Foreign Direct Investment, which we will call FDI for the sake of brevity, can occur in a number of ways. It is defined differently by different economists and also differently in terms of how it is analyzed contextually within a given equation or function. For example, the economic ramifications of FDI for host nations are adjudicated differently based on whether we are analyzing, for example, a single power plant’s FDI versus an entire economic sector’s FDI versus an entire regions FDI…and how each one interacts (or doesn’t) in terms of the data. Re-configuring the data to deduce what constitutes FDI can make for multiple, mutually exclusive findings. Alternative realities burgeon when analyzing the economic benefits/detriments that a host country will absorb from allowing FDI in their countries.
“In the 1990’s, direct foreign investment (FDI) became the largest single source of external finance for developing countries. In 1997, FDI accounted for about half of all private capital and 40 percent of total capital flows to developing countries.” “In 2011, worldwide FDI was recorded at a massive $20.4 trillion.” I will argue in this paper that FDI is a significant threat to a nation’s sovereignty (according to realism) by: gaining control of foreign assets, which undermines sovereign states’ right to “supreme control” over state decisions; delegate right to Multinationals to delineate surpluses/own the means of production/cause decreased production and market share in domestic companies ; Nations, including the USA, struggles to reconcile FDI and open market principles, with the National Security of Nation States. I will juxtapose these ideas with how liberalism views FDI. (Buttressing these is claims is data mainly from a heavily cited IMF led study titled: “Do Domestic Firms Benefit from FDI? Evidence from Venezuela.”)
First, let us define our terms. Foreign Direct Investment is defined by the IMF as a “cross-border investment” in which an investor that is “resident in one economy has control or a significant degree of influence on the management of an enterprise that is resident in another economy.” FDI is antithetical to nationalism and realism. Realists are much more hostile towards allowing foreign financial entanglements on their soil–this is philosophically a problem for them, based on principle. I will display this point in the form of an argument.
Premise 1: A nation state is only sovereign if she has supreme control over the economic decision making process of her state. Premise 2: FDI’s goal is to “establish control” [over foreign assets procured via FDI]. Conclusion: A sovereign nation cannot have supreme control over her economic decision making processes if a foreign body (FDI) is controlling significant assets in the economy. (This would be logically incoherent.)
Realists like their economic trysts to be consummated within their borders. Liberalism would interpret FDI as a mechanism to facilitate enhanced economic cooperation and unity between sovereign states, arguing that the more ties sovereign nations have, and the more financial interdependence of the globe, the more that will economically bind nations, which would prevent conflict via their own self interest in maintaining their shared, symbiotic interests. Simply put, Liberals would argue that more nations becoming economically amalgamated and symbiotic is a boon to prevent conflict. So, all that said, FDI is undoubtedly a poster child of modern Globalization. Because to truly nationalize any industry/sector, (which doesn’t mean it’s not ‘private’, it only means it’s not ‘foreign’) would in effect nullify any prospects of FDI. This occurred in Venezuela, the Energy sector was Nationalized by Hugo Chavez and Exxonmobil was given the boot. American uber-giant Exxon Mobil then sued the Venezuelan government for $1.7 billion dollars just for nationalizing their own oil sector. The World Bank tribunal agreed and ordered Venezuela to the Exxon Mobil. This is a direct affront to sovereignty, as now The World Bank is adjudicating the who and who shouldn’t get to drill the Venezuelans oil. Realism agrees with Chavez’ sweeping Nationalization in that the Venezuelan people should reap the benefit from their commodities and resources.
Rather than those resources and commodities profiting Multinational Corporations and their shareholders. FDI is seen by realist critics as economic masochism. Bestowing tax incentives to foreign mega-corporations/actors to attract them to come buy up big domestic companies, subsidiaries, or joint-ventures which in turn grants them control of critical industries and commodities. The Fruits of Venezuela, the Toil of Venezuelans, reaped by the Giant Global Corporations. The Realist sees this as a force majeure seizure of sovereignty by FDI, the Liberal sees it as an economic win, with capital brought in and jobs created. The Liberals do not take into account the Sovereignty issue, and Exxon suing a Sovereign country for firing them–basically, is a foreboding of giving foreign Multinationals controlling interest in large companies and important industries.
