THE BUSINESS OF INTERNATIONAL POLITICS

Review by David Skidmore

Drake University

Power and Profits: U.S. Policy in Central America. By Ronald W. Cox. Lexington: University Press of Kentucky, 1994. 189 pp., $???.

The Political Economy of Third World Intervention: Mines, Money and U.S. Policy in the Congo Crisis. By David N. Gibbs. Chicago: Chicago University Press. 322 pp., $???.

Mercantile States and the World Oil Cartel, 1900-1939. By Gregory P. Nowell. Ithaca: Cornell University Press, 1994. 326 pp., $???.

Recent years have brought renewed interest in the societal determinants of foreign policy and international relations. While realist and liberal theorists each proceed from the assumption that foreign policy is the product of some version of the national interest, societal explanations depict the foreign policy-making process as dominated by the struggle among private interests. Among the more interesting studies in the latter vein are those that focus on the role of business. Recent works by Ferguson (1984), Frieden (1987, 1988, 1989), Milner (1988) and Maxfield and Nolt (1990) have provided us with a more sophisticated understanding of why and how business interests insert themselves into the foreign policy-making process.

Each of the works cited above dispenses with the notion that business constitutes a monolithic class. Instead, this new wave of research into business influence focuses upon intra-class conflict. Foreign policy issues often evoke serious cleavages among distinct business groups. These clashing interests give rise to conflict within and among nations over international issues. The most pervasive fault line divides nationalist from international business blocs. Nationalists consist of smaller, less competitive firms that depend upon the domestic market for their sales and profits. Internationalist firms are typically larger, more globally competitive and engage heavily in trade and foreign investment. Nationalists and internationalists possess conflicting policy preferences in areas such as trade, exchanges rates and foreign assistance.

The recent literature on such divisions and their consequences for foreign policy and international relations can be dubbed the business conflict school. The three books under review belong to this emerging perspective and each succeeds in extending this research agenda in interesting directions. Ronald Cox and David Gibbs examine the influence of contending business factions on U.S. interventionism in the Third World. Cox focuses on the U.S. role in Central America while Gibbs explores U.S. involvement in the Congo crisis of the early Sixties. Gregory Nowellís study is the most ambitious of the three. While Nowellís proximate concern is the evolution of French oil policy from the turn of the century through the Thirties, he ranges much more broadly to illuminate the origins of the world hydrocarbon cartel that first crystallized in 1928. A discussion of these three books can shed light on the basic approach and propositions of the business conflict school and suggest directions for future research.

The United States and the Congo Crisis

Gibbs' story revolves around the competition between Belgium and American business interests over access to the Congo's rich copper resources. Although Belgium reluctantly granted independence to the Congo in 1960, Belgian investors, led by the mining company Union Miniere du Haut Katanga (UMHK), sought to preserve their profitable political and economic influence in the former colony. These interests were opposed not only by Congolese nationalists, but also by competing U.S. firms, who hoped to displace Belgian investors and win mining rights in the Congo. Over time, these American investors secured increasing support from the U.S. government. Eventually, U.S. business interests succeeded in reducing Belgian influence and gaining a dominant position in the Congo's mining industry.

Gibbsí account moves through four phases. Shortly after the Congo achieved independence, the new government was confronted with a successionist movement centered in the copper-rich Katanga province. The Katangan successionists were supported by UMHK, which supplied the Katangan government with eighty percent of its revenues and organized a mercenary force to help Katanga in its confrontation with the central government. UMHK sought to insure its interests against possible interference by the Congo's nationalist president, Patrice Lumumba.

The Eisenhower Administration supported the Katanga succession. The U.S. backed the intervention of U.N. forces which, initially, leaned in favor of the Katangan separatists. The CIA assisted in a successful coup by Congolese military officers to overthrow Lumumba's government. Gibbs attributes the Eisenhower Administration's attitude to ties between a number of key U.S. officials and Belgian business interests.

U.S. policy shifted sharply during the Kennedy years. After some vacillation, the U.S. weighed in on the side of the central government and encouraged the U.N. to turn its forces against the Katangan separatists. The rebellion was finally crushed in 1963. The Kennedy period witnessed considerable conflict among U.S. business interests. A pro-Katangan bloc with ties to UMHK managed to win support in the congress and made some inroads into the executive branch. Yet a larger bloc of anti-Katangan business interests with more extensive ties to many of Kennedy's top advisers ultimately came to exert decisive influence on U.S. policy.

