MNCs is an acronym for multi-national corporations. The seemingly inevitable increase in globalization has increased their control over the distribution of the global economy.

Daniel Gross in the New York Times reports on how the rise in globalization has had two important effects on domestic economies.

The first is that the link between corporate profits and wages has broken down. Over the past few years corporate profits as a share of GDP has risen dramatically. The return on capital is outpacing the return on labor.

Second the link between coporate profits and domestic capital investment also seems to have broken down. With multi-national corporations having the flexibility to invest across borders it does not follow naturally that they will invest proportionately in their home market.

Gross concludes with some potential policy implications.

Given these trends, the combination of rapidly rising corporate profits and stagnant or falling real wages seems less paradoxical. But some economists are wondering how much longer these trends can continue.

"When you have labor shares shrinking relative to capital shares, you tend to get a rise in economic nationalism, which is a democratic response to some of the effects of globalization," Mr. King said.

In other words, the arguments over Chinese imports, cross-border mergers and investments by companies from the Middle East in America's infrastructure could just be the beginning.

While Gross might be correct about the broad trends, there is some evidence that in the short term there might be a capital investment uptick coming in the U.S. Mark Whitehouse in the Wall Street Journal reports that rising business confidence could lead to more spending.

Across the U.S., companies are starting to put their money to work again, or at least are planning to do so. They have enjoyed strong growth and record profits in the past few years, but as they close in on the limits of their capacity, they face a choice: Stop growing, or start spending on people, plants and equipment.

Whitehouse emphasizes the angle that corporations have "oversaved" over the past few years. This could have been a sign of caution, but it could have another meaning. If multi-nationals have been shifting their capital spending to countries like China and India they may simply have run up against some bottlenecks. In short, they may not have been able to invest as much as quickly in quality overseas projects.

With all the talk about whether the U.S. consumer is "tapped out" it is incumbent on corporate spending to pick up the slack. The question is whether the hand off can occur smoothly while the Fed remains up in the air on the question of further rate hikes. Interesting times indeed.

As an aside John Hussman at Hussman Funds has written on the topic of corporate profit margins and earnings. This post provides some insight into his thinking on the topic.

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