Sustaining investment while transforming its profile

Indeed, investment is a crucial variable in any development process but not any investment. There are investments that contribute to the pursued type of development and others that hinder it or that do not impact on the selected course. As in many economic fields, the level of aggregate variables encloses surprises, tensions, and contradictions with the adopted objectives.

In almost every country the objective of increasing or at least maintaining the level of investment in the economic system prevails. Not always it is recognized that investment far from being a homogeneous category includes a diversity of investment types, each with a different impact on the pursued development. Thus, the need to make explicit what type of development is being promoted and, in terms of such objective, which are the desirable investments, which ones are not, and how many others will keep on being decided in a sphere that does not require public intervention.

Who invest, why, and how they do it?

Numerous people and economic groups invest but with different purposes and using diverse investment mechanisms. This is of great importance in terms of the type of economy being built and the social and environmental impacts it produces.

(i) Investors in financial speculation

The main watershed is whether investment is made in financial speculation or in the real economy. A large number of actors that were able to accumulate huge masses of resources look for investments in financial speculation that are the activities that yield the highest rates of return, that is, highest rates of value extraction from actors that generate it anywhere in the world. This is made possible by the globalization of the world economy and the impressive technological development in communications that allows those who have at their disposal a global action network to generate, identify, and seize speculative opportunities almost instantaneously. The rest of investors that participate in financial speculation follow the large financial groups or concentrate themselves in market niches too small to be of interest to the big ones.

The speculative, big financial capital moves like a predator guided by an eagerness for profits without limits. It acts greedy and selfishly unconcerned about social needs and environmental protection, mercilessly scorning the rest of mortals and the planet. Its power extends to other levers in the social functioning, such as sectors of politics and think-tanks they finance, hegemonic media akin to them, and segments of the judiciary that tip over in their favor.

As the financial capital can freely move its large resources, it evades with impunity national regulations. When a country confronts them, they react harshly or they decide to simply abandon the country producing capital flights that destabilize such economy. To have an idea regarding the magnitude of such speculative financial flows, it is worth knowing that daily financial transactions are 37 times larger than the commercial ones and 19 times larger than what is generated by the world GDP [1]. That huge speculative, financial circuit increasingly revolves around pure financial products that are removed from or just loosely linked with the real economy. The vast offer of speculative products generates volatile financial bubbles that cannot be sustained indefinitely: they result in recurrent crises, some with global reach as the one initiated in 2008

Indeed, this speculative financial investment not only should not be welcomed in countries that aim at certain degree of economic sovereignty but also it is necessary to abate the value appropriation mechanisms that they use. For that, active policies are required as well as firm regulations orientated towards preventing its destructive consequences [2].

(ii) Investors in real economy

This is another highly heterogeneous universe where big, medium, and small investors coexist and, within each of those segments, there are actors with some similar traits imposed by the context in which they operate but also with some behaviors highly differentiated in terms of their individual patterns of conduct. It is worth clarifying this point.

All the actors that participate in an economy act within the context of certain functioning rules that, in turn, express a certain systemic course that those who control the State had outlined for the society as a whole. If the State were to be dominated by large economic groups, as it happens in those countries that follow neoliberal policies, then the imposed systemic course and the prevailing functioning rules would force economic actors to adjust themselves to such context and logic of functioning. If they do not comply, their existence would be complicated up to the point of even collapsing and disappearing from the market. It is true that even in those conditions there will be spaces to exercise free will though trimmed and subordinated to the rewards and punishments that the prevailing course and rules of functioning impose.

Instead, if the State were dominated by democratic coalitions orientated towards the common good, political sovereignty, and the protection of the environment, then, another systemic course would be adopted as well as other functioning rules within which economic actors would have to operate.

With this we want to reinforce the notion that although the economic functioning is based on circumstances, technical relations, and macro and meso economic balances, it cannot be ignored that the systemic directionality of the economy is politically determined according with the correlation of social forces that prevails in the control of the State and its public policies.

