Foreigners: Investing in America's Future

Last fall, Michael Dukakis donned a hard hat and stood on the factory floor of Moog Automotive in Missouri. He praised the auto parts company for keeping jobs in the United States and blasted Dan Quayle for saying foreign investment is good for the economy. The Republicans would hang a "for sale" sign on America, Dukakis warned, claiming: "Pretty soon, we're going to be tenants in our own country.…Maybe the Republicans want our children to work for foreign owners, pay rent to foreign owners, and owe their future to foreign owners. But that's not the kind of future that Lloyd Bentsen and I want for America."

It was pretty good rhetoric, so Dukakis probably wondered why his audience began laughing. It later turned out, of course, that the workers Dukakis hoped to woo with his economic nationalism owed their jobs to the plant's Italian owners and were quite happy working for Moog.

Just a week later, the House of Representatives passed a bill that would have required detailed financial disclosure by any foreign company or individual investing in the United States—a guaranteed turn-off to many people who don't want their own governments to know where their money is. Financial disclosure failed in the Senate, but another measure did pass both houses as part of the omnibus trade bill. It gives the president broad power to prevent foreign acquisitions of U.S. companies. (Federal law already allows the executive branch to block foreign takeovers and mergers on national-security grounds.)

The politicians behind these bills claim that foreign investment constitutes an invasion. And they are determined to protect the United States. But from whom are they protecting us?

They are protecting us from businesses that employ 3 million Americans and pay $80 million annually in wages. They are protecting us from investors who have financed a huge chunk of the federal deficit. They are protecting us from entrepreneurs who have saved hundreds of manufacturing plants about to go under. They are protecting us from the bankers who now make one-fourth of all commercial loans. And they are protecting us from the mayors and governors who are busting their butts daily courting foreign investment.

At a time when politicians complain about the United States becoming a "service" economy, foreign firms have shown no reluctance to invest in American manufacturing. Between 1980 and 1986, manufacturing employment by foreign-owned companies rose 44 percent. During this same period, overall U.S. manufacturing employment declined by 6.4 percent. "Foreign investment could be part of the solution to a U.S. manufacturing capacity problem," says David Rolley, senior economist at Drexel Burnham Lambert.

In Fremont, California, Toyota reopened a former GM plant that now employs 2,500 workers. Farther north, in Seattle, local officials credit Japanese and Canadian investment with creating 10,000 new manufacturing and retailing jobs over the last six years.

In Ohio, Rep. Michael Oxley's district faced 21 percent unemployment in 1982. But Honda has since opened a plant in Marysville, and unemployment has dropped below 5 percent. The plant currently employs 5,800 people. Thousands more work in businesses that supply parts and services to the plant. "Sure, there are some negative aspects to foreign investment," says Oxley, a Democrat, "but I sure like the positive aspects."

While many politicians whine about the United States' trade deficit and offer protectionism as a solution, foreign investors have increased America's exporting capacity. The Commerce Department doesn't track these shipments closely, but economists estimate that foreign-owned plants accounted for 8 percent of U.S.-manufactured exports in 1988. One of the country's fastest-growing exporters is the Swedish manufacturer Electrolux.

By 1979, General Electric and Whirlpool had begun buying microwave ovens from Asian manufacturers for resale in the United States. That same year Electrolux bought two American appliance makers and entered the microwave oven market. Electrolux immediately spent $20 million converting a carpet warehouse in Dalton, Georgia, into a state-of-the-art plant. While Dalton proclaims itself "The Carpet Capital of the World," many Europeans know it as the place where their microwave oven was manufactured. Electrolux ships over 500,000 ovens annually to Europe from Dalton. Its exports rose 35 percent last year alone, and it has captured 10 percent of the European market. Electrolux President Anders Scharp told Business Week, "When we finish our investment program, our U.S. facilities will be very competitive internationally."

Automobiles are becoming another important export for foreign companies in the United States. In 1988, Honda began selling its American-built Accord Coupe in Japan. It expects to sell 50,000 in Japan by 1991 and to export another 20,000 to other countries. And Nissan reportedly plans to expand its plant in Smyrna, Tennessee, so that it can also export to Japan.

Not all American exports from foreign-owned companies are nuts-and-bolts goods. Foreign-owned plants are also sending high-tech products overseas. West Germany's Siemans exported $430.5 million in U.S.-made telecommunications and medical equipment in 1987. Japan's Fujitsu Ltd. ships Oregon-made disk drives and Texas-made cellular telephones to Europe.

In recognition of American business interests, the United States has long worked to maintain an open investment environment overseas. And American firms have established important foreign operations. Ford Motor Co., for example, dominates the British automobile market. And IBM invests and operates in more than 100 countries. Researchers at its Zurich lab won the Nobel physics prizes in 1986 and 1987 for pioneering work with superconductors.

The arguments that Americans use to persuade others to allow foreign investment apply equally to the United States. Ironically, calls for restrictions on foreign investment come as U.S. representatives to the General Agreement on Tariffs and Trade (GATT) are making real progress in their push to get Third World nations to reduce investment barriers. Members of the Andean Common Market have already changed their trade laws to attract much-needed foreign capital.

Historically, foreigners have found the United States an attractive place to invest. Much of our industrialization in the 19th century was made possible by money from overseas. British investors, in particular, financed construction of factories and railroads throughout the steelbelt. However, two world wars and the Great Depression forced many foreign investors to sell their U.S. holdings.

With marginal tax rates among the lowest in the world, low inflation, and a stable political environment, the United States today is once again an attractive place to invest. Rather than restricting foreign investment, we should welcome the benefits it brings. "The best strategy on our part is not to keep foreigners from opening up operations here or acquiring U.S. firms," contends Robert Forrestal, president of the Atlanta Federal Reserve.

"Rather, we should…become more outward-looking so that we are not left behind as the world economy becomes increasingly integrated."

Those who want to restrict foreign investment are right on one count. It does constitute an invasion—but an invasion of jobs, technology, and capital that will further America's economic expansion and benefit each of us.

Charles B. Oliver is REASON's editorial assistant.