Notes on U.S. Foreign Investment and Latin America

Article excerpt

Capitalist firms invest outside their own countries for the same reasons that they invest at home--to obtain profits. Nonetheless, not all investments are the same. There are different ways that firms make their profits, different types of investments, focusing on different sorts of activities and having different sorts of long-run implications. The purpose of these notes is to examine some of the aggregate trends in U.S. foreign investment---changes in the ways that investors based in the United States are obtaining profits from international operations--in order to establish some basis for beginning to understand ways in which that investment might have its impacts on recipient countries, particularly countries in Latin America and elsewhere in the so-called developing world.

The Context

The trends in U.S. foreign investment are of course part of larger changes in the world economy, and the investment trends are both a vehicle for and are shaped by those larger changes. The grand change defining the economic era at the end of the twentieth century is that the world has become increasingly capitalist, tied together in one system of trade and

Arthur MacEwan is Professor of Economics at the University of Massachusetts, Boston. An earlier version of this paper was presented at a "Workshop on Foreign Investment in Latin America," at the Centro de Estudios sobre America, Havana, Cuba, March 18, 1993. investment relations. Production virtually everywhere is based on wage labor and is organized for profit.

There is an almost complete lack of any alternative system that would exclude capitalist enterprise in some regions and challenge, on either the ideological or practical level, the momentum of capitalist development. With the demise of the Soviet Union, the abandonment of the pretense of socialism throughout Eastern Europe, and the abandonment of all but the pretense in China, there is virtually no active alternative to capitalism on the scene. In what we have traditionally called the Third World--those countries that acquired their relation to capitalism through colonial domination-capitalist relations of production have become ubiquitous. While Third World nations have long been enmeshed in capitalist commercial relations, the emergence of capitalist production relations has only become fully dominant in recent decades. Throughout the world economy, production in the home, outside the capitalist nexus, is rapidly giving way to market activity. We tend to see this phenomenon in terms of the changing role of women, but it is a development that affects the lives of all workers in complex and often contradictory ways.

The widely discussed "globalization" of economic life, then, is largely a universalization of capitalism. Economic relations of both trade and investment have been well established for at least a century, but what is new in the current age is the degree to which those commercial ties are connections within a world capitalist system, as opposed to connections between capitalist and semi-capitalist economies.

Globalization is often cited as a positive and driving force in the world economy. Many analysts view international trade and investment as the motor forces of economic growth and development, and, accordingly, argue for the reduction of barriers to international commerce. However, a positive connection between globalization and growth and development is not at all clear. In the twenty-five years after the Second World War, a positive connection seemed evident. Since the early 1970s, however, globalization has continued apace, and for the United States the process seems to have accelerated. Yet this later period has seen slow world economic growth, considerable instability emanating from international factors, and rising inequality both between and within countries. While cause and effect are not clear in these events, certainly the aggregate data do not manifest any obvious positive results from globalization. …