EVERYTHING YOU EVER WANTED TO KNOW ABOUT THE TRANSNATIONALS INVADING the 3rd WORLD.
Don't worry, kids. The Eagle just wants to climb in
the nest with us. He promises to give us jobs,
food & help us. What could it hurt?
Yeah, I just want to come in and HELP you guys. I'm strong and you're not, right?
''Multi-nationals on Trial''
Book Review: James Petras and
Henry Veltmeyer's ''Multinationals
''Multinationals on Trial'' deals with a core issue of our time - the economic power of giant corporations, their dominant role as agents and partners of imperialism, and the way they plunder developing nations.
by Stephen Lendman
James Petras is Binghamton University, New York Professor Emeritus of Sociology whose credentials and achievements are long and impressive. He's a noted academic figure on the left and a well-respected Latin American expert. He's also a prolific author of hundreds of articles and
64 books including his latest one titled "Multinationals on Trial: Foreign Investment Matters," co-authored with Henry Veltmeyer, and subject of this review.
Henry Veltmeyer has collaborated with Petras before on previous books. They include "Globalization Unmasked," "Social Movements and State Power," "A System in Crisis" and others. He's Professor of Sociology and International Development Studies at Saint Mary's University, Canada and Universidad Autonoma de Zacatecas, Mexico. He's also Editor-in-Chief of
the Canadian Journal of International Development Studies and, like Petras, is a prolific author of many books and articles focused mainly on Latin American issues, globalized trade, alternative models and approaches and progressive social movements.
"Multinationals on Trial" deals with a core issue of our time - the economic power of giant corporations, their dominant role as agents and partners of imperialism, and the way they plunder developing nations. The book is a powerful indictment of unfettered "free market" capitalism
and how foreign direct investment (FDI) is its main exploitive tool. Below is a detailed review of its compelling contents.
The authors state upfront how controversial corporate giants are,
especially with regard to their "type of capital," how they use it
operationally, and "the conditions associated with it." Specifically,
the book deals with foreign direct investment (FDI) and debunks the
following commonly held notions:
-- that it's "indispensable" to accessing essential financial resources;
-- that it brings with it "collateral benefits" like "technology
transfers" and job creation; and
-- that overall it's a "catalyst of development" and thus an
"indispensable" vehicle of growth and way for developing nations to
integrate into the "new world economic order."
Rather than aiding these nations, the authors call FDI "a mechanism for
empire-centred capital accumulation, a powerful lever for political
control and for reordering the world economy." They offer an alternative
approach in the final chapter, free from FDI imperial bondage.
Chapter 1 - Empire and Imperialism
The oldest empires go back centuries before the better known ones in
ancient Rome, Persia and the one Alexander the Great built, but the
authors deal only with the modern post-WW II era dominated by the US.
Imperial Britain was shattered, colonialism was unraveling, Soviet
Russia was devastated, and America stood alone as the world's preeminent
economic, political and military superpower with every intention to keep
it that way.
It did so going back to when US delegates dominated the Bretton Woods,
NH UN Monetary and Financial Conference to establish a postwar
international monetary system of convertible currencies, fixed exchange
rates, free trade, the US dollar as the world's reserve currency linked
to gold, and those of other nations fixed to the dollar. In addition, an
institutional framework was designed to establish a market-based capital
accumulation process that would ensure (post-war) that newly liberated
colonial nations would pursue capitalist economic development beneficial
to the victorious imperial powers that would soon include the Axis ones
Post-war, the "UexpS foreign policy establishment" began an unending
debate on how America could stay preeminent and solidify its dominance.
It began with NATO, OECD and other formal alliances with our western
European partners that were "built on the foundation of the
transnational corporation (as the) economic 'shock-troops' of the
system." Tactics varied along the way, but the goals remained unchanged
- "to enhance US hegemony and its domination of the new world order."
This requires having supportive allies and the US public willing to go
along with overseas adventurism like the Bush administration's foreign
wars that became overreach and "a major impediment to empire building."