During the third phase, the Congo's weak central government was plagued by multiple leftist insurgencies. Faced with the prospect of radical forces gaining power, Western governments and business interests united around a policy of military and covert intervention to stamp out leftist rebellion in the period from 1963 to 1965.

Friction arose again in 1965, however, when U.S.-supported General Joseph Mobutu took power in another coup de etat. Mobutu, in close consultation with U.S. business interests, moved to nationalize UMHK's copper mining operations. UMHK retaliated by blocking the overseas sale of Congolese copper and sponsoring a series of mercenary rebellions against the Mobutu government. The U.S., sympathetic with Mobutu's challenge to UMHK, provided military aid to help Mobutu put down these rebellions. Although Mobutu was ultimately forced to reach a compromise with UMHK, U.S. officials intervened to insure that U.S. rather than Belgian investors were granted a lucrative mining concession to exploit untapped copper deposits in the Tenke Fungurume region. U.S. economic influence in the Congo came to surpass that of Belgium.

Gibbs succeeds in showing that contending business interests were engaged by the Congo crisis, that these interest insinuated themselves into the policy-making process and that this intervention influenced U.S. policy at various points. Still, his argument is vulnerable to at least two important criticisms.

To his credit, Gibbs compares and tests his business conflict model against six alternative approaches to explaining U.S. foreign policy. Unfortunately, however, only one of these six generates a clear prediction regarding the substance of U.S. policy in the Congo case. The other five fail to tell us whether to expect U.S. intervention in the Congo and, if so, on which side. As a result, Gibbsí theoretical comparisons are largely limited to process variables, i.e., which groups or interests should be expected to participate in policy-making. This provides a weaker basis for judging the relative merits of each model. We are left without a baseline against which to measure the contribution of a business conflict approach to explaining U.S. policy. What sort of policy should we have expected toward the Congo in the absence of business intervention? Lacking an answer to this question, it is difficult to tell what difference business pressures made to U.S. behavior.

Gibbsí argument focuses heavily on the personal ties between U.S. officials and various business interests. This helps to explain the policy preferences of individual decision-makers in several important instances. Yet some policy-makers had no ties or only weak ones to any of the contending factions. Others possessed ties to multiple firms on different sides of the contest. A few who had ties to a specific business faction adopted policy preferences contrary to the interests of that group. This leads to a messy picture. In general, Gibbsí approach confronts difficulties in moving from the explanation of individual policy preferences to those of the state as a whole.

United States Policy Toward Central America

Coxís account of business conflict over U.S. policy toward Central America progresses through three stages. During the Fifties and Sixties, the principal cleavage divided nationalist from internationalist business groupings. Following World War II, internationalist firms were attracted to Central America as a potential site for low-wage manufacturing. These interests sought three policy changes to aid the movement of foreign investment to the region: (1) expanded aid programs to improve Central Americaís poor economic infrastructure, (2) changes in U.S. tax law to encourage American direct foreign investment abroad, and (3) reductions in U.S. tariff rates so that goods produced by U.S. firms in Central America and elsewhere could be profitably exported back to the U.S. Nationalist firms, fearing increased import competition, opposed all three initiatives. They succeeded, however, in blocking only the latter. U.S. tariff levels remained high until implementation of the Kennedy Round of tariff cuts in the Sixties.

Discouraged from using Central America as an export platform by U.S. tariff barriers, internationalist firms began to advocate Import Substitution Industrialization (ISI) in Central America and other Third World countries. Internationalists benefited in two ways from Third World ISI. First, foreign investors could produce consumer goods in the Third World for domestic consumption behind high protectionist barriers, often achieving a local monopoly in the process. Second, U.S. producers of capital and intermediate goods in the U.S. could expand exports to the Third World by supplying the inputs needed to construct new ISI industries. This strategy required Third World markets of sufficient size to justify new investments. To achieve this, internationalist firms supported the creation of the Central American Common Market (CACM). U.S. government officials also encouraged and aided Central American countries in embarking upon this path.

