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Agree or Disagree? ‘FOREIGN INVESTMENT – A FOOL’S GAME, MOSTLY’

April 28, 2020 11:09 pm Published by

What to do about investing? Those who have a lot of money (present company excepted, sadly) know in their hearts that a pool of capital is like a pool of water: if it doesn’t keep moving it goes stagnant… and loses its value.

Invest in Europe or North America? Only if you are already an insider, or need to launder your millions through ‘real estate investments’ or another devious ploy. These days that is riskier and riskier, as crooked Russians, Latin Americans and Chinese have discovered to their sorrow.

So what about investing in the developing (a.k.a. ‘Third World’) economies? Look at the huge fortunes made by the Koreans (for instance) with their shoe factories in Indonesia and garment plants in Vietnam. But that was then and this is now. So where to put your money…

Money goes where the action is.

Consider the People’s Republic of China. Since the 18th Century Western businessmen have been slavering at the thought of a hundred million consumers (today over a billion). Here’s the scene: a textile mill in Boston, around 1850. The owners are scheming. ‘We export plenty of cotton goods to China already – imagine what would happen if we could convince the Chinese to lengthen those… whatever they are… those ‘sacks’ they wear by three inches. Three inches! We’d be multimillionaires.’

The Chinese, of course, being no fools, know how to play this game very cleverly. Since the cigarette-loving, condemned-then-rehabilitated Deng Xiaopeng opened up China to western investment in the 1980s the multinationals have been joyously piling in like – well, like lemmings over a cliff, let’s say. Here’s how it works: if you want to do business in China you absolutely must have a ‘local partner’ – practically always some Communist Party apparatchik who knows little about business but who is determined to scrape every dollar he can from your hide. Your local partner is customarily the first one to cheat you and send you home crying.

Then there’s the tax man, the bureaucratic nightmare of multiple licenses (often conflicting, as in our beloved Indonesia) and the eternal struggle between the center (Beijing) and the provinces. One says yes, the other says maybe. Or no. Or yes, then no. They send you bouncing back and forth like a ping-pong ball.

Take General Dynamics (a corporate entity gone forever, having merged with Boeing and turned an engineering company into a money machine – thus the 737 Max 800 tragicomedy, which would never have come to pass in the ‘Old Boeing’). General Dynamics built good airplanes but then one day found that maybe their airplanes were too good: airlines were flying them forever and had no need to trade them in on a new model. So GD was desperately looking for new markets.

Here comes China, with a welcoming wink. ‘Hey, set up a factory in our country. We have opened up to the west and will be needing a thousand mid-size planes. Your MD-90 looks great. Why not come on over.’

Sugar-plum fairies dancing before their eyes GD went to China. A thousand of our twin-engine passenger jets!

They got into deep discussions, shared engineering data, designs, material requirements, cost analysis yadda yadda – the whole shiteroo, which had taken them nearly a century to learn.

‘Come on, handsome – give us what you’ve got’ whispered the PRC, seductively. ‘We love your airplanes. You’ll make so much money from us.’

Technology transfer, big-time: all those hard-earned engineering and business secrets went over the table, virtually for free.

Then the mood turned sour, alas. China started pouting and fretting and looking unhappy. ‘General Dynamics, it’s been awfully nice hanging out with you… but we’ve decided to go with Airbus instead. Bye!’

GULP.

General Dynamics, tail between their legs, goes back to Kansas City (Headquarters) and explain to the unhappy shareholders that, well, somehow in spite of all the ‘sharing’ (stealing basically) of aeronautical wizardry, and all the business plans, it just didn’t happen.

‘And the hundred million dollars start-up money?’ a miserable-looking major shareholder asked.

‘Well, it’s all pretty much gone.’

That’s not corruption. That’s business. General Dynamics were big boys and girls and like many other sorrowful investors (Volkswagen, Raytheon, on and on) they learned that with the Communist Chinese the philosophy is ‘You’re capitalists. Capitalists are by definition criminals. You want to cheat us. But we will cheat you first instead. It’s our country and you’ve worn out your welcome. So piss off.’

