How much did inward FDI flows boost employment recently ? A brief look at the case of Britain, using my pocket calculator

Jurriaan Bendien bendien at
Wed Sep 17 11:59:47 MDT 2003

The UK Trade and Industry Department provides some interesting data on
foreign direct investment in relation to employment at

As you can see in Figure 9.2 at this webpage, the official DTI recorded
number of decisions by foreign investors to invest in UK industries
(national totals) was 757 in 1999/2000, 885 in 2000/2001 and 840 in

The UK share of the EU stock of inward foreign direct investment placements
increased marginally from 18.3 percent in 2000 to 18.8 percent in 2001. This
stock is actually the highest of any country in Europe (one-fifth of the EU
stock of foreign direct investment), and second only to the USA. Actually,
Britain attracts over two-fifths of Japanese foreign direct investment in
the EU and about two-fifths of US foreign direct investment in the EU.
(American and British investors have a bigger financial stake in protecting
their investments in the rest of the world than anybody else in any other
country, hence also their more ferocious imperialism).

Nevertheless, the number of new jobs created and existing jobs safeguarded
by new decisions by foreign companies to invest in the UK actually declined
sharply in 2002, a significant trend I think.

Thus, whereas in 1999/2000 foreign direct investment created 52,783 new jobs
in the UK, and whereas in 2000/2001 foreign direct investment created 71,451
new jobs, in 2001/2002 foreign direct investment created only 35,149 new

Of course, after the surge around the turn of the 21st century, total
foreign direct investment flows into the UK are now falling sharply, as I
mentioned in a previous post on Marxmail, and both the total number and the
total value of new foreign acquisitions is declining in Britain according to
the National Statistics Office - see
During 2002, the total market value of the British stock market also fell by
about US$ 600 billion, a 26 percent fall from the previous year. Foreign
ownership represents about a third of total equity traded on the British
stock market, and two-fifths of this equity is held by European owners (see

Even so, the existing jobs "safeguarded" by new foreign direct investment
flows declined linearly from 81,411 jobs in 1999-2000, to 52,358 jobs in
2000-2001, and 24,066 jobs in 2001/2002. This trend cannot be explained
simply in terms of the recent decline in the total value of inward foreign
direct investment. We are talking about successive drops in "safeguarded"
jobs of some 64 and 45 percent over the previous year respectively.

Before we get very agitated about that, however, what we need to understand
is the overall significance of these estimates.

In the UK, you had 27.3 million employees in 2000 (17.9 million fulltime),
27.6 million employees in 2001 (18.1 million fulltime), 27.8 million
employees in 2002 (18.2 million fulltime). See

So, the new jobs created by new inward foreign direct investment placements
in the UK during 1999/2000 represented only about 0.19 percent of all
British paid employee positions. Yep, that's right, 0.19 percent, or one job
out of every 526 paid employee positions, the average in the period I am
talking about. The new jobs created by inward foreign direct investment
during 2000/2001 represented about 0.26 percent of all British paid employee
positions, and only just 0.13 percent of all British paid employee positions
in 2001/2002.

Okay, you might now argue that all the new jobs created by new foreign
direct investment decisions by foreign investors in the UK are mainly
fulltime jobs. In that case, we can beef up the figures a bit, and arrive at
the corresponding totals of 0.29 percent  for 1999/2000, 0.39 percent for
2000/2001, and 0.19 percent for 2001/2002.

But, you might argue, this is still not correct, because we should really
total up all the new jobs created and the ones safeguarded, and relate this
exclusively to the total of fulltime employees. Okay, in that case, we beef
up the figures some more, so that the combined total of new and safeguarded
jobs resulting from new foreign direct investment flows annually,
represented 0.75 percent of all paid fulltime employee positions in the UK
in 1999/2000, and the figures are 0.68 percent for 2000/2001 and 0.32
percent for 2001/2001. (Note: the official unemployment rate in Britain is
about 5.1 percent, or about one and a half million people; my own
guesstimate of real unemployment is that for every 8 employed people there
is one jobseeker, i.e. the real jobless rate is over 10 percent). At the
very most, then, the annual foreign direct investment flow would create or
safeguard the job of one in 133 British paid employees in recent years, but
the most recent available data suggest it's more like one in 313 British
paid employees.