A new phase in U.S. foreign economic policy began in 1968 when the Agency for International Development (AID) reduced its support for CACM programs and encouraged Central American governments to move from ISI to a strategy of Export Led Industrialization (ELI). This policy change was prompted by the shifting interests of U.S. business firms involved in the region. By the end of the decade, the CACM had begun to experience serious strains. In 1969, El Salvador and Honduras clashed in the so-called Soccer War. Trade imbalances among the regionís economies also disrupted Central American unity. The region as a whole ran a large trade deficit with the U.S. owing to the expense of importing capital goods as well as the depressing effects of ISI policies on exports. Neglect of the rural sector had prompted large movements of people from the countryside to the major cities, with attendant social and political tensions. Finally, domestic markets for the goods produced by U.S. investors became satuarated. Moreover, the Kennedy Round tariff cuts removed the main obstacle that had previously mitigated against an export-oriented development strategy. U.S. investors responded to these conditions by shifting toward the production of labor-intensive goods for export to the U.S. market. Agribusiness investment also expanded. U.S. banks helped finance this new wave of investment.

A third stage in U.S. relations with Central America began in the late Seventies with the onset of political instability and the emergence of leftist revolutionary movements in several countries. These developments created worries for all U.S. firms involved in the region, but responses differed. Firms engaged in labor-intensive production felt most threatened. The profitability of these firms rested upon access to inexpensive labor. Revolutionary movements, committed to greater equity, social justice and higher wages, threatened this critical resource. Moreover, labor-intensive firms were vulnerable to expropriation, since they brought little capital or technology from outside. Capital-intensive firms were less dependent on low wage labor and less vulnerable to nationalization. Banks were less concerned about a countryís ideological orientation than with its ability to make payments on its debt. Bankers approved, for instance, of the Sandinista governmentís initial willingness to honor Nicaraguaís inherited debts.

Capital-intensive firms and U.S. banks supported the use of U.S. economic and political leverage to encourage moderation on the part of the Sandinistas in Nicaragua and conciliation between right and left wing forces in other Central American countries. These interests shaped the policies of the Carter Administration, which initially offered aid to the Sandinistas. Labor-intensive firms were less tolerant of radical forces. They favored militant policies designed to oust the Sandinistas from power and the generous provision of military aid to right wing governments struggling to fend off leftist insurgency. The economic interests of these investors reinforced the strongly anti-communist ideological proclivities of the Reagan Administration.

Even while differing over how to deal with revolutionary movements, both sets of internationalist business interests converged around the need to encourage ELI policies in Central America. Both labor- and capital-intensive firms therefore welcomed and helped shape the Reagan Administrationís Caribbean Basin Initiative (CBI), which offered countries in the region increased aid and preferential access to U.S. markets for their exports. Nationalists opposed the CBI and, while unable to block it altogether, worked through the congress to reshape its most objectionable provisions. Coxís straightforward account shows a clear and consistent correlation between shifting business preferences and changes in U.S. policy toward Central America.

The Emergence of the World Oil Cartel

Nowellís principal purpose is to challenge statist interpretations of French oil policy. France is often depicted as possessing a strong state which, in the area of energy policy, has successfully subordinated private actors to the purposes of national security and prosperity. This interpretation dovetails with the theoretical expectations of the realist-mercantilist tradition. Yet Nowell succeeds in demolishing the myth that an autonomous French state directed energy policy toward a putative national interest during the first decades of the twentieth century. Instead, French policy-making reflected the struggle among contending business interests.

The basic business cleavage of the era pitted Standard Oil, the most powerful of the major oil companies, against a few smaller European firms such as Royal Dutch-Shell and Anglo-Persian. The primary issues in dispute concerned control over new sources of oil and access to major markets in Europe and the Far East. A second struggle, intensifying in the Twenties and Thirties, took place between producers of oil and coal. The first contest was resolved in 1928 with the creation of a global oil cartel led by Standard Oil. The second resulted in the victory of oil over coal and the exclusion of the coal industry from production of synthetic oil.

