[Marxism] Foreign Direct Investment and globalisation

Jurriaan Bendien andromeda246 at hetnet.nl
Wed Jul 14 12:48:47 MDT 2004


In debating with David Schanoes a while ago, I pointed out that in
international capital flows, portfolio investment (equities, bonds,
securities, derivatives) and bank claims were significantly larger in volume
than the flows of foreign direct investment (which involve effective control
of foreign enterprises, measured by the relative size of the asset holdings
in enterprises). Schanoes denied this, and claimed instead that American FDI
was increasing more rapidly than other forms of investment.

But a similar conclusion to my own is reached by Caughey in the article to
which I referred earlier (US international investment position, in "The
pulse of capitalism"). Thus, while American FDI assets in foreign countries
is estimated for 2002 to be $1.7 trillion, the corresponding portfolio
investment assets alone is estimated 1.8 trillion.

As regards FDI by foreign countries into the United States, FDI in 2002 is
estimated at $1.5 trillion in assets and portfolio investment alone is
estimated at $3.4 trillion in assets.

As regards the volume of bank claims and liabilities, these again exceed the
individual volumes of FDI and portfolio investment in size. Thus, the
financial claims on foreign countries reported by US banks and financial
institutions alone is estimated for 2002 at $2.3 billion or thereabouts.

What this means is, that total "US foreign direct investment" which involves
a controlling stake in enterprises in foreign countries is probably only
around a quarter of the total foreign investment assets estimate of $6
trillion held by US investors (some types of foreign investment are not
reflected very well in the measures, e.g. cases such as US citizens buying
property overseas for private or non-business use).

In the same way, out of the $8.6 trillion of assets held by foreigners in
the US, only about one-sixth part consists of foreign direct investment with
a controlling stake in US enterprises. I would estimate that this
controlling foreign stake in US enterprises represents only about 3% of the
total tax-declared assets held by all US corporations.

This has important consequences for the so-called ''globalisation debate'',
in which it is argued that "nations are no longer important" because
corporations are claimed to be no longer nationally based, and operate
freely around the globe without regard for national governments and
territorial restrictions.

The fact is, that this idea is simply a myth, it is true neither in terms of
the size of actual foreign asset holdings, nor in the sense that most
corporations remain organisationally nationally-based, and are predominantly
owned by investors in specific nations. Legally also, multinational
corporations remain largely bound by national rules and conventions.

It is certainly true that the total volume of foreign investment
internationally has increased strongly in the last two decades of financial
"deregulation", but this has occurred most spectacularly through the growth
of the international money, credit finance and securities markets, whereas
the increase in actual ownership or control of productive assets overseas is
proportionally only a minor fraction of that growth - in addition, the bulk
of that FDI flow of capital also occurs between North America, Japan/China
and (Western) Europe, and not elsewhere.

That is why it is really more appropriate to talk about "financialisation"
than about "globalisation", if it is a question of slogans. We are talking
mainly about businesses in rich countries taking advantage of deregulated
markets to utilise cost-, profitability- and interest rate differentials
internationally, but principally in other rich countries.

It could of course be argued that by just looking at matters in dollar terms
(in terms of exchange-value) we miss part of the picture, because it ignores
the increase in the physical volume of goods traded (use-values) on the
basis of structural unequal exchange. That is to say, the dollar-value of
capital flows may not adequately capture the social meaning of what is
happening in terms of people's working lives and consumption patterns. I
think that is to some extent true; behind a relatively modest capital flow
value may be a physically very large amount of goods with a low unit-cost.

But while "globalisation theories" proliferate, sadly few researchers seems
to bother about studying very obvious quantitative facts and estimates. Just
because of the existence of the Internet, and because of the fact that the
travel industry now comprises a tenth of the value of world GDP, this does
not mean the world has become "globalised", whatever that means. Because in
reality the majority of the world population cannot travel internationally,
and cannot access the Internet. And immigration restrictions are increasing
all the time.

The most one can really say in favour of the "globalisation" metaphor is
that it permits inquiry and study into international developments and how
modern information and communication technology influences the impact of
different cultures on each other.

But what has this got to do with the question of political and economic
power, the question of imperialism, or the question of social inequality and
socialism ? The least you can say for Lenin is, that he actually sat down in
a research library in Zurich in 1916, and proceeded to study the facts, in
order to provide his party with a realistic perspective on world
developments and on slogans which were based on political and economic
realities, rather than on fashionable buzzwords.

Quite possibly also, the "globalisation craze" owes a lot to the prominence
of NGO's in debates about social justice, given the inability of the Left to
devise new, workable organisational forms. The principle that "you never
bite the hand that feeds" must apply at least to some extent - and thus,
while the "globalisation" controversy might enable a study of international
affairs, the possibilities for a radical, uncompromising scientific inquiry
remain rather limited.

Jurriaan










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