Influx of Foreign Capital Stirs Backlash Across U.S.

When Swedish conglomerate AB Electrolux announced plans last month to take over Murray Ohio Manufacturing Co., the Tennessee-based lawn-mower and bicycle manufacturer, local entrepreneur Charles Brewer said enough was enough.

Brewer organized a spate of local protests in this tiny central Tennessee town, including a rally at the local high school, a letter-writing campaign to Tennessee’s senators and congressmen, a full-page ad in the Wall Street Journal conspicuously headlined “ Nej !”--Swedish for no, and pronounced “nay” here--and a local “Say- Nej Day” complete with Say- Nej buttons and T-shirts.

“Every time you turn around, someone from another country is buying up something here,” Brewer said. “I’m concerned about taking more and more until there’s none left. . . . I wonder whether my children are going to work for an American firm.”

Lawrenceburg residents are not the only ones who are upset over the latest rush of foreign investment to flood into the United States.

Congress has passed several provisions in recent weeks aimed at crimping--or at least monitoring--foreign investment. And even some governors, who previously have courted foreign investment enthusiastically, have begun to have second thoughts.

To be sure, foreign investors have played a vital role in the U.S. economy in recent years by supplying investment capital at a time when federal budget deficits have soaked up much domestic savings. If foreigners began to pull out of the U.S. market, policy-makers here would have little choice but to raise interest rates sharply to attract their funds back again.

For now, foreign purchases of American corporations and real estate are soaring as a combination of the falling dollar and the 1981 U.S. tax cuts make U.S. assets a bargain for foreigners. Newspapers are filled with headlines about takeovers of U.S. firms--not just in manufacturing but in financial services, insurance and real estate.

Japanese firms, awash with excess funds and eager to take advantage of bargains, poured $14.7 billion into U.S. investments during the year that ended in March--a rise of 44% from the previous year’s level. And Japan still trails the three largest foreign holders of U.S. assets--Britain, West Germany and the Netherlands.

Invest $1.534 Trillion

Overall foreign investment in the United States rose about $17 billion during 1987 to a grand total of $1.534 trillion, according to the Commerce Department. Of that, $1.3 trillion was in bank deposits and stocks, bonds and other securities, while $249.9 billion was in direct investment--manufacturing facilities and real estate--up from only $27.7 billion as recently as 1975.

The recent surge in foreign investment has involved some of this nation’s oldest and best-known firms. A Japanese company recently bought a share of Goldman, Sachs & Co., a Wall Street investment house, and Canada’s Campeau Corp. took over Federated Department Stores. And just last week, Britain’s Beazer PLC engineered a hostile takeover of Koppers Co., a construction materials and chemical company.

The backlash has extended all the way from Tennessee to Washington. The original version of the omnibus trade bill that Congress is reconsidering after President Reagan’s recent veto contained two major provisions aimed at investment by foreigners.

One, which was stricken from the final version of the bill, would have required foreign investors to disclose detailed information about each of their transactions. The other, in the bill that Reagan vetoed, would give the President explicit authority to stop the takeover of a U.S. firm by foreigners if he believed the transfer would endanger national security.

Early last year, then-Commerce Secretary Malcolm Baldrige intervened to discourage the takeover of Fairchild Semiconductor Corp. by Japan’s giant Fujitsu Ltd. National security was cited as an issue even though Fairchild was already owned by Schlumberger Ltd., a French corporation.

Declared Unconstitutional

And some states and localities have sought to limit foreign investment. Ohio passed a law in February, since declared unconstitutional, requiring any foreign company acquiring an Ohio firm to file detailed reports on the impact of its planned purchase on the local economy. And Honolulu Mayor Frank Fasi has asked Hawaii’s Legislature to restrict Japanese land speculation in the state.

The backlash has begun to cause ripples of concern overseas.

“We’re a bit worried about it,” Francois David, France’s deputy trade minister, said in a recent interview. “We were used to U.S. protectionism in trade in goods, but this is a new one.”

And Boy Cornils, a corporate strategist for Hoechst AG, the West German chemical giant, worries openly about Americans’ “growing resistance” to foreign investment.

But few analysts expect the trend to abate significantly. Albert Bressand, director of Promethee, a Paris-based economic research institute, says that foreign investment seems likely to remain high as long as Americans refuse to cut their consumption and pare back federal budget deficits.

Tough Choice

“Americans may well have to choose between accepting a higher level of foreign investment or reducing their living standard,” Bressand asserted. “Hoping for the low dollar alone to solve the U.S. trade deficit problem is unrealistic.”

The trouble with trying to reduce foreign investment, U.S. economists say, is that America needs a substantial inflow of foreign capital--whether to deposit in banks, invest in stocks and bonds or purchase companies and real estate--to help finance its outsized trade and budget deficits.