In summary, then, the direct job-generating or job-protective effect of the
new inward foreign direct investment flows into the British economy in
recent years, just isn't very significant at all, and is probably still
declining. To say that foreign direct investment is creating vast employment
opportunities in the UK at the present time is mainly propaganda, not just
because total foreign direct investment is falling, but because the foreign
direct investment that does occur, just doesn't generate or safeguard a
large amount of extra jobs.

This is not to deny at all, that foreign investment in Britain does
represent a very large number of British jobs, which has a Keynesian
"multiplier effect" on incomes and so forth (I am aware that foreign
owned/controlled companies in the UK employ some 1.8 million people - nearly
one in ten of all British employees, including 1 million in the service
sector and 800,000 in manufacturing, which is one in six manufacturing jobs;
see the official estimates given at -
but it is saying that in recent years, the NEW foreign direct investment
flows just do NOT have the large additional job-generating or job-protective
benefits that we are led to believe by propagandists. The "multiplier
effect" must also be balanced against jobs being lost, due to other
enterprises in the UK being outcompeted by foreign-owned enterprises in the
UK. But this is difficult to trace directly by statistical means, very
convenient for those who extol the great employment benefits of foreign
direct investment.

What we can say is that, on average, it nowadays takes less foreign
investment dollars to create one new British job directly than it did
before, simply by relating new jobs directly created by foreign direct
investment (according to official DTI data, of which I do not know the
compilation method) to the actual total dollar value of inward foreign
direct investment recorded by the OECD for the UK (see ). This I presume has quite a
lot to do with the relative exchange rates of the British pound.

Thus, we could conclude that:

-  in 2000, it took about 2.3 million US dollars of inward foreign direct
investment to create one extra British employee position.
- in 2001, it took about 870,000 US dollars of inward foreign direct
investment to create one extra British employee position.
- in 2002, it took about 710,000 US dollars of inward foreign direct
investment to create one extra British employee position.

Aha, you say, but what about jobs "safeguarded" ? So let us now relate the
total new jobs created in the UK, plus existing jobs safeguarded in the UK
by foreign direct investment, to the total inward foreign direct investment
flows in the UK.

In that case, we can say that approximately for every 900,000 US dollars
invested by foreign investors into the UK in 2000, one job was either
created or safeguarded, and the figures are about 500,000 US dollars for
2001 and about 400,000 US dollars for 2002 (using OECD foreign direct
investment totals).

The salary associated with this newly created or safeguarded job, was
equivalent to only something like 5 to 10 percent at most of the foreign
money invested into Britain per British job (estimated using wage data from During the period which we
are talking about, i.e. 2000-2002 an average British pre-tax salary would
have been around US$33,000-$36,000 or so, that is the figure I am working
from, realising that salaries in foreign-owned enterprises are usually
somewhat higher than average.

Thus, even although these days it actually takes less foreign direct
investment dollars to create or safeguard one paid British job than before,

- the total number of new jobs actually created and safeguarded as a result
of recent foreign direct investment flowing into Britain is now falling;
- the actual income share of British employees generated by recent foreign
direct investment flows into Britain just cannot be very great, representing
probably at most only the equivalent of about a tenth of the foreign
investment money;
- the overall job-generating or job-protective effect of the total annual
foreign direct investment flows into Britain in recent years, is rather

Certainly, the British have a vested interest in protecting the existing 1.8
million jobs which directly depend on foreign investment, and the incomes
this generates for others in Britain. But there is little ground for saying
that new additional foreign direct investment flows are generating a lot of
new jobs or additional incomes for workers in Britain just now.


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