Foreignization and Industrial Economic Power in Argentina
Pablo Manzanelli and Martín Schorr

It is important here to comment on the level of insertion of the different types of large industrial companies in international commerce. Table 5 allows us to conclude that, even taking into account the elevated concentration of total country exports in the hands of foreign companies, both large national firms and those with foreign stockholder participation presented a similar exporting tendency in global terms. However, as expected, when the relative weight of purchases abroad compared to total production is analyzed by type of firm, it becomes clear that foreign companies were on average greater importers than the rest of the leading firms: the import coefficient of the foreign firms group was 12.5%, while for the national companies it was 7.8%, and it was 8.3% for associations.

During the period under analysis, multinationals registered a higher level of openness towards the international market, which was higher than all other types of companies. This is related to a set of diverse factors, such as the important presence of these companies in manufacturing sectors where exports and/or imports have a large weight relative to total production (for example, food manufacturing and other products derived from agricultural activities, automotive vehicle assembly, production of chemical products and iron and steel manufacturing). Or, given that in many instances we are talking about affiliates of multinational companies, this greater exposure to world trade may respond to the process of integration and/or productive and commercial cooperation for the respective headquarters, as well as the distribution of market areas among different affiliates abroad (which is the case for many firms linked to the food industry or the automotive and parts sector).

Finally, it is fitting to make a few additional conclusions on the profitability of the different fractions of capital concentrated in the manufacturing sector. As demonstrated, companies controlled by foreign stockholders had the highest gross exploitation market, and were the firms where the shareholders appropriated a higher portion of the surplus generated by workers, in the context of a relatively weak investment tendency. Thus, it is not a coincidence that these companies comprise the group of leading manufacturers in the time period under study that registered the highest profit rates: whatever indicator is considered (profits over value of production or over added value), foreign firms presented higher earnings margins than any other type of company (Table 5).

It’s worth pointing out that profit rates for foreign companies may underestimate their real earnings, given that these actors tend to use various mechanisms to transfer surplus generated at a domestic level. For example, they may establish transfer prices between local affiliates and their foreign headquarters and/or subsidiaries located in another country, may overbill for imports or exports, or cancel credit lines (using self loans). This is also feasible because some companies are controlled by the main foreign conglomerates with presence in the country, which raises the possibility to transfer earnings among the various firms that comprise the company complex using, among other practices, crossed subsidies or profits derived from vertical and/or horizontal integration of activities.

All of the analyses we have described here allow us to conclude that, following the process of foreignization in the 1990s, multinational predominance was consolidated in the post-convertibility era in Argentina. These actors have considerable economic power and various veto abilities reinforced in recent years in the framework of multiple actions and state omissions. This is linked to a set of critical aspects, and we will highlight three of them.

First, the fact that multinational companies acting in the sector are relatively low job creators per production unit, with an extremely regressive functional income distribution within the firms, constitutes a structural aspect that raises many questions regarding the real economic power that they may hold in an “accumulation model with social inclusion.”22 This is reinforced because the participation of the majority of these companies revolves around branches with presence in the foreign markets, where salaries are more of a production cost than a dynamic factor for internal demand (for this reason, the lower, the better).

Secondly, it’s important to note that risks for accounts external to the country derive from the fact that the actors that control a considerable and growing portion of sectorial income are strong currency demanders for a variety of reasons, including their high import coefficients, with the internal correlate of low levels of articulation and productive and technological integration, and the consequent consolidation of the truncated nature of the manufacturing structure (these tendencies are even further stimulated by state actions). The sending of earnings and dividends23 abroad, the payment of fees and royalties for the purchase and/or use of technologies and/or patents, transfer price fixing for intra-corporate transactions, interests accrued due to foreign debts (generally intra-corporation), etc.,24 are all notable phenomena as well. We should also add the ostensible investment hesitance for foreign capital, as well as the national economically powerful segments and their traditional “vocation” for capital flight.

Thirdly, the economic predominance on display by foreign sections of the elite manufacturing companies involves a variety of bias towards deepening and/or making the productive structure more complex, given that this capital, which seeks to minimize absolute costs on a world level, usually lacks real interest in this. Certainly, this is the reason behind low reinvestment of earnings from foreign companies in a scenario, like the post-convertibility era, of appropriation of elevated profit margins, the existence of regressive distribution of income and the expansion of local and international demand.

If these questions are not used to create active policies to reverse the tendencies at play, they could unleash negative effects on socio-economic dynamics, and strengthen the mentioned veto power that these large foreign capital companies have, as well as the manufacturing profile consolidated in recent years under the “high dollar” and the almost total absence of active and coordinated industrial policies, and the consequences associated with them (Azpiazu and Schorr, 2010a).25

22 This concept was coined by ex-President Kirchner and his successor, and was re-used in numerous public speeches by members of the government.

23 According to payment balance information for Argentina, in the post-convertibility era, profits sent abroad by foreign capital located in the country (not only capital involved in the industry), expanded considerably and systematically, to such an extent that from 2007-2009, it averaged 6 billion dollars (around 45% of the swollen trade balance during that time period). Data consulted June 28, 2011 and available at:

24 In any case, it must be mentioned that these are the principal currency generators based on their important presence in sectors linked to the use of comparative static advantages and the privileged automotive assembly industry.

25 Azpiazu, Manzanelli and Schorr (2011) present a set of policies on how to treat foreign capital located in the country. But as the authors point out, applying these policies would mean, as a necessary first step, abolishing the Foreign Investments Law approved during the last military dictatorship.