Chapter One
Above and beyond the question of how to grow the economy, there is a legitimate concern about how to grow the quality of our lives.
—PAUL WELLSTONE
Americans would like to think of this country as the most self-sufficient place on earth, able to feed, clothe, employ, and educate its citizens—and those in need elsewhere—with no help from anyone else. To the most patriotic, there is no country on a par in any way with the United States, no matter the economic traumas it may encounter. "I do believe in American Exceptionalism," Senator John McCain said in September 2008, even as our credit system had collapsed, some of our biggest investment banks had fallen, and unemployment had reached a new high. If there was ever a time foreign investment was needed, it is now. Today, when the business world has lost its borders and companies are no longer bound by the nations in which they were founded, no one nation—no matter how exceptional—can sustain itself through homegrown investment alone.
In our increasingly interconnected world, one thing has become strikingly clear. Foreign investment is a necessary and positive force in the American economy, as long as those companies act responsibly, give back to American communities, and provide Americans with stable jobs for which they are fairly compensated. At a time when American companies have closed plants, laid off millions of workers, and ventured abroad in search of profits, foreign companies offer an attractive alternative—in some cases, the only one.
Many believe that foreign investment in the United States is a relatively new phenomenon, one that gained attention on the national stage as recently as the 1980s, when Japanese automakers opened their first American factories and when other Japanese investors went on a real estate buying spree. But in reality, foreign investment is older than our nation itself, dating back to the 1600s, when English and Dutch traders crossed the Atlantic seeking opportunities on our shores. In fact, the Jamestown colony, the first colony formed in the New World, was founded by British entrepreneurs from the Virginia Company. They manufactured soap, pitch, glass, and wood building supplies—some of the very first American-made products to be exported to Europe.
From the beginning of the republic until well into the late 1800s, much of the foreign investment that took place in the United States was from Britain, which is no surprise, since, of course, this nation began as a series of British colonies. But other countries—France, Germany, and Spain among them—soon sought their own investments in the United States, in some cases helping to create entire industries. During the Civil War, after President Lincoln ordered the blockade of Southern ports, crafty British blockade runners, operating in small, fast ships, helped sustain the economy in the South by bringing in goods from Bermuda, the Bahamas, and Cuba, sending illegal shipments of cotton and tobacco there in return. In Gone with the Wind, Rhett Butler made his fortune doing business with these foreign traders, earning the enmity of the proper citizens of Atlanta.
In more modern terms, foreign companies have been investing in America in earnest since the nineteenth century, when companies such as England''s Lever soap company, the forerunner of the Anglo-Dutch Unilever subsidiary Lever Brothers, opened plants in Massachusetts and Mississippi. We can attribute a good portion of our nation''s early infrastructure to foreign dollars; in the 1870s, foreign investors, particularly Dutch capitalists, bankrolled the expansion of the nation''s railroad system. In fact, foreign players had a hand in just about every corner of our industrial economy during the nineteenth century, buying stakes in everything from the Pennsylvania steel mills to the copper mines in northern Michigan to the gold mines of Alaska and the West.
By the early 1900s, as the nation''s immigrant population boomed, foreign investment became as integral to the U.S. economy as the coal and oil powering the plants and factories; while most new arrivals were poor, a number of deep-pocketed immigrants such as John Jacob Astor and Andrew Carnegie quickly joined the ranks of the most influential business tycoons of the era.
But Americans'' reaction to foreign investment has always peaked and crested with political sentiment, and after 1914, the welcome mat was yanked away from the door. Once World War I broke out, German companies became, almost overnight, a target for angry Americans, who linked their presence here to the hostilities raging in Europe. Some German investors were accused of spying, and many even saw their American assets taken over by the government—an inherent risk for any company that invests abroad at a time of political conflict. It wasn''t until the boom times of the 1920s, when the specter of the war had receded and investments from around the world flooded into Wall Street, that foreign investment resumed its prominent role in the American economy.
