Growth and competitiveness in the United States: The role of its multinational companies

By Jonathan Cummings, James Manyika, Lenny Mendonca, Ezra Greenberg, Steven Aronowitz, Rohit Chopra, Katy Elkin, Sreenivas Ramaswamy, Jimmy Soni, Allison Watson

US multinationals represent less than 1 percent of all US companies, yet they contribute disproportionately to the US economy's growth and health in many ways.

Although US multinationals include many of biggest companies in the United States, the full extent of their economic impacts are less well known. MGI seeks to provide a fuller picture by assessing the contributions of MNCs across the key metrics of economic performance:

US multinationals represent less than 1 percent of all US companies, yet they contribute disproportionately to the US economy’s growth and health in many ways.

The role of multinational companies in US growth and competitiveness
MGI director James Manyika discusses research showing the outsized contribution that US multinational corporations make to the country's economy—and how the United States has entered a new era of global competition for multinational investment and participation.

US multinationals accounted for 23 percent of US private sector GDP (or value added) in 2007. However, they contributed 31 percent of the growth in real GDP and 41 percent of US gains in labor productivity since 1990. US multinationals’ outsized contributions to productivity growth matter greatly because productivity increases have delivered nearly three-quarters of US real GDP growth since 2000, with the rest coming from employment gains—the reverse of the situation 30 years ago.

US MNCs also have outsized impact across other metrics.

While their activities create 23 percent of US private sector value added, they account for larger shares of productivity growth and US private R&D spending. They pay higher average wages than other US companies. They account for almost half of the nation’s exports and more than a third of its imports, resulting in a more favorable trade balance than other US companies. US multinationals also exert a significant indirect, or "multiplier," effect on the economy, which magnifies their contributions further.

Multinational companies’ record on employment growth has been mixed across sectors and business cycles.

They participate disproportionately in globally competitive sectors (such as manufacturing) that were hard hit in the 2001 recession, yet they have played a critical role in fueling the expansions that followed past recessions. Therefore these companies could potentially play a similar role contributing to growth in the current recovery and beyond through their continued strong participation in the US economy.

US multinationals are twice as concentrated in globally competitive sectors as other US companies.

However, many other US companies confront the same pressures and choices. US multinationals may provide insights into how other companies, and the economy as a whole, may respond to increasingly intense global competition.

The global context in which US MNCs compete and invest is shifting.

The United States retains many strengths that make it one of the most attractive markets for multinational companies’ participation and investments. But numerous fast-growing emerging markets and some advanced economies are making huge strides in increasing their attractiveness. The United States has entered a new era of global competition for multinational activity.

To gain further insights, MGI interviewed senior executives from 26 of the largest and most well-known US multinationals and examined how they make investment decisions. Many of the executives interviewed emphasized the need to ensure they are competing on a level playing field. They believe that current US policies—particularly in the areas of corporate taxes, limits on the immigration of skilled workers, and bureaucratic hurdles and inconsistencies—handicap US companies when competing abroad and in some cases discourage investment at home. And several executives expressed concern or doubts about the ability of the United States to compete for corporate investment and jobs in the future.

However, MGI research does not suggest that corporate decisions turn solely on particular policies or that there are no challenges to investing in other countries. Rather, MGI has found that developing countries’ attempts to lure multinational investment solely through tax and monetary subsidies were largely ineffective. Instead, US leaders should recognize all the factors that weigh into business decision making and determine the right policy responses.

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