Mike Walden Column: Does international investment help or hurt? – Stanley News & Press

The Prime Minister of Japan recently visited North Carolina to celebrate a major new investment in the state by a Japanese biotech company that will cost more than $1 billion and create hundreds of permanent jobs.

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Such international investment is nothing new for North Carolina, which recently ranked 9th out of 50 states in foreign direct investment, tied with Texas and ahead of all surrounding states except South Carolina.

Of course, when we think of investing, we first think of jobs and salaries. This is a big reason why states and local governments seek foreign investors. But do overseas investments have fundamentally different drawbacks than investments made by domestic companies?

Before we talk about the possible downsides of investing abroad, let’s touch on the positives. Jobs and salaries certainly have a positive side, especially if the salary is higher than your existing job. But new jobs and salary increases go beyond foreign investment. If foreign investment is high, supplier companies are also likely to develop, and each of these companies brings its own jobs and salaries.

Additionally, total local payrolls increase, which increases local spending on general consumer products and increases retail employment.

Including these two second-order effects from supplier and consumer companies can ultimately result in total increases in employment and wages that are 25% to 50% higher than the initial foreign investment.

New foreign investments also result in taxes being paid to state and local governments. Indeed, large business investments, whether sourced abroad or domestically, may receive incentives that reduce tax liability. However, North Carolina’s incentive program is structured so that both the state and local governments receive a tax advantage even after the incentives are deducted.

Large-scale foreign investment can lead to improved skills for local workers. As technology increasingly becomes part of the job, workers often require specialized training to fill new positions. North Carolina is lucky to have great local community colleges that can design specialized training programs tailored to your new job, if needed. Of course, similar skills and training improvements can come from domestic investment.

The United States has been running deficits in international trade for decades. This means that we buy more products and services from foreign countries than we sell them to. Some economists worry that such deficits could lead to a decline in the value of the dollar.

However, if foreign companies selling to American consumers moved their manufacturing from their home countries to the United States, the trade deficit would decrease. Why? Because a significant portion of the product’s sales goes to U.S. workers and U.S. suppliers. If a product is manufactured in another country, a large portion of the salaries will go to workers in that country, and a large portion of the supplier’s costs will as well.
There may also be intangible benefits from foreign investment. Some say the investment will deepen understanding between the United States and other countries. Some say the investment could reduce the possibility of conflict between the two countries.

The idea is that foreign countries investing in other countries have an economic interest in that country’s survival.

Now let’s move on to the potential downsides of investing abroad. Perhaps at the top of the list is the question of control. Foreign companies are usually majority-owned by foreign nationals. One disadvantage from the host country’s perspective is that most of the profits are likely to flow outside the host country. Japanese companies investing in North Carolina have Japanese owners and will receive a return on their investment. Of course, this is to be expected, but the point is that less investment money will remain in the United States.

Another drawback may be cultural differences. Countries usually have different cultures, including expected behavior and attitudes regarding work. If these differences are not recognized and considered, problems can arise between foreign owners and domestic management and workers. However, as cross-cultural understanding increases, this problem may become less common than it once was.

As a related potential disadvantage, and I would highlight the potential disadvantage, the problem is that foreign owners are making decisions about the company, and that some of those decisions may be against U.S. interests. The question is whether there is a possibility of damage. This is especially true for countries with clear geopolitical differences from the United States, such as China. Would a country like China seek to use U.S.-based companies to obtain information or use them to harm the United States in the event of a conflict between nations? ?

Finally, there are concerns that foreign ownership of new investments in the United States will simply displace domestic ownership. This may be true, but nothing is certain. For example, North Carolina has worked for decades to attract automakers, including domestic ones. But that never happened. Therefore, it is understandable that the country jumped on board when foreign-affiliated VinFast expressed interest. But questions remain as to whether a domestically owned automaker could ultimately make it to North Carolina.

Like almost everything, investing abroad has its pluses and minuses.

However, given that countries are keen to attract foreign investors, the perceived benefits appear to outweigh the perceived costs. But you decide.

Mike Walden is the William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.