We’re talking 1990s. Today China is building their own passenger liner, undoubtedly incorporating all that lovely expensive technology transfer that they forced out of the greedy westerners. Their cars, once a tinny, dangerous joke, are crawling up in quality and approaching the level of the Korean models (traditionally second-hand designs from Japan). They don’t need to steal electronics, aviation or computer technology secrets from the west any longer: they are up to speed. Thanks to globalization and the energetic (greedy) foreign companies which would pay any price to invest in China. And did.

So what about taking your riches from country ‘A’ and investing it into country ‘B’ (no names – just to keep it polite). In an era of globalization, it is inevitably a zero-sum game: there are winners and there are losers. The winners are the big money guys who off-shore all the manufacturing to the Philippines, Thailand and – most of all – the People’s Republic of China. Local people sold land and made money, built factories and made money, hired workers ditto.

The losers: all the Trump voters in ‘flyover country’: dying little cities with one industry, like making glassware or car seats or air conditioners. The American worker earning his $20 / hour, with health, retirement etc. etc. will never be able to compete with the ambitious, success-hungry Indian making a tenth of that.

David Sarnoff and RCA invented color television in the mid-1950s. It was a proud American achievement. In 1984 the very last color television ever manufactured in the USA rolled off the line in the Midwest, as the factory packed up and moved its entire manufacturing facility to Mexico.

No shoes are mass-produced in the United States of America. Period. The Coronavirus plague that has killed so many Italians was allegedly sourced from the hundreds of – get ready for it – Chinese workers invited into Italy for manufacturing jobs. They got more than they bargained for.

Were the politicians evil to open up markets? Not at all. Were they in the pocket of the profit-hungry multinationals? Without a doubt. Is that bad? Depends on which side you happen to be on.

The theory was that the Italians who lost their jobs in the elegant dinnerware factory, or the Canadians whose lovely Inuit handicrafts are all manufactured in Indonesia and shipped back to Canada, would upgrade and become, well, computer wizards or something else exalted.

It didn’t work out. They either became unemployed, or took service jobs like short-order cook at Burger King – not exactly a career move to make a 40-year-old production engineer happy.

Look at history, repeating itself. The British Empire entrepreneurs squeezed millions out of their colonies in Asia, Latinoamerica and Africa. Much of that money then went on to seek further profit from foreign investments: for instance, cotton and tobacco in the mostly-agricultural American colonies. In the event, it was the clever American recipients of the investment who profited, while the investors back in the old country often came out on the losing side.

See how the history is rhyming? IBM was the epitome of arrogance, all through the 1960s. Proprietary software on proprietary hardware. If your business needed computer technology you had to buy the whole shot, because it would not work on anyone else’s system. IBM never liked personal computers, thought them toys of no value. When they reluctantly opened up their own PC business the products were pretty horrible. This writer’s CEO purchased three laptops and they all had problems – embarrassing for IBM Indonesia because his company had a million-dollar contract with them.

IBM eventually sold off their PC division to the Chinese, and Lenovo took the ball and ran with it, today manufacturing some of the finest, most reliable portable computing equipment to be found. Thanks IBM.

Now there are so many other examples of foreign investment flying back in the face of the investor, who did not understand culture, local customs, the difficulty of navigating the legal system of a foreign country which does not prize independence or impartiality – especially when it comes to foreigners.

Please share your stories and ideas about the subject. Are we headed back to an era of ‘shutdown’ protectionism? Should foreign investors be allowed to upset local economies (as the Chinese in Africa has repeatedly been accused of doing)?

Tell us something interesting. Then order fine Euro-Asian food and drink by Takeaway from our Menteng or Serpong outlets. Almost as good as visiting them in person. Well not really. Just be patient and the virus will get bored and drift off to pester somebody else.

Foreign Investment: Wise or Otherwise?

Agree or Disagree?

 

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