EL LADINO GLOBAL V
Simplification is a mind trick in order to understand (not to drive us crazy) the world, not the world itself. Is that so difficult to accept, caramba? "A veces, para tener una idea aproximada de que cierta cantidad de lluvia pueda rebasar un umbral, normalmente hacemos un ajuste a una fdp, en lugar de echárnosla a pie y tardar más" -le digo; but I don't think this buddy did really believe that. There is a point of shattered dreams, that once reached, I don't believe, they do believe themselves. Have we escalated to that 'unusual' level, yet?: "Un fanático siempre tiene una duda oculta". I honestly dunno that for sure, but they just pretend that we are facing 'business as usual' in this land, and calmly are waiting for times of better productivity (Btw, OMG! What efficient u r, indeed; 'Mr. ten per cent') to arrive. Mientras tanto, apuestan a que 'Los Supermachos', berrinche chipilón de por medio, habrán de aguantar todo ...una vez más y, llegado el momento apropiado, por amarga que ella sea, su medicina borregamente habrán de tomar, ¿verdad?
Weno, les tengo una excelente noticia (ya ven que actualmente no se cotizan muy alto por aquí) debido a que faltaba un importante factorn dentro de la ecuación(que arrogantemente yo desestimé), el cual ya hemos definido e insertado, vamos a cambiar (ya ven que la victoria tiene varias asepsiones espurias, hoy) esta contaminada atmósfera nacional. Así que, pa'no seguir "despotricando" innecesariamente, continuemos con nuestro "book review".
Should we regulate foreign investment?
... "...after gaining independence from Russia in 1918, Finland tried its best to keep foreigners out. The country introduced a series of laws in the 1930s that officially classified all the enterprises with more than 20% foreign ownership - hold your breath - 'dangerous'.
Is foreign capital essential?
... "Foreign capital flows into developing countries consist of three main elements - grants, debts and investments. Grants are money given away (but often with strings attached) by another country and are called foreign aid or official development assistance (ODA). Debts consist of bank loans and bonds (government bonds and corporate bonds). Investments are made up of 'portfolio equity investment', which is equity (share) ownership seeking finalcial returns rather than managerial influence, and foreign direct investment (FDI), which involves the purchase of equity with a view to influence the management of the firm on a regular basis
... "Of course, this kind of behavior - known, as 'pro-cyclical' behavior -also exists among domestic investors. Indeed, when things go bad, these investors, using their insider information, often leave the country 'before'the foreigners do. But the impact of the herd behaviour by foreigner investors is much greater for the simple reason that developing country financial markets are tiny relative to the amounts of money sloshing around the international financial system. The Indian stock market, the largest stock market in the developing world, is less than one-thirtieth the size of the US stock market. The Nigerian stock market, the second largest in Sub-Saharan Africa, is worth less than one five-thousand of the US stock market. Ghana's stock market is worth only 0.006% of the US stock market. What is a mere drop in the ocean of rich country assets will be a flood that can sweep away financial markets in developing countries."
The Mother Teresa of foreign capital
... "The case for welcoming foreign direct investment, then, seems overwhelming. FDI is stable, unlike other forms of capital inflows. Moreover, it brings not just money but also enhances the host country's productive capabilities by bringing in more advanced organization, skills and technology.
... "...FDI can be made 'liquid'and shipped out rather quickly. As even an IMF publication points out, the foreign subsidiary can use its assets to borrow from domestic banks, change the money into foreign currency and send the money out; or the parent company may recall the intracompany loan it has lent to the subsidiary (this counts as FDI).
... "Not only is FDI not necessary a stable source of foreign currency, it may have negative impacts on the foreign exchange position of the host country. FDI may bring in foreign currency, but it can also generate additional demands for it (e.g. importing inputs, contracting foreign loans).
... "In some cases, brownfield FDI is made with an explicit intention of not doing much to improve the productive capabilities of the company bought - a foreign direct investor might buy a company that he thinks is undervaluated by the market, especially in times of financial crisis, and run it as it used to be until he finds a suitable buyer. Sometimes the foreign direct investor may even actively 'destroy'the existing productive capabilities of the company bought by engaging in 'asset stripping'. For example, when the Spanish airline Iberia bought some Latin American airlines in the 1990s, it swapped its own old planes for the new ones owned by the Latin American airlines, eventually driving some of the latter into bankruptcy due to a poor service record and high maintenance costs.
