New Trends in Global Investment Pose Challenge for U.S.

Looming over the growing debate about jobs and economic policy in the U.S. presidential campaign are developments that will powerfully affect the world’s economies for years and decades to come.

International investment in the less-developed countries is growing very rapidly. In Latin America, south Asia, Africa and Eastern Europe fresh capital has increased dramatically in the past few years--up 66% in Latin America alone--and so conditions are improving and industry is building, reports economist David Hale of Kemper Financial Cos.

Hale’s finding is historic. There hasn’t been such a flow of investment into the less-developed parts of the world since before the First World War--when London and other capitals of Europe pumped money around the globe.

The reasons for today’s investment growth are economic reforms among the developing nations themselves and the confident global peace emerging at the end of the Cold War.

The promise is enormous for a broad-based recovery spreading throughout the world economy. U.S. exporters of factory machinery, electrical engines, computers and related parts and software are already benefiting, their foreign sales growing more than 10% a year.

But there’s a challenge, even a poignant downside, for the U.S. economy in good news for the poor countries. “We could see empty factories and shattered lives” in the United States as newly industrializing nations learn to make products better and faster, says economist John Rutledge, founder of Claremont Economics Institute and a one-time adviser to the Reagan Administration.

The future promises even more international competition than the recent past.

It’s an issue of tomorrow, not front-and-center today. In fact, the jobs issue may well be obscured by growing employment during the campaign this summer and fall. Manpower Inc., the Milwaukee-based temporary help firm, reports in its latest job survey that employers intend to boost hiring in all sectors of the economy--from construction through manufacturing to retail trade and services.

The outlook is far better than current high unemployment would indicate, confirming that the 7.5% unemployment rate reported last week reflects a temporary surge of newcomers into the job market.

Still, Ross Perot will be talking about jobs and so will Bill Clinton. To Perot, lost jobs and displaced workers are a burden on the whole community. The worker loses his job and soon “the only thing the worker had, the imagined equity in his house, is gone. Most of those houses have government guarantees, so everybody pays,” says the as-yet-undeclared presidential candidate. His point is that the United States better have new industry up and running before losing old industry to overseas competitors.

Democrat Clinton points out that Japan and Germany are better prepared for the emerging global economy “because they educate their people and organize their economies to change better than we do.”

Such points are accurate, but fail to explain just what has changed in the developing world and how the United States should respond. For one thing, it shouldn’t get sidetracked into debate about the proposed Free Trade Agreement with Mexico. With or without such an agreement, Mexico will attract investment in the ‘90s because the reforms of President Carlos Salinas de Gortari have made it an economy worthy of world capital markets. The latest move to stabilize the value of the peso is another step in that direction.

Similar economic reforms are being introduced in Brazil and Argentina, India and Malaysia, Zimbabwe and Nigeria, Poland, Hungary and the emerging state of Slovenia.

Once internal reforms render them safe for investment, those formerly untouchable economies promise soaring productivity and high returns on capital as eager but low-wage workers get the benefit of new machinery.

The implications for the U.S. Treasury, which borrowed heavily on world markets in the 1980s, are pointed.

In the 1980s, the United States was virtually the only credit-worthy borrower. But in the ‘90s many other borrowers qualify, and even the Treasury will have to compete to finance its deficit--which means interest rates could go way up in a few years.

What should the United States do? The policies and solutions are already clear; the only question is who will be elected to execute them.

Lowering the federal deficit to avoid rising interest rates goes without saying. Lower taxes and regulations to make the United States an attractive place to do business are also advisable.

It’s no accident that all the candidates advocate reduced capital gains taxes. Clinton and Perot would target such breaks for new businesses while President Bush would reduce taxes on capital gains across the board.

Clinton and Perot advocate a thorough-going reform of education and government help in research and development to enable U.S. industry to compete in the new world. And that makes sense.

For American workers to have a place in the new world, they will need updated skills and advanced industries.

The bottom line is that opportunities are breathtaking as more than 3 billion people are poised to swell the global marketplace for goods and capital.

If India and Argentina can reform their economies, surely the United States can do likewise. Can’t it?