Reviewing James Petras and Henry Veltmeyer’s
“Multinationals on Trial”

by Stephen Lendman

James Petras is Binghamton University, New York
Professor Emeritus of Sociology whose credentials and
achievements are long and impressive. He’s a noted
academic figure on the left and a well-respected Latin
American expert. He’s also a prolific author of
hundreds of articles and 64 books including his latest
one titled “Multinationals on Trial: Foreign
Investment Matters,” co-authored with Henry Veltmeyer,
and subject of this review.

Henry Veltmeyer has collaborated with Petras before on
previous books. They include “Globalization Unmasked,”
“Social Movements and State Power,” “A System in
Crisis” and others. He’s Professor of Sociology and
International Development Studies at Saint Mary’s
University, Canada and Universidad Autonoma de
Zacatecas, Mexico. He’s also Editor-in-Chief of the
Canadian Journal of International Development Studies
and, like Petras, is a prolific author of many books
and articles focused mainly on Latin American issues,
globalized trade, alternative models and approaches
and progressive social movements.

“Multinationals on Trial” deals with a core issue of
our time - the economic power of giant corporations,
their dominant role as agents and partners of
imperialism, and the way they plunder developing
nations. The book is a powerful indictment of
unfettered “free market” capitalism and how foreign
direct investment (FDI) is its main exploitive tool.
Below is a detailed review of its compelling contents.

The authors state upfront how controversial corporate
giants are, especially with regard to their “type of
capital,” how they use it operationally, and “the
conditions associated with it.” Specifically, the book
deals with foreign direct investment (FDI) and debunks
the following commonly held notions:

—that it’s “indispensable” to accessing essential
financial resources;

—that it brings with it “collateral benefits” like
“technology transfers” and job creation; and

—that overall it’s a “catalyst of development” and
thus an “indispensable” vehicle of growth and way for
developing nations to integrate into the “new world
economic order.”

Rather than aiding these nations, the authors call FDI
“a mechanism for empire-centred capital accumulation,
a powerful lever for political control and for
reordering the world economy.” They offer an
alternative approach in the final chapter, free from
FDI imperial bondage.

Chapter 1 - Empire and Imperialism

The oldest empires go back centuries before the better
known ones in ancient Rome, Persia and the one
Alexander the Great built, but the authors deal only
with the modern post-WW II era dominated by the US.
Imperial Britain was shattered, colonialism was
unraveling, Soviet Russia was devastated, and America
stood alone as the world’s preeminent economic,
political and military superpower with every intention
to keep it that way.

It did so going back to when US delegates dominated
the Bretton Woods, NH UN Monetary and Financial
Conference to establish a postwar international
monetary system of convertible currencies, fixed
exchange rates, free trade, the US dollar as the
world’s reserve currency linked to gold, and those of
other nations fixed to the dollar. In addition, an
institutional framework was designed to establish a
market-based capital accumulation process that would
ensure (post-war) that newly liberated colonial
nations would pursue capitalist economic development
beneficial to the victorious imperial powers that
would soon include the Axis ones as well.

Post-war, the “US foreign policy establishment” began
an unending debate on how America could stay
preeminent and solidify its dominance. It began with
NATO, OECD and other formal alliances with our western
European partners that were “built on the foundation
of the transnational corporation (as the) economic
‘shock-troops’ of the system.” Tactics varied along
the way, but the goals remained unchanged - “to
enhance US hegemony and its domination of the new
world order.” This requires having supportive allies
and the US public willing to go along with overseas
adventurism like the Bush administration’s foreign
wars that became overreach and “a major impediment to
empire building.”

The authors state that wherever imperial power is
projected in any form it generates diverse resistance
in “every ‘popular’ sector of ‘civil society.’ ” They
also stress that its “omnipresence” can be a weakness,
not a strength, and may lead to its impotence. This is
the condition of America today under the Bush
administration. Its plan for imperial dominance is in
tatters, or as the authors put it, “wishful thinking
or imperial hubris.” It failed in the Middle East,
Central Asia, Venezuela and may be unraveling in
Pakistan under Musharraf’s dictatorship. The country
is a rogue nuclear state in unresolved turmoil that
has a lot to do with deep social unrest and a very
unpopular US alliance in the “war on terror.”

