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We Should Applaud and Not Oppose Foreign Investment in Our Country

Here’s a follow-up note to Mr. B. Johnson:

Mr. Johnson:

Thanks for your follow-up e-mail in response to this note in which I summarize my reasons for not sharing your worry about purchases by foreigners of businesses in the United States.

You write “Ownership changes but you [Boudreaux] miss the point on the control which moves to hands not necessarily possessing the same interests, motivations and sympathies as a domestic owner might possess. Control is attached to the ownership.”

With respect, I believe that I don’t miss the point. In a market economy, businesses survive only by serving consumers better than do rival businesses. That is, in a market economy, the feature we overwhelmingly rely upon to ensure that businesses serve us – to ensure that businesses promote the public good – is not business-owners’ altruism or patriotism but, instead, competition. Among the key benefits of markets is the fact that they reduce much further than do any other economic arrangements the relevance of market-participants’ motives.

Business owners who, for whatever reason, don’t compete well in the market eventually lose control of their assets. Those assets are either purchased by others who’ll use them more efficiently or are reduced in value to that of scrap. It’s thus incorrect to suppose that business ownership gives to those who possess it a great deal of discretionary control. One of the happy ironies of free markets is that, while markets absolutely require that assets be owned privately, they induce these owners to use their assets not only for their own good but also for the good of the public – specifically, for the good of consumers and for businesses’ workers and other suppliers.

Of course it’s imaginable that foreigners buy or launch firms here and then intentionally run these in ways that are counter to the public good. But to the extent that such operations occur, those business owners personally pay a high price, and the longer businesses operate in this fashion, the higher is the price paid by those owners. This reality discourages the sort of thing that you worry about, and renders the assets so controlled by those owners less and less productive and valuable.

In short, I see no reason in theory – just as I know of no evidence from history – to suggest that foreign investments in a market economy pose any real risk to that economy’s health or to its government’s national-defense abilities. Quite the opposite, in fact.

And if war breaks out, there’s no reason whatsoever to suppose that government’s ability to commandeer the assets of domestic firms owned by foreigners would be any less complete or potent than is its ability to commandeer the assets of domestic firms owned by its own citizens.

The mere ability to imagine some hypothetical bad outcome of foreign investment in the U.S. is a poor reason to reject commercial investments by foreigners in our country – investments that, it’s worth repeating, give to the foreign owners of those assets a greater personal interest in the peace and well-being of our country.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030