The flood of foreign money continued throughout the 1930s and ''40s, as English, German, and Japanese auto companies began to build factories across the United States. Japanese factories in the United States are widely thought to be a product of the 1970s, but, in reality, Japanese and other Asian companies had begun to build plants in the United States before World War II, just as Detroit automobile companies had already begun to build factories in Japan—GM in Osaka, and Ford in Yokohama. After WWII, of course, this flood of capital came to a screeching, if temporary, halt, as our defeated opponents were forced to focus on rebuilding their own economies from the ravages of the war. Once they recovered, however, old grudges were forgotten, and investment, particularly from Asia, soon resumed, picking up in the 1970s when a confluence of events in the United States—the oil crisis and subsequent rise in demand for smaller, more fuel-efficient vehicles, as well as new protectionist policies limiting Japanese imports—compelled Japanese automakers and other producers to shift production to our shores.
During the past quarter century, foreign investment has become increasingly more prominent and more powerful in our economy and society, as countless companies from abroad have taken on the roles that once belonged only to homegrown players: creating American jobs, helping bolster American school systems, rescuing struggling companies, reviving stagnating towns, transforming states, and restoring vigor to entire regions of the country. The critical involvement of global companies and economies in our own has never been so evident as when the financial crisis shook the country in 2008.
Despite a $700 billion congressional bailout and drastic measures by the Treasury Department and the Federal Reserve, after the banking system collapsed that September, it became almost immediately clear that America could not solve its problems alone. It took a coalition of global efforts to stem the market crash that threatened not only the American economy but also banks and businesses abroad, as European countries, Japan, China, and other nations were forced to step in with their own rescue plans, hoping to ease a crisis that could take years to resolve.
Yet, despite the many benefits of a global economy—brought into even sharper focus during times of turmoil—foreign investment in the United States is often a trigger for resentment, fear, or, at the least, ambiguity about the role that outsiders should play. This is not a feeling held singularly by Americans, of course. The populaces of other nations, including Britain, have found themselves reeling when foreign companies purchased their icons, and protectionist sentiment continues to resound worldwide as companies from growing economic powers such as China, India, and Russia begin to expand farther and farther beyond their borders. But in spite of the visceral reaction so many of us have when foreign companies break ground or buy up companies on our shores, the fact remains that the global economy envelops us all.
To be sure, the presence of foreign investors in the United States today is formidable. Foreign direct investment, defined as spending by a foreign-owned company on company-owned ventures or investments in American enterprises, comprises 15 percent of the gross domestic product (GDP), according to the Treasury Department. More than 5.3 million workers are employed by foreign companies in the United States, akin to five companies the size of Walmart. What''s more, those jobs have led to 4.6 million jobs in other parts of the economy, for a total of nearly 10 million people who owe their livelihoods to companies based abroad.
Think of it this way: If all those jobs disappeared and the people who hold them were not able to find work, the unemployment rate in the United States would stand at more than 13 percent, instead of more than 9 percent in 2009. The loss of jobs on such a scale would be a huge blow, sending ripple effects across the economy. Not only that, but the economy simply cannot sustain itself in the absence of foreign investment. Over the past twenty years, foreign companies have invested more than $2 trillion in the American economy, according to a report by Matthew Slaughter, a professor and associate dean at the Tuck School of Business at Dartmouth. In 2007 alone, those companies opened or expanded nearly 760 American factories, creating 52,000 new American jobs and $35.5 billion in capital spending. "The establishment and expansion of foreign companies in the United States has forced people to think harder about who we are economically," Professor Slaughter said.
JOBS ARE JOBS
In researching this book, I asked countless public officials, economists, and executives why investment from overseas is such a necessary part of the American economy. Each time, I received the exact same answer: jobs. Samuel Adcock, the senior vice president of government affairs for EADS, said, "You can argue about the name above the door...[but] at some point, new American jobs are American jobs."
This very sentiment—that jobs are jobs—is how Michigan''s governor, Jennifer M. Granholm, firmly defended the half dozen foreign trade missions she has made since taking office in 2003, all aimed at bringing investments in research and technology to her beleaguered state. "I''ll go anywhere and do anything to bring jobs to Michigan," she told me, even as she fervently pleaded in Washington for a bailout for her state''s carmakers. Donald Grimes, an economist with the Institute for Labor and Industrial Relations at the University of Michigan, one of the country''s top economic forecasters, completely endorses this line of reasoning. Grimes, who is well known to listeners of National Public Radio and viewers of The NewsHour with Jim Lehrer on PBS, regularly compiles data that is used by the governors and legislatures of a number of states, including Michigan. Resistance to foreign investment "goes against the fundamental idea that the world is a more integrated place" he said. "Look at these jobs—there are lots of jobs here."