Nonetheless, the US remains strong and resilient, and
today’s defeats don’t spell its demise or even signal
retrenchment. With its power and resources, it can
blunder often as it has in the past, then rebound, and
again go on the attack as its doing in Somalia,
continues against Cuba, and against Hugo Chavez in
Venezuela as it seeks a way to oust its Latin American
nemesis despite past failed efforts.

So despite setbacks, America’s imperial agenda
persists, and here’s how it functions:

—through “unequal” bilateral and multilateral trade
and other agreements;

—with lots of help from willing “outside
collaborators and subsidized clients;”

—through a “divide and conquer” strategy that worked
in Yugoslavia, did at first in Afghanistan (under
tribal warlords) and apparently is the scheme in Iraq
with the Kurdish North already separate;

—- political destabilization, assassinations or coup
d’etats to remove opposition regimes and install
compliant ones; and

—proxy or direct war as a last resort when others
fail to accomplish regime change; but even conquest
doesn’t guarantee success as Iraq and Afghanistan
prove; resistance builds, military costs mount, public
support wanes, allies withdraw support and the whole
effort may fail but not deter new ones at other times
in other places.

Chapter 2 - Imperialisms, Old and New

The authors note that capital accumulation is the
“fundamental driving force of economic growth,” has
been for over 100 years, and occurred in six phases:

—capitalist industrialization in the 19th century up
to around 1870;

—the fusion of industrial and finance capital and
emergence of monopolies and territorial divisions
among imperial powers (the US, Europe and Japan) up to
1914;

—imperial war, depression, Fordism-type mass
production, “taming of capitalism” social reform and
defeat of fascism to 1945;

—the “golden age” of capitalist high growth,
decolonization, nation-building and state-led
“international development to 1973;”

—transitional crisis and restructuring in the 1970s;
and

—the age of Washington Consensus neoliberalism,
globalized trade, free market “reforms” and
“neoimperialism” to the present.

The authors note that incomes across the world
converged somewhat during the “golden age of
capitalism” post-WW II up to 1970 after which things
changed. Now after a generation under Washington
Consensus neoliberalism, no such convergence exists
and the Global North-South disparity keeps widening to
the detriment of developing nations. North-based
corporate giants have grown so huge and dominant that
the largest of them represent half or more of the
world’s 100 largest economies. In addition,
multinational corporations (MNCs) “as a global entity”
account for over 90% of world trade with 30 - 40% of
it being intra-firm. The authors argue that these
institutions operate as “functional units and an
agency of economic imperialism.”

Post-WW II, the US alone held the “commanding heights”
of the world economy. Compared to today, the authors
cite statistics that are staggering. With 6% of world
population, the US had over 59% of its developed
reserves. It generated 46% of its electricity, 38% of
its production, and it held half or more of world gold
and currency reserves. Twenty-five years later all
that changed, and by 1971 a dwindling supply of gold
and growing trade deficit got Richard Nixon to close
the gold window, abandon the Bretton Woods system, and
let the US dollar float freely in world markets. Ever
since, the greenback has been faith-based with no
intrinsic value and no longer “good as gold.” Since
it’s uncollateralized paper or fiat currency, it’s
strong when it’s in demand but weak, like today, when
it’s out of favor.

During the troubled 1970s, the US manipulated exchange
and interest rates to improve its export position, and
in the Reagan era began a generational assault on
labor that ended the long-standing practice of
industry sharing productivity gains with its workers.
Corporations also began relocating labor-intensive
production abroad to low wage countries that in the
1980s “became a cornerstone of a new global economy.”
With it came foreign direct investment (FDI) with the
rest of the book focusing on its harmful effects.

The authors point out that in 1970 a “triadic
structure” (in the US, Europe and Japan) characterized
the world economy. However, after two decades of
restructuring, a different picture emerged with China
and a group of newly industrialized countries in
Southeast Asia becoming the most dynamic center of
world growth with the US struggling to hang on to its
economic dominance even while its major corporations
continue to prosper because they operate worldwide.

A critical corporate issue is productivity growth and
how to overcome its pronounced sluggishness. Solutions
used embrace “technological conversion” that includes
new production, communication and transportation
technologies. It also involves an assault on labor
that caused a sharp reduction in its share of national
income (10% alone from 1974 - 1983). It means loss of
jobs as well because businesses downsize and shift
operations abroad to low wage markets where workers
are usually unorganized and more easily repressed.

