and FDI investment is not as clear-cut as this excerpt from the standard UN definition of FDI suggests. As Ricardo Hausmann and Eduardo Fernández-Arias note, “FDI is not bolted down, machines are. If a foreigner buys a machine and gives it as a capital contribution (FDI) to a local company, the machine may be bolted down. But the company’s treasurer can use the machine as collateral to get a local bank loan and take money out of the country.”7 This is not the only way that financial imperatives can override the production relation—retained profits may be reinvested in domestic government debt or other financial assets; alternatively, repatriated profits may exceed the affiliate’s earnings, signifying disinvestment.
FDI can be categorized into four different types according to the motive of the investor. “Efficiency-seeking” FDI is neoliberalism’s paradigmatic form—efficiency means cutting costs, in particular the cost of labor—and is the prime concern of this study. “Market-seeking” FDI was the dominant form in the years before neoliberal globalization, when protectionist barriers obliged TNCs to move production close to markets, and it is still important, as in the example of Japanese- and European-owned car plants in the United States. In contrast to efficiency-seeking FDI, market-seeking FDI typically does not involve the fragmentation of production processes but their replication in the host country. Since the most important markets for final goods are in the imperialist nations, market-seeking FDI is dominated by cross-border investments between imperialist countries—or, as a study by three UNCTAD economists put it, “Trade based on horizontal international production sharing occurs mainly between developed countries.”8
“Resource-seeking” FDI refers primarily to foreign investment in the extractive industries (hydrocarbons and minerals), but natural resources can include foodstuffs, ingredients of cosmetics, and much else. When these are not merely harvested or extracted but have first to be cultivated, they are regarded as agricultural products, not natural resources. Agriculture and natural resource extraction have important features in common: FDI in these sectors is primarily determined by the location of mineral, hydrocarbon deposits, and the like, or of fertile tracts of land, in contrast to efficiency-seeking production outsourcing, whose location is primarily determined by the location of pools of cheap, super-exploitable labor. To resource-seeking FDI the availability of low-wage labor is an added bonus. The shift from in-house to arm’s-length production arrangements is much less evident in extractive industries, because the collection of rents from rich deposits of ore or oil are much easier to protect when the lead firm directly owns the resources and the means of their extraction. The two forms of TNC exploitation of low-wage labor seen in manufacturing industry—in-house and arm’s length—are also evident in agriculture. Nestlé’s 800,000 contract farmers display many similarities to the arm’s-length relations in manufacturing value chains; while, in contrast, plantation capitalism in old and new forms correspond to FDI, in that they involve direct ownership of capital in the low-wage economy. Finally, “technology-seeking” FDI seeks access to scientific or technological knowledge available in the host location. This is rarely an important motive for FDI flows into poor countries.
Until the first decade of the new millennium, it was a widespread, almost universal view that FDI in developing nations was of peripheral importance to rich-nation TNCs. Thus David Held, the social democratic visionary, argued that “the vast majority of … FDI flows originate within, and move among, OECD countries.”9 Kavaljit Singh, writing from a radical-reformist perspective representative of many NGO critics of globalization, concurs: “The bulk of global FDI inflows move largely within the developed world…. This situation could be aptly described as investment by a developed country TNC in another developed country. The U.S. and the EU … continue to be the major recipients of FDI inflows.”10 Sam Ashman and Alex Callinicos, writing in the Marxist journal Historical Materialism, similarly conclude that “the transnational corporations that dominate global capitalism tend to concentrate their investment (and trade) in the advanced economies…. Capital continues largely to shun the Global South.”11 Chris Harman, like Ashman and Callinicos, a partisan of the “International Socialist Tradition,” draws out the big implication of this: if N-S FDI is so weak, so too must N-S exploitation be: “Whatever may have been the case a century ago, it makes no sense to see the advanced countries as ‘parasitic,’ living off the former colonial world…. The centres of exploitation, as indicated by the FDI figures, are where industry already exists.”12 Alex Callinicos, writing in 2009, similarly argued that data on FDI flows “are indicative of the judgments of relative profitability made by those controlling internationally 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
