THE EXPLOSIVE GROWTH OF FOREIGN INVESTMENT

Global foreign investment was at an all time peak in both 1994 and 1995, and the 10 percent worldwide growth in foreign investment in 1996 was also remarkable. Overall, foreign investment growth rates exceed global GNP growth rates (6.6 percent per year) as well as increases in international trade levels (4.5 percent per year). But even the breathtaking US$ 349 billion total for foreign direct investment in 1996 does not capture the breadth and depth of economic globalization. In the same year, TNCs invested a staggering US$ 1,400 billion in countries in which they are already represented. This development -- the increased presence of TNCs in local economies as a strategy to ensure market control -- has been labelled "glocalization".⁷

TNCs Taking Over

There are in total some 44,000 TNCs in the world, with 280,000 subsidiaries and an annual turnover of US$ 7,000 billion. Two-thirds of world trade results from TNC production networks. The share of world GDP controlled by TNCs has grown from 17 percent in the mid-60s to 24 percent in 1984 and almost 33 percent in 1995. ⁸

In a parallel and related process, the largest TNCs are steadily increasing their global market shares. According to UNCTAD's 1997 World Investment Report, the ten largest TNCs now have an annual turnover of more than US$ 1,000 billion. Fifty-one of the world's largest economies are in fact TNCs. Continuous mergers and take-overs have created a situation in which almost every sector of the global economy is controlled by a handful of TNCs, the most recent being the service and pharmaceutical sectors. In January 1998, for example, the largest business merger in history took place in a US$ 70 billion deal in which Glaxo Wellcome and SmithKline Beecham became the largest pharmaceutical company on earth.

Moving On

In 1996, the European Union, the US and Japan were responsible for 85 percent of all outgoing foreign direct investment (FDI). Apart from Korean-based Daewoo, all of the 100 largest TNCs are based in this wealthy triad. To date, this triad has also received the bulk of FDI -- nearly 3/4 in 1996. But the new trend is clear: TNCs based in the triad plan to step up their investments abroad and particularly in the Third World. More than half of all TNCs anticipate that the share of their turnover earned abroad will exceed 60 percent before the year 2000. In 1997 only 28% of the TNCs were that globally oriented. TNCs have already indicated their favourite targets for investment: in 1996, China received 1/3 of all FDI in the developing world and the remaining Asian countries received approximately the same. In Latin America, Brazil led with US$ 9.5 billion FDI in 1996, followed by Mexico and Argentina. Africa (minus South Africa) received only US$ 5.3 billion that year, of which the oil producing countries raked in 70 percent.

Competitive Deregulation

The surge in investment in the Third World can be attributed to a few key factors:

• trade liberalization and low transport costs which make it possible to supply any market from anywhere in the world;
• the low wages and access to cheap raw materials available in the Third World and former communist countries;
• the need to win new markets after the North has been "saturated" (resulting in "low" growth);
• the removal of barriers to foreign investment in many Third World countries, in part through bilateral and regional investment agreements;
• and the increased competition to attract FDI which leads some countries to lower or freeze labour and environmental standards and to offer corporate subsidies and tax holidays.

This competitive deregulation and increase in corporate welfare is also visible in the North. According to UNCTAD, corporate taxes within the OECD have decreased from 43 percent in 1986 to 33 percent today, and many EU countries are caught in a downward spiral.

Lifting All Boats?

The OECD claims that economic globalization in general and increased foreign investment in particular will improve living standards all over the world. However, the experiences of countries which have removed all barriers to foreign investment by joining free trade agreements are quite different. For example, since Mexico signed the NAFTA, real wages in the country have dropped 45 percent, two million people have become unemployed, and the percentage of the population considered "extremely poor" has risen from 31 percent in 1993 to 50 percent today.⁹ It has been demonstrated that those who suffer most from the conditions created with these free trade agreements and the consequent emergence of free trade zones are women and children.

UNCTAD's 1997 Trade and Development report concludes that globalization in its current shape is responsible for a dramatic increase in global inequality. In 1965, the average personal income in G-7 countries was 20 times that in the seven poorest countries in the world. In 1995, the gap was 39 times as large. Polarization and income inequalities are also growing within countries: the share of income going to the top 20 percent of the population has increased almost everywhere since the early 1980s. UNCTAD blames the liberalization of market forces for these developments, and considers the current situation inevitable until regulation of the economy is put back on the agenda.

The Art of Job Killing

Although TNCs present themselves as creators of wealth and employment, the figures reveal something different. In fact, one of the main characteristics of a competitive and successful TNC is the "shedding" of jobs. Between 1993 and 1995, global turnover of the top-100 TNCs increased by more than 25 percent, but during this same period the same companies cut 4 percent of their global workforce of 5.8 million -- over 225,000 people.¹⁰ TNC tendencies towards mergers, relocations, automatization and centralization of production and distribution are recipes for job losses. A part of the obsolete workforce might be employed by subcontractors, a "trouble-free" source of labour which TNCs increasingly make use of. Subcontractors are often skilfully played off against each other, resulting in lower prices as well as reduced wages and worsened working conditions. Another unfortunate fact about FDI is that it very often leads to the buying up and restructuring of local companies so that they can produce more with fewer employees. Around 2/3 of all FDI in the period 1986-92 consisted of mergers and take-overs. ¹¹

The sad truth about TNCs is that the increased growth, investment, monopolization and concentration upon which they rely -- as well as the resulting job losses and environmental degradation -- are a structural characteristic of the current neoliberal economic model. However, the voices calling for a halt to this endless pursuit of deregulation are growing louder, and are more often coming from unexpected sources. UNCTAD's World Investment Report 1997 ends with a warning to world leaders that the activities of TNCs and their market powers can in fact undermine the health of the global economy.