The authors point out that by the 1980s “a new
international division of labour and a global
production system were in place” in what emerged as a
“new world order” of global capitalism. New governance
rules were established that were embodied in the
1994-formed World Trade Organization (WTO). By 1990,
Washington Consensus neoliberalism became the “new
imperialism” with big demands that developing states
privatize public assets, deregulate their markets and
open them to allow free trade and financial flows.

Under this system, MNCs are the world capitalist
system’s “basic operating unit” and “key agents of US
imperialism” that all too often involves the
projection of military power in the form of war. Their
success and profitability are vital to a healthy
economy and a thriving imperial project. The authors
explain that the “US state identifies the interests of
corporate capital with the ‘national interest,’ ” and
it freely commits the state’s resources on its behalf
for that dual benefit.

Chapter 3 - Foreign Investment at Work

Until the 1980s, MNCs were constrained under host
country rules. But the “new economic model” freed them
to move almost at will as developing nations began
opening their markets, deregulating them, and
welcoming MNCs for the perceived benefits their
capital and technological expertise could provide. The
authors explained the process and what happened under
it.

They began by noting capital flows are public and
private. The former is between governments in the form
of “foreign aid” gifts or most often loans from the
US-dominated IMF, World Bank and Inter-American
Development Bank that come with unpleasant strings.
The private kind consists of three main types: foreign
bank lending from commercial banks or international
lending agencies, portfolio investment (PI) financial
instrument purchases like stocks and bonds, and
foreign direct investment (FDI) that itself comes in
two forms.

FDI involves the purchase of at least 10% of a foreign
business enterprise’s assets. “Greenfield” FDI
involves the creation of a new facility like a factory
while the “Brownfield” type buys assets of existing
firms through mergers or acquisitions. In Latin
America in the 1990s, over half of FDI was the latter
kind.

The subject of debt financing is then discussed with
the authors noting at reasonable levels it’s vital for
enhancing growth. But not to excess that got
developing countries in trouble for the past three
decades. Even in the 1980s, it became clear that debt
levels were so high in Latin America they made
economic growth impossible. They also caused a debt
crisis by mid-decade that especially affected
Argentina, Brazil and Mexico.

The Global North thus needed Plan B to reduce the debt
bomb to manageable proportions, avoid default and
allow troubled countries to maintain their payment
obligations. One measure taken was the so-called
“Brady Plan,” named for Ronald Reagan and GHW Bush’s
Treasury Secretary, Nicholas Brady. The scheme was to
forgive a small part of the debt and convert the rest
into Brady IOU Bonds repayable in the long term to
make the burden less onerous. It worked as no heavily
indebted nation defaulted, but they had to adopt
fiscal discipline to do it: structural adjustment
privatizations, cuts in social spending, deregulation
and more. These nations also suffered zero economic
growth, a sharp reduction of living standards for its
working people and producers, increased social
inequity and greater unemployment and poverty.

Along with burdensome debt levels, FDI has also been a
repressive instrument, especially in Latin America
with its investment-friendly climate. The amount of it
(as well as PI) was small until the 1990s but then
grew dramatically as part of a shift from debt to
equity financing with the largest portion of it going
to large developing countries like Brazil, Argentina
and Mexico and to the eight largest ones in the world
overall getting 84% of it, according to World Bank
figures. China got the most attracting 22% of all FDI
since 1989 while Sub-Saharan Africa got nothing except
for South Africa. Post-2004, manufacturing in China,
India and Mexico got the largest FDI amounts, but
natural resources and especially energy are also
important, and a trend toward investing in services
(especially telecommunications) is growing as well.

Latin America became the most favored destination for
FDI inflows in the 1990s that hit their peak in the
1997 - 2001 period because friendly regimes like
Cardoso’s Brazil “bent over backwards” to accomodate
it, mostly through merger and acquisition
privatizations. The authors review facts they call
“startling” and show how the “imperial-centered
neoliberal model has led to the long term, large-scale
pillage of every country in Latin America.” In dollar
terms, it amounted to $585 billion in interest
payments and profits remitted mostly to US-based MNCs.
More revenue was gotten from royalty payments,
shipping, insurance, other fees plus billions of
illegal monetary transfers by Latin American elites to
offshore accounts.

