Last May, a Saudi Arabian conglomerate bought a Massachusetts plastics maker. In November, a French company set up a new factory in Adrian, Michigan, adding 189 automotive jobs to an area accustomed to layoffs. In December, a British company bought a New Jersey maker of cough syrup.For much of the world, the United States is now on sale at discount prices. With credit tight, unemployment growing and worries mounting about a potential recession, American business and government leaders are courting foreign money to keep the economy growing.
Foreign investors are buying aggressively, taking advantage of American duress and a weak dollar to snap up what many see as bargains, while making inroads into the world’s largest market.
Last year, foreign investors poured a record $414 billion into securing stakes in U.S. companies, factories and other properties through private deals and purchases of publicly traded stock, according to Thomson Financial, a research firm.
That was up 90 percent from the previous year and more than double the average for the last decade. It amounted to more than one-fourth of all announced deals for the year, Thomson said.
During the first two weeks of this year, foreign businesses agreed to invest another $22.6 billion for stakes in American companies – more than half the value of all announced deals. If a recession now unfolds and the dollar drops further, the pace could accelerate, economists say.
The surge of foreign money has injected fresh tension into a running debate about America’s place in the global economy. It has supplied state governors with a new development strategy – attracting foreign money.
And it has reinvigorated sometimes jingoistic worries about foreigners securing control of America’s fortunes, a narrative last heard in the 1980s as Hondas proliferated and Rockefeller Center landed in Japanese hands.
With a growing share of investment coming from so-called sovereign wealth funds – vast pools of money controlled by governments from China to the Middle East – lawmakers and regulators are calling for greater scrutiny to ensure that foreign countries do not gain influence over the financial system or military-related technology.
On the presidential campaign trail, the Democratic candidates have begun to focus on these foreign funds, calling for international rules that would make them more transparent.
Debate is swirling in Washington about the best way to stimulate a flagging economy. Despite divided opinion about the merits, foreign investment may be preventing deeper troubles by infusing hard-luck companies with cash and keeping some in business.
The most conspicuous beneficiaries are Wall Street banks like Merrill Lynch, Citigroup and Morgan Stanley, which have sold stakes to government-controlled funds in Asia and the Middle East to compensate for calamitous losses on mortgage markets.
Beneath the headlines, a more profound shift is under way: Foreign entities last year captured stakes in American companies in businesses as diverse as real estate, steel-making, energy and baby food.
The influx is the result of a confluence of factors that have made the United States both reliant on the largesse of foreigners and an alluring place for opportunistic investors.
With American banks reeling from the housing downturn and loath to lend, businesses are hungry for cash. The weak dollar has made American companies and properties cheaper in global terms, particularly for European and Canadian buyers.
Even as Americans confront the prospect of a recession, economic growth remains strong worldwide, endowing oil producers like Saudi Arabia and Russia and export powers like China and Germany with abundant cash.
Foreign giants like Toyota Motor and Sony have been sinking capital into American plants. Investment in the U.S. subsidiaries of foreign companies grew to $43.3 billion last year from $39.2 billion the previous year, according to the research and consulting firm OCO Monitor.
“This is a vote of confidence in the American economy, the American marketplace and the American worker,” said Deputy Treasury Secretary Robert Kimmitt. “These investments keep Americans employed and keep balance sheets strong.”
Five million Americans now work for foreign companies set up in the United States, Kimmitt said, and those jobs pay 30 percent more than similar work at domestic companies. Nearly a third of such jobs are in manufacturing, which explains why Rust Belt states have been wooing foreign investment.
“We’ve lost 400,000 manufacturing jobs,” said Michigan’s governor, Jennifer Granholm, a Democrat, who has traveled three times to Europe and twice to Japan in pursuit of investment since taking office in 2003. “I’ve got to get jobs for our people.”
Some labor unions see the acceleration of foreign takeovers as the latest indignity wrought by globalization.
“It’s the culmination of a series of fool’s errands,” said Leo Gerard, international president of the United Steelworkers. “We’ve hollowed out our industrial base and run up this massive trade deficit, and now the countries that have built the deficits are coming back to buy up our assets. It’s like spitting in your face.”
Other labor groups take a more pragmatic view.
“We need investment and we need to create good jobs,” said Thea Lee, policy director for the AFL-CIO in Washington. “We’re not in the position to be too choosy about where that investment comes from. But it does bring home the consequences of flawed trade policies over many, many years that we’re in this position of being dependent.”
At the center of concern is the growing influence of sovereign wealth funds, which invested $21.5 billion in American companies last year, according to Thomson. Analysts say they could skew markets by investing to improve the fortunes of their national companies or to pursue political goals.
“This is a phenomenon that could be called the growth of state capitalism as opposed to market capitalism,” said Jeffrey Garten, a trade expert at the Yale School of Management. “The United States has not ever been on the receiving end of this before.”
Perhaps emblematic of national ambivalence, in an appearance on CNBC last week, the voluble market analyst Jim Cramer spoke in menacing terms about the growing role of state investment funds from the Middle East and China.
“Do we want the Communists to own the banks, or the terrorists?” Cramer asked. “I’ll take any of it, I guess, because we’re so desperate.”
Proponents of investment from overseas note that finance from sovereign wealth funds is a mere trickle of the overall flow from abroad. Indeed, the bulk comes from Europe, Canada and Japan.
Just as Americans have scattered investments around the world in pursuit of profit – with holdings of foreign stock and debt exceeding $6 trillion in 2006, according to the Treasury Department – foreigners are looking to the United States, with their capital generating economic activity, proponents say.
If fear of foreign money now inspires Americans to erect new barriers, that would damage the economy, said Todd Malan, president of the Organization for International Investment, a Washington lobbying group financed by foreign companies. “The policy choices on the negative side would have enormous economic implications that would make the current situation look like a bubble bath,” he said.
By Peter S. Goodman and Louise Story
Sunday, January 20, 2008
Source: Herald Tribune