The role of the French state in these commercial disputes changed over time as shifting business alliances struggled to gain control over policy. During and immediately after World War I, French policy sought to strengthen Royal Dutch-Shell at the expense of Standard Oil. Standard was blamed for shortages of oil in France during the later stages of the war. These charges, exposed by Nowell as baseless, provided the excuse for French authorities to declare a state oil import monopoly after the war that sought to reduce Standardís share of the French oil market in favor of Royal Dutch-Shell. Standard executives responded by halting oil shipments to France. As Royal-Dutch Shell was unable to compensate for this abrupt decline in oil deliveries, French officials were forced to disband the monopoly and once again allow Standard free access to the French market.

Humbled by Standardís market power, French authorities sought to institutionalize Standardís role in the French energy complex. In 1923, France created a state-sponsored oil company called the Compagnie Francaise de Petroles (CFP). This so-called national champion has been interpreted by many observers as a product of French statism. In fact, all shares in the company were originally owned by private investors, with the largest portion going to Standard Oil. Not until 1928 did the French state take a major stake in the company. Even then, state funds were provided in response to the pleas of the original private investors, who were experiencing difficulty in raising the capital needed to expand production in Mesopotamia.

In 1928 France also passed an oil import law whose quotas precisely reproduced the relative shares of the global market parceled out to different firms in the private cartel arrangement achieved that year. In many other ways, French oil policy served private interests while passing up opportunities to enhance the national interest. In the Thirties, for instance, French authorities failed to challenge Standard Oil and I.G. Farben control over crucial patents that stymied the efforts of coal producers to move into the production of synthetic fuels, despite the fact that such a development might have provided France with energy independence at competitive costs. These points only hint at the sweeping breadth and originality of Nowellís study. The French state and other governments of the era emerge as less the masters of their national destinies than as the convenient instruments of business empires engaged in a global struggle for commercial advantage.

Despite its strengths, Nowellís study does suffer from two major shortcomings. Instead of developing the many potential middle range hypotheses that are suggested by his empirical analysis, Nowell reaches for something grander in his concept of "transnational structuring," which he equates with the "international struggle for market control" (p. 4) among business firms, alliances and cartels. In the process of securing their economic interests, large international business coalitions manipulate state policies and institutions to control markets, sway the regulatory environment and gain advantage over rival firms.

While transnational structuring clearly encompasses the strategic behavior of firms in relation to both markets and politics, it is less clear whether the concept refers principally to structures, agents or processes. Moreover, Nowell makes little effort to formalize his model by specifying basic causal processes, generating clear predictions or stating the conditions under which a theory of transnational structuring could be falsified. While suggestive, the concept of transnational structuring will require more careful specification and elaboration before its value can be fully exploited.

Nowell is also vague about the status of realist theory in light of his analysis and approach. Should a theoretical approach that places business interests at center stage seek to (1) complement realism, (2) replace realism, or (3) subsume realism? Nowell appears to adopt each of these three approaches at different points. The failure to achieve clarity or consistency on this point leads to confusion and muddles the process of comparing and testing theories. Nowell, of course, is hardly alone in fudging this important issue.

Directions for Future Research

Research built upon a business conflict model has made a promising start. Yet many puzzles remain to be resolved. The questions listed below provide a suggested guide to future research efforts.

1. Can we develop theoretical models that predict the policy preferences of various types of business firms with respect to different sorts of issues? Using the Stopler-Samuelson theorem and other analytical tools, Jeffry Frieden (1987) and Ronald Rogowski (1989) have constructed useful deductive models for predicting business and labor preferences in the areas of trade, finance and colonial policy. Cox makes use of these insights and offers his own hypothesis about the divergent policy preferences of capital- and labor-intensive firms toward leftist regimes in the Third World. All three authors rely primarily, however, upon post-hoc inductive methods for identifying business preferences and cleavages. Whether the inductive findings drawn from these particular cases can be generalized to other cases remains untested. Theoretical progress is likely to require movement back and forth between deductive and inductive approaches.

2. Does business influence vary across issues in predictable ways? Are some kinds of issues more likely to prompt business mobilization than others? Are some types of political and institutional contexts more permeable to business pressures than others? The answers to these questions are less clear and more complex than one might suppose. All three of the present studies suggest that the traditional distinction between economic and security issues does not serve as a fundamental dividing line for business influence. Nowell argues that business firms may acquire even greater leverage over state policy during periods of warfare due to increased state dependence upon private sector provision of war supplies. Cox and Gibbs both show that business interests sometimes motivate military or covert intervention. The distinction between strong and weak states also fares poorly. Nowell shows that the French state, long considered the archetype of the strong, autonomous state, has in fact been deeply penetrated and constrained by private interests. Even if traditional distinctions break down, however, there is no reason to suppose that business firms take an equal interest in all issues or that the opportunities for private sector influence do not vary systematically in some way.