... "... a developing country may reasonably decide to forego short-term benefits from the FDI in order to increase the chance for its domestic firms to engage in higher-level activities in the long run, by banning FDI in certain sectors or regulating it. This is exactly the same logic as that of infant industry protection... a country gives up the short-run benefits of free trade in order to create higher productive capabilities in the long run. And it is why, historically, most economic success stories have resorted to regulation of FDI, often in a draconian manner."
'More dangerous than military power'
"'It will be a happy day for us when not a single good American security is owned abroad and when the United States shall cease to be an exploiting ground for European bankers and money lenders'. Thus wrote the 'US Banker's Magazine' in 1884.
... "... Controlling our currency, receiving our public moneys, and holding thousands of our citizens in dependence, it would be far more formidable and dangerous than the naval and military power of the enemy. If we must have a bank... it should be a 'purely American'. If the president of a developing country said something like this today, he would be branded a xenophobic dinosaur and blackballed in the international community.
"From the earliest days of its economic development right up to the First World War, the US was the world's largest importer of foreign capital.
"... the US federal government strongly regulated foreign investment. Non-resident shareholders could not vote and only American citizens could become directors in a national (as opposed to state-level) bank... A navigation monopoly for US ships in coastal shipping was imposed in 1817 by Congress and continued until the First World War. There was also strict regulations on foreign investment in natural resource industries. Many state governments barred or restricted investment by non-resident foreigners in land. The 1887 federal Alien Property Act prohibited the ownership of land by aliens - or by companies more than 20% owned by aliens - in the 'territories' (as opposed to the fully fledged states), where land speculation was particularly rampant.
"Some state (as opposed to federal) laws were even more hostile to foreign investment. A number of states taxed foreign companies more heavily than the American ones. There was a notorious Indian law of 1887 that withdrew court protection from foreign firms altogether. In the late 19th century, the New York state government took a particularly hostile towards FDI in the financial sector, an area where it was rapidly developing a world-class position (a clear case of infant industry protection). It instituted a law in the 1880s that banned foreign banks from engaging in 'banking business' (such as taking deposits and discounting notes or bills). The 1914 banking law banned the establishment of foreign bank branches. For example, the London City and Midland Bank (then the world's third largest bank, measured by deposits) could not open a New York branch, even though it had 867 branches worldwide and 45 correspondent banks in the US alone.
... "... the belief by the Bad Samaritans that foreign investment regulation is bound to reduce investment flows, or conversely, that the liberalization of foreign investment regulation will increase foreign investment flows. Moreover, despite - or, I would argue, partly because of - its strict regulation of foreign investment (as well as having in place manufacturing tariffs that were the highest in the world), the US was the world's fastest-growing economy throughout the 19th century and up until 1920s.
... "Even in cases like Singapore and Ireland, countries that have succeeded by extensively relying on FDI, are not the proof that host country governments should let TNCs do whatever they want. While welcoming foreign companies, their governments used selected policies to attract foreign investment into areas that they considered strategic for the future development of their economies."
Boderless World?
"Forget history, say the Bad Samaritans in defending such actions. Even if it did have some merits in the past, they argue, regulation of foreign investment has become 'unnecessary and futile', thanks to globalization, which has created a new 'borderless world'.
"...the nationality of the firm still matters very much. Who owns the firm determines how far its different subsidiaries will be allowed to move into higher-level activities. It would be very naive, especially on the part of developing countries, to design economic policies on the assumption that capital does not have national roots anymore.
... "Surveys reveal that corporations are most interested in the market potential of the host country (market size and growth), and then in things like the quality of the labour force and infrastructure, with regulation being only a matter of minor interest. Even the World Bank, a well-known supporter of FDI liberalization, once admitted that 'the specific incentives and regulations governing direct investment have less effect on how much investment a country receives than has its general economic and political climate, and its financial and exchange rate policies'.
"... foreign investment follows, rather than causes, economic growth. The brutal truth is that however liberal the regulatory regime, foreign firms won't come into a country unless its economy offers an attractive market and high-quality productive resources (labour, infrastructure)."
'The only thing worse than being exploited by capital...'
"Foreign financial investment brings more danger than benefits, as even the neo-liberals acknowledge these days. While foreign direct investment is no Mother Teresa, it often does bring benefits to the host country 'in the short run'. But it is the long run that counts when it comes to economic development. Accepting FDI unconditionally may actually make economic development in the long run more difficult. Despite the hyperbole about a 'borderless world, TNCs remain national firms with international operations and, therefore, are unlikely to let their subsidiaries engage in higher-level activities; at the same time their presence can prevent the emergence of national firms that might start them in the long run. This situation is likely to damage the long-run development potential of the host country. Moreover, the long-run benefits of the FDI depend partly on the magnitude and quality of the spill-over effects that Transnational Corporations (TNCs) create, whose maximization requires appropriate policy interventions. Unfortunately, many key tools of such intervention have already been outlawed by the Bad Samaritans (e.g., local content requirements).
