This is an article published by The National Bureau Of Economic Research that claims that :
“When the foreign affiliates of U.S. multinational corporations engage in higher capital expenditures, the American multinationals also tend to increase investment back home.”
There is a widespread popular perception that when American companies invest abroad they necessarily reduce economic activity and employment in the United States. But in their recent study, Foreign Direct Investment and the Domestic Capital Stock (NBER Working Paper No. 11075), authors Mihir Desai, C. Fritz Foley, and James Hines offer an alternative perspective: they conclude that greater foreign investment by U.S. multinational firms is actually linked to greater investments at home as well.
The authors conclude by underscoring that when multinational firms combine domestic production with foreign production, such firms can produce at a lower cost overall — so each stage of the production process is therefore more profitable.
I suggest that this is not really the case or to the extent that the authors claim.
As for global corporations headquartered in the United States most investments have been made in other countries to bolster their production and service operations, to take advantage of cheap global labor, few if any regulations, lower tax policies, advantageous financing terms and infrastructure support. Products and goods made globally are then transported to the United States and sold here, as well as transported elsewhere globally. Any service or other complementary production investment in the United States that occurs as a result would have occurred as well if the initial investment had been made in the United States and the products and goods transported globally. To accomplish this requires “Fair Trade” agreements that even out the competitive factors.
As policy, we need to heavily spur domestic investment through stimulus and the Federal Reserve but with the stipulation that these investments in the non-human factor of production––human-intelligent machines, superautomation, robotics, digital computerized operations, etc as well as productive land, resource conversion, and structures used to contain the means of production––be financed using insured capital investment loans available to EVERY American to broaden the private, individual ownership of future income-producing productive capital growth, and that includes global investments controlled from the United Sates. The source of paying back the initial loans and insurance fees would be the future income generated by the investments––the very principal of corporate finance used by the wealthy to amass wealth. In other words we need to match up production (ownership of the income-producing assets) with the ability to consume and that means income sourced through productive capital dividend earnings, as well as through labor wages and salaries.
Starting with the business corporation, a legal entity created and sanctioned by state and federal government and judicial law, the government should provide tax incentives for full-dividend payouts to its stockholders, or alternatively dictate that from now on 100 percent of all profits be paid out fully as dividend payments to stockholders (thus, eliminating the corporate income tax), and be subject to progressive individual taxation rates during the short term. This would effectively prohibit retained earnings financing of new productive capital formation (reinvesting the corporate earnings already earned). The government could also limit debt financing by imposing some ratio formula to annual revenue under which a corporation could debt finance new productive capital formation with borrowed monies. Both retained earnings and debt financing only enhance the ownership holding value of the existing corporate ownership class and do nothing to create new owners. Thus, the rich get richer systematically and capital ownership concentration is furthered, facilitated by financing further productive capital acquisition out of the earnings of existing productive capital.
In place of retained earnings and debt financing, the government should require business corporations to issue and sell full-voting, full-dividend payout stock to more people to underwrite new productive capital formation, with the purpose of providing opportunity for new owners, both employees of corporations and non-employees, to participate in a growing economy. Of course, there needs to be a financial mechanism put in place that will guarantee loan risks; otherwise banks and lending institutions will not make the loans, and the system will continue to limit access to capital acquisition to those who already own capital—the rich. This is because “poor” people have no security or collateral, or sufficient income to pledge against the loan as security, and/or are disqualified on the grounds of either unproven unreliability or proven unreliability.
Criteria must be created to qualify the corporations subject to this policy and those corporations that qualify overseen so as to insure that their executives exercise prudent fiduciary responsibility to generate loan payback. Once the guaranteed loans are paid back, the new capital formation will continue to produce income for existing and future owners.
While tax and investment stimulus incentives are excellent tools to strengthen economic growth, without the requirement that productive capital ownership is broadened simultaneously, the result will continue to further concentrate productive capital ownership among those who already own, and further create dependency on redistribution policies and programs to sustain purchasing power on the part of the 99 percent of the population who are dependent on their labor worker earnings or welfare to sustain their livelihood. By stimulating economic growth tied to broadened productive capital ownership the benefits are two-fold: one is that over time the 99 percenters will be enabled to acquire productive capital assets that are paid for out of the future earnings of the investments and gain greater access to job opportunities that a growth economy generates.
To reinvigorate “Make It In America” and “Made In America,” is the government should create financial incentives and tax provisions to reward American companies that bring manufacturing back to the United States from abroad, promote manufacturing investment, and incentivize more investment by foreign companies, all with the condition that the employees will share in the ownership benefits generated by the new capital formation projects. The result will be more broadened employee ownership and in-sourcing of jobs created by the new capital formation projects, and make America self-reliant.
The government should impose robust import levies and tariffs (tax) on particular classes of imports that are determined to be manufactured outside the United States and exported back to the United States that do not qualify as “Fair Trade” and unfairly undercut an American-make equivalent. At present, American business corporations are increasingly abandoning the United States and its communities to invest in productive capital formation outside the United States, particularly in China, Mexico, India, and other parts of Asia. As a result, America is experiencing the deindustrialization of America. This has forced policy makers to adopt a redistributive socialist solution rather than a democratic capitalist one whereby democratic economic growth of the earning power of the citizens would flourish simultaneously with new, broadly-owned productive capital formation investments in the United States. Such overseas operations have the advantage of “sweat-shop” slave labor rates relative to American standards, low or no taxation, supportive infrastructure provisions, currency manipulation, and few if any environmental regulations––which translate to lower-cost production. Thus, producing the same product or service in the United States would be far more expensive. For most people, economic globalization means a growing gap between rich and poor, technological alienation of the labor worker from the means of production, and the phenomenon of global corporations and strategic alliances forcing labor workers in high-cost wage markets, such as the United States, to compete with labor-saving capital tools and lower-paid foreign workers. Unemployment is high and there is an accelerating displacement of labor workers by technology and cheaper foreign labor, resulting in greater economic uncertainty and unstable retirement incomes for the average American citizen––causing the average citizen to become increasingly dependent on government wealth redistribution programs.
We need a policy change, which assures truly “Fair Trade” and that exponentially reduces the exodus of our manufacturing prowess and invigorates America’s entrepreneurial exceptionalism and competitive spirit to create products and services in the spirit of “the best that they can be.” We need policies that will de-incentivize American multinational corporations and others from undercutting “American Made,” while simultaneously competitively lowering the cost of production through expanded capital worker ownership. At present, the various incentives in place do not broaden capital ownership but instead further concentrate ownership.
