Investment promotion is a field open to very diverse approaches and purposes. As in almost any other area of economic policy, some interests seek to make us believe that there is a single purpose when promoting ‘the’ investment (as if there were not differences between very dissimilar purposes) and a single way of doing so, basically generating conditions for appropriate returns and minimizing regulations in order to ‘release’ investment forces. This is not true; and it is not at the two levels stated: the one of the purposes and the one of ways of intervention.A lot is said about promoting ‘the’ investment as if it were a univocal and homogeneous variable of national development. It so happens however that, same as in other economic categories, within the proposition ‘the investment’ there are matters of enormous strategic importance that are being hidden.
Let us begin by stating that there is no single type of national development, regardless of some trying to convince us otherwise. There is a hegemonic vision of development that presents itself in diverse contemporary societies defended by those who profit with the current state of affairs, those who have privileges in relation to, and several times at the expense of, other social actors. Though silenced, alternative visions propose there are other more sustainable options of national development.
In order to differentiate among different types of development, a crucial distinction is whether the development will tend to concentrate wealth and incomes in favor of certain minorities or if instead, it will be a development that favors the population as a whole. A crucial criterion derives from this, which is making explicit ‘development for whom’.
Almost every other variable, including investment, will gain greater or lesser relevance according to this foundational and structuring purpose of national development. A concentrating development will promote investments that reproduce it, while an inclusive development will seek to promote investments that will help transform the concentrating dynamics that lead to the enormous inequality regarding income, production conditions and standards of life.
The purpose of investment
In the field of investment (as well as in other aspects of economic activity) coexists the purpose that drives investors and the one the society as a whole is after. The purpose that drives people and corporations to invest is legitimate and must be encouraged as long as it is subordinated – and therefore does not contradict- the general interest and wellbeing. Investors have the right to get an appropriate return provided that their efforts and creativity are oriented to producing goods or services that contribute to general wellbeing and development’s sustainability; especially if they aspire to get financial and regulatory support from the society they operate in. It is thereby outlined the type of investment to promote with public policies and those that will not be promoted: what damages the environment, what extracts value without generating it, crimes such as the production of illicit drugs, weapons, human trade, smuggling, tax evasion, capital flight towards tax havens, among others.
The purposes that encourage a society to allocate resources into promoting investments can vary according to the country and the specific historic time it is going through. In Southern Hemisphere countries there are also diverse situations but in all of them the need to promote investments that generate sustainable development with social inclusion is present: that the investments to be promoted can contribute to the country’s growth and, simultaneously, favor social inclusion bringing down the enormous prevailing socioeconomic inequalities.
Measures to promote investments
The field of productive investment is wide and diverse and it is a good thing that it is. There are infinite opportunities in a country so that anyone with an entrepreneurial inclination can, with the appropriate support and backing, conceive ways of deploying his or her initiative. It is in that sense that we can speak of wide scope promotion policies to encourage all legitimate investments without having to give up establishing priorities and strategic trajectories of national reach.
The promotion of investment can include measures in areas so diverse as regulations that structure the productive functioning, help widen and strengthen the base of the productive apparatus, credit and fiscal policy, professional training, management of expectations, administration of relative prices, reinforcing the domestic market, opening economic opportunities from scientific and technologic innovation, development of productive chains, public works, commercial agreements and access to new markets, among others. It is a wide battery of measures that if coordinated has an effectiveness that no measure in isolation can manage to ensure.
The ensemble of promotional measures should be structured and shaped according to (without contradicting) the central purposes that drive the society. Political authorities are called to define the type and contents of the promotion to be applied considering criteria of economic, social and environmental viability. In each case it will be necessary to analyze and influence (i) the relative profitability of each type of investment (into what it is invested); (ii) how the investment is financed; (iii) who invests (widening people’s investment capacity); (iv) how much and where is invested; (v) how the results that come from the investment are distributed and applied.
To start with, if financial investment’s returns greatly exceed the profitability of investments in the real economy, it will become extremely difficult, if not impossible, to finance productive activities The fact is that extracting the value others generate (through financial speculation but also through oligopolistic prevalence) takes away the basis of sustenance and diminishes the possibility to operate for those who are in the business of producing goods and services to satisfy the needs of the population improving their standards of life. A perverse accumulation dynamic and a narrow and excluding development is installed, since increasingly the available savings tend to go towards financial allocations and oligopolistic corporations that ensure greater short-term returns, while the wide base of the real economy does not grow or grows slowly affecting jobs and people’s incomes which are the domestic market’s spinal cord.
It is worth insisting that it is not enough to adopt isolated investments promotional measures but that it is essential to cover to the largest extent possible the scope of aspects that affect the macroeconomic, mesoeconomic and microeconomic sustainability of the investment process. Among other areas of intervention we highlight two of the utmost importance: the establishment or consolidation of public institutions dedicated to financing investment and the regulation of private financial entities that channel or could channel investment resources.
Building public institutions for investment financing
It refers to establishing or consolidating public institutions that finance investments identified as strategic for a sustainable and inclusive development. The resources those institutions are able to channel in order to finance the prioritized investments become decisive to materialize the specific type of sought national development, both due to the direct investment they finance as for the multiplying effects that generate the complementary investment chains following the lead of the main ones. This is the case of public development banks, such as the gigantic Brazilian National Bank for Economic and Social Development, but also of public retirement and pension’s systems which represent the main source of resources in capital markets.
