Foreign Investment in the United States: Reverse Globalization?

Foreign interests have acquired another major American company. Anheuser-Busch (BUD) has agreed to being purchased by InBev (INBVF.PK), and we see that the relentless march to foreign ownership is proceeding. While the turmoil in the financial markets and the ‘bail-out’ of Fannie Mae and Freddie Mac dominate the headlines, reverse globalization takes over the United States.

I call what is happening ‘reverse globalization’ because, for Americans, globalization was a good thing when the United States was dominating the world, spreading into more and more corners of the globe, and investing in more and more foreign companies. Now, the shoe is on the other foot and the question of concern is over American attitudes to world trade in order to further globalization.

We see trade agreements are in danger in Congress. We hear Presidential candidates claim that firms that transfer jobs off shore will be punished. In addition, we see more and more American Companies being purchased or invested in by foreign companies or national wealth pools. The question is how long will the voters in the United States support open trade and world economic evolution?

The problem is that in an inter-dependent world, countries cannot act as if they are isolated from other nations and international financial and economic markets, even if they are the sole remaining superpower. In addition, as we see in economic affairs, what has been started and supported historically must play itself out. It has taken us a long time to arrive at the situation we are now in and there is plenty of blame, which can be passed around to all who have been involved.

The fact is, we are in the situation we are now in and we must deal with it in the best way we can. In addition, whether we like it or not, we must accept the fact that the current administration in Washington, the “Gang that couldn’t shoot straight," is going to play a role in how we get to the future. The sad thing to me is that both candidates for the presidency are concentrating on programs that they are going to put into place once they are elected, and fail to recognize that the situation is not one in which they are going to be able to enact any of these programs.

Furthermore, more and more people are beginning to realize that the situation is continuing to unfold. The economy has still not felt the full impact of the financial upheavals and the collapse of the housing market, and Americans are not just “whiners” who are suffering from depression.

The good thing is that things are proceeding and are being dealt with in an appropriate manner. There are going to be more assets written down, and there will also be more losses. There will be more financial institutions taken over by the regulators. However, situations are being identified and people are moving to resolve the problems. I believe that this will continue, if we can just keep attention-seeking Senators from sending out letters that set off panics at financial institutions.

It seems to me that two major changes in the way the United States does business is needed in the current situation. First, we need to make sure that the world does not dive into a ‘protectionist’ shell. That is, it is best for all to keep trade open, to allow purchases of assets go ‘both ways’, and to facilitate the evolution of world trade integration rather that arrogantly stand above the fray and maintain the superiority of the anyone country.

Unfortunately, this is going to result in some pain because of the policies and programs that have been instituted in the past. The rest of the world owns a lot of America’s financial assets. With the value of the dollar being so low, it makes sense for these wealth interests to convert their financial assets into United States physical assets. This is something we are going to have to live with. The alternative, too, is painful since a protective world where trade is reduced and trust and cooperation is minimized. I believe that it will benefit more people to reach a balance closer to open trade than it will be to ‘close down the shop.’

Second, international communication and cooperation must be promoted on a greater scale. An article in the Financial Times argued that the G-8 is really inconsequential any more and that the world stage must be broadened to at least the G-20. The point is that many more nations now play a significant enough role in the world that they must be included in any discussions taking place. If the circle is not widened, things just won't be accomplished.

However, even more importantly, the arrogance of the United States must be minimized. The United States must play by the rules of inter-dependent nations. The United States must become one among many and cannot appear agreeable to what others want when they are together and then go home and undercut the whole process.

This, too, will be painful. The consequences of the monetary and fiscal policies of the last seven to eight years must be reckoned with and this is going to hurt. Nevertheless, the United States has to bring itself more into line with the rest of the world. Its policies are already hurting enough countries, countries whose currency is tied to the value of the dollar. The United States must also accept the fact that because it did not play by the rules in the past that the nations and areas that did work hard to establish discipline and market confidence over these years must not now abandon their efforts in order to help out ‘good old America.’

As I have suggested before - the United States is at a ‘tipping point.’ The country that we have known over the past forty years or so is rapidly receding, and we are now struggling to gain the future.

I have gone through another ‘tipping point’ in my life. Over the years, my children have asked me, "What was the big deal about Vietnam?” This, I have found, is a difficult question to answer in a simple way. Perhaps the most relevant thing I have said about this period is that life before the 1960s was quite different from life after the 1960s.

I firmly believe that life after the 2000s will be considerably different from life before the 2000s. How so? No one has an answer for that at this time! However, we all must be flexible in our commitments and return to the principles of sound financial and economic programs and policies and cooperation and openness with others in building the world community.