This explains the sluggish regional growth in the
1990s - 3% a year, then 0.3% in 2001 and 0.9% in 2002.
It’s because of exploitive resource transfers and
capital flows large enough to have made Latin America
“one of the economic pillars of the US empire.” Some
of the transfers are hidden, and the authors put them
in two categories:

—one-way neoliberal structured international trade
with open Latin American markets for US exports and
reciprocal controlled ones in the US; the formula the
authors describe is to export capital to the region in
the form of FDI and import raw materials in return.

—structured capital-labor relations with workers
very much on the short end; the authors note how the
“organization and export of labour” is used to pillage
a country’s resources and transfer them north; they
cite one 2003 study estimating the net gain for the US
and corresponding loss to Mexico of about $29 billion
a year because of migration - indirectly through
repatriated maquillardora profits and directly through
exported farm labor and educated Mexicans who
represent 40% of the nation’s migrants benefitting the
US at Mexico’s expense.

Chapter 4 - The Social Dimension of Foreign Investment

The authors cite the justification “development
economists” give for keeping labor’s share of national
income low. They claim it’s because economic growth
depends on capital accumulation, and households have a
“low capacity to save and invest” since they spend all
they get. The rich, in contrast, have a high
propensity to save and invest so the more income they
have the greater the economic benefit. In the 1970s
and 80s, this kind of reasoning led to a class war
between capital and labor with wages in the US losing
10% of their value from 1974 to 1984 and in Latin
America and Sub-Saharan Africa even more - 40% in
Chile and Mexico and 50% in many other countries.

Then consider economic growth under the neoliberal
economic model centered around FDI. It promised
prosperity but delivered failure. After 20 years at
the end of the 1990s, average per capita growth
overall was cut in half from the earlier period of
“state-led development.” It was reduced to 1.5% from
3% in industrialized countries and in developing ones
(excluding China and India) to 1.2% from 3.5%. For the
poorest countries, it was even worse going from 1.9%
to a negative 0.5% per year. The only exceptions were
a group of eight Asian “rapidly growing countries”
whose governments followed a policy of state
intervention outside the neoliberal model and proved
their way works best.

The authors cite data to show, aside from China and
India, that the “neoliberal era of globalizing capital
and neoimperialism” led to rising worldwide income
inequality between richer and poorer countries and
between higher and lower income classes within
countries. They explained that “Of the countries with
the highest indices of poverty, social exclusion, and
income inequality 41 are in Africa; 10 in Asia; and
six in the Americas,” and per capital income in all
developing regions (except South and East Asia)
declined compared to industrialized OECD states.
During the two decade neoliberal period, inequality
between rich and poor nations nearly doubled. It
proves how false the notion is that unfettered free
market forces create a “trickle down” effect to the
poor that lets them benefit from economic growth. Just
the opposite happened and it continues.

The authors show how the “magnitude of the global
income divide and associated problems is staggering”
with the richest population quintile consuming 86% of
all products and services and the poorest one only
1.3%. And the social inequality fallout is even worse
- high unemployment, desperate poverty, malnutrition,
untreated illnesses and low life expectancy with
hundreds of thousands of needless daily children’s
deaths. And yet economists at the IMF and World Bank
continue to tout the benefits of neoliberal
“structural reforms” in spite of clear evidence they
fail. In the pre-neoliberal 1950s, 60s and 70s, income
inequality decreased overall but has increased in most
countries since then. Again, the culprits are
privatization, financial “liberalization,”
deregulation and downsizing with governments
exploiting working people for capital.

Take Mexico, for example. It has 11 billionaires with
combined incomes exceeding the total for the country’s
40 million poorest. But the same thing is true
everywhere with developing nations faring the worst.
It affects 2.5 billion people in the world who are
unable to meet their basic needs of food, shelter,
clothing and medical care let alone education, clean
water, adequate sanitation and other goods and
services people in the West consider essential and
take for granted.

Using Latin America as an example, the authors show
how capitalists in the region sustained their profits
by exploiting ordinary workers. During the neoliberal
period, labor’s share of national income was cut from
40% to less than 20%. Even today in countries like
Venezuela (with all its social gains under Hugo Chavez
since 1999) and Argentina, worker wages are still
below their 1970 levels. It’s because of market
deregulation that give employers arbitrary power to
fire workers, cut wages and hire temporary and casual
labor. It’s gotten bad enough to hit the middle class
as well and cause a rising level of urban poor. A “new
urban poor” has emerged who aren’t simply “rural
migrants” but include “socially excluded and
downwardly mobile workers and the lower middle class
(who’ve been fired) and have found (other) employment
in the burgeoning (lower-paying, less secure) informal
sector.”

