HS investor conferenceForeign investment boosts U.S. economy

Last year the United States attracted $180 billion in foreign direct investment. This is important because this investment creates millions of high-wage, high-skilled American jobs. John Manzella writes that a combination of protectionist sentiments and misplaced security concerns may disrupt this important contribution to the U.S. economy. In 2006, twenty bills were introduced in Congress which, if implemented, would have restricted foreign investment in the United States. A few of these measure could have prevented Abu Dhabi Investment Authority’s $7.5 billion investment in Citigroup in late November. The capital infusion by this Sovereign Wealth Fund owned by the United Arab Emirates boosted Citigroup’s share value and helped it deal with the subprime mortgage crisis. Manzella writes that the value of Sovereign Wealth Funds — country-owned funds consisting of financial assets such as stocks, bonds, property and other assets — is growing at a fast clip. In fact, their combined wealth estimated at several trillion dollars could triple over the next decade.

Fear that foreign government-owned entities will seek control of strategically important industries for political gain is a legitimate concern. Thanks to the Committee for Foreign Investment in the United States CFIUS) — which comprises twelve U.S. agencies, including the Defense, State, DHS, Commerce, and representative of the intelligence community — foreign investment bids are scrutinized to ensure that America’s strategic assets are well protected. The CFIUS process was criticized by legislators as being too friendly to business and lacking in sufficient concern for security issues, so in July President Bush signed into law the Foreign Investment and National Security Act of 2007. This further strengthens the vetting process of foreign acquisitions that may present security concerns. Manzella argues that additional laws or outright banning of foreign governments from buying U.S. companies are not necessary and would only create problems. For example, new procedures that are politically charged or make the review process extremely onerous are likely to have unintended consequences — like pushing legitimate investors elsewhere.

The unease with foreign investment in the United States came to a head in 2006, when Dubai Port World, a United Arab Emirates-owned company, acquired several U.S. ports. Some members of Congress publicly worried that Dubai Port World would not provide adequate U.S. port security. The pressure ultimately resulted in the Dubai firm selling its interest to AIG.

In response to what some government see as U.S. protectionist tendencies, other governments have begun to implement their own laws to restrict foreign purchases of their companies and other assets. If continued, this will stifle U.S. investment abroad. “Global integration through trade and investment is an essential component of U.S. prosperity. More of it — not less — will improve our economic security, as well as create greater long-term shared interests among nations,” Manzella writes.

The United States has one of the most favorable business climates in the world. This is why it attracts billions of dollars from companies like Siemens, the German-owned firm that employs more Americans than Nike, Coca-Cola, and Microsoft combined. The result: U.S. subsidiaries of foreign companies employ 5.1 million Americans with a payroll of $336 billion. This translates into annual average worker compensation of $66,042 — well above the national average, according to the Washington-based Organization for International Investment.

John Manzella, who is president of Buffalo-based Manzella Trade Communications, quotes President Bush approvingly: “Foreign direct investment flows into the United States benefit the U.S. economy by stimulating growth, creating jobs, promoting research and development that spurs innovation, and financing the current account deficit.”