Global Companies and Public Policy: The Growing Challenge of Foreign Direct Investment (review)

BOOK REVIEWS 165 Global Companies and Public Policy: The Growing Challenge ofForeign Direct Investment. By DeAnne Julius. London: The Council on Foreign Relations for the Royal Institute of International Affairs, 1990. 126pp. $14.95/Paper. Reviewed by Peter S. Rashish, writer and consultant. He is a member of the Europe 1992 Experts Group at the Center for Strategic and International Studies. Try as they may, the governments of the industrialized nations seem to have a hard time catching up with today's fleet-footed international corporations. Need evidence? Take the enormous time and energy that is being spent by ministers and civil servants in Geneva to complete the GATT Uruguay Round of trade negotiations by the December deadline. The main aim of these talks is to extend the world's trade rules into new realms like banking, agriculture and intellectual property. But even before the ink is dry on the final agreement these talks will seem dated. The giant global companies that dominate the world economy have moved beyond old fashioned trade as their principal means for reaching foreign markets and have staked their balance sheets on the returns from their overseas investments. DeAnne Julius, Chief Economist of Shell International Petroleum Company in London, is ahead of the curve. She not only portrays this new world of corporate vagabonding, where firms shift plants, personnel, and capital in tune with changing consumer whims. She also convincingly argues that the very definition of the word "trade" needs to be overhauled if it is to give an accurate picture of the commercial prowess of firms and countries alike. "Trade ?", as Julius' new concept might be called, is based on company ownership not company location, so that, e.g., IBM's sales from its French operations count as American exports along with its exports to France from its U.S.-based plants. On the other side of the ledger, IBM France's purchases in Europe count as American imports. By this new definition of trade, which takes into account the sales ofAmerican-owned firms abroad, it quickly becomes clear that the U.S. is not so far behind in the economic competitiveness sweepstakes as some would have us think. According to Julius' calculations, the 1986 U.S. trade balance is transformed from a deficit of$144 billion to a $57 billion surplus when total foreign sales rather than just exports are considered. This fresh perspective on the global position ofAmerican firms could not come at a more opportune moment. Foreign investors in the United States are increasingly being cast in the role ofscapegoat for a supposed American economic decline. In Congress, a slew of bills would make it tougher for foreigners to own U.S. commercial assets, while the Exon-Florio amendment to the 1988 trade act allows the President to block a foreign takeover in the name of national security. But if Julius' analysis is correct, American firms and the American economy are in fact winners in the foreign investment game, reaping huge profits from overseas operations. If Congress or the White House took actions to limit foreign investment in the U.S., European and Japanese authorities would be 166 SAISREVIEW encouraged to retaliate, thus choking off one of America's main sources of prosperity. Perhaps a broader perspective could help. Through the 1960s, foreign direct investment was a distinctly American phenomenon, as U.S. companies went abroad, mainly to Europe, to conquer markets with their (then) superior managerial techniques. But as Japanese and European firms have grown more sophisticated (with the help of technology transfers from U.S. companies!), they have now turned the tables and come to America to try their luck. A natural balancing has occurred. What about the Japan "problem"? Japan has recycled its current account surpluses by buying assets abroad at an impressive rate, moving from the seventh largest foreign investor in 1980 to the number three position behind the U.S. and the U.K. by 1987. But foreign companies in Japan account for only one percent of that country's gross sales. Julius is optimistic about the prospects for opening up the Japanese economy to foreign investment. It took fifteen years ( 1965-1979) for the United...