The authors state that wherever imperial power is projected in any form
it generates diverse resistance in "every 'popular' sector of 'civil
society.' " They also stress that its "omnipresence" can be a weakness,
not a strength, and may lead to its impotence. This is the condition of
America today under the Bush administration. Its plan for imperial
dominance is in tatters, or as the authors put it, "wishful thinking or
imperial hubris." It failed in the Middle East, Central Asia, Venezuela
and may be unraveling in Pakistan under Musharraf's dictatorship. The
country is a rogue nuclear state in unresolved turmoil that has a lot to
do with deep social unrest and a very unpopular US alliance in the "war
Nonetheless, the US remains strong and resilient, and today's defeats
don't spell its demise or even signal retrenchment. With its power and
resources, it can blunder often as it has in the past, then rebound, and
again go on the attack as its doing in Somalia, continues against Cuba,
and against Hugo Chavez in Venezuela as it seeks a way to oust its Latin
American nemesis despite past failed efforts.
So despite setbacks, America's imperial agenda persists, and here's how
-- through "unequal" bilateral and multilateral trade and other
-- with lots of help from willing "outside collaborators and subsidized
-- through a "divide and conquer" strategy that worked in Yugoslavia,
did at first in Afghanistan (under tribal warlords) and apparently is
the scheme in Iraq with the Kurdish North already separate;
-- - political destabilization, assassinations or coup d'etats to remove
opposition regimes and install compliant ones; and
-- proxy or direct war as a last resort when others fail to accomplish
regime change; but even conquest doesn't guarantee success as Iraq and
Afghanistan prove; resistance builds, military costs mount, public
support wanes, allies withdraw support and the whole effort may fail but
not deter new ones at other times in other places.
Chapter 2 - Imperialisms, Old and New
The authors note that capital accumulation is the "fundamental driving
force of economic growth," has been for over 100 years, and occurred in
-- capitalist industrialization in the 19th century up to around 1870;
-- the fusion of industrial and finance capital and emergence of
monopolies and territorial divisions among imperial powers (the US,
Europe and Japan) up to 1914;
-- imperial war, depression, Fordism-type mass production, "taming of
capitalism" social reform and defeat of fascism to 1945;
-- the "golden age" of capitalist high growth, decolonization,
nation-building and state-led "international development to 1973;"
-- transitional crisis and restructuring in the 1970s; and
-- the age of Washington Consensus neoliberalism, globalized trade, free
market "reforms" and "neoimperialism" to the present.
The authors note that incomes across the world converged somewhat during
the "golden age of capitalism" post-WW II up to 1970 after which things
changed. Now after a generation under Washington Consensus
neoliberalism, no such convergence exists and the Global North-South
disparity keeps widening to the detriment of developing nations.
North-based corporate giants have grown so huge and dominant that the
largest of them represent half or more of the world's 100 largest
economies. In addition, multinational corporations (MNCs) "as a global
entity" account for over 90% of world trade with 30 - 40% of it being
intra-firm. The authors argue that these institutions operate as
"functional units and an agency of economic imperialism."
Post-WW II, the US alone held the "commanding heights" of the world
economy. Compared to today, the authors cite statistics that are
staggering. With 6% of world population, the US had over 59% of its
developed reserves. It generated 46% of its electricity, 38% of its
production, and it held half or more of world gold and currency
reserves. Twenty-five years later all that changed, and by 1971 a
dwindling supply of gold and growing trade deficit got Richard Nixon to
close the gold window, abandon the Bretton Woods system, and let the US
dollar float freely in world markets. Ever since, the greenback has been
faith-based with no intrinsic value and no longer "good as gold." Since
it's uncollateralized paper or fiat currency, it's strong when it's in
demand but weak, like today, when it's out of favour.
During the troubled 1970s, the US manipulated exchange and interest
rates to improve its export position, and in the Reagan era began a
generational assault on labour that ended the long-standing practice of
industry sharing productivity gains with its workers. Corporations also
began relocating labour-intensive production abroad to low wage
countries that in the 1980s "became a cornerstone of a new global
economy." With it came foreign direct investment (FDI) with the rest of
the book focusing on its harmful effects.
The authors point out that in 1970 a "triadic structure" (in the US,
Europe and Japan) characterized the world economy. However, after two
decades of restructuring, a different picture emerged with China and a
group of newly industrialized countries in Southeast Asia becoming the
most dynamic center of world growth with the US struggling to hang on to
its economic dominance even while its major corporations continue to
prosper because they operate worldwide.
