Walter Block defends multinational corporations in developing countries

image

Source: Quotation of the day….. – AEI | Carpe Diem Blog » AEIdeas.

How Taxes Affect Investment Decisions For Multinational Firms

Why is NZ so hostile to foreign investment, 32nd in the Index of Economic Freedom 2015? USA is 66th!

investment fredom indexe of econ freedom

Source: 2015 Index of Economic Freedom

According to the Index of Economic Freedom 2015, in New Zealand

Foreign investment is welcomed, but the government may screen some large investments.

There was a major review of New Zealand foreign investment regulations about 10 years ago. The purpose of that review commissioned by the Labour government’s Minister of Finance, Dr Michael Cullen, was to deregulate the regulation of foreign investment in New Zealand.

At the time,under the Overseas Investment Act, the Minister of Finance could refuse permission to any investment. Australia’s current overseas investment regulations are the same. The federal treasurer may reject foreign investment proposals on the basis of an open-ended definition of national interest.

The last time that foreign investors had been refused permission to invest in New Zealand was in the early 1980s under then  National Party  Government Prime Minister Robert Muldoon. In a fit of pique, he refused permission to an Australian investor.

The revised foreign investment regulations limits the ability of government to reject foreign investors to narrow criteria such as the acquisition of sensitive land and large New Zealand companies. As part of this theme that foreign acquisitions of land was the main policy concern regarding foreign investment, the administration of the foreign investment regulations was moved out of a Overseas Investment Commission housed at the Reserve Bank of New Zealand to the very low key Land Information Office:

The Overseas Investment Office (OIO) assesses applications from overseas investors seeking to invest in sensitive New Zealand assets – being ‘sensitive’ land, high value businesses (worth more than $100 million) and fishing quota.

Naturally, subsequent to this genuine attempt by the Labour government of 10 years ago to deregulate foreign investment regulation, a number of investments have been refused since then often on the pretext that some part of the investment acquired sensitive coastal land door or rural land. The criteria for regulating foreign investment is as follows:

As regards the criteria relating to the relevant “overseas person”, the OIO needs to be satisfied that:

  1. the “overseas person” has demonstrated financial commitment to the investment; and
  2. the “overseas person” or (if that person is not an individual) the individuals with ownership and control of the overseas person (such as the shareholders and directors of the overseas purchaser):
    1. have the business experience and acumen relevant to that investment;
    2. are of good character; and
    3. are not prohibited from entering New Zealand by reason of sections 15 or 16 of the Immigration Act 2009 (e.g. persons who have been imprisoned for certain periods of time).

As regards the criteria relating to the particular investment, the OIO needs to be satisfied that the overseas investment will, or is likely to, benefit New Zealand (or any part of it or group of New Zealanders). When considering this, the OIO has a range of factors that it must consider (including, for example, whether the investment will create new job opportunities, introduce new technology or business skills, advance a significant Government policy or strategy, or bring other consequential benefits to New Zealand).

The New Zealand Initiative recently reviewed this criteria for regulating overseas investment into New Zealand and found that:

the report finds that the criteria for approval do not test the economic benefit to New Zealanders, where sensitive land is sold to an overseas person not intending to live in New Zealand indefinitely.

Indeed, the criteria are unambiguously hostile, even excluding the gain to a New Zealand vendor. This opens the way for the imposition of approval conditions that could impose net costs on New Zealanders given the regime’s potentially adverse effects on land values

The regulation of foreign investment in other countries is much more specific about what it is trying to achieve,as New Zealand Initiative also noted in its recent review:

New Zealand’s comprehensive screening regime accounts for our poor international ranking in the OECD’s FDI Regulatory Restrictiveness Index.

Most other countries focus their regimes more narrowly on national security considerations, often relating to particularly sensitive industries or sectors.

The main reason the public supports foreign investment regulation is because the public doesn’t like foreigners, and politicians pander to that xenophobia. If foreign investment is reduced, more of total investment spending has to be funded from domestic saving.

Access to foreign savings – trade in  savings – allows investment to be made sooner, consumption to be smoothed over hiatuses such as recessions, and consumption to be bought forward in the light of better times such  higher output and higher future incomes as because of foreign investment.The

The large national gains from foreign capital inflows is not part of that debate. A recent review of the gains from foreign capital inflows to New Zealanders found access to foreign saving led to national income per head, net of the servicing cost of foreign capital:

  • average income gains of $2,600 per worker arising on a cumulative basis from capital inflow over the period 1996 – 2006; and
  • growth in the value of New Zealand’s assets has greatly exceeded the rise in external liabilities to the extent that national wealth per head has risen by $14,000 in 2007 prices between 1996 and 2006.

You can’t let facts bugger a good story.

The foreign investment is in response to the high returns in the local market and the inflow of foreign capital will continue until local rates of return match those in other countries. Equalisation of risk-adjusted rate of returns is central to the operation of capital markets.

Stopping this process of equalisation of returns on capital through regulation only benefits the capitalists inside the country  because  the curbing of foreign investment  stops rates of return  falling to those overseas. Foreign investment regulation reduces the wages of New Zealand workers because they have less capital and fewer modern technologies to work with.

