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The Buying of America : ...

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“Selling Out” and “The New Competitors” are two books on the same subject: the rising tide of foreign investment in the United States. But they should not be confused, for these books could hardly be more different. “The New Competitors” is a sober, thoughtful, and readable exploration of the American economy’s transformation. “Selling Out” is a sensational treatment, and can easily be accused of doing what it warns against. It sells out any reader who wants to understand what growing foreign ownership of the U.S. economy means.

Two sets of authors wrote these books, and their divergent backgrounds go a long way toward explaining why they handled the subject so differently. “Selling Out,” which concentrates almost exclusively on Japanese investments in America, was written by two journalists, Douglas Frantz, a financial reporter for the Los Angeles Times, and Catherine Collins, a former business reporter for the Chicago Tribune. Although this is not Frantz’s first book, he and his co-author stumble over a problem common to journalists when they write books. The skills that produce a hard-hitting news story do not necessarily yield a good book. Simple reportage is insufficient to carry a subject for 300 pages, and while paragraphs that are one sentence long work in newspapers, they betray a lack of thought when they appear in books. “Selling Out” has such paragraphs in abundance.

“Selling Out” has the virtue of putting related anecdotes and some facts about Japanese foreign investment in one place. But judging from the footnotes (which are unpredictable), most of these stories have been told before in newspapers and magazines. That is no unforgivable sin. If their aim was to contribute to public debate, however, then Frantz and Collins had an obligation to go beyond rewriting and stringing together previously published stories.

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Perhaps their failure to do more than rehash old news is one reason why the book has such a breathless tone to it. When the story isn’t new, a logical tendency is to overdramatize. The authors disavow Japan-bashing, claiming their book is “designed to set forth the facts . . . with neither malice nor antipathy toward any foreign investors.” But there is no better word than Japan-bashing to describe their efforts. One learns, rather quickly, that Japanese investors are “voracious” and “canny,” and make “smug” observations. When they are not engaged in “judo economics,” Japanese executives working in America serve as “bilingual spies.”

Occasionally, but only occasionally, Frantz and Collins allude to the reasons why Japanese investors are buying up large chunks of real estate, financial services, and America’s manufacturing base. The source of the problem is America’s insolvent economy, which creates, in the words of economist Henry Kaufman, a “disregard for capital.” When the cost of capital is too high, American manufacturers do not make the investments necessary to compete, and eventually lose out to foreign competitors. The trade deficit becomes chronic, and Japanese manufacturers, along with their banks and insurance companies, end up with more dollars than they can possibly use. So they buy pieces of America, and economic decision-making power flows abroad. Whose fault, so to speak, is that?

Several concluding recommendations made by Frantz and Collins are well taken, especially the notion that America’s narrow definition of national security should be expanded to include economic security. But the somewhat more balanced and reasonable tone adopted in the end comes too late.

“The New Competitors,” by professors Norman Glickman and Douglas Woodward, is everything that “Selling Out” is not. Glickman and Woodward have transcended the problems that frequently plague academics when they write books aimed at a broad audience. Lifeless and didactic prose has killed more than one book from the academy, even when the subject was timely. But “The New Competitors” is eminently readable and accessible to the general reader seeking to understand the phenomena of foreign investment. At the same time, the book does not sacrifice comprehensiveness, and its notes and appendices make it worthy of scholarly consideration. That is no small achievement.

Glickman and Woodward state their views on foreign investment early on. It is “neither the nemesis decried by economic nationalists nor the panacea its boosters claim.” But it is here to stay. The challenge, the authors note, is to understand foreign investment so that intelligent decisions can be made about America’s role in the international economy.

The first accomplishment of “The New Competitors” is to put foreign investment into context and clear away many misconceptions and myths in the process. Portfolio investment, or the comparatively passive ownership of bank accounts, bonds, and securities, accounts for about four-fifths of total foreign investment, which stood at $1.5 trillion in 1987. The balance is direct investment, which occurs when a foreign entity buys an American company or piece of real estate. Although it attracts the most attention, direct investment is still a small part of the American economy; foreign interests employ only 3% of all American workers and own only 0.7% of the land. But as Glickman and Woodward graphically show, direct investment from abroad has justifiably become an issue because of the upward trend and spectacular pace of foreign acquisitions, particularly in the manufacturing sector. Manufacturing matters to foreign investors, even if it does not to Wall Street and Washington. At the risk of oversimplifying their argument, Glickman and Woodward identify two basic reasons why Americans should be concerned about foreign investment. First, there is no guarantee that foreign ownership won’t work against the public interest. Just as concentrated domestic wealth violated the common prosperity at an earlier point in American history, huge concentrations of transnational wealth may seek to dominate domestic markets unfairly. In addition, foreign ownership involves more than the market sale of goods and services. Inevitably, it also includes some kind of option on political power.

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But to their great credit, Glickman and Woodward do not stop there. They correctly point out that foreign investment is symptomatic of a problem rather than its cause. The underlying issue is the dysfunctional American economy, which, in the authors’ words, “wastes its productive potential and is unable to handle its own economic problems.” Their concluding suggestions, which span not only foreign investment but the performance of the domestic economy, provide an excellent platform for public debate.

“The New Competitors” is a book that should make a difference.

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