A critical corporate issue is productivity growth and how to overcome
its pronounced sluggishness. Solutions used embrace "technological
conversion" that includes new production, communication and
transportation technologies. It also involves an assault on labour that
caused a sharp reduction in its share of national income (10% alone from
1974 - 1983). It means loss of jobs as well because businesses downsize
and shift operations abroad to low wage markets where workers are
usually unorganized and more easily repressed.
The authors point out that by the 1980s "a new international division of
labour and a global production system were in place" in what emerged as
a "new world order" of global capitalism. New governance rules were
established that were embodied in the 1994-formed World Trade
Organization (WTO). By 1990, Washington Consensus neoliberalism became
the "new imperialism" with big demands that developing states privatize
public assets, deregulate their markets and open them to allow free
trade and financial flows.
Under this system, MNCs are the world capitalist system's "basic
operating unit" and "key agents of US imperialism" that all too often
involves the projection of military power in the form of war. Their
success and profitability are vital to a healthy economy and a thriving
imperial project. The authors explain that the "US state identifies the
interests of corporate capital with the 'national interest,' " and it
freely commits the state's resources on its behalf for that dual
Chapter 3 - Foreign Investment at Work
Until the 1980s, MNCs were constrained under host country rules. But the
"new economic model" freed them to move almost at will as developing
nations began opening their markets, deregulating them, and welcoming
MNCs for the perceived benefits their capital and technological
expertise could provide. The authors explained the process and what
happened under it.
They began by noting capital flows are public and private. The former is
between governments in the form of "foreign aid" gifts or most often
loans from the US-dominated IMF, World Bank and Inter-American
Development Bank that come with unpleasant strings. The private kind
consists of three main types: foreign bank lending from commercial banks
or international lending agencies, portfolio investment (PI) financial
instrument purchases like stocks and bonds, and foreign direct
investment (FDI) that itself comes in two forms.
FDI involves the purchase of at least 10% of a foreign business
enterprise's assets. "Greenfield" FDI involves the creation of a new
facility like a factory while the "Brownfield" type buys assets of
existing firms through mergers or acquisitions. In Latin America in the
1990s, over half of FDI was the latter kind.
The subject of debt financing is then discussed with the authors noting
at reasonable levels it's vital for enhancing growth. But not to excess
that got developing countries in trouble for the past three decades.
Even in the 1980s, it became clear that debt levels were so high in
Latin America they made economic growth impossible. They also caused a
debt crisis by mid-decade that especially affected Argentina, Brazil and
The Global North thus needed Plan B to reduce the debt bomb to
manageable proportions, avoid default and allow troubled countries to
maintain their payment obligations. One measure taken was the so-called
"Brady Plan," named for Ronald Reagan and GHW Bush's Treasury Secretary,
Nicholas Brady. The scheme was to forgive a small part of the debt and
convert the rest into Brady IOU Bonds repayable in the long term to make
the burden less onerous. It worked as no heavily indebted nation
defaulted, but they had to adopt fiscal discipline to do it: structural
adjustment privatizations, cuts in social spending, deregulation and
more. These nations also suffered zero economic growth, a sharp
reduction of living standards for its working people and producers,
increased social inequity and greater unemployment and poverty.
Along with burdensome debt levels, FDI has also been a repressive
instrument, especially in Latin America with its investment-friendly
climate. The amount of it (as well as PI) was small until the 1990s but
then grew dramatically as part of a shift from debt to equity financing
with the largest portion of it going to large developing countries like
Brazil, Argentina and Mexico and to the eight largest ones in the world
overall getting 84% of it, according to World Bank figures. China got
the most attracting 22% of all FDI since 1989 while Sub-Saharan Africa
got nothing except for South Africa. Post-2004, manufacturing in China,
India and Mexico got the largest FDI amounts, but natural resources and
especially energy are also important, and a trend toward investing in
services (especially telecommunications) is growing as well.
Latin America became the most favoured destination for FDI inflows in
the 1990s that hit their peak in the 1997 - 2001 period because friendly
regimes like Cardoso's Brazil "bent over backwards" to accomodate it,
mostly through merger and acquisition privatizations. The authors review
facts they call "startling" and show how the "imperial-centered
neoliberal model has led to the long term, large-scale pillage of every
country in Latin America." In dollar terms, it amounted to $585 billion
in interest payments and profits remitted mostly to US-based MNCs. More
revenue was gotten from royalty payments, shipping, insurance, other
fees plus billions of illegal monetary transfers by Latin American
elites to offshore accounts.