Fortunately, local capitalists can work in league with economic populists on the left and the right and the anti-foreign bias of the voting public to make it more difficult  for foreign investors to come to New Zealand and drive down the profits of  New Zealand capitalists. Who gains from that? As Paul Krugman said:

The conflict among nations that so many policy intellectuals imagine prevails is an illusion; but it is an illusion that can destroy the reality of mutual gains from trade.

Who gains from anti-imperialism and opposition to foreign investment?

Much more commonly, [economic imperialism] is used by Marxists to describe–and attack–foreign investment in “developing” (i.e., poor) nations.

The implication of the term is that such investment is only a subtler equivalent of military imperialism–a way by which capitalists in rich and powerful countries control and exploit the inhabitants of poor and weak countries.

There is one interesting feature of such “economic imperialism” that seems to have escaped the notice of most of those who use the term.

Developing countries are generally labour rich and capital poor; developed countries are, relatively, capital rich and labour poor. One result is that in developing countries, the return on labour is low and the return on capital is high–wages are low and profits high. That is why they are attractive to foreign investors.

To the extent that foreign investment occurs, it raises the amount of capital in the country, driving wages up and profits down.

The effect is exactly analogous to the effect of free migration. If people move from labour-rich countries to labour-poor ones, they drive wages down and rents and profits up in the countries they go to, while having the opposite effect in the countries they come from.

If capital moves from capital-rich countries to capital-poor ones, it drives profits down and wages up in the countries it goes to and has the opposite effect in the countries it comes from.

The people who attack “economic imperialism” generally regard themselves as champions of the poor and oppressed.

To the extent that they succeed in preventing foreign investment in poor countries, they are benefiting the capitalists of those countries by holding up profits and injuring the workers by holding down wages.

It would be interesting to know how much of the clamour against foreign investment in such countries is due to Marxist ideologues who do not understand this and how much is financed by local capitalists who do.

David D. Friedman

Opposition to immigration might protect the wages of local workers. Opposition to foreign investment might increase the profits of local capitalists.

clip_image002

How does more competition help the local capitalists?  The foreign investment is in response to the high returns in the local market and that inflow of foreign capital will continue until local rates of return match those in other countries.

Equalisation of risk-adjusted rate of returns is central to the operation of capital markets.

Stopping this process of equalisation through regulation only benefits the capitalists inside the country. It reduces the wages of workers because they have less capital and fewer modern technologies to work with.

Uneasy Money

Commentary on monetary policy in the spirit of R. G. Hawtrey

The Market Monetarist

Markets Matter, Money Matters...

The Inquiring Mind

“Those who expect to reap the blessings of freedom, must, like men, undergo the fatigues of supporting it.” Thomas Paine - "Limitation is essential to authority. A government is legitimate only if it is effectively limited." ~ Lord Acton - Commentary on what interests me, reflecting my personal take on the world

Point of Order

Politics and the economy

New Historical Express

(Formerly Hatful of History)

Economics in the Rear-View Mirror

Archival Artifacts from the History of Economics

Truth on the Market

Scholarly commentary on law, economics, and more

Stockerblog

Philosophy, Politics, Culture from Barry Stocker, British philosopher based in Istanbul

Organizations and Markets

Economics of organizations, strategy, entrepreneurship, innovation, and more

John Quiggin

Commentary on Australian and world events from a socialist and democratic viewpoint

The Antiplanner

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Pedestrian Observations

For Walkability and Good Transit, and Against Boondoggles and Pollution

Bet On It

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Trade Diversion

Commentary on development, globalization, and trade by Jonathan Dingel.

Movie Nation

Roger Moore's film criticism, against the grain since 1984.

Conversable Economist

In Hume’s spirit, I will attempt to serve as an ambassador from my world of economics, and help in “finding topics of conversation fit for the entertainment of rational creatures.”

AwayPoint

Between An Island of Certainties and the Unknown Shore

Weapons and Warfare

History and Hardware of Warfare

fportier.wordpress.com/

Franck Portier's professional page

NZCPR Site

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Anti-Dismal

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Bowalley Road

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

History of Sorts

WORLD WAR 2,EIGHTIES,MUSIC,HISTORY,HOLOCAUST

Tudor Chronicles

News, reviews and talk all about the Tudors

Karl du Fresne

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Roger Pielke Jr.

an undisciplined academic - @RogerPielkeJr on Twitter

Great Books Guy

Reading The Classics

@STILLTish. Gender Abolition

Examining Gender Identity ideology and its impact on Women's Sex based rights and Gay Rights. Exploring how this has taken such firm root in Western societies (Cognitive & Regulatory Capture).

200-Proof Liberals

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

What Paul Gregory is Writing About

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Offsetting Behaviour

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

JONATHAN TURLEY

Res ipsa loquitur - The thing itself speaks

Conversable Economist

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Barrie Saunders

Thoughts on public policy and the media

The Victorian Commons

Researching the House of Commons, 1832-1868

Coyote Blog

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

The History of Parliament

Blogging on parliament, politics and people, from the History of Parliament

Books & Boots

reflections on books and art

Legal History Miscellany

Posts on the History of Law, Crime, and Justice

Sex, Drugs and Economics

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Climatism

Tracking Anthropogenic Climate Alarmism

%d bloggers like this: