Foreign Investment of U.S. Companies Abroad (Issue)

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Foreign investment of U.S. companies abroad has changed drastically in the last half of the twentieth century. Since World War II (19391945) and especially in the 1950s and 1960s, the United States dominated world wide foreign investment. But with the advent of the energy crisis and the oil shortages in the early 1970s, that situation reversed. The United States became the recipient of large investments from Great Britain, the Netherlands, and especially Japan. Yet recently American "indirect" investment abroad has begun to rise dramatically and in 1998 foreign "indirect" investment hit a record of more than $250 billion, climbing sharply during the entire decade. Europe was the prime destination, with the pharmaceutical and telecommunications industries dominating, along with banking and electricity, gas and water utilities. In 1998 U.S. investment abroad doubled to $97 billionhigher than the world direct investment total less than a decade ago. During the 1980s the United States became the largest recipient of foreign direct investment and Japan became the leader in direct investment abroad. Since 1985 foreigners, especially the Japanese, have increased their acquisitions in the United States or have expanded or established businesses there. That kind of investment from Japan and other countries has "trickled" down to include foreign investment of U.S. companies abroad.

Many economists argued that foreign investment, both inward and outward, has been fundamental to the prosperity of the United States. In 1996 flows of foreign direct investment (FDI) into the United States reached $78.1 billion, while FDI outflows reached $85.6 billion; economists argued that in a globalizing world economy U.S. firms need a global presence in order to sell effectively. Service industries especially, which accounted for $236.8 billion in exports in 1996, almost always needed a physical presence on the ground. These economists contended that a foreign presence is necessary to effectively market exports of goods, arguing that approximately 26 percent of U.S. exports are channeled through foreign-based affiliates of U.S. companies. They also argued that over the past several years developing countries have become more interested in and more receptive to foreign investment. They said that foreign countries recognize the benefits of foreign investment to their economies and people and that private foreign investment flows have substantially outpaced foreign assistance funds. They also contended that the interest of developing countries in attracting foreign investment can be seen in the explosion of bilateral investment treaties globally since the beginning of the 1990sfrom 435 in 1990 to some 1,300 in 1999. But others disagree. Those in other countries argued that the Multilateral Agreement on Investment (MAI) would legalize and dramatically increase the capabilities of multinational companies to place every small business in participating countries under the real threat of closure, take-over, or bankruptcy. They maintained that foreign small businesses were the backbone of their respective economies and were one of the few remaining reliable sources of tax revenue because multinational companies paid little or taxes under the International Tax Agreement Act of 1953. And finally they declared that the consequence of the MIA and the continued non-payment of tax by multinationals, the reduced tax revenue from small business as a result of corporate take-over or decimation, and the reduction in the number of "pay-as-you-earn" or PAYE taxpayers through unemployment would threaten foreign tax bases with total collapse.

Opponents in the United States argued that the MAI, NAFTA-GATT, and other trade deals had sold out U.S. workers, ravaged the manufacturing base, provoked serious "protectionists" issues including software piracy and national security, and caused disruption in small towns and farming communities. They held that "trading partners" continued to impose 40 percent tariffs on U.S. agricultural goods and that since 1992 the United States had run a trillion-dollar trade deficit$200 billion with Communist China, which used U.S. currency to expand its military, steal U.S. technology, and buy weapons to target U.S. military establishments.

In the late 1990s countries included in the Organization for Economic Cooperation and Development (OECD) included Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. Proponents argued that additional members could enhance the agreement's attractiveness as the sound investment policies and the commitments to other policy objectives encompassed in the MAI were embraced by a wider group of countries.


Finkelstein, Joseph, ed. Windows on a New World: The Third Industrial Revolution. New York: Greenwood Press, 1989.

Henderson, D. F. Foreign Enterprise in Japan. Chapel Hill, NC: University of North Carolina Press, 1973.

Naisbitt, John. Megatrends 2000. New York: Morrow, 1990.

Porter, Michael. The Competitive Advantage of Nations. New York: The Free Press, 1990.

Reich, Robert. B. The Work of Nations: Preparing Ourselves for 21st Century Capitalism. New York: Knopf, 1991.

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Foreign Investment of U.S. Companies Abroad (Issue)

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