All it takes is 10% to be considered controlling interest in a firm. The USA is the biggest recipient of FDI out of any country in the world. Many would see this as a net positive– “investing in America, and with their money, not ours! The joke is on them!” What people fail to do is revisit FDI in the context of recent history and political and economic theory: sure, it sounds good; “Toyota opens plant from scratch in Scranton, PA!” (This is the Green field model of FDI) Most Americans would likely say: “hey, good deal, more decent jobs for the working man in this country!” Here’s the issue with that line of thinking: Toyota is not an American company. Meaning, we don’t own the means of production, finished product, or technology with which Toyota (hypothetical) assembles those cars in, say, Scranton. The workers would be ‘wage-slaves’ in this case and Toyota would be essentially renting out Americans to put together their cars, in their factories, with their tools, to make them a profit. We own nothing in that case, not even wood shavings on the cold, hard concrete floor.
The instruments of labor (tools) and the subject of labor, (materials) are both owned by a foreign entity, in this case, Toyota. Because these Corporations such as Toyota operate on the same Capitalistic substrate, economic surpluses of output in the hypothetical Scranton factory would go to the “owners” and shareholders, not the people. While in a Chavez-Socialist, Venezuelan system, the surplus would ideally be distributed amongst the citizenry. A system where we own nothing, and as workers receive none of the surplus, is a system of bondage. The argument that it’s great for FDI to flood the USA doesn’t account for Sovereignty issues, and means of production/surplus profit delineation as shown with Chavez reasoning to Nationalize the Energy Sector. It also doesn’t account for the gaping reasons why we ourselves are not producing what these foreign Multinationals can.
That is the much worse realization, a realization that the most ‘powerful’ country in the world brags about being the number one junkie of FDI, of foreign capital, of foreign ideas, foreign loans, of foreign systems, foreign money, and foreign control. Genuflecting about our own country being hooked on FDI (inward flow) is emblematic of the larger problem, which is that they are sacrificing sovereignty on the Altar of Globalization and “open markets”. It strips nations of the ability to delineate surpluses (profit) amongst citizens, delegating it to allow Multinationals to send the profit to shareholders. Whilst the American worker is paraded around as the beneficiary of FDI in the USA, (more jobs more money flowing,) that very same worker under FDI would be employed in a factory not even owned by his/her country. Green field FDI is a mere transplant, or facsimile of any given Multinational which is then surgically clipped inside different countries, all from scratch, homemade. So, these autonomous foreign industrial enclaves, acculturated and operating independently by their own devices, run the risk of spoiling one relations with their host nation.
The Council on Foreign Relations, calls FDI a legitimate a concern to national security. “[USA] But like every sovereign country, it has sought to temper its embrace of open markets with the protection of its national security interests. Achieving this balance, which has shifted over time, has meant placing certain limitations on overseas investment in strategically sensitive sectors of the U.S. economy.” It seems that ‘FDI’ is just a three-letter aphorism which not-so-esoterically means outsourcing jobs to countries with favorable (low) wage structures. “Unprecedented growth in global foreign direct investment (FDI) in the last decades is causing dramatic changes in labor markets for both developed and developing countries.” FDI has been proven to decrease productivity in domestic firms with employment larger than 50 people. “An increase in the share of foreign investment from 0 to 10 percent leads to as much as a 2.67-percentage-point decline in domestic productivity.” Most studies which concluded that FDI has a positive impact, cited in this research, “failed to control for the fact that foreign investment is attracted to more productive sectors, we conclude that spillovers from foreign ownership are positive; once we introduce controls for industry-specific differences, however, we find evidence of negative spillovers on domestic productivity.”