These people, the unemployed and “rural-to-urban
migrants” constitute a reserve army of labor that
keeps wages in the formal sector down and workers’
bargaining power weak. Then there’s the notion of
“social exclusion” reflecting the condition of the
poor with the authors identifying its six “major
pillars:”

—social production dispossession showing up in
landlessness and rural outmigration;

—no access to urban and rural markets or for wage
employment;

—no access to “good quality” employment;

—reduced access to government social services;

—no access to adequate income; and

—no political power.

In contrast, 15 - 20% of Latin Americans enjoy a
“First World” lifestyle with the authors citing their
array of luxuries that are unimaginable to the poor
and most middle income earners. And whatever the
economic condition, they benefit from the imperial
system regardless because neoliberalism works by
taking from the exploited many and giving generously
to the privileged few. Put another way, it’s a hugely
out of balance give and take, and it was set up that
way despite its proponents denial.

The authors review the period when the World Bank
discovered poverty and carried on its kind of
three-decade war against it that was the equivalent of
fighting fire by throwing fuel on it. Readers know the
drill by now -  governments getting out of the way and
promoting unfettered free market policies, pro-growth,
structural adjustments and the rest of the package
favoring capital over people on the nonsensical claim
they’ll benefit eventually. By now Latin Americans
know “manana” never comes, and even some World Bank
economists like Joseph Stiglitz figured it out.

The authors sum up three decades of World Bank efforts
saying we’re “where we were in the 1970s and in a
number of ways further back,” especially with regard
to greater poverty that’s now hitting the middle
class. Based on incontrovertible evidence, social
inequality and poverty at the end of the 1990s stem
from the “pro-growth, pro-poor” World Bank
“imperialist policies” and the FDI regime along with
deregulated, unfettered markets giving capital free
reign to pillage for profit. But there’s hope in the
form of resistance with the authors stating
“capitalist development in its neoliberal form is
clearly on its last legs.” For the poor of the world,
it can’t come soon enough.

Chapter 5 - Policy Dynamics of Foreign Investment

Here the authors examine the record of FDI since 1980
when markets were deregulated and capital flows were
“liberated from control.” Again they cite the notion
that economic growth depends on the accumulation of
capital, developing countries are deficient in it, and
private multinational commercial and investment banks
and MNCs will ride to the rescue with FDI. And while
capital fuels growth, international trade is “one of
its driving forces.” Two models are considered. One
gives the state an active role, and it worked during
the 1940 - 1970 “golden age of capitalism” period.
That’s when “international development” meant per
capita economic growth based on “industrialization,
modernization and capitalist development.”

That period came to an end in the troubled 1970s, and
a “counter-revolution in development thinking and
practice” took over. The scheme that became
neoliberalism turned capital towards exports and
induced governments to cut social benefits to raise
levels of savings, productivity, profits and
productive investments.

World Bank economists were tasked to create the new
model that became its Structural Adjustment Program
(SAP) with eight major components:

—devalued currencies for stability;

—privatizations;

—capital market and trade “liberalization” meaning
unfettered free market capitalism;

—deregulation;

—labor market “reform” meaning lower wages and loss
of worker rights;

—downsizing;

—decentralizing policy formulation and
decision-making; and

—a free market for capital, goods and services
meaning all benefits accrue to the Global North by
pillaging developing nations.

Former World Bank economist and neoliberal critic,
Joseph Stiglitz, called this package the “steps to
hell” two years after he resigned his position in
2000. All the evidence to date proves it with the
authors stating “the neoliberal model of capitalist
development (is) unsustainable, (it’s) both
dysfunctional and politically destabilizing.”
Confirming data and examples are cited throughout the
book, but in this chapter Mexico is featured in great
detail from 1980 - 2005. It’s covered under four
presidents with each in his own way outdoing or at
least matching the excesses of his predecessor with
the people of Mexico the poorer for it.