If the investment’s financing would be channeled mostly towards those who are already main investors, the present way of functioning would be reinforced, maintaining privileges and the process of economic concentration. This is what usually happens because the ‘natural’ tendency of the private institutions that finance investments (when they exist, since they are scarce in emerging economies) is to address requirements of traditional economic actors with whom they share interests and who they know economically and socially.
Therefore it becomes critical to orient a fair share of the public investment financing towards a larger number of economic actors, particularly medium size ventures and, within them, those we call inclusive ventures. In these cases it will be necessary to complement the financing with the innovative action of entities capable of assisting in their structuring and development [[A characterization of these efforts in [Inclusive Venture Developers->http://opinionsur.org.ar/Inclusive-Venture-Developers].]].
It is presumed that public institutions of investment financing will act accordingly to the structuring purposes of a vigorous inclusive development but this is not always the case. It will depend on those who control the State and national economic policies. When the control of the State was left in the hands of privileged minorities, both currently linked to financial capital as they were in the past with other powerful economic interests, the public institutions dedicated to financing investment wound up being functional to the economic concentration and turned their backs on the transformation and democratization of the national productive structure. It is only in the context of large transformational political movements that these public instruments can fulfill a very different role.
It is also worth acknowledging and respecting that certain investments can only be managed by large ventures since they demand a scale that only large actors can face. In these cases, it is in order to facilitate the flow of financing towards those investments but establishing very clear restrictions, including into what and where to invest and how will the results gotten along the entire value chain lead by the large companies be distributed. Sharing with justice the effort made by all members of a value chain is something that seldom happens spontaneously since the actors’ bargaining power is very unequal; only the State has the capacity to influence and facilitate a fairer distribution of results. Here a field of complementary interests and conditioned collaboration between a State that promotes an inclusive development course and needs to strengthen existing value chains or generate new ones within the country, with corporations that lead or could lead those productive chains and which require resources and facilities to operate in a progressively globalized world economy.
Regulating with efficacy private entities that channel investment resources
Productive investment is mostly financed with national savings and only in certain sectors and circumstances with external savings. To a large extent these two types of resources flow through channels and private financial entities that in the past decades have managed to unbind themselves from regulations that used to dictate and control their activities. The result of that irresponsible process of financial deregulation, centered in affluent countries, has been one of the main factors that explain the prevalence of investments that extract value rather than generating it (for the most part financial speculation). This gave way to an enormous wealth concentration, the other side of the coin being the unbridled inequality and a recurrent systemic instability that ended with the great contemporary global crisis [[A brief description of this process can be found in the article [Is the world burning?->http://opinionsur.org.ar/Is-the-world-burning?lang=en].]].
Given the scale of the resources being channeled through private entities that finance investments it becomes clear that public financing is insufficient to sustain an inclusive national development. Thus it is of the utmost importance to have regulations that enable orienting the allocation of private resources consistently with the general wellbeing and not to reproduce, as it often happens, the unbridled profit of those who capitalize and administrate the financial entities.
The most powerful actors in the international markets are today investment funds that administrate assets for 18 trillion euros, pension funds which manage close to 14 trillion euros, sovereign funds created by countries with fiscal surplus such as Abu Dhabi, Norway, Saudi Arabia, China, Kuwait, Singapore and Russia, that administrate 2.5 trillion euros. Then there are the influential hedge funds that practice strongly speculative strategies: they manage assets for a trillion and a half euros but use debt leverage and derivatives which allow them to multiply several times its impact in the market.
Serious as it is having a small group of administrators subjecting such amount of resources to similar investment criteria, the situation is even more dangerous due to the way those funds are managed leading to recurrent episodes of systemic instability. Each fund manager gets a mandate to maximize benefits weighted by the risks they take. This conditions the allocation of their voluminous resources to expected returns without contemplating and much less becoming accountable for the impact their investment decisions have on the national and global economy. Thus the world is left in the hands of managers oriented by the eagerness to attain financial results but with no obligation whatsoever to consider the consequences their actions have on society or the system privileging them. They are trained bureaucrats encouraged to speculate, compensated according to their short-term accomplishments that do not measure nor consider the collateral effects of their decisions.
Financial capital’s power is huge and is expressed in almost every front in the international economic system: they decisively influence multilateral and regional organisms; the economic policy of countries and regions; the political leadership; the main media and even the regulators that supposedly control them. To operate they use according to their convenience national and extraterritorial legislations such as tax havens and all sorts of financial triangulations. Their interests go beyond what is legal and even connects with aggravated criminal systems facilitating the extraction of resources they get illegally and their consequent laundering [[See article [They have stolen even spring from us->http://opinionsur.org.ar/They-have-stolen-even-spring-from?var_recherche=stolen].]].
Facing this power it is not simple to effectively regulate the financial entities that channel or could channel investment resources. Each country’s financial authorities and particularly their Central Bank are the ones summoned to establish financial policies according to the purposes of an inclusive development and to consequently practice the corresponding control and supervision of the financial entities. Therefore it is not surprising that the financial capital has always tried to get hold of those institutions proclaiming to that end as an unquestionable truth the need for these to be ‘independent’, of course not from them but from the governing political power. The Central Bank was then constituted as a severe guardian of their interests and privileges. Today, at least in several countries of Latin America, this position is starting to change. New Central Banks by-laws make it explicit that they are an integrated part of the national development effort and as such, and in addition to their financial and monetary responsibilities they also have a lot to contribute to those who manage investment promotion policies.