Wednesday, July 4, 2012

Developing Nations Should Reject Foreign Investment In Favor of Worker-Centered Economy

Contributed by Sherwood Ross

Foreign investment(FI) in the broadest sense is “incompatible with any notion of an independent, socially progressive country,” a distinguished sociologist and author warns.

While there are some circumstances in which it can be a plus, says James Petras, of Binghamton University, N.Y., the financial and economic resources available to popular regimes are commonly “more efficient in producing positive growth” and have none of the negatives associated with FI.

Foremost among the crippling drawbacks Petras describes in his book, “Rulers and Ruled in the US Empire,”(Clarity Press) is that FI “leads to long-term, large-scale outflows of profits to the home office, contributing to the de-capitalization of the (country’s) economy and balance of payments profits.”

In countries where private firms take over the railroads, for example, Petras writes, they close down some lines and maintenance shops to increase overall profits, even though they lead to “a steep decline in commercial, industrial, and agricultural production in the provinces adversely affected.”

In such cases, Petras charges, “Provincial enterprises went bankrupt and unemployment increased. The net gain by the multinational corporation(MNC) was an absolute loss to the region and its labor force.”

Worse, “Foreign-owned firms, especially U.S. MNCs, frequently act as conduits for imperial state policies. They do so by disinvesting in countries on the US State Department blacklist, and relocating productive facilities to pro-US countries.” What’s more, the MNCs “provide a false cover to intelligence agents, pass on economic intelligence to the CIA, and refuse to supply repair parts to countries in conflict with the US.” Also, “US bank subsidiaries facilitate capital flight, tax evasion and money laundering for wealthy elites.”

Instead of countries turning to foreign investment, Petras calls for a Worker-Engineer Public Control, or WEPC, model, for development.

(1) Where the MNCs “are masters of the art of evading taxes and corrupting local regulators,” WEPCs operating with ‘open books’ and “independent auditors responsive to workers and consumers, can minimize tax-evasion, leading to increases in revenues, sound fiscal balances and low levels of corruption.”

(2) Where profits under MNCs are largely invested overseas and “exorbitant salaries, bonuses and expenses are paid to the CEOs and other management elites, under the WEPC model, profits are reinvested in expanding local production, social development programs and improvements in working conditions.”

(3) Where the MNC model is based on volatile movements of capital, leading to investment instability and fluctuations in state revenue, the WEPC model produces higher and steadier re-investment ratios, and greater stability in employment, investment and public revenues, Petras writes.

(4) Under the MNC model, he continues, “the state provides enormous subsidies to foreign investors, in the way of tax exonerations, rent-free land, state-funded infrastructure, low interest loans and de-regulation of labor and environmental laws.”

By contrast, under the WEPC model, “both costs and profits are socialized---providing free health services, guaranteed employment, livable and fixed pensions, childcare, safe work conditions, adequate vacations and continuing education to upgrade skills and productivity to increase leisure and study.”

Under the WEPC model, he adds, “capital” is fixed to a specific location and labor is “trained and mobile, moving up in skill level, employment, and possibly assuming leadership roles....Under WEPC there is no ‘contracting out’ or ’outsourcing’ or ‘temporary work contracts.’ This model takes advantage of a stable skilled workforce applying its knowledge and experience to improve production without the frequent disorganization caused by worker turnover.”

Alternatives to FI, Petras writes, include the reinvestment of profits from lucrative export industries back into the domestic economy under public ownership; the investment of pension funds in productive activities as opposed to holding them in private banks; and the recovery of “funds stolen from the public treasury and property illicitly privatized by previous regimes.” Also, he calls for enterprises privatized “under dubious circumstances” to be re-nationalized.

One solution Petras offers that Congress might well consider adopting for the U.S. right now is to maximize employment of under-employed labor. In some countries, he points out, “80 percent of the labor force is in the informal sector. Putting the under-employed to work in large-scale infrastructure projects can compensate for ‘scarce capital’ and become a source for initial capital accumulation.”                                     

(Sherwood Ross is a Miami-based publicist and former columnist for wire services. Reach him at

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