This explains the sluggish regional growth in the 1990s - 3% a year,
then 0.3% in 2001 and 0.9% in 2002. It's because of exploitive resource
transfers and capital flows large enough to have made Latin America "one
of the economic pillars of the US empire." Some of the transfers are
hidden, and the authors put them in two categories:
-- one-way neoliberal structured international trade with open Latin
American markets for US exports and reciprocal controlled ones in the
US; the formula the authors describe is to export capital to the region
in the form of FDI and import raw materials in return.
-- structured capital-labour relations with workers very much on the
short end; the authors note how the "organization and export of labour"
is used to pillage a country's resources and transfer them north; they
cite one 2003 study estimating the net gain for the US and corresponding
loss to Mexico of about $29 billion a year because of migration -
indirectly through repatriated maquillardora profits and directly
through exported farm labour and educated Mexicans who represent 40% of
the nation's migrants benefitting the US at Mexico's expense.
Chapter 4 - The Social Dimension of Foreign Investment
The authors cite the justification "development economists" give for
keeping labour's share of national income low. They claim it's because
economic growth depends on capital accumulation, and households have a
"low capacity to save and invest" since they spend all they get. The
rich, in contrast, have a high propensity to save and invest so the more
income they have the greater the economic benefit. In the 1970s and 80s,
this kind of reasoning led to a class war between capital and labour
with wages in the US losing 10% of their value from 1974 to 1984 and in
Latin America and Sub-Saharan Africa even more - 40% in Chile and Mexico
and 50% in many other countries.
Then consider economic growth under the neoliberal economic model
centered around FDI. It promised prosperity but delivered failure. After
20 years at the end of the 1990s, average per capita growth overall was
cut in half from the earlier period of "state-led development." It was
reduced to 1.5% from 3% in industrialized countries and in developing
ones (excluding China and India) to 1.2% from 3.5%. For the poorest
countries, it was even worse going from 1.9% to a negative 0.5% per
year. The only exceptions were a group of eight Asian "rapidly growing
countries" whose governments followed a policy of state intervention
outside the neoliberal model and proved their way works best.
The authors cite data to show, aside from China and India, that the
"neoliberal era of globalizing capital and neoimperialism" led to rising
worldwide income inequality between richer and poorer countries and
between higher and lower income classes within countries. They explained
that "Of the countries with the highest indices of poverty, social
exclusion, and income inequality 41 are in Africa; 10 in Asia; and six
in the Americas," and per capital income in all developing regions
(except South and East Asia) declined compared to industrialized OECD
states. During the two decade neoliberal period, inequality between rich
and poor nations nearly doubled. It proves how false the notion is that
unfettered free market forces create a "trickle down" effect to the poor
that lets them benefit from economic growth. Just the opposite happened
and it continues.
The authors show how the "magnitude of the global income divide and
associated problems is staggering" with the richest population quintile
consuming 86% of all products and services and the poorest one only
1.3%. And the social inequality fallout is even worse - high
unemployment, desperate poverty, malnutrition, untreated illnesses and
low life expectancy with hundreds of thousands of needless daily
children's deaths. And yet economists at the IMF and World Bank continue
to tout the benefits of neoliberal "structural reforms" in spite of
clear evidence they fail. In the pre-neoliberal 1950s, 60s and 70s,
income inequality decreased overall but has increased in most countries
since then. Again, the culprits are privatization, financial
"liberalization," deregulation and downsizing with governments
exploiting working people for capital.
Take Mexico, for example. It has 11 billionaires with combined incomes
exceeding the total for the country's 40 million poorest. But the same
thing is true everywhere with developing nations faring the worst. It
affects 2.5 billion people in the world who are unable to meet their
basic needs of food, shelter, clothing and medical care let alone
education, clean water, adequate sanitation and other goods and services
people in the West consider essential and take for granted.
Using Latin America as an example, the authors show how capitalists in
the region sustained their profits by exploiting ordinary workers.
