Globalisation: A Wise Investment in the World ; A New Approach Is Needed by Multinational Companies in Their Dealings with Developing Countries, Says Philip Thornton

By Thornton, Philip | The Independent (London, England), December 12, 2000 | Go to article overview
Save to active project

Globalisation: A Wise Investment in the World ; A New Approach Is Needed by Multinational Companies in Their Dealings with Developing Countries, Says Philip Thornton


Thornton, Philip, The Independent (London, England)


In the wake of the Asian crash of 1997 and the near-collapse of the global financial system following the Russian debt default in 1998, the argument against international capital flows looked as good as won. But it turned out that these were just blips in the phenomenal growth of international investment since the end of the Bretton Woods agreement in the Seventies.

Figures from the Institute of International Finance show that private capital flows dropped in the wake of the double whammy of Asia and Russia to pounds 143.3bn in 1999 from 1997's pounds 267.3bn. But it forecasts flows of pounds 187.9bn by the end of this year and pounds 212.1bn for 2001 - not up to the level of 1997 but back on an upward trend. The key beneficiary has been Asia, which has turned a capital outflow of pounds 1.3bn in 1997 to a forecast pounds 76.1bn next year.

But the continued confidence of investors in overseas investment masks a wholesale change in the attitudes surrounding this issue. The violent protests witnessed in Seattle, London, Washington and Prague over the last two years indicate the strength of hostility among some sections of the public.

Before weighing up the pros and cons of overseas investment, one must draw a key distinction between foreign direct investment (FDI) by multinationals and speculative portfolio investment.

Although both arise from the decision of countries to open up their capital markets, they are very different in nature. Speculative investment is effectively large institutions betting against the stock markets or currencies of other countries. As Barry Coates, director of the World Development Movement (WDM), puts it: "Speculative investment has no role to play in sustainable development."

But the arguments on direct investment - where companies take a long- term stake in their investment - are more evenly balanced. According to the World Bank, the benefits of open capital markets are "indisputable". They offer wider sources of investment, better economic policies, and a multilateral trading system.

Figures from the International Monetary Fund show global trade has been the driving force behind economic growth over the last 50 years, growing by 6.8 per cent a year - double the rate of growth in output.

Although much of the rage against the machine of globalisation is driven by a knee-jerk hatred of big business, there is a solid intellectual argument against the existing international financial argument. Some argue there is an inherent instability within the system which encourages extreme volatility in capital flows, a bubble in asset prices - especially equities - in the host country and upward pressure on the exchange rate.

In the Asian crisis for instance, pressure from immense capital flows forced governments to float their currencies, triggering a vicious spiral. As the currency plunged, interest rates went up, leaving firms unable to service their debts. This forced massive cuts in investment and spending that, in turn, plunged the region into recession, in turn raising the spectre of a wave of bankruptcies and mass unemployment.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Globalisation: A Wise Investment in the World ; A New Approach Is Needed by Multinational Companies in Their Dealings with Developing Countries, Says Philip Thornton
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?