How U.S. Multinational CompaniesStrengthen the U.S. Economy Introduction

How U.S. Multinational Companies

Strengthen the U.S. Economy

Matthew J. Slaughter

Executive Summary

The contribution to the American economy of U.S. multinational companies is increasingly being called into question.* Critics contend that these companies have “abandoned” the United States, and that policy needs to rebalance their domestic and international operations.

This report demonstrates that U.S. multinational companies are, first and foremost, American companies. They perform large shares of America’s productivity-enhancing activities—capital investment, research and development, and trade—that lead to jobs and high compensation.

The central role of U.S. multinational companies in underpinning U.S. economic growth and jobs creation is even more important today as the United States seeks to address the challenges presented by the current economic environment. Strong U.S. multinational companies that are able to compete effectively in foreign markets will be better positioned to help lead America out of recession. The ability of U.S. multinational companies to stem job losses in the United States and eventually return to hiring more American workers depends on the health, vitality, and competitiveness of their worldwide operations.

• The worldwide operations of U.S. multinationals are highly concentrated in America in their U.S. parents, not abroad in their foreign affiliates. The idea that U.S. multinationals have somehow “abandoned” the United States is not supported by the facts. They maintain a large presence in America, both relative to the overall U.S. economy and relative to the size of their foreign affiliates.

• International engagement drives the overall strength of U.S. multinational companies. Although the United States is still the world’s largest single-country market, in the past generation it has been a slow-growth market compared with much of the world. Even with today’s worldwide recession, this means that the overall strength of U.S. multinationals is increasingly tied to their success in both America and abroad. It also means that viewing the domestic and foreign operations of U.S. multinationals as unrelated is increasingly incorrect. U.S. multinationals must make strategic investment and employment decisions from a truly global perspective, with links across all locations and with dynamic variation in successful strategies both across companies at a point in time and within companies over time.

• Foreign-affiliate activity tends to complement, not substitute for, key parent activities in the United States such as employment, worker compensation, and capital investment. Being globally engaged requires U.S. multinationals to establish operations abroad and also to expand and integrate these foreign activities with their U.S. parents. The idea that global expansion tends to “hollow out” U.S. operations is incorrect. Rather, the scale and scope of U.S. parent activities increasingly depends on successful engagement abroad. Expansion by U.S. parents and their affiliates contributes to the productivity and average standard of living of all Americans.

Key Facts†

U.S. parent companies perform large shares of America’s productivity-enhancing activities that lead to high average compensation for American workers.

• Output: Parent companies accounted for 24.9% of all private-sector output (measured in terms of gross domestic product)—over $2.5 trillion.

• Capital Investment: Parent companies purchased $442.6 billion in new property, plant, and equipment—31.3% of all private-sector capital investment.

• Exports: Parent companies exported $495.1 billion of goods to the rest of the world. This constituted nearly half—48.0%—of the U.S. total.

• Research and Development: To discover new products and processes, parent companies performed $187.8 billion of research and development. This was 75.8% of the total R&D performed by all U.S. companies.

All these productivity-enhancing activities contribute to larger average paychecks for the millions of employees of U.S. multinationals.

• Parent companies employed over 21.7 million U.S. workers. This was 19.1% of total private-sector payroll employment.

• Total compensation at U.S. parent companies was over $1.36 trillion—a per-worker average of $62,784. This average was $12,163—fully 24.0%—above the average for the rest of the private sector of $50,621.

U.S. parents purchased a total of $5.76 trillion in intermediate inputs. Of this total, 89.1%—$5.14 trillion—was bought from other companies in the United States.

The worldwide operations of U.S. multinational companies are highly concentrated in America in their U.S. parents, not abroad in their foreign affiliates.

• Employment: Parent companies account for 69.6% of worldwide employment of U.S .multinationals—21.7 million parent workers versus 9.5 million at affiliates. This translates into a ratio of almost 2.3 U.S. employees for every one affiliate employee.

• Output: Parent companies account for 71.6% of worldwide output (in terms of value added) of U.S.

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ultinationals—over $2.5 trillion versus about $1.0 trillion.

• Capital Investment: Parent companies undertake 74.3% of worldwide capital investment by U.S. multinationals—$442.6 billion versus just $153.2 billion. For every $1 in affiliate capital expenditures, parents invested $2.89 worth in the United States.

• Research and Development: Parent companies perform 86.8% of worldwide R&D by U.S. multinationals: $187.8 billion versus just $28.5 billion, or $6.59 in parent knowledge discovery for every $1 by affiliates.

Foreign affiliates are located primarily in high-income countries that in many ways have economic structures similar to the United States, not in low-income countries.

• Affiliates in high-income countries accounted for 79% of total affiliate output—and a similar 90% of output by all affiliates newly established or acquired.