During the neoliberal period, labour's share of national income was cut
from 40% to less than 20%. Even today in countries like Venezuela (with
all its social gains under Hugo Chavez since 1999) and Argentina, worker
wages are still below their 1970 levels. It's because of market
deregulation that give employers arbitrary power to fire workers, cut
wages and hire temporary and casual labour. It's gotten bad enough to
hit the middle class as well and cause a rising level of urban poor. A
"new urban poor" has emerged who aren't simply "rural migrants" but
include "socially excluded and downwardly mobile workers and the lower
middle class (who've been fired) and have found (other) employment in
the burgeoning (lower-paying, less secure) informal sector."
These people, the unemployed and "rural-to-urban migrants" constitute a
reserve army of labour that keeps wages in the formal sector down and
workers' bargaining power weak. Then there's the notion of "social
exclusion" reflecting the condition of the poor with the authors
identifying its six "major pillars:"
-- social production dispossession showing up in landlessness and rural
-- no access to urban and rural markets or for wage employment;
-- no access to "good quality" employment;
-- reduced access to government social services;
-- no access to adequate income; and
-- no political power.
In contrast, 15 - 20% of Latin Americans enjoy a "First World" lifestyle
with the authors citing their array of luxuries that are unimaginable to
the poor and most middle income earners. And whatever the economic
condition, they benefit from the imperial system regardless because
neoliberalism works by taking from the exploited many and giving
generously to the privileged few. Put another way, it's a hugely out of
balance give and take, and it was set up that way despite its
The authors review the period when the World Bank discovered poverty and
carried on its kind of three-decade war against it that was the
equivalent of fighting fire by throwing fuel on it. Readers know the
drill by now - governments getting out of the way and promoting
unfettered free market policies, pro-growth, structural adjustments and
the rest of the package favouring capital over people on the nonsensical
claim they'll benefit eventually. By now Latin Americans know "mañana"
never comes, and even some World Bank economists like Joseph Stiglitz
figured it out.
The authors sum up three decades of World Bank efforts saying we're
"where we were in the 1970s and in a number of ways further back,"
especially with regard to greater poverty that's now hitting the middle
class. Based on incontrovertible evidence, social inequality and poverty
at the end of the 1990s stem from the "pro-growth, pro-poor" World Bank
"imperialist policies" and the FDI regime along with deregulated,
unfettered markets giving capital free reign to pillage for profit. But
there's hope in the form of resistance with the authors stating
"capitalist development in its neoliberal form is clearly on its last
legs." For the poor of the world, it can't come soon enough.
Chapter 5 - Policy Dynamics of Foreign Investment
Here the authors examine the record of FDI since 1980 when markets were
deregulated and capital flows were "liberated from control." Again they
cite the notion that economic growth depends on the accumulation of
capital, developing countries are deficient in it, and private
multinational commercial and investment banks and MNCs will ride to the
rescue with FDI. And while capital fuels growth, international trade is
"one of its driving forces." Two models are considered. One gives the
state an active role, and it worked during the 1940 - 1970 "golden age
of capitalism" period. That's when "international development" meant per
capita economic growth based on "industrialization, modernization and
That period came to an end in the troubled 1970s, and a
"counter-revolution in development thinking and practice" took over. The
scheme that became neoliberalism turned capital towards exports and
induced governments to cut social benefits to raise levels of savings,
productivity, profits and productive investments.
World Bank economists were tasked to create the new model that became
its Structural Adjustment Program (SAP) with eight major components:
-- devalued currencies for stability;
-- capital market and trade "liberalization" meaning unfettered free
-- labour market "reform" meaning lower wages and loss of worker rights;
-- decentralizing policy formulation and decision-making; and
-- a free market for capital, goods and services meaning all benefits
accrue to the
Global North by pillaging developing nations.
Former World Bank economist and neoliberal critic, Joseph Stiglitz,
called this package the "steps to hell" two years after he resigned his
position in 2000. All the evidence to date proves it with the authors
stating "the neoliberal model of capitalist development (is)
unsustainable, (it's) both dysfunctional and politically destabilizing."
Confirming data and examples are cited throughout the book, but in this
chapter Mexico is featured in great detail from 1980 - 2005. It's
covered under four presidents with each in his own way outdoing or at
least matching the excesses of his predecessor with the people of Mexico
the poorer for it.
