Here’s a letter of mine that appears in the current (June 25th) edition of The Nation:
Inspired by the controversial work of William Baumol and Ralph Gomory, William Greider argues that those of us who oppose protectionism today are mindless members of “the church of global free trade” ["The Establishment Rethinks Globalization," April 30]. But it is Greider and his ilk who are blinded by a faith wholly at odds with reality. If it were true that the developing world’s large supply of highly skilled but low-paid workers inevitably attracts capital away from high-wage countries such as the United States, foreign direct investment in open developing countries would be higher than in the United States. It’s not. In 2006, China attracted $46 of FDI per capita; India attracted just over $14 per capita; the United States attracted $578 per capita.
Donald J. Boudreaux
Department of Economics
George Mason University
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I would expect FDI into the US to remain high because there are many other things that are attractive about the US to invest in other than low wage, skilled labor. There are so many things worth investing in I couldn't begin to know what to list.
On the other hand, I would expect other countries such as China and India to cut into the US' lead in this area BECAUSE of the investment in PPE in non-US countries. It's not zero sum but there should be an impact.
My response to that is "so what". I would HOPE that is true because of supply and demand. It is the best use of capital and it's more efficient. My company does it (HUGE commitment to China coming over then next 10 years) and so do others.
The US will continue to focus on other higher value uses for capital such as education, research, consultant services, and on and on. I think THAT is the key to economic survival…Find the next best highest use of your capital and invest in that.
If you get the gov't out of the way of that, the US economic engine will do that very well.
Considering that you do not need to invest as much in a poorer nation in order to get a good return, could the FDI statistics be a bit misleading? One other thing – where would one go to find out more about these statistics? Sorry for my ignorance, but thanks in advance for any help.
Investment in the U.S. would be an even better deal if "the government" weren't wasting so much of our wealth.
IAC, such a comment is mere ad hominem dismissal rather than thoughtful critique. This shows the lack of any substantive criticism.
David Graf,
The return – which is always measured in percentage terms – does not depend on the amount you invest. Expected return includes a "risk-free rate" (usually US treasuries are the proxy) plus some market risk premium. The risk premium in emerging markets is much higher than in the United state, producing a higher expected return.
Don's statistics imply that that the risk/reward ratio in the United States is more favourable than the emerging markets of China and India and/or there are more opportunities here. Although, those two things are related. Thus, the statistics are not misleading and illustrate that the United States is competitive. Don's letter implies that the cost savings of low-wage high skilled labour doesn't raise expected rates of return on investment enough to compensate for the additional risk of investing in emerging markets rather than the US in most cases.
Sam Grove said:
"IAC, such a comment is mere ad hominem dismissal rather than thoughtful critique. This shows the lack of any substantive criticism."
Is it really Sam? Is there really no merit to the argument that the U.S government wastes an obscene amount of U.S wealth in the public sector? If your answer to the question is yes then you must also believe that the Iraq War, USPS, Amtrak, public schools, special interest deals, and farm subsidies have all been shining examples of public outlays that have produced untold amounts of wealth for U.S society.
John,
Both comments are mine and are not related.
In the second part, I was referring to Greider's comment about proponents of free trade.
Sorry for the confusion.
These articles always read the same. I don't understand how Greider and his ilk can be so pessimistic about an economy that is leading the world and is accelerating away from Europe.
Was there a single original argument in that article? If there was i missed it.
Sam Grove,
The reason you are looking for is called "The Green Gator Phenomena" (see http://www.michaelyon-online.com/wp/the-green-gator-phenomena.htm) or "The if-you-repeat-it-often-enough-people-will-believe-it-to-be-true Mentality". They wish it to be so, so they tell it to as many people as they can, and unless there is someone to say otherwise, people will believe them and it will become a self-fulfilling prophecy.