This review can only touch on that period briefly
beginning with Miguel De La Madrid (1982 - 1988) who
was the first to begin reversing a state-led approach
to relieve the “debt crisis” stemming from the 1976 -
1982 period of over-borrowing. It was IMF to the
rescue with its usual package of “reform” measures to
“liberalize” capital, encourage exports, deregulate
markets, devalue the currency, and demand fiscal
discipline and privatizations. De La Madrid obliged.

Next came Carlos Salinas de Gortari (1988 - 1994) who
introduced a second round of structural reforms. It
included over 1000 more privatizations that sold off
the most important state enterprises like the banks
and state telephone company, TELMEX. The international
financial community loved him, but his term ended in
tatters when the economy crashed in 1994.

Ernesto Zedillo Ponce de Leon (1994 - 2000) inherited
the mess that broke out right after he took office.
With help from a $52 billion US bailout, he responded
with a “stabilization program” that included deep
social spending cuts and a 43% peso devaluation that
caused inflation to rise 52%, thousands of businesses
to close, real wages to drop 25%, and two million
people to lose jobs. Zedillo was also Mexico’s first
president under NAFTA that went into effect January 1,
1994. And he continued neoliberal “reforms” and even
exceeded his predecessor’s commitment to global
capitalism.

So did Vincente Fox Quesdad (2000 - 2006) in his zeal
to live up to his PAN party’s rightest agenda compared
to the more centrist PRI during its continuous 72 year
rule. The PAN under Fox practiced fiscal conservatism
and free market economics that maintained the
neoliberal agenda of his predecessors even in the face
of widespread opposition that constrained him from
going further. The authors state that the Fox era
“brought an end to a cycle of neoliberal policies.”
His administration failed to achieve sustainable
growth and showed “the neoliberal model is
economically dysfuntional and has exhausted its
economic limits.”

Chapter 6 - Foreign Investment and the State

The authors’ dominant theme is how harmful FDI is to
developing nations even as it pretends to be
beneficial. Most of it is also “subsidized and
risk-free” to investors, and “relies on securing
monopoly profits (by buying) state enterprises (on
favorable terms) and control(ing)....strategic
markets.” Much or most of it provides no new
productive investment recipient countries need to
grow, prosper and help their people.

The authors rightfully describe the process as
pillage. State-owned assets are transferred to private
hands, and revenues that once went to national
treasuries now go to corporate coffers. Further, deals
are justified on the false claim they increase
competition. False. All they do is put existing
enterprises under new management, and in the case of
“natural monopolies” like public utilities, it allows
private owners to hike prices substantially and price
the country’s poor out of the market, but that’s just
for starters.

Foreign investors make big demands, and host countries
oblige - tax deferrals and exemptions, direct
subsidies, infrastructure development, free or low
cost land, deregulation, assumption of “transition”
costs of the inevitable downsizing that follows, legal
security protection through bilateral investment
treaties (BITs), labor training, and more. Other
schemes are in the form of Trade Related Investment
Measures (TRIMs) and Trade Related Aspects of
Intellectual Property Rights (TRIPs). And when nations
balk during WTO trade talks, like in the faltering
Doha Round, they’re pressured to come around through
bilateral deals with neighboring states.

With this kind of advantaging, local enterprises don’t
stand a chance, especially small ones. They nearly
always lose and end up being bought, becoming a
satellite supplier, or going bankrupt. Labor also
loses out. Wages are frozen or cut, benefits slashed
or ended, job protection ends, working conditions
deteriorate, unions weakened, and inequality grows as
the wealth gap widens substantially. In short, FDI
works one-way - all for capital at the expense of
developing economies and its workers. An alternative
development strategy is needed, and it’s readily
available to states willing to buck the system,
withstand the pressure to conform, and go another way.

Chapter 7 - Anti-Imperialism and Foreign Investment.