Those jobs are everywhere—not just in traditional manufacturing centers such as Detroit or the Rust Belt. Foreign companies employ Americans everywhere from Alaska to Florida; there are foreign-owned companies employing American workers in every one of the fifty states. In Indiana alone, for example, one out of every seven manufacturing jobs comes from a company based outside the United States. And the payoff has been invaluable. Without foreign investment, said Mitch Daniels, the Republican governor of Indiana, "We''d be a dust bowl."
Foreign investment has been the single most important economic factor that has helped lift the Deep South out of the past and into a high-tech future. It is a collective strategy that could be seen as the South''s economic revenge on the North, some 150 years after the end of the Civil War. Governors from South Carolina to Texas, from Kentucky to Georgia have relentlessly courted foreign companies, using the lures of tax breaks, laws that make it difficult for unions to organize, and their courtly hospitality. In short, they want foreign investment and will do whatever it takes to get it.
With good reason: Few states have reaped the benefits of foreign investment more than Mississippi, Alabama, and Tennessee, often referred to as "Detroit South" because of the influx of automotive plants in the past decade. (The political and economic power of these "new domestics" became evident in 2008, when southern lawmakers nicknamed "the Toyota Republicans" fought hard against the congressional bailout of the American automakers.) Nor are they finished. In the next decade, these states hope to join forces to create a development corridor for aviation, both commercial and military.
Even states that might seem to be bastions of American investment have healthy numbers of foreign-company employees, including nearly 200,000 workers in Michigan, long dominated by the American automobile industry. In Pennsylvania, where steel mills and coal mines have been traditional sources of blue-collar work, firms from outside the United States employ some 250,000 workers—some of them in mills now owned by foreign companies.
It is no surprise that California, which has long led the nation in embracing new trends and attracting immigration, has by far the most employees from foreign companies; more than 560,000 Californians earn a paycheck from a firm based outside the United States, according to the Organization for International Investment (OFII). Most of the Japanese auto companies, as well as Hyundai of Korea, have their American headquarters in California. The entertainment industry has a variety of companies such as Sony and Universal Studios (both, of course, based in California) that have a number of influential foreign shareholders. New York, with nearly 400,000 employees of foreign companies among its residents, is second in terms of the number of jobs created by foreign investment, largely because of investments in the financial sector. All told, this global payroll in the United States is more than $365 billion--about twice the GDP of Saudi Arabia. While the assembly line and unskilled jobs generally capture more attention, the fact is that these facilities also create large numbers of higher-paying managerial and skilled jobs, which are equally, if not more, important to a state''s economic base.
Though in some parts of the country, the stigma of working for a foreign-owned company might still linger, Gary N. Chaison, professor of industrial relations at Clark University in Worcester, Massachusetts, theorizes it is largely gone. Tied to the stigma of buying foreign-made products, it started to disappear, he argues, when Americans started to buy Japanese products (mostly cameras and television sets) during the 1970s, and was further diluted once Americans started flocking to Japanese cars (which now comprise more than 40 percent of American automobile sales). Today, he reasons, with the recent flood of goods from China and other parts of Asia, the shame of buying from—or working for—an overseas company is largely gone. "The line is so blurred that there is no antipathy to working in the United States for a foreign firm," he says.
Many of the workers I spoke with feel the same way. Marty Chapman, the president of the chamber of commerce in Putnam County, West Virginia, said there was little concern among local residents about the implications of working for a foreign carmaker when Toyota opened an engine plant there in 1997. "They just wanted the jobs," he said. It is easy to understand why. Nearly one in four American manufacturing jobs has vanished since 2000, and forty thousand factories have closed since 1998, according to the Alliance for American Manufacturing, a Washington trade group. In 2008, in fact, as the economy crumbled and factory orders--everything from computer chips to steel casings—plummeted to record lows, manufacturing jobs accounted for nearly a third of all those lost in the United States. "We''re at a point where a good job is a good job, and benefits are benefits, whether the companies are based here or somewhere else," said Chaison.
Continues...
Excerpted from The Selling of the American Economy by Micheline Maynard Copyright © 2009 by Micheline Maynard. Excerpted by permission.
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