This review can only touch on that period briefly beginning with Miguel
De La Madrid (1982 - 1988) who was the first to begin reversing a
state-led approach to relieve the "debt crisis" stemming from the 1976 -
1982 period of over-borrowing. It was IMF to the rescue with its usual
package of "reform" measures to "liberalize" capital, encourage exports,
deregulate markets, devalue the currency, and demand fiscal discipline
and privatizations. De La Madrid obliged.
Next came Carlos Salinas de Gortari (1988 - 1994) who introduced a
second round of structural reforms. It included over 1000 more
privatizations that sold off the most important state enterprises like
the banks and state telephone company, TELMEX. The international
financial community loved him, but his term ended in tatters when the
economy crashed in 1994.
Ernesto Zedillo Ponce de Leon (1994 - 2000) inherited the mess that
broke out right after he took office. With help from a $52 billion US
bailout, he responded with a "stabilization program" that included deep
social spending cuts and a 43% peso devaluation that caused inflation to
rise 52%, thousands of businesses to close, real wages to drop 25%, and
two million people to lose jobs. Zedillo was also Mexico's first
president under NAFTA that went into effect January 1, 1994. And he
continued neoliberal "reforms" and even exceeded his predecessor's
commitment to global capitalism.
So did Vincente Fox Quesdad (2000 - 2006) in his zeal to live up to his
PAN party's rightest agenda compared to the more centrist PRI during its
continuous 72 year rule. The PAN under Fox practiced fiscal conservatism
and free market economics that maintained the neoliberal agenda of his
predecessors even in the face of widespread opposition that constrained
him from going further. The authors state that the Fox era "brought an
end to a cycle of neoliberal policies." His administration failed to
achieve sustainable growth and showed "the neoliberal model is
economically dysfuntional and has exhausted its economic limits."
Chapter 6 - Foreign Investment and the State
The authors' dominant theme is how harmful FDI is to developing nations
even as it pretends to be beneficial. Most of it is also "subsidized and
risk-free" to investors, and "relies on securing monopoly profits (by
buying) state enterprises (on favourable terms) and
control(ing)....strategic markets." Much or most of it provides no new
productive investment recipient countries need to grow, prosper and help
The authors rightfully describe the process as pillage. State-owned
assets are transferred to private hands, and revenues that once went to
national treasuries now go to corporate coffers. Further, deals are
justified on the false claim they increase competition. False. All they
do is put existing enterprises under new management, and in the case of
"natural monopolies" like public utilities, it allows private owners to
hike prices substantially and price the country's poor out of the
market, but that's just for starters.
Foreign investors make big demands, and host countries oblige - tax
deferrals and exemptions, direct subsidies, infrastructure development,
free or low cost land, deregulation, assumption of "transition" costs of
the inevitable downsizing that follows, legal security protection
through bilateral investment treaties (BITs), labour training, and more.
Other schemes are in the form of Trade Related Investment Measures
(TRIMs) and Trade Related Aspects of Intellectual Property Rights
(TRIPs). And when nations balk during WTO trade talks, like in the
faltering Doha Round, they're pressured to come around through bilateral
deals with neighbouring states.
With this kind of advantaging, local enterprises don't stand a chance,
especially small ones. They nearly always lose and end up being bought,
becoming a satellite supplier, or going bankrupt. Labour also loses out.
Wages are frozen or cut, benefits slashed or ended, job protection ends,
working conditions deteriorate, unions weakened, and inequality grows as
the wealth gap widens substantially. In short, FDI works one-way - all
for capital at the expense of developing economies and its workers. An
alternative development strategy is needed, and it's readily available
to states willing to buck the system, withstand the pressure to conform,
and go another way.
Chapter 7 - Anti-Imperialism and Foreign Investment.
