Reply to David Schanoes on Foreign Direct Investment
bendien at tomaatnet.nl
Mon Sep 1 17:34:25 MDT 2003
What I said offlist to JB was that US FDI positions AND EQUITY OWNERSHIP
POSITONS (stock shares) in foreign companies exceed US bank claims, non-bank
claims, and US bond holdings. The income from the former ownership
categories exceeds the income from the latter debt holding categories.
In fact what you precisely said was, "US FDI and equity holdings far exceed
bank claims and bond positions, and the earnings of the former vehicles also
far exceed the earnings of the latter investment vehicles."
Well, "equity holdings" can mean a lot of things, and bank claims are often
not presented very well statistically. The basic concept of FDI is clear,
but it's more difficult to measure it. But don't forget those derivatives,
debt securities, currency dealing and seignorage profits though. An awful
lot of profit is made out of debt obligations, I've noticed before. It seems
a bit weird to think that somebody could make a super-profit out of some
country's debt repayments, but it happens, you can actually make more money
out of managing the debt burden of a company or a country or an individual,
than if you employed people to produce something tangible. As long as they
stay working, churning out that surplus-labour, and you stay in control of
As regards FDI, there are conceptual problems with it. The basic concept of
it is, that a foreign company has at least a majority shareholding in a
local company, and therefore effectively owns it. The problem however is,
"what constitutes lasting interest" and "what constitutes a majority holding
?", and statistically you adopt a fixed rule in terms of such-and-such
percentage of shares in the parent (10 percent say), subsidiary (50 percent
say), associated company (10-50 percent say) or whatever. As regards
"lasting interest", this may not be legally fixed in any way - at anytime
divestment could occur.
The real problem is that what an effective "majority holding" is, depends
almost entirely on the real dispersion and pattern of share ownership. The
greater the total volume and dispersion of share ownership, then, as a rule,
the smaller the parcel of shares you need for a controlling stake in the
company (the precise pattern of dispersion is of course also important, i.e.
the different stakes which institutions and individuals have).
But if we are talking effective operational control of the company,
interlocking directorates,, legal constructions, resource control or
output-related product chains may in some cases be much more decisive than
actual shareholdings in defining "control", even although they are not easy
to capture consistently in calculating FDI (boundary problems).
In addition, the laws governing company ownership differ in different
countries, and this makes it all a little harder to interpret still. This
type of insight means that it is often unclear what FDI really means, in the
sense that it is not really clear what it measures. It is certainly an
attempt to establish the amount of effective control foreign corporations
have, where "effective control" and "lasting interest" means a majority
holding of a "productive asset" or at least controlling interest which gives
voting power at shareholders' meetings and the ability to appoint directors,
to decide company policy and so on. But even in the way directors are
appointed, there are still more variations possible depending on the rules
for selection and voting procedures being used.
The next type of problem is where company A owns part of company B in
country X, but company B owns part of company C in country Y, but also
company B also owns an equivalent part of company A via some construction,
never mind constructions such as shelf companies. And so forth and so on.
In general, a clear hierarchy is evident, but for tax purposes and
commercial purposes some interesting legal constructions do get designed,
creating boundary problems in classifying them.
Yet another problem with the cut-off point of FDI is where a corporation
"leases" the exploitation of a resource in some way without however "owning"
the resource in any way. That is to say, the actual property relations
legally arrived at to permit a corporation to exploit a resource may be
complex and involve the formal setting up of various corporate structures,
but the legal labyrinth may make it impossible to untangle if a real
"ownership" is involved or only some temporary "hiring".
So anyway whereas FDI, which is incredibly difficult to measure correctly,
may serve as a crude indicator, and whereas we should be grateful for this
measure provided by UNCTAD, it is probably only at best a very "crude
indicator" of what really is going on.
Personally, what I find a much more economically significant and reliable
statistical indicator is simply the total value of foreign equity held in a
particular country. The objection to this from the UNCTAD people would be
however, that the whole point is that a stock of equity may have a power and
socio-economic significance which goes well beyond its current value, than
the economic significance that its current value would suggest.
In the case of New Zealand, extreme economic liberalisation from 1985 meant
that justabout every sector is either dominated by foreign companies now, or
by multinationals which started off in New Zealand but currrently operate
worldwide. This is the phenomenon of "recolonisation". But if we know that,
for example, statistically FDI represents 35% of the equity in
publicly-listed companies within a country, then we still do not know very
much about the extent of effective economic control, unless we look at a lot
of other data, sector by sector, as well as the link between the corporates
and the bourgeois government elite. Youn need to know all this in order not
to fetishize statistical information.
I have not taken a position on whether the US owns the rest of the world,
but it certainly is the bellweather capitalist economy for the international
network of capital.
It isn't really something you can take a "position" on, the idea is to try
and understand what it means, in its different dimensions. That is why most
books about imperialism are a "cartoon Marxism" because they do not provide
a true picture of the dimensions of ownership and effective control, about
the ability of the bourgeois state to actually influence or dominate things
and so on. They just talk philosophically in general about neo-liberalism or
about value theory. Because the Marxist analyses are so general and vague,
you cannot act on those analyses either.
All we see as ordinary people, is the publicly visible effects of policies
made behind closed doors by the ruling cliques, without understanding the
motivation behind them specifically. But one thing is clear: there is no
united and monolithic domination by the bourgeoisie (as is obvious when
Soros can manipulate the value of the British Pound just by himself) and the
methods by which political control may be forced or asserted, may take the
form of exceedingly complex games in which there is competition between
different groups of the rich predators. This is part of the problem which I
have referred to in previous posts: the socio-political problem of ruling
class cohesion (not just sexual glue, but political cohesion). A large part
of the real owners prefers to leave the investment work to specialists, but
this again has consequences.
