly “multinational” as East Asian and European firms expanded (or, perhaps more properly in many instances, reappeared) in global markets and new cross-national “strategic partnerships” of firms emerged. During the same period, the historiography of multinational enterprise was vastly enriched by scholars such as Mira Wilkins, D. K. Fieldhouse, Peter Hertner, Shin’ichiYonekawa, and many others, who not only probed well into the pre-twentieth-century origins of multinational activities, but also linked their work with broader reinterpretations of the dynamics of business evolution and organization.

Geoffrey Jones has been very much a part of that international community of scholarship on multinationals, and in this book he has undertaken to synthesize that literature. Jones far too modestly designates the study as a “text book” or “introductory survey.” It is in fact a substantial contribution to our understanding of the historical significance of multinational business, broadly defined to encompass more than the conventional category of “foreign direct investment” (FDI). His book provides a needed overview of the global dimensions of this phenomenon and a coherent framework for analysis of major historical trends and central issues emerging from the literature.

Jones’s study opens with a review of the major interpretive approaches to analyzing multinationals, including concepts of ownership advantage, internalization/transaction cost, and Dunning’s “eclectic model,” all of which are well integrated into the historical chapters that follow. He also links the study of multinational evolution to the themes of organizational development associated with Alfred Chandler and the literature on the firm and national competitiveness.

This section is followed by a general overview of the major trends in multinational operations since the mid-nineteenth century, highlighting the distinctiveness of different periods in that evolution (1880-1914; the interwar period; the 1940s to 1960s; and the period since 1971). This periodization indicates both the continuities of growth of international business and the volatility of that history, reflecting shifts in external factors (“the business environment,” encompassing the impact of wars, shifts in global trade and monetary arrangements, nationalizations and other governmental regulatory measures) and consequent changes in the strategies of firms.

The next chapters review the role of multinationals in specific industrial sectors: natural resources, manufacturing and services. There is a certain degree of repetition in these sections, as Jones works through each period for the different sectors. But it is also clear that very different patterns can be discerned in the forms and motivations underlying international direct investment in each sector, as well as in the internal dynamics of firm organization, relations among firms, and between multinationals and governments.

The final chapters focus on particular issues that have emerged in the literature. These include: the variations among nations and cultures in the propensity of their business enterprises to engage in foreign investment; the relationship between foreign direct investment and economic development, in terms of both home economies (of the multinationals) and host economies; and the relationships of multinationals and governments.

Despite its relative brevity, this is a dense book that covers a wide range of topics relating to the history and theory of multinational business, each in a balanced but succinct manner. Consequently, it would be an oversimplification to suggest that it embraces a particular set of themes or line of argument. But there are certain general characteristics of the history that emerge from the study.

From the late nineteenth to well into the twentieth century, most foreign direct investment was focused on the development of natural resources, with some spinoff growth of ancillary services. Latin America and Asia were particularly notable recipients of this investment. FDI in manufacturing expanded slowly through the early twentieth century and more dramatically in the period after World War II, and the geographic center for such investment shifted to Western Europe. This trend in turn was overtaken by developments in the service sector (particularly in finance) in the past two decades, with East Asia and Western Europe, along with the United States, as major areas of investment activity.

Although there have been periods of single-country dominance in outward investment (the United Kingdom between the 1880s and 1914, and the United States in the 1950s and 1960s), perhaps more significant has been the consistent growth of multinational operations over the past century. As noted earlier, Jones’s approach embraces a range of international business activities. During the pre-World War I era, investment flows were tied to some extent to the “imperial” territories of various European nations (with regions such as Latin America becoming a battleground for European and American investors), and occurred through a peculiar (and primarily British) form called “free-standing companies” (local enterprises owned by foreign syndicates) as well as the more familiar home-and-branch operations.

In the interwar period, as national governments imposed a variety of constraints on international trade and capital flows, international cartels flourished, in part as a means of circumventing them. In the period since the 1970s, a new form of “strategic partnership” among firms of different nationalities has emerged, reflecting both the diverse origins of enterprises in global markets and the effects of financial integration coupled with the growth of regional trade blocs. In each era multinational businesses have altered their forms of operation to suit contemporary conditions, while sustaining a general trend toward growth and integration.

