The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Vernon, Raymond (Born 1913)

  • S. Hirsch
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_1492

Abstract

Vernon has been a most prolific writer on international economic relations in the post World War II era. His writings reflect a multi-faceted career which includes nearly two decades in government service, a short stint with private business, three years as director of the New York Metropolitan Region Study and, since 1959, a fruitful association with Harvard University, first at the Business School, where he was the leading figure in the teaching and research of international business, and later at the John F. Kennedy School of Government, where he was incumbent of the Clarence Dillon Chair of International Affairs until his retirement.

Vernon has been a most prolific writer on international economic relations in the post World War II era. His writings reflect a multi-faceted career which includes nearly two decades in government service, a short stint with private business, three years as director of the New York Metropolitan Region Study and, since 1959, a fruitful association with Harvard University, first at the Business School, where he was the leading figure in the teaching and research of international business, and later at the John F. Kennedy School of Government, where he was incumbent of the Clarence Dillon Chair of International Affairs until his retirement.

The policy orientation of his writing and the acute awareness it reflects of the interests and point of view of foreign governments, their institutional make up and constraints, surely owe much to his years of service with the State Department. His abiding interest in the restructuring of international trade, investment and payments systems, economic development, especially of Latin America, and economic relations between East and West must be similarly attributed to his State Department experience.

One of Vernon’s early analytical contributions concerns the economics of location. In the New York Metropolitan Region Study he adapted the notion of ‘external economies’ to the specific environment of urban agglomeration. The term was used by him to characterize the cost advantage enjoyed by firms located in urban centres because of their closeness to sources of information and to a large variety of specialized services. The availability of these services and their low costs determine the characteristics of industries, such as electronics, fashion goods, printing and publishing, which tend to flourish in agglomerates despite the high costs of more conventional production factors such as labour, space and transportation.

Information and specialized services also figure prominently in Vernon’s extensive writings on the multinational corporation. In this case, Vernon has shown how information and specialized services are internalized and transformed into proprietary knowledge, which is used by the firm to obtain a monopolistic position in the domestic and international markets. This position is extended from the early to the mature phase of the ‘product cycle’ by transferring production to subsidiaries located in countries where conventional production factors are least costly, while retaining the location of the head office in the most developed markets where the new product and process specifications originate.

Alone and in collaboration with colleagues and doctoral students at the Harvard Business School, Vernon published numerous books and articles about the multinationals. He studied their dominant role in world production and trade of technology-based industries on the one hand the resource-based ones on the other, using the ‘product cycle’ as well as the more traditional industrial organization models to explain their distinct competitive structure, their insoluble conflicts with both their host and home governments, conflicts which evolve through a predictable cycle of power relations which Vernon aptly termed the ‘obsolescing contract’.

His books Sovereignty at Bay (1971) and Storm over the Multinationals (1977), which summarize his work on the multinational corporation, will be regarded as major contributions to our knowledge of the multinational corporations for many years to come.

Business–government relations had been dealt with by Vernon early in his career as a civil servant. He returned to the theme in his work on the multinationals. The subject figures even more prominently in his more recent work conducted at the Kennedy School of Government, which focuses on state-owned enterprises and on government relations with private sector firms against the background of the energy crisis of the mid-seventies and its aftermath.

In Two Hungry Giants, which compares US and Japanese responses to the threat of resource shortage, Vernon attributes Japan’s superior performance to the skilful way in which the Japanese government managed to harness private sector corporations to the ‘national interest’.

Marxist doctrine claims that the state is being used by capitalists to advance their class interests. Vernon’s analysis offers a less dogmatic view of the role of the state: to enhance their goals, even governments of ‘market economies’ increasingly use both state and privately owned enterprises as instruments of national policy.

Selected Works

  • 1971. Sovereignty at bay: The multinational spread of U.S. Enterprises. New York: Basic Books.

  • 1977. Storm over the multinationals: The real issues. Cambridge, MA: Harvard University Press.

  • 1983. Two hungry giants: The United States and Japan in the quest for oil and ores. Cambridge, MA: Harvard University Press.

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • S. Hirsch
    • 1
  1. 1.