Investment Report 2003
United Nations Conference on Trade and Development, Geneva and New York; $US49
- Jeremy Agar
"To what extent", the United Nations finally gets to asking near the end of its latest Report on the world economy, "can foreign investors themselves complement the efforts of host (and home) countries and help especially developing countries to reap maximum benefits from FDI?" (p164). Not much more, by all accounts. Those foreign investors call the shots; the UN sees its role as whipping the worlds governments into line, and foreign investors want the maximum benefits to accrue to them. They wont complement any efforts. That stuff costs money and investors want to make money. Thats why theyre into FDI.
The UN doesnt want to deal with this. They want to talk as though the worlds governments and the worlds corporations are a happy family. Yet the UNs own evidence is that this is not the case. What are we to make of the UNs reluctance to see whats in front of its face? What are we to make of a big, glossy booklet whose very title refers without elaboration to FDI. Outside the circles of UN functionaries and the global financial elites, even well-informed people dont know what FDI is. They are not going to read this book and they wont get the chance to browse through it in bookstores. The first, sad fact about the 2003 United Nations Conference on Trade and Development (UNCTAD) Report is that the billions of global citizens whose lives are affected by matters of investment and trade literally dont know the language that their representatives employ.
FDI is short for "foreign direct investment", but if you suppose that the UN talks of FDI because its readers share a common knowledge about what it entails, a sort of secret Masonic privilege, youd be wrong. We know that we dont sprinkle our conversation with doses of FDI, but neither should the UN, because it turns out that the UN doesnt know what it is either. After three chapters replete with facts, figures and graphs to do with FDI, the Report gets to Chapter 1V, entitled "Eight Key Issues". The first key issue is the biggie. "How to define investment?" the UN asks. After several pages, they give up. Theyre not sure. The door to understanding remains locked (pp99-102).
If the meaning of "investment" is elusive, the "foreign" and "direct" parts of FDI are even trickier. No-one agrees on what theyre talking about. "The basic difficulty is that investment does not have a generally accepted meaning. The internationally accepted method for classifying and recording cross-border foreign investment flows for balance of payments statistics divides them into direct investment, portfolio investment, financial derivatives and other investment. National laws and IIAs also provide definitions of investment and foreign investment, which often differ considerably from the balance of payments definition. They can include, in addition to some types of cross-border investment flows, a wide variety of assets, both tangible and intangible. Indeed, the definitions utilised in these laws and agreements vary considerably. Note that the legal interpretation of investment cannot be predicted with certainty in the course of the settlement of disputes" (p100).
Okaay. If they say so. This is not bedside reading. But besides barricading itself away from the general reader, just what is this series of abstractions saying? What is an IIA anyway? Apparently, its an "international investment agreement". This begs the question. To define an inexact term by referring to itself further muddies the imprecision. There was no such thing as an "international investment agreement" until the phrase was coined in retrospect by bureaucrats to indicate what TNCs (theyre transnational corporations) were doing anyway. An IIA is whatever a big corporation can get away with when its negotiating with a national or regional government.
As the UN - in this role, its UNCTAD - muses, when it comes to the "I" in "FDI", "developed countries ... and private investors prefer a broad definition ... not necessarily because they wish to hedge or speculate but because they want more security". Thats the problem. Thats why there wont soon be an agreed definition. For some TNCs speculation (with foreign exchange rates or financial derivatives, for instance) is the means to destabilise national governments in order to strengthen their own opportunities for profit. In these cases, the TNCs "security" is achieved by creating their hosts insecurity.
The big players would prefer that there were no definitions, no restraints at all, but as long as they hold the upper hand, and as long as UNCTAD and most of its member states feel they have to compete for
the largesse of the TNCs, the TNCs feel they have to offer some comforting language so that the worlds publicly accountable representatives (those in UNCTAD among them) can save face. Thus they offer their "partners" the hope of "voluntary" codes of behaviour - whatever keeps out laws guaranteeing specific, clear and democratically chosen accountability to the host governments peoples.
