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Foreign Investment: Good or Evil?

written by: •edited by: Donna Cosmato•updated: 12/1/2011

Imagine real estate prices, the stock market and wages shrinking by approximately 20 percent. In fact, this potential threat to the United States economy is possible -- but only in the event that every country decided to stop investing money or loaning money to the United States.

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    Good News: Foreign Investment Helps the Economy

    US international investment position It is easy to demonize that which we do not fully understand. In fact, one of the many demons created by politicians and media is foreign investment in US interests. Many studies have been conducted and the consensus is that approximately 20 percent of US companies, stocks and debt are held by foreign countries. What is not always evident, however, is which countries are making investments in the United States.

    Back in the late '80s, there was a perceived “threat" that Japanese investors were taking over the US economy. Once that misinformation was dispelled, there were complaints that China was taking over. In fact, in a 2005 news story published in the New York Times, writer Eduardo Porter stated “NOT even 20 years have passed since the apparently unstoppable Japanese economic juggernaut struck fear in the hearts of Americans, and now China has emerged to be seen as the new economic menace threatening the nation's vital strategic interests."

    Many will remember the now infamous quote during Michael Dukakisis’ run for President when he stood in the midst of workers who were working for an Italian firm and stated "Maybe the Republican ticket wants our children to work for foreign owners... but that's not the kind of a future Lloyd Bentsen and I and Dick Gephardt and you want for America." Clearly he was unaware that the auto company had been run by the Italian owners for more than eleven years.

    In actuality, foreign investments help companies grow, contribute to our Gross Domestic Product (GDP), and help our economic status.

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    Real Estate and Foreign Investment

    While most residential properties are not foreign-owned, there are numerous examples of commercial properties that are owned by either foreign governments or foreign investors. Foreign companies often purchase US real estate for the purposes of setting up factories or offices in the United States. Other types of common foreign investments include golf courses, resorts and hotels. If all of these foreign investors were to decide at the same time to withdraw all of their investments from the United States, we could see another dramatic decline in real estate values (especially commercial real estate) but we could also lose millions of additional jobs.

    The fact is that foreign investments help keep the cost of capital lower for many firms who do business here and abroad. Investments from abroad allow many United States companies to venture into new areas of production—such as green technologies—when they might not be able to otherwise pursue these endeavors.

    The bottom line is that many notable economists insist that while there may be some long-term risk in accepting foreign investments in US companies, real estate and debt, that overall these investments have a positive impact on business, because they help stimulate growth, production and productivity.

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    Think Jobs: Popular Foreign Companies

    Many people are surprised to find out that some "household" names are considered foreign-owned companies. In fact, AW North Carolina Inc. produces automotive components. It is located in Durham, North Carolina, and is owned by a Japanese firm. Glaxo Smith Kline is owned by a UK parent. Food Lion, a popular retail grocer located primarily in the south, and Anheuser-Busch, America’s best-selling beer maker, are owned by Belgium firms. These are only a few of the firms that are owned by foreign investors. Combined, they employ thousands of US workers in management, retail sales and manufacturing.

    As far back as 2005, foreign companies paid more than $42 billion in income tax. It is nearly impossible to determine what cuts would take place or what the overall impact would be if this revenue was not available to help fund programs like the Department of Energy, the Department of Education, the Food and Drug Administration, and countless others. Without tax revenue, there would have to be significant cuts to programs we depend on to keep us safe, to fund US investments, and to provide the services we need to help us enjoy so much of what we take for granted as US citizens.

    While many people remain fearful of the overall impact of foreign investment in US firms, real estate and even in our government, the job loss that would occur without these investments is staggering. Foreign investment is good for a number of reasons: Keeping (and creating) jobs, encouraging more competitiveness in the marketplace, and keeping the cost of capital needed for expansion lower for all businesses.

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    As we battle our way out of this recession, there is little doubt that job creation, increased production, and a demand for products and services will ultimately be the "way out." Overlooking the importance of foreign investment in the United States would be a serious mistake for companies, individuals and our government.

    As we look at some of the crushing needs for investment in roads, bridges and other infrastructure projects as well as technology for a greener future, it is important that we not overlook the many benefits of foreign investments. In fact, in 2009, there was a serious decline in foreign investment in the United States, and this may in fact have contributed to our current recession. While we may not like to see our companies owned by foreign interests, a small ownership share in more companies can help spur growth, create jobs, and keep capital costs in check. We are, after all, part of a global economy and whether we continue to grow as a country may depend on how willing foreign investors are to make an investment in our companies and our economy.

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