Here, the authors first identify the myths about foreign investment that
are needed to sell this snake oil to developing states. Seven of them
are briefly listed below:
-- Economic growth depends on FDI; false; in fact, FDI is attracted by
-- FDI creates productive, competitive new enterprises; false; it mostly
buys existing ones, transfers little new technology, does little or no new
research, and crowds out local enterprises;
-- FDI provides links and access to foreign markets; false; it's often
used to buy natural resources for export and to repatriate profits and
-- FDI provides tax revenues and hard currency earnings; false; revenues
are repatriated, tax fraud abounds, and the impact on the balance of
payments is negative;
-- Good financial standing and integrity of the system depends on
maintaining debt payments; false; much past debt is odious and servicing
it harms local economies and in the case of Argentina led to an economic
collapse in 2001;
-- Developing nations need FDI for development for lack of local
sources; false; most FDI is national savings borrowing to buy local
enterprises; it doesn't inject new capital into economies; and
-- FDI provides an anchor for new investment; false again; the opposite
is true as investors freely relocate to lower-wage countries creating a
boom and bust environment when they arrive. Bottom line - FDI is poison
unless used moderately and is tightly controlled.
The authors present arguments for and against FDI with the latter only
-- FDI strips states of their ability to control "investment decisions,
pricing, production and future growth;"
-- FDI results in long-term capital outflows repatriated to corporate
-- FDI results in "unbalanced and overly specialized production,"
especially in commodity areas;
-- Tax, subsidy and other concessions to FDI deprive developing states
of needed revenues;
-- FDI most often only puts existing enterprises under new management; it
seldom creates new ones;
-- FDI creates "enterprise enclaves," imports technology linked to
"outside production and distribution networks," and doesn't help local
-- FDI often controls local banking that lets it "shape state credit and
interest policy" and decide what industry sectors to favour and at what
-- With investors attracted to extractive industries and freed from
regulatory constraints, environmental devastation results.
In sum - FDI endangers "national independence, popular sovereignty, and
severely compromis(es)" developing states' ability to control their
destiny and represent all their people. It's a "risky, costly and
limiting (one-way) strategy." Developing nations need to minimize it
because of its harmful economic, social and political costs.
Chapter 8 - Anti-Imperialist Regime Dynamics
Contrary to Margaret Thatcher's TINA dictum ("there is no alternative"),
many others are better and the authors list them:
-- Reinvestment of profits into local production to stimulate a
"multiplier" effect and increase local consumption;
-- Control foreign trade to retain foreign exchange earnings;
-- Invest pension funds in productive activities;
-- Create development banks for overseas workers' remittances home so
funds can be used productively;
-- Place a moratorium on debt payments to stop servicing the odious
portion of it:
-- Recover stolen treasury funds and property;
-- Recover unpaid taxes;
-- Establish land taxes and expropriate or buy underutilized land to be
agrarian reform and greater agricultural productivity;
-- Liquidate overseas investments and reinvest them locally; and
-- Maximize employment and reduce underemployment.
In cases where a country's taxable resources and overseas earnings are
limited, FDI can help if used moderately and constrained. Ways to do it
include maximizing "strategic national ownership and control" and
relying on short-term deals that include training workers and
contracting with skilled advisers for whatever technical help is needed.
One successful model reviewed is WEPC - Worker-Engineer Public Control
or worker-managed enterprises (WMEs). Salvador Allende used them in over
100 factories in Chile while he was in office. They attained greater
productivity, higher worker motivation and achieved significant social,
health and working conditions improvements while they remained in place.
WEPCs aren't problem-free, however, and the main one is they're targeted
by imperial states for destruction because their policies aren't
corporate friendly. Nonetheless, their advantages greatly outweigh the
negatives. They include:
-- Minimizing tax evasion to increase state revenues;
-- Social investment in lieu of repatriated profits;
-- Avoidance of capital flight;
-- Emphasizing long-term R & D over speculative investment;
-- Social welfare and betterment over savage capitalism; and
-- Fixed capital and upwardly mobile labour over mobile capital and fixed
The authors persuasively show that FDI is a cancer. Once established, it
spreads like a virus, "corrupt(ing) local officials, brib(ing)
regulators (and) present(ing) a different 'role model' for state
executives - one attuned to luxury living, big salaries, privileges,
and, above all" a neoliberal ideological commitment. Another way is
possible and vital to the health, welfare and growth of developing
nations. It "puts the worker-engineer public sector-led model at the
centre of development," and empirical evidence shows it works.
-- Mathaba author Stephen Lendman lives in Chicago and can be reached
below. Also listen to The Steve Lendman News and Information Hour on
TheMicroEffect.com Mondays at noon US Central time.