The strength of the book lies in its coherence, its ability to provide a clear framework for a complex process of development over a fairly long time-span. Some of this coherence might have been lost had Jones extended his analysis even further back in time, but it might have been a useful exercise to provide a broader historical perspective on the evolution of international business (as opposed to the evolution of multinational enterprise). Jones does devote a section of his chapter on “Multinationals and Services” to a discussion of the large international trading companies of the seventeenth and eighteenth centuries; but generally he focuses on the period after 1880, with an emphasis on improvements in technology (enhancing the internal management of firms in international markets) and financial integration, accompanied by nationalistic trade policies, in shaping a business environment congenial to multinationals.

But, as studies by Larry Neal (on international capital markets), James Tracy and Jonathan Israel (on the Dutch and British “merchant empires”), and Ann Carlos and Steve Nicholas (on the internal organization of trade companies) indicate, by the eighteenth century the international economy had developed strong financial and logistical links, and businesses such as the Hudson’s Bay Company and the East India companies were developing mechanisms for internal communication and management.

Jones’s chapter on multinationals and natural resources understandably gives pride of place to the “nonrenewable” resource sector (mining and petroleum) and does not ignore the “renewable” area. But a review of multinationals in the forest products industry could reinforce some of the points he makes in other contexts. As a capital-intensive industry, forest products (especially pulp and paper) has been a field with a number of multinational actors, such as the British firm Bowater, the Swedish Stora, the U.S. Weyerhaeuser, and Canada’s MacMillian-Bloedel. The intricate links between publishing companies and paper manufacturers in international markets provide another interesting feature of this industry, ranging from direct-investment ventures (such as the Chicago Tribune‘s Canadian pulpmills) to Bowater’s “strategic partnerships” in the 1920s-1940s (not without endless friction) with the British newspaper barons, Rothermere and Beaverbrook, to exploit the forestry resources of North America.

These are minor caveats, however, and do not detract from the general quality and significance of Jones’s study. As noted earlier, the book represents a well-organized synthesis of the state of the historiography of international business today, which at the same time can provide a basis for future research in the field, by identifying major lines of argument and the areas of uncertainty and controversy that still must be addressed.

Graham D. Taylor Dalhousie University

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Subject(s):Business History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Cities of Heat and Light: Domesticating Gas and Electricity in Urban America

Author(s):Rose, Mark
Reviewer(s):Castaneda, Christopher J.

CITIES OF LIGHT AND HEAT: DOMESTICATING GAS AND ELECTRICITY IN URBAN AMERICA. By Mark H. Rose. (University Park, PA: The Pennsylvania State University Press, 1995). 201 pp. + xviii, bib. essay, and index. $34.50. Reviewed by Christopher J. Castaneda, California State University, Sacramento.

By relating the development of household gas and electric utilization to theories of technology and society, Mark Rose tests a long-standing debate. Simply put, does technology shape society or does society shape technology? Rose provides a careful analysis of the gas and electric business to show that a complex interplay of social, political, and economic contexts shapes technological development.

Rose focuses his study on the urban spaces of Denver and Kansas City through the year 1940. After 1940, he generalizes on a nationwide basis although he presents much more material relating to the earlier period in the two cities. Rose’s involvement with this topic began in the mid-1970s, when he, in collaboration with John G. Clark, initiated research on the topic of energy choices in these cities while teaching at the University of Kansas. He noted the many differences between Denver and Kansas City, but the author was struck by the triumph of “urban politics, middle-class tastes, and the social-spatial composition” in both. (p. 11) In some respects, the similarities between these cities may limit our ability to extend their specific experiences to those of east and west coast locations; Rose’s observations are particularly cogent for the midwestern experience.

Certainly, in these cities as well as others in the U.S., early gas and electric firms promoted their services through a variety of methods in order to develop a customer base. It gradually became clear that electricity and gas were simply cleaner and easier to use than other domestic fuels such as coal. But what exactly was the larger social process through which the gas and electric business developed? This is the question Rose seeks to answer.

Rose tells us that “agents of diffusion” were responsible for distributing both the ideas about the new technology and the appliances themselves. These agents included teachers, architects, homebuilders, and salesmen. The most important of these were salesmen who worked for the utility entrepreneur, Henry L. Doherty. Doherty rose to prominence in his industry as an innovator in devising rates and promotional activities. His three part flexible rate structure encouraged gas consumption while his well-trained, clean, polite, and prompt salesmen sought to represent those same qualities in the electric or gas service they were selling. Rose’s account of the Doherty System is interesting and important for it brings forth the sales techniques of an early industry which offers new material for inquiry.

