Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, June 1, 1990 TAG: 9006010647
SECTION: EDITORIAL PAGE: A-9 EDITION: METRO
SOURCE: By By DONALD L. LOSMAN
DATELINE: LENGTH: Long
The currently popular argument holds that foreigners are seizing our land and properties, gobbling up U.S. businesses, gaining undue influence in our government, manipulating our stock and bond markets, and jeopardizing our national security.
Does America really have a problem, or are these phantom pains?
This trend of thought is hardly new. By the late 1960s the Europeans, despite gaining important transfusions of capital and technology, were screaming about undue American influence. Books such as "The American Takeover of Britain" suggested in 1968 the imminent demise of European sovereignty in the face of American investments.
By the 1970s our Canadian neighbors began voicing fears of losing their national identity as American cars, soft drinks, and U.S. investments appeared overwhelming.
Thus, despite generating tax revenue and employment, obeying host country laws and assisting in the transfer of capital, technology, and skills, xenophobia in the form of anti-Americanism captured the mind-set of our closest neighbor.
Our own current agitation, it should be noted, is not new. In 1978 "America For Sale," its dust jacket touting it as an "alarming look at how foreign money is buying our country," predicted dire consequences of unending Arab takeover financed by petrodollars.
Credible to an unsophisticated audience in the late 1970s, such Arabphobia has faded. That same audience, however, has found new villains, this time from the Far East.
This is ironic since we Americans have traditionally championed the cause of foreign investment, being net borrowers for much of the 19th century and net investors for most of the 20th.
Now that there is substantial foreign investment here, however, those arguments seem lost.
And surprisingly, the cries of alarm are not only found on Main Street, USA, but have been recently expressed in scholarly circles as well. Fortunately, these are phantom pains born of imagination, ignorance and fear.
An awakening to the facts and benefits should clear both the air and the grumbling.
Foreign money has made an important contribution to U.S. capital formation. Expenditures on plant and equipment made by overseas investors accounted for 11 percent of total investment in plant and equipment from 1980 to 1982. In 1986 foreigners financed 50 percent of U.S. investment.
Herb Stein, former chairman of the president's Council of Economic Advisors, estimates that over the last eight years foreign investment has caused America's capital stock to grow by $700 billion more than it would have otherwise.
In 1988 foreigners pumped $31 billion into U.S. plants, a 50 percent increase over 1987. Yet the media regularly describe such infusions peculiarly. Last May, for example, USA Today wrote that "foreign investors continued to feast on U.S. businesses."
Importantly, foreign capital has created jobs. In 1988 newly established foreign companies employed 33,871 Americans, while acquired businesses, many strapped for cash, provided almost 650,000 jobs. In the years 1977-1985, while overall employment in U.S. manufacturing declined, employment at foreign affiliates here increased in virtually all manufacturing industries.
Foreign investment can also bring critical intangibles, such as technology or managerial skills. These were not very important in the days when America was an unparalleled leader in both management and technology. But those days are no more.
We have much to learn in many arenas. For example, a number of U.S. electronics plants that had high absenteeism and reject rates were taken over by German and Japanese companies and have since experienced excellent turn-arounds.
It should be stressed that despite staggering numbers, foreign presence in the U.S. economy is really small, although growing. Direct foreign investment as a share of total tangible wealth, while more than quadrupling since 1972, is still only 5 percent. In manufacturing, where such investment is concentrated, the 1985 share was 10 percent. But even that figure is high since Department of Commerce standards define as foreign-owned any company with 10 percent overseas ownership, even if 90 percent of the stockholders are American!
And while foreign ownership of our national debt reached $351 billion last June, its share in the 1980s has averaged less than the corresponding figure for the 1970s. In short, as Mark Twain is alleged to have said about the music of Wagner, "It's not as bad as it sounds!"
And who are these foreigners? The British are by far the largest direct foreign investors, with the Japanese bumping the Dutch to third place as 1988 ended. The OPEC nations, which in 1981 held 3 percent of direct foreign investment here, were down to just under 2 percent as 1989 began.
Finally it should be stressed that in terms of global holdings, the United States is still the largest direct foreign investor in the world, with the United Kingdom a distant second.
Many of these investments have been extremely successful, a recent study indicating that rates of return on U.S. overseas enterprises are more than fourfold the corresponding domestic return. Any activities to limit or manipulate foreign investment here are indeed risky, for they invite retaliation overseas.
Further, they are largely unnecessary. While many extrapolate that if the current trend continues, America will be completely foreign-owned at some future date, such exercises are ridiculous. While it is likely that foreign investment here will continue to grow for several years, there are a number of natural forces which will be generated to slow and eventually end such growth, just as happened with Arab investments.
The current outcry against foreign investment is bad economic analysis based upon out-of-proportion "facts" and driven by the less noble, xenophobic side of our characters. And for a pluralistic nation of immigrants, it is quite unbecoming.
Finally, when millions today, both in the less developed countries and in the socialist bloc, are desperately striving to achieve a better life by emulating the free and open American way, it is sinful if we ourselves turn from it.
by CNB