U.S. Power and the Multinational Corporation: The Political Economy of Foreign Direct Investment

Gilpin argues that the expansion of American multinational corporations can only be understood in the context of the global political system established after World War II, and that every economic system rests on a particular political order [citation:1]. He rejects the view that markets arise spontaneously through an invisible hand, insisting instead that 'every economic system rests on a particular political order; its nature cannot be understood aside from politics' [citation:9]. The book also rejects the radical thesis that multinationals control the American state, arguing instead that corporate and political leaders share overlapping interests [citation:6].

Published in 1975, U.S. Power was the earliest systematic formulation of hegemonic stability theory, predating and differing from Charles Kindleberger's liberal approach [citation:3][citation:10]. Gilpin argued that a hegemonic power is necessary to guarantee the smooth functioning of an open international economic system and to provide public goods for its members [citation:11]. Unlike Kindleberger's more altruistic interpretation, Gilpin grounded hegemony in state interests: powerful states maintain liberal regimes because benefits exceed costs, and they cease hegemonic roles when that calculus changes [citation:11]. This framework became the dominant paradigm of 1980s IPE.

Gilpin rejects the radical claim that multinational corporations manipulate the American state. He offers 'numerous examples where corporate interest and American foreign policy have run counter to one another' and argues that 'the government of the United States and its foreign policy are not the instruments of these powerful corporations' [citation:6]. Instead, political and corporate leaders in the United States tend to share overlapping interests and perspectives. The state remains autonomous enough that national security and prosperity can be reconciled by political leadership, rather than being dictated by corporate priorities [citation:6].

Gilpin drew a parallel to British experience, arguing that an overemphasis on foreign investment contributed directly to the decline of the British economy [citation:2]. He warned that U.S. multinationals could facilitate a rapid spread of advanced technologies away from the leading state to rising states, thereby accelerating power transitions [citation:8]. American corporations, like British trading companies of the nineteenth century, might unwittingly hasten the decline of the dominant economy by spreading technology abroad. His proposed solution was tax reform and other policies to favor domestic investment over foreign investment [citation:2].

Gilpin organizes his analysis around three schools: liberalism, Marxism, and mercantilism [citation:2][citation:9]. Liberalism regards politics and economics as relatively separable and autonomous spheres. Marxism holds that economics determines politics and political structure. Mercantilism—which Gilpin distinguishes from its seventeenth- and eighteenth-century historical form—emphasizes 'the subservience of the economy to the state and its interests' [citation:9]. Gilpin's own perspective draws on the mercantilist emphasis on relative gains, arguing that 'the essential fact of politics is that power is always relative' [citation:9].

The book's core insight—that economic systems rest on political foundations and that hegemonic power sustains open markets—remains influential. A 2011 Chinese edition's description noted that the economic conditions Gilpin described in the 1970s—German and Japanese economic rise, U.S. trade deficits, dollar weakness, and manufacturing hollowing—'are basically identical to the current situation' [citation:10]. However, some critics argued Gilpin's focus was too narrow on the United States, treating developing countries merely as 'characters in a redramatization of the British decline' rather than analyzing the costs and benefits of foreign investment for host economies [citation:2].