Theodore Andersen Andersen is an
emeritus professor of finance at The Anderson School..
Recent student-led protests in Seattle, Quebec and Genoa, Italy,
against “globalization,” plus the planned September
protests of the International Monetary Fund and the World Bank in
Washington, D.C., indicate a need for serious examination of the
economic and social issues involved.
What are the benefits and costs of U.S. corporate investment in
developing nations?
I taught a course in international trade at the University of
Minnesota in 1948 and later served as an economist in the
administration of President John F. Kennedy, focusing on U.S.
investment in the developing nations of South America. Still, later
I served as director at several firms which had factories in
foreign nations. Thus, I acquired an academic, governmental and
business interest in globalization.
On the benefit side, most foreign workers welcome U.S.
investment because for them it means more jobs and income. For
example, a U.S. manufacturer of agricultural equipment might
establish a factory in a developing nation. First, this action
provides jobs for workers in the host nation. Second, it makes farm
equipment available to local farmers at a lower costs. Third, it
provides tax revenue for local governmental agencies. Thus, the
foreign investment results in a win-win-win situation. Workers,
consumers and government are all enriched.
Economic activity always requires governmental regulation in
both developed and developing nations. The foreign investor should
pay at least prevailing wage rates, observe local environmental and
other laws and in general be a good “corporate
citizen.” This may mean donating financial aid to local
schools and charities, along with other like actions.
Frequently, the firm will provide training and advancement for
its unskilled and skilled workers, technicians, engineers and
managers. The employer needs to always keep in mind it is a foreign
entity in the host nation. Accordingly, the foreign firm may offer
its employees incentive compensation in the form of stock
ownership. In time, therefore, the workers can often gain majority
ownership of their place of work.
What should not be expected of U.S. companies with foreign
operations?
As in developed nations, there may be in the developing nations
conflicts involving diverse ethnic, religious and racial groups.
The U.S. firm should not, nor be expected to, serve as an
arbitrator for groups involved in such conflicts.
In other words, stay out of politics and instead be concerned
with helping achieve efficient use of local economic resources.
Such efficiencies would be in the best interest of the public,
inclusive of all groups.
While operating abroad, U.S. companies should follow the same
principles that have produced good results in the United States.
Offer relatively attractive working conditions which help to
obtain, motivate and retain good workers. Offer customers better
values and higher quality service than their competitors. Operate
efficiently to generate profits that will make possible expanding
investment in the host country. And as previously stated, be a good
“corporate citizen” by supporting worthwhile community
charities.
Globalization is basically an extension of the economics of
international trade. To illustrate, in a given region, economic
resources are often utilized heavily by industries where
productivity is relatively high. Sugar cane production in Jamaica,
for example. The surplus output of such industries is then traded
for imports of goods that are in short supply. The usual result is
an increased standard of living for the countries engaging in
foreign trade with each other.
In economic terms this is called “specialization of
effort.” Each region specializes in efforts where
productivity is relatively high. In globalization, expansion of
this type of specialization is financed with foreign capital, and
thereby, standards of living are further advanced.
From empirical analysis it can be learned that the developing
nations, aided by globalization over the past 20 years, have shown
consistently higher real economic growth rates than those of the
developed nations.
For the year 2000, the rate for the developing nations was 5.6
percent and 3.9 percent for the developed nations. Thus the claim
by the anti-globalization groups that the developed nations are
gaining at the expense of the developing nations is contradicted by
economic data.
In terms of importance, the ratio of foreign trade to total
economic output has increased from 7 percent to 20 percent for the
United States over the past 50 years. This takes into account the
total of U.S. imports and exports, relative to gross domestic
product.
In offering support or opposition to globalization, there needs
to be analysis of all the major issues involved in foreign
investment in the developing nations. Recently, the opponents of
globalization have been, for the most part, guilty of largely
superficial analysis.
Views on international trade have frequently been expressed in
highly emotional terms. Based on the violence witnessed in the
three most recent trade meetings, Washington, D.C., has budgeted
$36 million to help protect the officials of the World Bank and IMF
during this month’s meetings.
Certainly there are costs involved in foreign trade. Domestic
labor and industry often seek protection from the competition they
experience from imports from abroad. Some of the competition is
seen as unfair. There is the need therefore to balance the
interests of consumers who want the imported goods with the
interests of domestic industry.
Consequently, efforts are required to improve the ratio of
benefits to costs as much as possible. For the most productive
results, there needs to be careful, comprehensive and objective
analysis of the complex issues involved, and superficial analysis
must be avoided.