3. Can we devise more systematic techniques for mapping business alliances? The behavior of business firms is influenced by the myriad ties that exist among them. These include overlapping boards of directors, mutual stockholdings, joint ventures, licensing agreements and supplier networks. The same is true of business associations, which differ in the composition and homogeneity of their memberships. Such ties help to explain otherwise puzzling preferences and behavior. Each of the books under review notes the importance of these sorts of factors in determining patterns of cleavage and alliance and analyzes their impact in particular cases. None, however, takes advantage of recently devised techniques for mapping these sorts of networks in a thorough and systematic way (see Mintz and Schwartz, 1985; Scott, 1980; and Useem, 1984). Networking analysis should be added to the toolbox of scholars interested in analyzing the political behavior of business firms.

4. How can we measure the political power of different business factions apart from knowledge of outcomes? Business conflict models attempt to identify patterns of rivalry among various factions of business. Yet once the relevant cleavages have been identified, there remains the matter of assessing the impact of this struggle upon policy. To generate predictions, one must have some way of measuring the distribution of politically relevant resources across contending business factions. The temptation is to deduce the distribution of power from outcomes. This leads, however, to circular reasoning. To generate falsifiable predictions, one must devise some a priori means of measuring power or capabilities. This is a difficult problem, both conceptually and empirically. None of the three books under review discusses the issue explicitly or offers general guidelines for dealing with it. This problem deserves further attention.

5. How do business firms overcome collective action problems? Business firms can enhance their potential influence by acting collectively rather than individually. Yet the obstacles to collective action include large numbers, the free rider problem and the normally competitive position of firms vis a vis one another. Collective action problems are more easily overcome in oligopolistic industries and where large banks play a coordinating function by virtue of their simultaneous links to many firms and industries. The obstacles to collective action appear to be less serious for internationalist firms than for nationalist firms. Internationalist firms are larger, fewer in number and more geographically concentrated than their nationalist rivals. This helps to explain why international blocs are typically more highly organized and tightly connected than their nationalist rivals.

6. What routes of influence are available to business firms intent on controlling or altering government policy? Business firms exercise influence along diverse routes. Some of these include personal ties with top officials, traditional lobbying and campaign contributions, favored relationships with "captured" regulatory agencies and the structural power of capital deriving from its control over investment. Different business factions may rely upon distinct routes of influence. Cox suggests that internationalist firms are more inclined to seek access to policy-making through the executive branch. Generally weaker and more geographically dispersed, nationalist groups rely more upon congressional lobbying. This provides an advantage to internationalists since nationalists must play catch-up in attempting to persuade congress to alter legislation already crafted by executive branch agencies and have less influence over policy implementation.

7. Can business firms behave as strategic actors in international politics? It is often alleged that business firms are too concerned with the narrow pursuit of short term profits to take a strategic view toward the structure and character of the international system. Only states (and indeed, among these, only the great powers) are capable of integrating many strands of policy across multiple issue areas into a global strategy for shaping the course of international events. All three studies call this assumption into question. The vast majority of individual firms, it is true, cannot and do not concern themselves principally with grand geopolitical issues. A handful of very large firms, however, have interests so far flung and resources so extensive that they can and must insert themselves in debates over issues of war and peace, the character of international institutions, the openness of the global economy and the political and ideological orientation of major states. As Nowell demonstrates, such firms can exert a decisive influence on both the global distribution of resources and the policies of the major powers.

Even smaller firms can influence broad foreign policy debates when they act collectively through organizations representing various business clusters. This is evident in Coxís study, where collective organizations are prominent actors. Peak associations sometimes play this role by taking positions on major foreign policy issues. More importantly, however, the collective voice of business is heard indirectly through the ongoing work of business supported policy groups such as the Trilateral Commission (see Gill, 1990) or the Council on Foreign Relations. These organizations depend upon the corporate world for financial and other forms of support. Yet the credibility of these groups depends upon their semi-autonomous status in relations to the business world. The studies that such groups underwrite and the views they espouse are rarely linked directly to the narrow interests of particular firms. Nor do such groups engage in traditional lobbying. They instead distill and promulgate the strategic international vision of particular business blocs and serve as a sort of halfway house facilitating the circulation of elites between the corporate and governmental worlds.