Robert Z. Lawrence, a Brookings Institution economist, warns that if foreigners decide to cut back on their investments here, it could force the Federal Reserve Board to raise interest rates sharply to help entice investors back. And that in turn eventually could risk plunging the economy into a recession. Foreigners restrained their U.S. investment briefly in mid-1987, and some analysts believe that it was a major factor leading to the Oct. 19 crash in the financial markets.

Republican political strategist Kevin Phillips sees the backlash as part of a larger issue--Americans’ increasing concern that the nation has lost control of its economic destiny. Phillips said it took politicians by surprise. They “didn’t see the trade issue coming, and they didn’t see this one either,” he said.

Sam Rosenblatt, director of the Assn. of Foreign Investors in America, a new lobby group, agrees that the anti-investment sentiment stems partly from the difficulty that Americans are having in adjusting to recent changes in the world economy. “When you’ve been heavyweight champion of the world and all of a sudden you’re not, it takes a little time to get used to it,” he said.

National Security Problem

A recent survey by Marttila & Kiley, a Boston political research firm that has provided advice to Democratic presidential candidate Michael S. Dukakis, supports that view. John Marttila, a partner in the firm, says his polling shows that 72% of Americans now see the $170-billion trade deficit as a serious national security problem. “I believe the voters would be receptive to restrictions in foreign investment in some areas,” Marttila said.

Critics of foreign investment complain that foreigners are reaping more than a mere financial return on their investment. Pat Choate, vice president for policy analysis of TRW Inc., frets that acquiring control of U.S. corporations will give foreign firms sharply increased political clout here--and that their own interest may not coincide with that of most Americans.

Choate points to reports that Japanese firms have hired some of the nation’s top law firms--including those employing former U.S. trade officials--to plead their cases to government trade policy-makers and last year spent about $100 million on lobbying in the United States. To the extent that the foreigners are successful, Choate said, “we could lose all our leverage in trade negotiations.”

Susan and Martin Tolchin, authors of a new book that has become the bible of those who fear more foreign investment, have made similar points. But both Choate and Susan Tolchin concede there is no evidence yet that the issue has gotten out of hand.

Foreign-owned firms also contribute to political action committees that help finance congressional candidates’ campaigns. A survey in mid-1986 by National Journal, a Washington-based magazine, found that total PAC contributions by foreign-owned firms were relatively small--amounting to an average $796 per congressman--and that the positions foreign firms have taken on issues have been supported widely by American companies as well.

No ‘Alarm Bells’

“I think we’ve been misinterpreted a lot,” said Susan Tolchin, a professor at George Washington University. “We’re just raising questions; we’re not sounding alarm bells.”

Analysts are divided over how the investment backlash will play out.

TRW’s Choate predicts that the issue will intensify in coming months, particularly if the United States slumps into a recession. “It’ll really come to the fore then,” he asserted.

But Greg Schneiders, a former White House official under President Jimmy Carter and now a Washington-based political pollster, has his doubts. Partly because the investment issue is so complex, he says, it so far has been much like the trade issue--kept alive more by political churning in Congress than by widespread pressure among voters themselves. As visible as some recent takeover attempts have been, foreign investment has begun to taper off naturally.

As a result, Schneiders contends that the investment flap--like the trade issue itself--probably never will make it much beyond the rhetorical stage. “I think the real risk for foreign investors is not at the national level, but locally, where a community sees one of its big employers threatened by a foreign takeover,” he says. “Local people are more sensitized to this.”

Such is the case here in Lawrenceburg, where Murray Ohio has been fighting the takeover bid of Sweden’s AB Electrolux. Local residents did not get word of AB Electrolux’s bid for Murray until a surprise meeting at the local high school three weeks ago and have been kept in the dark since then because the two sides have been in litigation.

‘Good Corporate Citizen’

Daphene Cope, executive director of the Lawrence County Chamber of Commerce, said that if “AB Electrolux had come in and said, ‘We’d like to build a new plant here,’ we’d have gone out and welcomed them with open arms.” But, she asserted, “Murray has been a good employer and a good corporate citizen here. People just don’t see any reason for it to change.”

Chuck Brewer, the protest leader, insists that the fact AB Electrolux is foreign has nothing to do with Lawrenceburg’s reaction. “It’s not so much the foreign deal here as it is a matter of ‘Let Murray alone,’ ” he said.

W. T. Ezell, 52, a quality control inspector at Murray, agrees. “Personally, I think it’s time to draw the line,” Ezell said. “I understand this is legal. But is it right?”

Whether Brewer and his opposition forces have succeeded may become apparent soon. Murray board members are expected to vote Monday on whether to accept a sweetened bid by AB Electrolux or to continue their legal fight against the takeover. A spokesman for AB Electrolux said his firm had not decided what to do if its takeover offer is turned down.

“We’re probably just spitting in the wind with this,” Brewer said with a shrug. “Somebody had to make a try. But I think we’ve gotten our point across.”