Comments

[valueinvest...:]

It is a good thing America is a large country, otherwise foreign investors could buy the whole thing.

2008 Jul 15 12:27 PM

[Jason Rines...:]

The biggest issue is non-investment into domestic business. Investors will go to the biggest opportunity. Rapid wealth building coupled with more open markets in the 1990's allowed much bigger money to be invested overseas in the early part of this decade. While there is responsibility for not applying some tarrifs or taxes by say 2005 or 2006, government's biggest failure was to not invest in small business, a full 49% of GDP.

The best analogy is the forest and how the old tall trees with wide branches hogged all the sunlight, while the entrepenuars and innovation being the seedlings not being able to grow. In a liquid market of billions, no one wants to hear about start-ups.

So while globalization was pushed to the hilt, investment is needed in innovation. The free market does work however, because government and multinationals of 51% of our GDP have no choice to invest into Main St. or face deteriorating conditions here or collapse and the U.S. is still the safest play over the long-term.

Attitude toward other nations can be solved with research. Like many major companies, our government uses 5 page pamphlets that it disseminates to government staff about another culture. Lazy and incompetent. But the humility factor is going to be forced on our nation. Keep all trade open but regulate. A massive diplomatic effort will be necessary. Agree with expanding the G8 to G20. Offer membership to the entire globe for that matter, many empires crumbled not because of resentment against the empires, but because people wanted IN. End the global policemen role. If we are so worried about the sovereign wealth funds we should accelerate our exports and give the world what it wants to buy in raw commodities. And to do more of this we certainly must have a sane energy policy including ALL options and do this immediately. This will create skilled jobs in the U.S. and if backed by Treasury, will be heavily invested in by the global market bringing a lot of the money back home. I don't believe too many non-producing oil nations would complain about competing products. But we leave this to Brazil and Canada? Sheez. Talk about lack of self-centered narcassist on the Hill and both political parties!

2008 Jul 15 02:39 PM

[Buckeye508:]

I agree the US is currently on the receiving end of "reverse globalization". My concerns have less to do with foreign investment in the US and more to do with increasing foreign appetite for commodities as a result of reverse globalization.

Globalization (US investment in foreign countries) has made developing nations more affluent. With their new affluence, they demand more oil. They demand more protein in their diets,which by now we have all heard that 6-7 pounds of carbohydrate (e.g. corn) are needed to produce 1 lb of protein (e.g. beef). Yes, the weak dollar has a large role in surging commodity prices for the US, though we cannot discount the important role of reverse globalization.

This concern over foreign investment is somewhat reminiscent of the scare in the 80s of Japan buying up real estate in Hawaii, NYC, etc.
Why is foreign investment in hard assets in the US necessarily a bad thing? In hindsight, it wasn't a bad thing then, and I have a difficult time seeing why its such a bad thing now.

2008 Jul 15 07:30 PM

[Old Wizard:]

Free trade is a good thing because it is raising the standard of living for tens of millions of people around the world. Since I still believe that the US is the best and most altruistic country in the world, it behoves us to be less dependent on many of the countries who are less so. Accordingly it behooves us to fix the nearl 1 trillion dollar/yr negative cash flow which is driven primarily by importing 12million barrels of oil a day. If anything. the self-imposed,strangula... restrictions we have imposed on new domestic sources of energy are responsible for our present condition. Apparently the author didn't hear the Fed Chairman today. Our cheapening dollar was not at the heart of our problem, but iportation of oil was one of the two drivers he concluded. Oil,natural gas,nuclear, wind and solar new domestic supply have been restricted by our own pressure groups and the politicians who would rather appease them and stay in power over the last 20 years the solve the nation's most pressing problem.

2008 Jul 15 08:20 PM

[Steven Hansen:]

As an American who lives outside of the USA, the arrogance of American foreign policy is witnessed daily. Really, America seems to be out of step with the rest of the world on most major issues. To me the root cause is the belief everyone wants what American's have. This is not true.

Protectionism only delays the inevitable destruction of what you are trying to protect, and will increase the economic impact later on.

2008 Jul 15 09:38 PM

[Kunst:]

We are seeing a late chapter in a long book. The US came out of World War II with an abnormal advantage. Our economy was hitting on all cylinders while most of our potential competitors were in ruins. For decades, Americans were able to be paid much more money for a given kind of work than people overseas, in large part because the work wasn't available overseas. I remember in the 1980s US steelworkers making $40/hour for the same work that earned a South Korean $8/hour. Guess what happened to us in the steel business.

