Imperialism in the Twenty-First Century. John Smith
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mobile capital: these continue massively to favour the advanced economies,”13 flatly contradicting the finding of UNCTAD’s 2008 World Investment Report that TNC profits “are increasingly generated in developing countries rather than in developed countries.”14
The massive pre-crisis surge of outsourcing to low-wage countries, a trend that the global crisis has only intensified, has finally demolished this consensus view—in 2013 FDI flows to developing countries surpassed those to developed countries for the first time.15 But this consensus view was false even when Held et al. enunciated their words. The biggest problem with peering through an FDI lens is that arm’s-length outsourcing is rendered invisible, but even before we bring this into the picture, a cursory examination of the relevant UNCTAD data is sufficient to refute the Eurocentric consensus and demonstrate that in fact the opposite is true, that Northern capital is increasingly dependent on exploiting low-wage labor.
As soon as we look beneath the headline UNCTAD data on gross FDI stocks and flows and examine their composition, a different picture begins to emerge. Headline data on total FDI flows, on which the “capital is shunning the Global South” thesis rests, are misleading for three reasons. First, they take no account of the extent to which FDI flows between imperialist countries are puffed up by non-productive investments in finance and business services. Between 2001 and 2012, developing economies received $464bn in such flows, compared to $609bn flowing into developed countries, and in the most recent years reported, from 2010 to 2012, manufacturing FDI flows into developing countries reached $151bn, surpassing the $145bn received by developed countries.16 On the other hand, between 2001 and 2012 inward FDI in “Finance” and “Business Activities” in imperialist countries totalled $1.37 trillion in these years, more than twice the inward flow of manufacturing FDI into these countries, compared to $509bn in “Finance” and “Business Activities” FDI into developing countries.
Second, a much greater proportion of FDI flows between imperialist countries is made up of mergers and acquisitions (M&A), that is, FDI that transfers ownership of an existing firm, as opposed to “greenfield” FDI, that is, investment in new production facilities. M&A FDI reflects the accelerating concentration of capital, a process superbly documented in chapter 4 of The Endless Crisis by John Bellamy Foster and Robert McChesney, and is fundamentally different from the disintegration of production processes and their dispersal to low-wage countries, which are most clearly reflected in data on greenfield FDI. In 2007, for example, developed economies received 89 percent of the $1.64 trillion in M&A FDI, more than half of which (51.4 percent, to be exact) occurred in financial services. In that same year, total FDI flows were $1.83 trillion. Though differences in the way these figures are collated means they are not directly comparable, they starkly highlight the overwhelming weight of M&As in overall FDI flows on the eve of the crisis. M&A have markedly declined since the pre-crisis feeding frenzy, but the pattern persists—between 2008 and 2013, M&A formed 45 percent of total inward FDI flows into imperialist countries and just 14 percent of flows into developing countries. On the other hand, developing nations received 69 percent of total greenfield FDI between 2008 and 2013, accentuating a pattern that was clearly established in the five years before the outbreak of the global economic crisis—between 2003 and 2007, developing nations attracted 59 percent of global greenfield FDI flows.17 Overall, between 2003 and 2014 developing nations were the destination for $5.9 trillion in greenfield FDI, compared to $3.3tr in developed nations As Alexander Lehmann reported in a 2002 IMF working paper, “FDI in the developing world is predominantly in the form of so-called greenfield investment, rather than through the acquisitions of existing enterprises.”18
Third, and perhaps most important of all, much of what is counted as FDI flows between imperialist countries are investments in firms that have relocated some or all of their production processes to low-wage nations. To illustrate this, the 2005 restructuring of the world’s second-largest oil company, Royal Dutch Shell, increased the UK’s inward FDI by $100bn, causing it to leap above the United States to become that year’s prime destination for FDI. Yet, wherever they may book their sales and their profits, the great majority of the 98 countries hosting Shell affiliates (second only to Deutsche Post AG with majority-owned affiliates in 111 countries) are in Latin America, Africa, Central Asia, and the Middle East.19
The dangers of looking no further than headline figures on N-S FDI are highlighted by a cursory examination of the M&A data cited above. In conventional accounting, the merger or acquisition of one European, North American, or Japanese firm with or by another is regarded as an unambiguous instance of North-North FDI. A brief examination of the three largest M&A deals in 2007—which, like all but seven of the fifty largest M&A deals in that year, were between firms in imperialist nations—shows why such a reading of the data is simplistic and misleading. The largest cross-border M&A deal in 2007 was the illfated acquisition of the Dutch bank ABN-AMRO by the Royal Bank of Scotland for $98.2bn. Banks circulate titles to wealth, skimming off some of it for themselves, but produce none of it. In a multitude of ways—through their loans and investments, participation in hedge funds and futures markets, handling of flight capital, etc., and indirectly through the TNCs they finance—their tentacles are coiled around the Global South. Second on the list of the largest M&A deals in 2007 was the mining and packaging giant Alcan, purchased from its Canadian owners by the UK’s Rio Tinto. Alcan employs 65,000 workers in 61 countries, 28 percent of them outside of Europe and North America.20 Number three was the acquisition of the Spanish-owned utilities giant Endesa SA by a group of Italian investors for $26.4bn. In that year, Endesa operated affiliates in Spain, Portugal, Italy, and France, and also in Morocco, Chile, Argentina, Colombia, Peru, Brazil, Central America, and the Caribbean. In 2007, it earned 18 percent, or €471m, of its operating profits from its business in Latin America and the Caribbean.21 Continuing down the list the picture becomes ever clearer. Every time a company or group of investors acquires or merges with a TNC headquartered in another imperialist country, counted as North-North FDI by the UNCTAD statisticians, they are likely to be buying into an entity with assets and activities spread on both sides of the North-South divide. No such ambiguity exists in the case of North-South FDI, since FDI originating from Southern nations is not only a small fraction of the FDI, but the bulk of it is in other emerging economies—UNCTAD reports that “FDI from developing economies has grown significantly over the last decade and now constitutes over a third of global flows…. [However,] most developing-economy investment tends to occur within each economy’s immediate geographic region.”22 Despite this recent rise of FDI by Southern TNCs, in 2014 79 percent of the $25.9 trillion global stock of FDI was owned by TNCs headquartered in imperialist countries.23
The overwhelming weight of M&As in N-N FDI flows in the years before the onset of global economic crisis reflects a process of concentration and monopoly-formation among TNCs, in the financial sector and in all industrial sectors, proceeding in parallel to the shift of production processes to low-wage economies. These diverse phenomena are all lumped together as FDI. William Milberg is among those who have drawn attention to this dual process: “The global wave of merger and acquisition activity constituted a consolidation of the oligopoly position of lead firms who, in the process, focused their efforts on ‘core competence’ and outsourced other activities.”24 Gary Gereffi has also pointed to these “two dramatic changes in the structure of the global economy. The first is a historic shift in the location of production, particularly in manufacturing, from the developed to the developing world…. The second is a change in the organization of the international economy. The global economy is increasingly concentrated at the top and fragmented at the bottom, both in terms of countries and firms.”25
FDI statistics thus merge three very different trends: the concentration of imperialist banks and finance capital; a process of concentration among Northern industrial and commercial capitals, many of them lead firms in value chains in which the actual production is performed by workers for distant Southern suppliers; and a process of disintegration of production processes and their dispersal to Southern nations in the quest for super-exploitable labor.
TNC Employment, North and South
UNCTAD’s