"Foreign direct investment may help economic development, but only when introduced as part of a long-term-oriented development strategy. Policies should be designed so that foreign direct investment does not kill off domestic producers, which may hold out great potential in the long run, while also ensuring that the advanced technologies and managerial skills foreign corporations possess are transferred to domestic business to the maximum possible extent... more countries will succeed, and have succeeded, when they more actively regulate foreign investment, including FDI."
Should we regulate foreign investment?
... "...after gaining independence from Russia in 1918, Finland tried its best to keep foreigners out. The country introduced a series of laws in the 1930s that officially classified all the enterprises with more than 20% foreign ownership - hold your breath - 'dangerous'.
Is foreign capital essential?
... "Foreign capital flows into developing countries consist of three main elements - grants, debts and investments. Grants are money given away (but often with strings attached) by another country and are called foreign aid or official development assistance (ODA). Debts consist of bank loans and bonds (government bonds and corporate bonds). Investments are made up of 'portfolio equity investment', which is equity (share) ownership seeking finalcial returns rather than managerial influence, and foreign direct investment (FDI), which involves the purchase of equity with a view to influence the management of the firm on a regular basis
... "Of course, this kind of behavior - known, as 'pro-cyclical' behavior -also exists among domestic investors. Indeed, when things go bad, these investors, using their insider information, often leave the country 'before'the foreigners do. But the impact of the herd behaviour by foreigner investors is much greater for the simple reason that developing country financial markets are tiny relative to the amounts of money sloshing around the international financial system. The Indian stock market, the largest stock market in the developing world, is less than one-thirtieth the size of the US stock market. The Nigerian stock market, the second largest in Sub-Saharan Africa, is worth less than one five-thousand of the US stock market. Ghana's stock market is worth only 0.006% of the US stock market. What is a mere drop in the ocean of rich country assets will be a flood that can sweep away financial markets in developing countries."
The Mother Teresa of foreign capital
... "The case for welcoming foreign direct investment, then, seems overwhelming. FDI is stable, unlike other forms of capital inflows. Moreover, it brings not just money but also enhances the host country's productive capabilities by bringing in more advanced organization, skills and technology.
... "...FDI can be made 'liquid'and shipped out rather quickly. As even an IMF publication points out, the foreign subsidiary can use its assets to borrow from domestic banks, change the money into foreign currency and send the money out; or the parent company may recall the intracompany loan it has lent to the subsidiary (this counts as FDI).
... "Not only is FDI not necessary a stable source of foreign currency, it may have negative impacts on the foreign exchange position of the host country. FDI may bring in foreign currency, but it can also generate additional demands for it (e.g. importing inputs, contracting foreign loans).
... "In some cases, brownfield FDI is made with an explicit intention of not doing much to improve the productive capabilities of the company bought - a foreign direct investor might buy a company that he thinks is undervaluated by the market, especially in times of financial crisis, and run it as it used to be until he finds a suitable buyer. Sometimes the foreign direct investor may even actively 'destroy'the existing productive capabilities of the company bought by engaging in 'asset stripping'. For example, when the Spanish airline Iberia bought some Latin American airlines in the 1990s, it swapped its own old planes for the new ones owned by the Latin American airlines, eventually driving some of the latter into bankruptcy due to a poor service record and high maintenance costs.
... "... a developing country may reasonably decide to forego short-term benefits from the FDI in order to increase the chance for its domestic firms to engage in higher-level activities in the long run, by banning FDI in certain sectors or regulating it. This is exactly the same logic as that of infant industry protection... a country gives up the short-run benefits of free trade in order to create higher productive capabilities in the long run. And it is why, historically, most economic success stories have resorted to regulation of FDI, often in a draconian manner."
'More dangerous than military power'
"'It will be a happy day for us when not a single good American security is owned abroad and when the United States shall cease to be an exploiting ground for European bankers and money lenders'. Thus wrote the 'US Banker's Magazine' in 1884.
... "... Controlling our currency, receiving our public moneys, and holding thousands of our citizens in dependence, it would be far more formidable and dangerous than the naval and military power of the enemy. If we must have a bank... it should be a 'purely American'. If the president of a developing country said something like this today, he would be branded a xenophobic dinosaur and blackballed in the international community.