FDI is almost by definition non-governmental direct investment in another
country. Few governmental ventures qualify as foreign direct investment as
opposed to a foreign based asset (for example, military installations
qualify as the latter but not the former).
But this misses the point again too, because the bourgeois state colludes
with the corporations to bolster profits and position, and through legal
procedures may create openings for the corporations to do things. This is
perfectly obvious in the case of the Bush/Cheney administration and the oil
and weapons companies. By awarding a contract to a corporation at home, or
adopting a foreign policy, a corporation may be able to engage in a type of
foreign investment which it was previously unable to engage in. Conversely,
the bourgeois state may make entry easier for foreign investors through
concessions and tax breaks and legal changes. Therefore the corporations and
the bourgeois state are very much entangled with each other, and adapt to
each other. They are separate, but aim to work together - the state
functionary is dependent on taxation wealth, the corporation is dependent on
the state for providing a good investment environment. They must work
together to extract the maximum value added by the working class to obtain
maximum value for shareholders.
Part of the significance of FDI is its rapid growth at the expense of
governmental loans and grants and aid from the developed countries.
I think they are related but independent developments. Most of the
development aid came from the accounts of the bourgeois state, decided
politically. Most of the FDI comes from the corporations, decided by private
investors and directors. Therefore the one cannot be "at the expense" of the
other as you suggest, they are separate funding sources decided according to
different criteria, because governments must bear in mind the total picture
and the corporation is typically a bit more partisan. But it is true that,
generally, it is felt these days that FDI often gives a better "leverage",
better management and more effective organisational control (Teresa Hayes
wrote some good stuff on Development Aid once, for example, "Aid as
Imperialism" in 1971).
The bourgeoisie realises very well that problems happen if the chain between
ownership, control and operations becomes too long. In the case of Alco
Corporation in New Caledonia, which I discussed briefly on PEN-L, one of the
directors is actually on-site quite a bit to manage proceedings. You can
give aid with strings attached, but it is much more difficult to police the
"strings" so that the funds are disposed in the way that you intended. This
is a contradictory tendency within the bourgeoisie: the conflict between
responsibility, control and delegation. If you delegate too much, because
you want to have a nice life with beautiful girls and drinking wine
yourself, you may lose control, and responsibilities are not taken up as
they should. These create psychological problems and often you have to live
with the idea that every move is being watched.
The UNCTAD report, and indeed every report on FDI has different categories--
there is the historical gross at cost, the historical gross at market value,
the yearly gross flows, and the comparison of year to year flows.
Yep. But it is the current or average market value is most relevant, and
this goes for most assets. Who cares about historic cost if at the very
moment that the asset is sold, it has already depreciated in value ! What
people are interested in is the current sale value. The problem is that what
the market value is now, may not easily be specifiable, and even if the
stock of it is, then we must extrapolate some average share value over the
accounting period to get a flow value for the market valuation.
Historical cost figures may be more reliable, but also more meaningless
since equity in particular can change drastically during even a quarterly
accounting period (oil !). In aggregations of asset values, historic costs,
replacement costs and market values are often mixed up, it is almost
impossible to get a consistent valuation for all data elements. It is like
the problem of profit accounting where you are dealing with inventory
changes and depreciation write-offs.
The historical gross of FDI did not decline by half in 2001. The amounts,
the flow declined. The market value of the gross may have declined in 2001,
2002, etc. But it has not declined on a historical cost basis.
See my comment above. FDI might be increasing, but non-FDI foreign
investment may be increasing more, and I think it is. What is important here
is perceptions of economic strength. For example, many people believe the
USA is a very strong economy, or they may believe in a secure placement
somewhere out of the way. The reported figure that I used did not come with
a precise definition. But regardless of whether a stock value (asset
snapshot) or a flow value (net transactions or holding over a period of
time) is used, and regardless of valuation at historic cost or market value,
if it is reported that the reduction in investment is equal to over 50
percent, then we are talking about a big amount, if it is the USA we are
talking about. But I do not understand your notion of historical gross,
because you could be referring to the actual asset holding, or you could be
referring to the new net capital additions to the existing asset. Gross of
what, exactly ? In general, FDI intends to measure the size and fluctuation
of the actual asset holding, but of course you can derive measures of the
net foreign investment flow in the measurement of that.
JB needs to pay a bit more attention the exactly what trees are in what
forests before pretending to be a ranger.
This is another one of your arrogant, patronising hints. Excuse my plain
language, but it is one of the reasons why Marxist culture is so f****d, all
these people making these innuendo's. You are the Prozac guy with the
psychoanalyst, not me. I just smoke cigarettes and intend to quit. It is
not really not necessary you know, it is quite clear what you know and don't
know. Maybe I will go ahead and get myself a red-haired sex doll. The
Marxist culture is just so pathetic I often wish I was on another planet, or
at least the Restaurant at the End of the Universe or something. Lots of
waffle about "internationalism" and they cannot even relate intelligently to
their own people with a friendly demeanour and open communication. It was
the biggest disappointment of my life, the ignorant arrogance and prejudices
of so-called "revolutionaries" and their personality cults. By the way I've
personally worked as forest labourer and as research statistician, so I am
not entirely a layperson as regards the wood and the trees. In fact I once
tried to develop a theory of fixed capital in forestry, haha. Now I am
going to collapse out of boredom.
Thanks for your imperialism paper though.
One headline why believe it ?
Everybody wants to rule the world
All for freedom and for pleasure
Nothing ever lasts forever
Everybody wants to rule the world
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