Political Institutional Change, Obsolescing Legitimacy, and Multinational Corporations

This paper studies the practice of integration of influential host country actors to a multinational corporation as a strategy to decrease problems of legitimacy to the foreign firm before the host country’s society. By developing the concept of obsolescing legitimacy, we argue that this strategy provides legitimacy to the foreign firm only in the absence of institutional changes at the macro-political level in the host country. Once these changes take place, an alliance by the multinational to an elite or a political system no longer ruling the host country will become a liability and will generate problems of legitimacy for the multinational. We illustrate our argument with the case of the US multinational United Fruit Company in Central America.