Foreign Investment and the Schizophrenia of Nationalism

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Aleks via flickr || Creative Common

When two people disagree, we tend to assume that one of them is right since there is no way both of them could be on to something. However, we usually overlook the possibility that both of them could be mistaken. The rising popularity of nationalist thought all over the world is evident. It has already won several battles in the political competition. Nevertheless, it is important to highlight an interesting occurrence here: nationalists operate with at least two incompatible opinions on the functioning of economy. They seem to go for either side depending on their specific worldview.

First, there are those nationalists who call for the return of companies which moved their business to other countries. This narrative is based on the idea that the jobs were somehow “stolen” by the other countries. This interpretation is typical for richer countries which export capital abroad. For example, Donald Trump is riding on this kind of wave of nationalism overseas.

Secondly, there are those nationalists who consider the foreign investors to be the reason of their own unfavorable economic situation. Remember all those “evil and exploitative“ companies that have sent all their profits abroad? Such a narrative is typical for the poorer countries which are dependent on importing the capital. Lately, this seems to be one of the characteristics of Central Europe. Polish radical nationalists from the KORWIN party almost made it to the parliament – 0.2% and they would be in. And Slovak radical nationalists got in – they reached more than 8% of the votes.

Even though these two conclusions stem from the same tribalistic instinct, they are incompatible. The former considers the capital withdrawal to be the key problem, and the latter regards this same capital as the basis of domestic issues. So which one of these is right? As you could have guessed by now: neither.

The former type of a nationalist fails to understand that the variety of affordable products are a result of free international trade. After all, it is beneficial for both producer and customer if the producer finds a more effective way to provide the product. Plus, it makes no difference whether jobs move to a cheaper country, or disappear altogether as technology develops. If one would want to “freeze“ the job market in one place, they would have to actively fight against the technology and innovation. Likewise, the whole concept of “tealing jobs“ is absurd. This claim can help you win the election, but it will not pass the reality check: the unemployment rate in the U.S. is right now at the level of 4.9%. There are plenty of jobs out there. Fancy guessing which country has lost the biggest number of industrial jobs between 1990 and 2000? It was China.

The latter kind of a nationalist does not comprehend that foreign investors are like a time-machine for the country they choose. The wealth of a country depends on the amount of accumulated capital (factories, machinery, know-how) per one employed person. This, however, takes decades, or even centuries to achieve. The first countries to achieve it – take Sweden, for example – had to build the capital from scratch, and it took them more than a hundred years. Hong-Kong is a whole different story, precisely because of the progress brought in by the foreign investors and free trade. Central Europe, decimated by 40 years of socialism, should regard the foreign investors as time-machines, allowing them to fast-forward their economic development years ahead.

Certainly, no investor would do this for free. They want profit, but at the same time, the local workforce demand raises with every investment thus salaries grow as well (e.g. in 2016, in Slovakia, there was a record 5% wage growth).

The idea of exploiting the profits and sending them abroad does not stand either. The product developed by these foreign investors was never meant for the local customer, but rather for export. This is why export in Slovakia is almost as high as the GDP. Those “leaving” profits are not being taken away from the local wallets, but from the wallets of the foreign customer. This money is merely passing through Central Europe. What stays is a better labor market, accumulated capital, lower unemployment, know-how, and increasing salaries. And do not get me started on the subject of taxes.

The nationalistic worldview wants to depict all the foreign investments as some sort of terminal fight where some win while others have to lose But entrepreneurship (and investing) need to be understood differently. Where two entities get into business, both of them are winners.

Translated by Veronika Fajbíková

Originally published by SME, 13.2.2017

Robert Chovanculiak
INESS