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The Idle Hands of Potential Predators

Posted by PAUL SILVER in At TMV.
Feb 24th, 2008 | Comments

Thomas P.M. Barnett writes in Scripps Howard News about Foreign Direct Investment

If you’re America waging a long war against radical extremism, then helping to create those estimated 100 million new jobs in Middle East and North Africa over the next two decades is of paramount importance. Otherwise, there are a lot of “idle hands.”

Barnett, a national security expert, notices just how minor a role our military will play in bringing lasting stability to the region.

Foreign direct investment, or FDI, is the most important flow in the global economy, because it’s “sticky” money that invests in real things: companies, infrastructure, real estate, etc. When you invest directly in an economy, you plan to stay for a while, and that says to other potential investors: “I feel safe here. The rules are solid and clear. I can assess risk intelligently and hedge against it.” In that sense, FDI is the gift that keeps on giving — a seal of approval attracting more of the same.

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mikkel

While this is true the article was disappointingly simple. The answer is not just "foreign investment" but "foreign investment that builds up the local economy." Many of the Gulf states have a labor force that is almost entirely foreign and get paid a pittance while their local populace paid off to not revolt. Investment or "free trade" that just consists of outside companies enriching the top 5% of the country and taking all the profits out of the country is counterproductive.

Investment in foreign countries needs to be done in a way that helps create a middle class and local economic entities that can eventually be self sustaining. I don't think it's too much of a stretch to argue that a microfinance institution like Kiva has done "more" through $30 million of targeted loans than a $10 billion oil project in Saudi Arabia.

PaulSilver

I agree with your fondness for micro loans.
Hopefully progressive governments will become more shrewd about promoting infrastructure improvements on which the growth of the middle class can take hold.

pacatrue

I agree entirely with the comments. There are at least two dilemmas to wrestle with, however. Namely, foreign investment is done for two primary reasons: humanitarian/moral responsibility and national security. And yet for the first, one quickly gets into questions of how much one should spend abroad when there are still humanitarian problems at home. For the second reason of secutiry, we typically would invest in places that are a current global risk zone, leading to possible violence against Americans, American allies, or our general interests. However, if you are investing in places to decrease violence, you could end up essentially paying more to areas that assault you and less to areas that do not.

I don't know what the practical consequences are of this, but those are some thoughts which sprang to mind.

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