Doherty, later the head of Cities Service Company, was in many ways like Samuel Insull; both men controlled vast public utility holding company empires. Insull is more well known – in part because of the work of Harold Platt and Forrest McDonald – and also because of the infamous collapse of his empire. But Insull operated in Chicago, and Doherty was strong in the central United States including Kansas City and Denver. Thus, Rose has provided a valuable contribution by examining a part of the career of another public utility captain who controlled the gas and electric business in a large part of the United States.

Rose examines other less prominent though effective agents of diffusion including J. C. Nichols and Roy G. Munroe. Munroe never advanced beyond a mid-level salesmen, albeit a successful one, while Nichols became a prominent developer. Both promoted gas and electric technologies from different perspectives but to the same end. Other players in the scheme included teachers. In vocational schools, students studied the gas and/or electric facilities used to light and heat their own buildings. Many of these students would later find employment with the local utility firm. Public schools served indirectly as models for the ideal of gas and electric technology. Codes required a high level of illumination and ventilation in classrooms in order to provide a healthful and supportive learning environment for teachers and students.

In the home, appliances relieved the drudgery and heavier labor involved in domestic housekeeping, though they often created new chores, while other new technologies provided benefits to men in their work places. Ideally, irons, refrigerators, stoves, air conditioners, and heaters provided people with the ability to begin to regulate their own built environments. Rose shows how these appliances, which tended to benefit women and housekeepers, were marketed to increase the more feminine qualities of “comfort, convenience, and cleanliness” of the home. (p. xv)

The very brief analysis of the post-1940 era is not as convincing as that of the earlier one. It is essentially a cursory review of the continuing growth and promotion of gas and electric power utilization through the mid-1980s. The complex regulatory, marketing, and technological developments of the last fifty years, though, would provide fertile ground for an in-depth analysis of the social history of the light and power business during that period.

This work does elevate the scholarship of the U.S. gas and electric business. In this regard, Rose jousts with Alfred D. Chandler’s statement in The Visible Hand that electric, gas, and trolley systems of the 1920s “remained smaller and less complex than the older railroad systems.” (p. 204) Certainly, the hundreds of thousands of diverse customers dealt with on a regular basis by gas and electric employees, varying rate schedules, and a multi- level public policy suggests a higher level of complexity in those newer urban technologies than Chandler suggests.

There are integral parts of this story that deserve additional attention. The author effectively shows how coal stoves, for example, were displaced by cleaner and more easily maintained gas stoves. While Rose does distinguish between natural gas and manufactured coal gas, he might have delved further into the transition from manufactured gas to natural gas; the natural variety was significantly cleaner and more hygienic than the coal and oil based variety. How did gas companies promote this intra- industry fuel shift to their customers? In addition, did utilities market gas and electric service directly to other groups besides upper-income white families.

The author accurately describes Henry L. Doherty as a master of promotion, public relations, sales techniques, and rate structures. But Doherty may not have consciously sought to adapt the gas industry to the urban environment as much as he simply desired to find the best way to gain control over the markets which he claimed. Although this book is not about the process of bringing fuel to the cities (as opposed to how it is used in the city), Doherty was a ruthless competitor who sought to destroy and/or acquire those who tried to supply fuel to the markets he called his own. Thus, Doherty’s insight into marketing was probably influenced less by a desire to adapt his business to the consumer than a drive to show the consumer how to benefit from his product. Although the book tends to downplay the capitalistic tendencies of men like Doherty, it does describe well the social outcome of their work.

This book cuts across the disciplines of urban history, energy history, and the history of technology. It draws upon a wide variety of sources including corporate records and trade journals. The mix of biography, technical data, and descriptions of urban development make for a well composed and well written book which provides a very useful foray into the technological evolution of the 20th century home. Rose has succeeded in showing how social, political, and economic forces shaped the gas and electric business in Kansas City and Denver, and how these forces worked to domesticate energy nationwide.

Christopher J. Castaneda California State University, Sacramento cjc@saclink1.csus.edu

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII