Some investments contribute to the country project we are trying to build and others harm it or do not influence the selected course of action. It is very risky to ignore this heterogeneity because what is needed is to promote investments that better serve our country project and dissuade those that, in either the short or long run, obstruct the potential for national development.
Those who talk about “investment” as if it were something homogeneous and not heterogeneous, do so either for ignorance, simplification, or because they conceal indefensible interests. Not differentiating investors and in what, when, where and when to invest or disinvest, condition the desired country project.
Today, a tremendous concentration process of wealth and decisional power prevails, one that we should dismantle to advance towards other country projects; for such endeavor, the type of prevailing investment is a determinant variable. Thus, how can we choose investments that serve the desired country project? It depends on who are the ones selecting, in particular regarding those larger investments that induce or drag other smaller investments.
The large investments are decided by those who control surpluses, a group of national enterprises and international corporations plus the State, if it were to assume its role to orient the economy.
These large actors can opt to reinvest locally their surpluses, deviate resources towards financial speculation, or flight them abroad. Only those surpluses allocated to social and productive investments are the ones that work for the country. Other destinies sterilize the ability of generating investment, with huge aggravating factors. (1) The flight of undeclared capitals underfunds the State by preventing the collection of taxes set by law. (2) Financial speculation extracts value; it does not generate it and deprives the State of multiplying effects of productive investment. (3) Capital flight and financial speculation produce a perverse dynamic in economic functioning by offering profits impossible to be obtained legally in markets of the real economy.
Investment decisions that private sector adopts are mainly guided by the desire of maximizing profits. Moving away from this ordering criterion of corporate actions could result in ending up displaced by competitors that are more aggressive. Smaller investors, the large majority of investors, make their decisions as a function of the context imposed by dominant sectors.
On the other hand, the State makes investment decisions that vary in direction and magnitude depending on the social forces that control it. These investments are not guided by the criterion of maximizing profit (although they can be economically very profitable) but rather by criteria related with prevailing country project. Thus, yield rate of public investment is not measured by the financial balance it can obtain at the end of each fiscal year but rather by the impact generated on the development of different regions of the country.
Large majorities without financial resources to invest contribute other critical factors to the social and productive process such as their work and creativity, few times properly compensated.
Systemic impacts of different types of investments
Diverse systemic impacts are generated by different types of investment; among the most important are those that influence on the productive matrix, inequalities, and decisional sovereignty of each country. In all these impacts, the actions of foreign investment weigh heavily.
- Effects on productive matrix
Productive matrix refers to how the economic system is structured in different layers, market concentration, sectorial composition, presence of local and foreign actors, control of strategic sectors, what and how much is produced for internal market and for export, dependence on imported inputs, recurrent bottlenecks (the most serious ones, of the external sector) and consequent crises.
The structure of productive matrix usually is not the result of State planning to secure social, environmental, and economic sustainability. It emerges from a variety of private investment decisions orientated towards making profits and public regulations that can be either weak or firm. This disorganized genesis of the productive matrix diminishes its capacity for anticipating or adequately solving tensions and contradictions that pull in every direction the march of the entire socioeconomic system.
Historically, productive matrix of non-central countries is born to complement central economies as providers of commodities. This international division of labor loses functionality when urbanization grows boosted by internal and external migrations. Cities attract migrants and land concentration expels rural population. The old productive system needs to diversify to provide jobs and income to a growing population. New opportunities attract local investors and international corporations to more promising activities. Productive matrix develops with unbalances that lead to bottlenecks and recurrent situations of instability with many victims and more economic concentration.
Is this inevitable? No way! There are active public polices of opposite sign to dismantle concentrating process and free captured democracies.
- Effects on social and productive inequality
The type of investment (who invests and with which purpose) reproduces the unbridled process of concentration that prevails in the world. If this way of investing is not transformed, it will be impossible to dismantle inequalities, the other side of concentration.
Thus, there is no way of solving both facts without addressing them in the same challenge. We can try substitute solutions (redistribute without dismantling concentration) but they are useful only to gain some time while concentration engines keep on working in full.
Genuine solutions include salaries that allow for a good living for workers, change regressive tax structure, eliminate tax evasion and elusion, capital flight, regulate oligopolies, prevent financial speculation by reorienting resources towards funding enterprises and ventures, dismantle oligopolistic practices that harm foreign trade, prioritize care investments (health, education, environmental sanitation) and popular economy ventures.
An example of solving at the same time concentration and inequalities can be found in the food chain. If large companies prevail, profits are concentrated at the expense of suppliers and consumers. On the other hand, family agriculture produces fresh foods at lower prices. These producers operate with few resources but can improve if they are given funding to invest in buying land, in stockpiling cooperatives, logistics, processing and trading (including community supermarkets). These investments are able to solve at the same time concentration and inequalities.
Treatment of foreign investment
Foreign actors invest in activities of high profitability; they “skim off” the economy. However, not all foreign investments are equal; some can contribute to national development and others not.
We must evaluate if the particular investment contributes to desired country project, considering this under a double perspective. On the one side, what does the country need in the current phase of development and, on the other side, which has been the historic behavior of such foreign investor in other countries?
The type of evaluation will depend on whether the State defends the interests of the entire nation or just those of minority groups. Moreover, if it has the ability to control and make them effectively comply with laws and regulations. In terms of country’s State, it is different the situation if there is a consolidated economic system with enterprises that can complement with and not subordinate to the new foreign investment. On the contrary, if the economy is fragile but with valuable “emerging” activities, it will require the State to secure fair relations with external investors. An investment that only extracts value is not worth; it is better one that irradiates multiplying effects.
As emergent economies suffer from shortage of foreign currency, it will be necessary to evaluate the impact of foreign investments on balance of payments. That is, considering the degree of dependence of their future production regarding imported inputs, foreign currency remittances, and payment of royalties; such outflows of foreign currencies must be compared with eventual inflows of foreign currencies due to exports or other items. In the same way, it is worth appreciating if they will contribute to opening external markets and promissory global productive chains, to scientific and technological development, to increasing tax collection bearing in mind their antecedents regarding tax elusion and evasion.
Something that usually is not evaluated is the historical trajectory of the external investor in terms of complying with working, tax, and environmental norms, his relations with suppliers, whether he gets involved in electoral processes or if he practiced strong lobbying to impose public policies. It is important because when approving an investment not only contractual obligations are established but also rights are secured.
As aforementioned, investments determine the country project and those who control them are powerful actors. These actors, large local and international enterprises, position themselves in high-profitability sectors. Their profits are generated from the productive effort but are also enlarged by factors that seem unmovable but are not. On the one side, they operate as oligopolies, what means that they abuse their market power, they increase as much as possible sale prices for their products and lower, also as much as possible, their workers’ salaries and buying prices for inputs and raw materials. If oligopolistic power were to be dismantled, appropriate resources would be kept by workers, suppliers, and consumers, with a redistributive effect in terms of income and capitalization of small enterprises that do not involve the State (null fiscal impact).
Apart from oligopolistic productive enterprises, there are traders and, in particular, exporter corporations that operate as oligopolies. Exporters tend to be subsidiaries of global conglomerates, a fact that facilitates tax evasion: they bill at low prices other enterprises of the same group located in tax-free zones, tax havens, or countries with very low taxes and controls. In this way, they reduce declared profits and pay a negligible part of the taxes they ought to pay. Meanwhile, an associated enterprise resells the export to the final consumer, now at the real market price. What happened in that fraudulent hand passage? Evaded taxes that are diverted away from the State swell the profits of the group, which is the owner of the local exporter and the associated intermediary.
There other appropriation mechanisms, such as regressive tax structure that benefits those who have the most at the expense of middle and popular sectors and the allocation of public expenditure with subsidies and infrastructures that favor the dominators.
Why do we go back at describing this perverse dynamic? To redefine it in terms of decisional sovereignty. Decisional sovereignty is not limited to a declaration of purposes or perspectives, it starts at that level but it materializes with concrete measures applied by governments that truly represent popular interests and needs. With which base? With that of strong political coalitions that emerged from a clarified social mobilization, organized and immune to divisionism induced by oppressors.
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