The Race To The Bottom
UNCTAD pays halfhearted attention to the needs of sovereign states to be able to govern themselves, but always comes back to what it assumes to be an inescapable truth, which is that you have to give the TNCs anything they want, you have to hawk yourself, because, if you dont, theyll take themselves and their investment money somewhere else. Some "host countries did not promote themselves effectively in an intensely competitive world market for FDI or were ambiguous about how much FDI they really wanted and on what terms" (p83).
Its a pity that UNCTAD doesnt think its up to a more robust analysis. The Report suggests, with good reason, that the broad or undefined version of FDI can be bad news for the countries it targets. As UNCTAD implies, TNCs dont care about life in the host country. Whatever the personal motivations of management and owners, the logic of business suggests that the imperative of seeking competitive advantage can induce a TNC to try to prevent any fledgling local competitor from taking wing. The TNC will "crowd out" rivals; it is also likely to dry up local talent pools as research and development is more efficiently carried out in the home economy. "Faced with foreign affiliates that have recourse to the skills, capital, technology and brand names of parent companies, local firms may not be able to build such capabilities". The locals might be consigned to cheaper, unskilled manufacture (p104).
Historically the most frequent way for undeveloped countries to broaden and diversify has been for them to protect domestic enterprises until they are strong enough to stand up. UNCTAD cites South Korea and Taiwan as examples. True enough. But had the Report delved deeper, it might have pointed out that many of the dominating corporations of the world, those based in the US, the EU and Japan, had similar origins.
If TNCs tend to retard domestic growth in the host country, they also avoid investing in countries where the infrastructure is primitive or the workforce uneducated. There are plenty of places willing to host them which can offer a better deal. And, UNCTAD says, the most important single criterion for setting up overseas is geography. TNCs want to be near markets and roads and far from battlefields.
So it becomes a chicken and egg dilemma. Too little development can leave you permanently on the outer; too much, and your costs will be too high. IIAs, UNCTAD recognises, "limit the policy space - and thus flexibility that governments, especially of developing countries, need to pursue policies to attract FDI". The poorest will not be able to attract the capital they need, while the middling rank of developing countries will be wary of scaring of the TNCs by talking of domestic growth. For a more detailed examination of "flexibility", see Jeremys reviews of the two books about the World Trade Organisation, elsewhere in this issue. Ed.
The unspoken contradiction between the needs of sovereign states and the needs of footloose capital is an acting out of the battle beween modernism and postmodernism, between Fordism and Enronism. Enronism wants to make us accept that the worlds governments are past their use-by date. For an explanation of "Enronism", see Jeremys review of "Power Play", elsewhere in this issue. Ed.
In these circumstances there is a permanent tension within developing countries, where officials are forced to appeal for exceptions to be made so that they can get on with things inside an enlarged "policy space". For instance, UNCTAD carries the text of a proposed wording of its Labour and Environment committee:
"The right to regulate was relevant..., in particular the recognition of the public interest to pursue objectives related to security, health, morals and so forth" (p147). Security, health, morals and so forth? Nothing important then? There is no explanation as to why these apparently marginal objectives are under threat by FDI.
Despite this coyness, this apparent unwillingness to speak openly, UNCTAD points out that most of the "voluntary (development policy) instruments deal with social and environmental issues, leaving economic development issues out of their scope. Indeed, there has been a notable lack of debate on issues pertaining directly to the economic development interests of developing countries" (p164). You could say that again, but they wont. Much better to cheer the emperors sparkling new suit. UNCTAD isnt about to start the debate, there being no "policy space" for free speech in the realm of free trade and free markets, not even when UNCTAD is bemoaning "market failure".