There was a huge difference in pay scales and living standards. I remember the 1950s and 60s when the US dollar was king and products from/in other countries were dirt cheap. Other countries didn't have the industrial base or capital to compete. They had cheap labor, but for a long time that did them no good because most US-based work couldn't be transferred easily overseas. Also, the US had a major technology advantage.

But the labor price differential remained, and slowly it started a process that is nearly complete today. After WWII, "Made in Japan" meant junk. But the Japanese imported technology, partnered with the US to develop its industry, and over time, built their auto, semiconductor, and other industries, all fueled by the wage difference. Japan of 1960-1980 was China of 1990-2010.

Technology broke down the barriers that protected US workers from cheaper overseas competition. I remember 20 years ago US financial companies sending paper documents to the Caribbean for data entry at 10% of the US cost, including transportation. Sending information between continents used to be awkward and expensive; today it is virtually free.

I spent 41 years in the computer software industry, starting in 1965. There was no non-US computer industry until the 1980s. I remember the first Indian programmers coming to America. We had to tell the Indian contracting company that they had to pay their first guy at least minimum wage and quit treating him like a prisoner.

The wide moat that kept other countries from competing and kept US wages many times the rest of the world has pretty much collapsed. I worked for a Dow 30 tech company in the 1990s and 2000s. We went from designing and developing everything to outsourcing the manufacturing to Asia (first low-level stuff, eventually the entire process) to offshoring half the software development and bringing in lots of expatriates (mostly Indians) to work here. While software development is still a pretty good field, I would say wages are half what they would be without these changes.

In the process, we transferred the technology/processes along with the work itself. Japan, South Korea, Singapore, and others are now at our level, and still with lower wages.

This was all driven by large corporations whose prime goal was to lower costs. Big US companies aren't really American companies. They have no loyalty to the US or US workers. Their sole focus is to maximize profits. In a competitive world, any company who doesn't may not be around for long. It simply isn't competitive to manufacture most things in the US; if you do, you will be undersold and put out of business.

This process could have been slowed but not prevented. There is no inherent reason why American workers should make a lot more money, and live a lot better, than equivalent people in other countries. With our low level of education, other countries can often offer better qualified workers at significantly lower cost. Again, if you turn down that offer, your competition will put you out of business.

Bottom line, it's time for America to rejoin the world. The days of living high on the hog just because we are America are over. The fact is, as a country, we are fat, dumb and lazy, the product of too many decades of living well without the effort required elsewhere. America = hare, rest of the world = tortoise.

One key factor: we can't keep consuming 25% of the world's oil and giving fake money in exchange. What do we produce to trade for that oil? Not much. So we are going to wind up selling our productive assets in exchange for transient consumption. The US could look like a 3rd world country a lot sooner than you might think. A lot of us are going to wind up working for foreign owners, and the good life is going to be elsewhere.

Now it's our turn to dig ourselves out of a hole. It won't be a quick or happy process.

2008 Jul 16 01:56 AM

[Old Wizard:]

I certainly agree with the point about trading oil for paper. I am not as pessimistic about the USA as you, kunst. Let me offer some concrete reasons why. First while it is true that our steel industrial firms like Bethlehem steel have gone by the wayside, Nucor has thrived and grown and are extremely competitive. They have no union, have not laid off a worker in over 20 years and their pay scale is competitive with US STEEL Every employee is on profit sharing, the company continually invests in technology, productivity is high and their employee s have voted against being unionized 5 times. Further, we have more than enough domestic oil, gas,coal and alternate fuel techlogy to reduce the negative balance of payments to virtually 0 in 5t07 years, if we have the political will to remove the rediculous self-imposed constraints in order to accomplish this goal. Further, the productivity of our work force is still among the best in the civilized world. Have you ever tried to do business in Europe in the last two weeks of july and the month of Aug? Some negative trends in our educational system need to be addressed to emphasize Math, physics and engineering, But again this cannot be done by pandering to special interest groups,unions or the touchy feely contingents in our society. It is well known that one of the major issues in the motivation of elementary students to be interested in these subjects is the qualifications of teachers to teach them and the other is the pop culture in our media who glorifies entertainment, communications,theatre... and the arts, sports, the financial wizzard and sociology as more important. Again this issue is easily addressable, if we as a country have the will to do so. Rather than curse the darkness, I'd rather be doing something positive to address the issues with specific corrective actions.

2008 Jul 16 01:36 PM