North-South Direct Investment in the European Communities

The relationship between multinational enterprises and nation states has long been a fraught one. This is particularly true since the end of the Second World War, when the growth rate of multinational enterprises and their global spread accelerated enormously (Buckley and Casson, 1976; 1985). One aspect of this evolving relationship has been the impact of economic integration on the policies of multinationals, and the firms’ response. This book examines these issues by a close focus on one major attempt at economic integration: the European Communities (EC). Further, it examines the expansion of the domain of integration to three lesser developed entrants: Greece, Spain and Portugal. This poses special problems of integration. Far from remaining the European ‘rich man’s club’, the EC has extended to some of Western Europe’s poorest communities. The expansion of the market is only one facet of the changes this expansion entails, for the political, social and economic differences among EC countries are now far wider than when it was originally formed.

Portugal has a population of just over 10 million, a birth rate estimated at 14.4 per thousand which is higher than the EC average, but a lower death rate (9.2 per thousand) than most other West European countries. The arrival in Portugal of residents from the former colonies and the return of migrant workers have since the mid-1970s exacerbated unemployment.

The recent accession of Greece, Spain and Portugal has changed the orientation of the Common Market from a Community of industrialised states with relatively high GDPs and living standards to an enlarged Community which comprises some of the poorest nations in Western Europe. Economic conditions, which have worsened throughout the Community member states since the first enlargement of 1973, do not augur well for the successful integration of less developed Mediterranean countries. Already in the interim period Greece’s membership of the EC has opened the floodgates to imports of European manufactures and food: in the two years since joining, Greece’s trade deficit with its EC partners has doubled to $2.5 billion. In the food trade, where Greece was expected to enlarge its European markets, the results are disappointing: Greece’s $140 million surplus on food trade with the EC in 1980 turned into a $295 million deficit in 1982.

This chapter examines the macro picture of foreign direct investment in Greece, Portugal and Spain. Using official data and computations by the authors and other researchers, it breaks down the overall figures by industry, country of ownership and type. Particular attention is paid to direct investment from France, Germany and the UK. Both stock figures and (annual) flows of direct investment are analysed where they are available. The chapter ends with a short comparative section on the three host countries. The overall picture of investment inflow provides an interesting background to the case studies examined in Chapter 6.

This chapter contains three sections. The first examines the theoretical literature on foreign direct investment in an enlarged Common Market. The main purpose of this section is to establish the key variables which are likely to influence the employment impact of foreign direct investment. The second section proceeds from this basis to examine the rationale of the interview questionnaires used in the empirical research. The final section analyses the characteristics of the sample of firms interviewed.

The first part of this chapter examines estimates of employment within multinational firms worldwide. The second part analyses employment effects as a background to the empirical analysis of Chapter 6.

This chapter examines, on a case study basis, the employment effects of British, French and German firms’ direct investments in Portugal, Spain and Greece. Each case study is prefaced by a sentence describing the investing firm in terms of country of origin and industry. A short concluding paragraph summarises the estimated employment effects. The final section of the chapter summarises employment effects and contains predictions on the likely future employment implications of integration within the enlarged EC.

This book has examined the impact of foreign direct investment from the advanced countries of the ‘North of Europe’ (Britain, France and Germany) to the less developed ‘South’ (Greece, Portugal and Spain). The issues raised by such investment represent a particular angle of vision on the wider problem of the integration of economies at different levels of development into a single entity. The tensions and conflicts raised by intra-EC investment centre round the social, political and economic difficulties which relate to the integration process.