"From the earliest days of its economic development right up to the First World War, the US was the world's largest importer of foreign capital.
"... the US federal government strongly regulated foreign investment. Non-resident shareholders could not vote and only American citizens could become directors in a national (as opposed to state-level) bank... A navigation monopoly for US ships in coastal shipping was imposed in 1817 by Congress and continued until the First World War. There was also strict regulations on foreign investment in natural resource industries. Many state governments barred or restricted investment by non-resident foreigners in land. The 1887 federal Alien Property Act prohibited the ownership of land by aliens - or by companies more than 20% owned by aliens - in the 'territories' (as opposed to the fully fledged states), where land speculation was particularly rampant.
"Some state (as opposed to federal) laws were even more hostile to foreign investment. A number of states taxed foreign companies more heavily than the American ones. There was a notorious Indian law of 1887 that withdrew court protection from foreign firms altogether. In the late 19th century, the New York state government took a particularly hostile towards FDI in the financial sector, an area where it was rapidly developing a world-class position (a clear case of infant industry protection). It instituted a law in the 1880s that banned foreign banks from engaging in 'banking business' (such as taking deposits and discounting notes or bills). The 1914 banking law banned the establishment of foreign bank branches. For example, the London City and Midland Bank (then the world's third largest bank, measured by deposits) could not open a New York branch, even though it had 867 branches worldwide and 45 correspondent banks in the US alone.
... "... the belief by the Bad Samaritans that foreign investment regulation is bound to reduce investment flows, or conversely, that the liberalization of foreign investment regulation will increase foreign investment flows. Moreover, despite - or, I would argue, partly because of - its strict regulation of foreign investment (as well as having in place manufacturing tariffs that were the highest in the world), the US was the world's fastest-growing economy throughout the 19th century and up until 1920s.
... "Even in cases like Singapore and Ireland, countries that have succeeded by extensively relying on FDI, are not the proof that host country governments should let TNCs do whatever they want. While welcoming foreign companies, their governments used selected policies to attract foreign investment into areas that they considered strategic for the future development of their economies."
Boderless World?
"Forget history, say the Bad Samaritans in defending such actions. Even if it did have some merits in the past, they argue, regulation of foreign investment has become 'unnecessary and futile', thanks to globalization, which has created a new 'borderless world'.
"...the nationality of the firm still matters very much. Who owns the firm determines how far its different subsidiaries will be allowed to move into higher-level activities. It would be very naive, especially on the part of developing countries, to design economic policies on the assumption that capital does not have national roots anymore.
... "Surveys reveal that corporations are most interested in the market potential of the host country (market size and growth), and then in things like the quality of the labour force and infrastructure, with regulation being only a matter of minor interest. Even the World Bank, a well-known supporter of FDI liberalization, once admitted that 'the specific incentives and regulations governing direct investment have less effect on how much investment a country receives than has its general economic and political climate, and its financial and exchange rate policies'.
"... foreign investment follows, rather than causes, economic growth. The brutal truth is that however liberal the regulatory regime, foreign firms won't come into a country unless its economy offers an attractive market and high-quality productive resources (labour, infrastructure)."
'The only thing worse than being exploited by capital...'
"Foreign financial investment brings more danger than benefits, as even the neo-liberals acknowledge these days. While foreign direct investment is no Mother Teresa, it often does bring benefits to the host country 'in the short run'. But it is the long run that counts when it comes to economic development. Accepting FDI unconditionally may actually make economic development in the long run more difficult. Despite the hyperbole about a 'borderless world, TNCs remain national firms with international operations and, therefore, are unlikely to let their subsidiaries engage in higher-level activities; at the same time their presence can prevent the emergence of national firms that might start them in the long run. This situation is likely to damage the long-run development potential of the host country. Moreover, the long-run benefits of the FDI depend partly on the magnitude and quality of the spill-over effects that Transnational Corporations (TNCs) create, whose maximization requires appropriate policy interventions. Unfortunately, many key tools of such intervention have already been outlawed by the Bad Samaritans (e.g., local content requirements).
"Foreign direct investment may help economic development, but only when introduced as part of a long-term-oriented development strategy. Policies should be designed so that foreign direct investment does not kill off domestic producers, which may hold out great potential in the long run, while also ensuring that the advanced technologies and managerial skills foreign corporations possess are transferred to domestic business to the maximum possible extent... more countries will succeed, and have succeeded, when they more actively regulate foreign investment, including FDI."