Here, the authors first identify the myths about
foreign investment that are needed to sell this snake
oil to developing states. Seven of them are briefly
listed below:

—Economic growth depends on FDI; false; in fact, FDI
is attracted by economic growth;

— FDI creates productive, competitive new
enterprises; false; it mostly buys existing ones,
transfers little new technology, does little or no new
research, and crowds out local enterprises;

—FDI provides links and access to foreign markets;
false; it’s often used to buy natural resources for
export and to repatriate profits and eliminate jobs;

—FDI provides tax revenues and hard currency
earnings; false; revenues are repatriated, tax fraud
abounds, and the impact on the balance of payments is
negative;

—Good financial standing and integrity of the system
depends on maintaining debt payments; false; much past
debt is odious and servicing it harms local economies
and in the case of Argentina led to an economic
collapse in 2001;

—Developing nations need FDI for development for
lack of local sources; false; most FDI is national
savings borrowing to buy local enterprises; it doesn’t
inject new capital into economies; and

—FDI provides an anchor for new investment; false
again; the opposite is true as investors freely
relocate to lower-wage countries creating a boom and
bust environment when they arrive. Bottom line - FDI
is poison unless used moderately and is tightly
controlled.

The authors present arguments for and against FDI with
the latter only considered below:

—FDI strips states of their ability to control
“investment decisions, pricing, production and future
growth;”

—FDI results in long-term capital outflows
repatriated to corporate coffers;

—FDI results in “unbalanced and overly specialized
production,” especially in commodity areas;

—Tax, subsidy and other concessions to FDI deprive
developing states of needed revenues;

—FDI most often only puts existing enterprises under
new management; it seldom creates new ones;

—FDI creates “enterprise enclaves,” imports
technology linked to “outside production and
distribution networks,” and doesn’t help local
economies;

—FDI often controls local banking that lets it
“shape state credit and interest policy” and decide
what industry sectors to favor and at what cost; and

—With investors attracted to extractive industries
and freed from regulatory constraints, environmental
devastation results.

In sum - FDI endangers “national independence, popular
sovereignty, and severely compromis(es)” developing
states’ ability to control their destiny and represent
all their people. It’s a “risky, costly and limiting
(one-way) strategy.” Developing nations need to
minimize it because of its harmful economic, social
and political costs.

Chapter 8 - Anti-Imperialist Regime Dynamics

Contrary to Margaret Thatcher’s TINA dictum (there is
no alternative), many others are better and the
authors list them:

—Reinvestment of profits into local production to
stimulate a “multiplier” effect and increase local
consumption;

—Control foreign trade to retain foreign exchange
earnings;

—Invest pension funds in productive activities;

—Create development banks for overseas workers’
remittances home so funds can be used productively;

—Place a moratorium on debt payments to stop
servicing the odious portion of it:

—Recover stolen treasury funds and property;

—Recover unpaid taxes;

—Establish land taxes and expropriate or buy
underutilized land to be used for agrarian reform and
greater agricultural productivity;

—Liquidate overseas investments and reinvest them
locally; and

—Maximize employment and reduce underemployment.

In cases where a country’s taxable resources and
overseas earnings are limited, FDI can help if used
moderately and constrained. Ways to do it include
maximizing “strategic national ownership and control”
and relying on short-term deals that include training
workers and contracting with skilled advisers for
whatever technical help is needed.

One successful model reviewed is WEPC -
Worker-Engineer Public Control or worker-managed
enterprises (WMEs). Salvador Allende used them in over
100 factories in Chile while he was in office. They
attained greater productivity, higher worker
motivation and achieved significant social, health and
working conditions improvements while they remained in
place. WEPCs aren’t problem-free, however, and the
main one is they’re targeted by imperial states for
destruction because their policies aren’t corporate
friendly. Nonetheless, their advantages greatly
outweigh the negatives. They include:

—Minimizing tax evasion to increase state revenues;

—Social investment in lieu of repatriated profits;

—Avoidance of capital flight;

—Emphasizing long-term R & D over speculative
investment;

—Social welfare and betterment over savage
capitalism; and

—Fixed capital and upwardly mobile labor over mobile
capital and fixed labor.

The authors persuasively show that FDI is a cancer.
Once established, it spreads like a virus,
“corrupt(ing) local officials, brib(ing) regulators
(and) present(ing) a different ‘role model’ for state
executives - one attuned to luxury living, big
salaries, privileges, and, above all” a neoliberal
ideological commitment. Another way is possible and
vital to the health, welfare and growth of developing
nations. It “puts the worker-engineer public
sector-led model at the centre of development,” and
empirical evidence shows it works.

Stephen Lendman lives in Chicago and can be reached at
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Also visit his blog site at sjlendman.blogspot.com and
listen to The Steve Lendman News and Information Hour
on TheMicroEffect.com Mondays at noon US Central time.