8. How can we distinguish the influence of business interests from other factors that shape the making of foreign policy? None of these three authors contends that business interests exert exclusive influence on state policy. Policy-makers are also swayed by ideology, electoral politics, bureaucratic interests and geopolitical concerns. It is easiest to assign weight to the role of business influence when these various explanations for policy point in contradictory directions. Where policy-makers face divergent pressures and stark choices about which interests to serve, then policy outcomes will themselves tell us much about which considerations proved decisive. The most difficult situation for scholars is to assign causal weight to various determinants of policy when all pressures push in the same direction. If, for instance, business interests, ideology and strategic considerations all point to the same policy outcome (e.g., perhaps the Marshall Plan), then how are we to ascertain which factor contributed most to the result? When policy choice is overdetermined, it may be impossible to tell which factors were necessary, sufficient or irrelevant. This problem gives rise to irresolvable debates among adherents to competing theoretical paradigms over how to explain particular international events. All three authors confront this issue at various points. Without fully resolving it, they each attempt to distinguish among competing explanations that point to the same general outcome by examining the written record to see which considerations were uppermost in the minds of policy-makers and by looking to the details of policy formulation and implementation for evidence that particular interests were served.

9. Where can one find the necessary data to carry out research on business influence in foreign policy? One reason why we know so little about business influence on foreign policy is that few researchers have bothered to look for such evidence in the right places. The search must go well beyond traditional sources to include the private papers of prominent businesspersons, corporate reports, trade association publications and papers prepared by corporate-sponsored think tanks. Among government sources, considerable information can be gleaned from the records of various regulatory agencies or legislative committees that oversee particular sectors of business. Often, the search must extend beyond a single country. Each of these books is based upon meticulous research into diverse sorts of primary and secondary sources. Such research is time consuming and often expensive. Yet the rewards are evident in the detail each author marshals and the novel insights and interpretations that this additional evidence makes possible. All three books should serve as models for other political scientists engaged in historical research.

Conclusions

The increasingly stale debate between realism and liberalism has reached a point of diminishing returns. Many scholars are exploring new approaches. The books reviewed here point toward a promising research agenda revolving around the role of business actors, the conflicts among them and the consequences of business intervention in the making of foreign policy. Gibbs, Cox and Nowell each show that it is possible to gain fresh insights into well worked cases by bringing to bear the analytic tools of the business conflict approach.

References

Ferguson, Thomas. (1984) From Normalcy to New Deal: Industrial Structure, Party Competition, and American Public Policy in the Great Depression. International Organization 38: 41-93.

Frieden, Jeffry. (1987) Banking on the World. New York: Harper and Row.

Frieden, Jeffry. (1988) Sectoral Conflict and U.S. Foreign Economic Policy, 1914-1940. International Organization 42: 59-90.

Frieden, Jeffry. (1989) The Economics of Intervention: American Overseas Investments and Relations with Underdeveloped Areas, 1890-1950. Comparative Studies in Society and History 10: 55-80.

Gill, Stephen (1990) American Hegemony and the Trilateral Commission, Cambridge: Cambridge University Press.

Maxfield, Sylvia and James Nolt. (1990) Protectionism and the Internationalization of Capital: U.S. Sponsorship of Import Substitution Industrialization in the Philippines, Turkey and Argentina. International Studies Quarterly 34: 49-81.

Milner, Helen. (1988) Resisting Protectionism: Global Industries and the Politics of International Trade. Princeton: Princeton University Press.

Mintz, Beth and Michael Schwartz. (1985) The Power and Structure of American Business. Chicago: University of Chicago Press.

Rogowski, Ronald. (1989) Commerce and Coalitions: How Trade Affects Domestic Political Alignments. Princeton: Princeton University Press.

Scott, John. (1980) Corporations, Classes and Capitalism. New York: St. Martins.

Useem, Michael (1984) The Inner Circle: Large Corporations and the Rise of Business Political Activity in the U.S. and U.K. New York: Oxford University Press.