In the real economy a high level of concentration can be verified as well. Few actors concentrate good part of the resources that can be allocated into larger productive investments. Of course there are thousands of small and medium size investors that also manage to channel savings towards their own investment projects but the huge surpluses that are concentrated in minority sectors flow to other destinies.

In almost all the economies oligopoly markets prevail, where those who lead value chains tend to abuse the market power they detent to extract value generated by suppliers and consumers through prices, payment conditions, or other impositions [3]. Moreover, if they are able to evade or elude taxes they extract value from the State, not only reducing the income that finances public spending in services and social and productive infrastructure but also by taking advantage of that infrastructure without fully assuming their contributive responsibility.

These and other circumstances mark the need for differentiating the impact that diverse types of investment have on the real economy. No objections are raised against channeling resources towards big ventures with strategic importance that are capable of generating significant accelerator effects on development, contributing to the scientific and technological development, facilitating with their network of contacts access to external markets. What is not admissible is that such efforts enshrine and strengthen mechanisms for appropriation of value that others generate. Those investments should be promoted but securing a well, organic development of the sector, the strengthening of local suppliers, and fair prices in the internal market.

Which investments to promote

In general terms, it should be promoted public and private investments that contribute to strengthening a fair, inclusive, and sustainable development from a sectorial, social, and territorial perspectives [4]. This implies:

(i) Firmly sustaining with public policies—finance, tax, science and technology, communications, transport, energy, irrigation, security, among others— productive investments made by national actors (whether public or private) that contribute towards a better and larger sectorial, social, and territorial generation and distribution of the national product [5].

(ii) Promoting foreign investment that positively contributes to national developmentForeign investment yes; foreign investment no.

(iii) Assigning strong support to productive networks and capital formation in the base of the national productive apparatus; that is, family units, small enterprises, and diverse types of medium size inclusive ventures with transforming potential [6].

(iv) Promoting value chains capable of competing internationally.

(v) Rewarding those who productively reinvest their profits, including those who minimize remittances of profits out of the country and do not generate capital flights.

(vi) Supporting those who make appropriate technological improvements

(vii) Financial and fiscally backing-up those investments with fair and sustainable multiplying effects in economically lagging regions.

In summary

”Laissez-faire” in terms of investments, that is, without public intervention whatsoever, only enshrines the prevailing way of functioning of a country. If the country were to be buoyant with no concentration of wealth and its people agreed with their present trajectory, it would only be needed a certain level of regulation to prevent severe abuses.

Instead, if the prevailing model of development, as it happens in most of the countries, tended towards concentration of wealth, punished majorities, compromised the environment and generated recurrent systemic crisis, then the laissez-faire and minimal regulation option would be social and environmentally self-destructive and unsustainable.

The alleged automatic pilot—biased helmsmen worried only about their self-interests—should be replaced by a well-conceived and better executed social and political running of the economy. It would be necessary to respect technical relationships that cannot be ignored by any voluntarism but setting the desired course and social and environmental functioning that is, conciliating interest and needs of large majorities with the protection of the environment and the changing circumstances of a globalized world.

Therefore, instead of claiming the strategic importance of investment to then just follow the avatars of those who today monopolize it, it would be a must to analyze diverse investment options so as to support the desired ones, prevent the detrimental ones, and leaving to individual decisions the many that do not require public orientation.

In other words, in the context of a fair, inclusive, and sustainable trajectory, it will be necessary to differentially orientate a very heterogeneous universe of potential investors. There would be those who have resources at their disposal and their investment decisions are welcome for the beneficial effects they generate; others that do not have the resources to invest but would lean towards an inclusive development if the State would support them with some type of promotional system; and, finally, those who need to be firmly regulated as, having huge resources, they tend to allocate them towards speculation without generating value but rather appropriating the value generated by others.

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