UNCTAD sees its role as helping to increase world trade by tipping off the TNCs about which governments are doing most to limit their policy spaces. So it offers long and sometimes inscrutable lists. To experts these might contain intriguing information, but they are necessarily crude. You cant quantify everything, and when youre summing up world trade by noting statistics for every nation state, the numbers must be taken with caution. This is especially true for the smaller nations, where it doesnt take much to give an exaggerated sense of movement. But since the UNCTAD culture marks everything for readers who assume national success depends on its good grades, the lists are important.
UNCTAD allows itself a mention of one of the worst "investment" distortions: the devastating effect of foreign exchange gambling, which achieves nothing but the creation of fortunes for super-rich financiers and economic misery for the hapless countries from whose currency the profits were made.
The Reports trade theme can be misleading. One table ranks TNCs by foreign assets, a measurement which ignores Microsoft, the biggest of the lot, and perhaps the most emblematic of the new economy (in this list the top TNC is Vodafone, followed by General Electric and the inevitable oil and car companies).
We are offered an "Inward FDI Potential Index", in which almost all the worlds states (Cuba, North Korea, Iraq and Liberia are missing, and maybe others) are awarded precise numbers to indicate how hard theyre trying to get the nod from the big TNCs. We should be sceptical about these. How are the numbers determined? And why does UNCTAD assume that the more energy a country uses, or the more natural resources it exports, the better; or that, even if these (Fordist) activities are necessarily indications of growth, that these indices are more indicative than any of the many alternatives that arent taken into account?
New Zealand Dominated By TNCs
Its a comfort that New Zealand has been scored steadily and not too well since 1988. When it comes to "inward FDI potential" were #27, and have been for ten years. The higher placed economies tend to be the richer ones (the USA is always # 1, yet when it comes to the "inward performance" race, the US is a humble 79th. They dont have to debase themselves to attract suitors). The stats show that the US claims nearly 20% of the worlds investment, but, to get some idea of American dominance, of the other 43 countries on its page of the Report, only two attracted more than 1%. Most have numbers like .00something.
A more meaningful statistic is that which measures FDI as a percentage of gross domestic product (GDP). NZs inward FDI is more than 50%. Only two other rich countries have a bigger number: Ireland with an inflated - and probably already obsolete 129% - and the Netherlands, at 84%. NZs problem is that the Netherlands has a comparable number for its outward FDI, whereas NZs outward flow is a lowly 12%. Compare this with the US: 12.9% in and 14% out. The dominant economies have more balanced and lower numbers. NZs 50.3% is closer to the worlds poorest places.
The closest ranking to NZ are all developing or transitional economies: Eritrea (49.1%, with no measurable outward number), Mozambique (44.8% and --%), South Africa (48.7% and 27.4%), Swaziland (54.8% and 13.5%), Brazil (52.1% and 11.8%), Togo (47% and 8.6%), Belize (43.2% and 7.7%), Cyprus (47.7% and 7.2%), Cambodia (41% and 0.1%), Macau (44.7% and 2%), Malaysia (59.4% and 21.2%), Vietnam (50.2% and --), Moldova (45.0% and 1.2%) and Slovakia (43.2% and 1.7%). Australias numbers at 32.2% in and 22.9% out are European-like, or First World.
Yet "FDI inflows to NZ were the lowest since the early 1980s, with large divestments from the Netherlands, the UK and the US" (p71). This surely has other causes and does not reflect any reaction to Government policy. NZs trying hard index has been slipping. We can only hope that none of the policy gurus take note.
The bottom line is that NZ has a high "transnationality" index - fifth among rich countries. The other highly ranked places are like the fourth placed Netherlands. Theyre rich, dominant traders. Even in the poorer world only eight other economies are as dominated by foreigners as is NZ, and most of these are special cases (Hong Kong, Nigeria, Trinidad, Singapore, Malaysia, Chile, Ecuador, Hungary).
All in all, the news here is not good for NZ. We still have an imbalanced, dependent economy, and were still sliding. The sensible reaction would be back those within UNCTAD who want to provide a challenge to the orthodoxy, to start the debate. Regulation of capital flows would be a good place to start.
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