Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism

19

L. Brittan (1995), ‘Investment Liberalisation: The Next Great Boost to the World Economy’, Transnational Corporations, vol. 4, no. 1. p. 2.

20

For example, one study by a group of IMF economists shows that, for a sample of 30 poorer developing countries during 1985–2004, FDI inflows turned out to be more volatile than equity flows or debt flows. See Kose et al. (2006), Table 3. The 30 countries are Algeria, Bangladesh, Bolivia, Cameroon, Costa Rica, the Dominican Republic, Ecuador, EI Salvador, Fiji, Ghana, Guatemala, Honduras, Iran, Jamaica, Kenya, Malawi, Mauritius, Nepal, Niger, Papua New Guinea, Paraguay, Senegal, Sri Lanka, Tanzania, Togo, Trinidad and Tobago, Tunisia, Uruguay, Zambia and Zimbabwe. FDI inflows were less volatile than equity or debt flows for the sample of ‘emerging market’ economies, which include Argentina, Brazil, Chile, China, Colombia, Egypt, India, Indonesia, Israel, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Singapore, South Africa, Thailand, Turkey and Venezuela.

21

P. Loungani & A. Razin (2001), ‘How Beneficial is Foreign Direct Investment for Developing Countries?’, Finance and Development, vol.. 28, no. 2.

22

In addition, with the increasing importance of collective investment funds that I discussed previously (note 5), there is also shortening of time horizons for FDI, which makes such ‘liquidizing’ of FDI more likely.

23

These include local content requirements (where TNCs are required to buy more than a certain share of inputs from local producers), export requirements (where they are forced to export more than a certain proportion of their output) and foreign exchange balancing requirements (where they are required to export at least as much as they import).

24

Christian Aid (2005), ‘The Shirts off Their Backs – How Tax Policies Fleece the Poor’, September 2005.

25

Kose et al. (2006), pp. 29.

26

Moreover, brownfield investment can magnify the negative impact of transfer pricing. If a TNC that has bought up, rather than newly created, a company is practising transfer pricing, the firm that has now become a TNC subsidiary could be paying less tax than it used to when it was a domestic firm.

27

The data are from UNCTAD (United Nations Conference on Trade and Development).

28

Especially when it comes to FDI by collective investment funds (see notes 5 and 22), this may be the sensible strategy, as they do not have the industry-specific knowhow to improve the productive capabilities of the firms they buy up.

29

R. Kozul-Wright & P. Rayment (2007), The Resistible Rise of Market Fundamentalism: Rethinking Development Policy in an Unbalanced World (Zed Books, London), chapter 4. Also, see Kose et al. (2006), pp. 27–30.

30

The measures include: requirements for joint ventures, which increases the chance of technology transfer to the local partner; explicit conditions concerning technology transfer; local contents requirements, which forces the TNC to transfer some technology to the supplier; and export requirements, which force the TNC to use up-to- date technology in order to be competitive in the world market.

31

Sanjaya Lall, the late Oxford economist and one of the leading scholars on TNCs, once put this point well: ‘while having more FDI, on the margin, may usually (if not always) bring net benefits to the host country, there still is a question of choosing between different strategies regarding the role of FDI in long-term development’. See S. Lall (1993), Introduction, in S. Lall (ed.), Transnational Corporations and Economic Development (Routledge, London).

32

The quote is from Bankers’ Magazine, no. 38, January 1884, as cited in Wilkins (1989), The History of Foreign Investment in the United States to 1914 (Harvard University Press, Cambridge, Mass), p. 566. The full quote is: ‘It will be a happy day for us when not a single good American security is owned abroad and when the United States shall cease to be an exploiting ground for European bankers and money lenders. The tribute paid to foreigners is … odious … We have outgrown the necessity of submitting to the humiliation of going to London, Paris or Frankfort [sic] for capital has become amply abundant for all home demands.’

33

Foreign lenders were also badly treated. In 1842, the US became a pariah in the international capital market when 11 state governments defaulted on foreign (mainly British) loans. Later that year, when the US federal government tried to raise a loan in the City of London, The Times hit back, saying: ‘[t]he people of the United States may be fully persuaded that there is a certain class of securities to which no abundance of money, however great, can give value; and that in this class their own securities stand pre-eminent’. As cited in T. Cochran & W. Miller (1942), The Age of Enterprise: A Social History of Industrial America (The Macmillan Company, New York), p. 48.