FDI, in this Venezuela case study, which again, “reformulated it’s equations many times” still concluded that ‘if foreign investors increased their share of total sales in an industry by 10 percentage points, output produced by plants without foreign investment in that industry would decline by 12.58 percentage points. These results suggest that foreign investment reduces domestic plant productivity in the short run by forcing domestic firms to contract, thereby increasing their average costs.” When more and more FDI comes in, that means less and less of these sectors are owned and operated by Venezuelans–this is antithetical to being a Sovereign nation. The study also concludes that the concept that there is a “technology spillover” to the host nation, is not true, in this case. “We conclude that there is no empirical support for the hypothesis that technology is transferred locally from joint ventures to domestically owned firms. Our empirical results confirm case study evidence for Venezuela, which claims few cases of technology transfer from multinationals to domestically owned firms.” Many will claim the long-term benefits of FDI in terms of technology transfer. This study even took that into account. “We estimated the same specification in equation 1 but substituted lagged values for the shares of both national and regional foreign ownership. We allowed lags of up to eight years. Our previous results remain unchanged.”
They found “no evidence” of technology “spillovers” from foreign owned firms to domestic firms. This is likely due to the fact that this technology and expertise of the foreign companies requires training, contacts, and experience that cannot merely be transferred. These FDI’s, usually have the ability to lower their costs of production compared to their domestic competitors who have fixed costs. This in turn would lead to the FDI, in most cases, increasing its production. The domestic firms in that case would be spreading those production costs over a shrinking market. This could be calamitous for a domestic company who has not nearly the resources that a FDI investment usually does.
FDI is governed by both domestic and international law. Bilateral investment treaties, which establish these ‘stare decisis’ are important to the USA, which has 40 that are currently enforced. Why does the US care so much? Because FDI means that these foreign Corporations have operational control (controlling interest) of large firms which are in many cases the fulcrum of critical economic industries in the host country. With foreign Multinationals controlling big chunks of oil interests, tele-communications, or transportation, they naturally become a de-facto political force, and one with undue influence over local and national politics/policies. By inserting themselves so tangibly–by means of not only portfolio investment from a distance, but by means of operational and financial controlling interest, these Multinationals, from a realist perspective, are colonizing these host countries by exerting control over their most productive economic sectors.
Foreign Multinationals buying up productive, tangible assets and acquiring their operational controls, for example, in a sovereign countries precious resources, looks like economic colonialism to many–extracting wealth for Multinational Corporations and their shareholders. So, when policy decisions are made by a sovereign government about, let’s say, their energy sector–if there is significant FDI in said sector then the Multinational Corporation(s) will be not only seated at the table, but likely at the head of the table. Having control over these key industries transfers the levers of power from Nationals to Foreigners. When policy is being decided, Governments are wary that these
Multinationals do not have the good of the common man in mind, but mainly the good of their shareholders across the world in mind. So, the idea is that when these levers of power are procured by Multinationals, then their agenda will strictly be for their wealthy shareholders, not the populace of the host country who allowed the FDI in. In conclusion, it was not worth losing Sovereignty to gain a (disputed) economic boon. The Realists look it at from a Sovereignty perspective, the Liberalists look at it from an economic perspective. They are two competing philosophies–which does a society value more? Full sovereignty, or economic boons? Does it matter if countries want their resources to be owned by foreign Multinationals? It is a matter of principle v. profit, and it looks like profit is winning.
A simple solution would be for Sovereign Nations to pass domestic laws requiring every FDI to be regulated by the government and can only stay “at the will” or ad voluntatem, and at the discretion of the host government. They should actually be taxed more and must hire a certain number of the host nations citizens/residents to high positions within the firm. Also, the host government should regulate these FDI’s to ensure they are not overproducing due to their ability to undercut costs of domestic firms. Ultimately, FDI is a tool and passport of Jewish financial interests seeking to leverage financial stakes as a means of political control and cultural manipulation.