Foreign Savings Pumps More in Investment--and Jobs--Into the U.S.
It is fascinating that often the same people who want to save American jobs by restricting imports into the United States and blocking U.S. overseas investment also vociferously object to foreign individuals and companies investing in U.S. businesses. All sorts of pejorative terms are used to describe foreign investment: “putting America on the trading block” or “America is for sale.” If these shrill voices were listened to, what would be the employment effects of restricting the flow of investment capital into the United States?
As any serious student of the American economy quickly realizes, the people of this country save a much smaller portion of their income than is the case in the other major industrialized nations. A large portion of what we save goes to finance the federal government’s huge budget deficits. This leads to the tough question: “Where are we going to get the money to invest in expanding our industrial base and thus create new jobs for Americans?”
One compelling answer is to reduce the large portion of our national saving that is taken by the government to finance those budget deficits. Unfortunately, the annual flow of red ink on the part of the federal government is rising rapidly.
Thus, the major alternative for raising the investment funds needed by our private sector is to rely in part on the savings of people in other nations--to import foreign capital. That is nothing new. In the 19th Century, when the United States was a developing economy, Europeans invested heavily in our railroads, canals and heavy industry.
More recently, after the end of World War II, American companies turned the tables and invested in various business enterprises in Western Europe. Some people in France and elsewhere objected to foreigners buying up their companies. Our response was that U.S. investment was good for the European economics, creating jobs, income and tax collections for those countries. We were right. The shoe is now on the other foot, but the same principle applies.
Foreign investment in the United States continues to increase, and for sound economic and business reasons. This nation constitutes a very attractive market. Our huge trade deficits have put about $100 billion a year into foreign hands. From the viewpoint of generating income in the United States--and tax collections by the Treasury--we should be pleased that the overseas funds come here rather than elsewhere.
Unfortunately, some Americans seem to object to anything with the word foreign in it, including the foreign investment that creates jobs and produces income in the United States. Of course, we should make sure that foreign-owned business in the United States abide by the same laws and regulations that American-owned business do. In any event, the vast majority of foreign holdings in this nation are passive portfolio investments in securities, including U.S. government debt--not in ownership of companies, land or real estate. Looking at direct foreign ownership of our companies, the notion of overseas firms arriving on U.S. shores with new capital equipment and innovative management techniques may strike fear in the hearts of existing domestic businesses. But the new competition is a big plus for American consumers. Perhaps of even greater importance, that new competition provides a useful stimulus to U.S. companies to increase their own productivity and thus enhance our national competitiveness. That is a far more positive and desirable reaction than another wave of government restriction of private enterprises, be they owned by investors in this country or overseas.
Moreover, the proponents of more regulation of foreign direct investment--their current efforts focus merely on getting more information--ignore the existing reporting requirements imposed by the federal government.
The Commerce Department now requires all foreign investors to report investments in the United States that give them 10% or more ownership of an American business.
Every five years, foreign-owned companies with assets or sales greater than $1 million must fill out extensive surveys on their American operations. Moreover, under a law passed last year, the Commerce Department must issue an annual report providing fresh detail on foreign investment in the United States.
Existing reporting requirements yield helpful statistical perspective. Foreigners own about 6% of the capital stock of U.S. companies and about 1% of U.S. farmland. Those are much smaller proportions than is the case with the other major industrialized nations (with the exception of Japan). In addition, the 3 million new jobs that foreign investment has generated in the United States in recent years also represent an important, but rarely considered, positive impact.
