01.14.20004 -- Why Mumbai? Why Not?
01.16.20004 -- Media is the Message
01.18.20004 -- Thanda Matlab Coca-Cola
01.19.20004 -- INTERVIEW: Walden Bello
01.21.20004 -- Our Poisoned Future
01.22.20004 -- The Other NRIs Come to India
01.23.20004 -- Smoking the Peace Pipe
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WSF: Dateline Mumbai, January 19, 2004
INTERVIEW: Walden Bello on FDI and Privatization (By Naeem Mohaiemen -- nmohaiemen@mac.com)
Walden Bello is the Director of "Focus on the Global South" in Bangkok. He is also chairman of Greenpeace Southeast Asia, and Board member of Transnational Institute (Amsterdam), Food First (Oakland), International Centre for Trade and Sustainable Development (Geneva). Dr. Bello obtained his PhD at Princeton University and taught at University of California prior to becoming Professor of Public Administration and Sociology at the University of the Philippines. He is the author of 13 books, including "Deglobalization: Ideas for a New World Economy" (London: Zed, 2002). He is a dominant presence at this year's WSF, speaking on four different panels during the week-long meet in Mumbai. The Subcontinental's Issue 2:1 Guest Editor, Naeem Mohaiemen, interviewed him after a panel on Foreign Direct Investment.
Q: What are your thoughts on Foreign Direct Investment (FDI)? It is a much-discussed topic at this year's WSF. To summarize the various positions, is FDI welcome in developing nations? If so, what sort of controls do you recommend?
A: There has been a tendency in the developing world, and in South East Asia, to
make a distinction between speculative capital or portfolio investment and FDI.
Especially in the context of the Asian financial crisis, there was a tendency to
look at speculative capital as bad and FDI as good. Speculative capital was
considered to be interested mainly in quick and high returns, in non-productive
areas like real estate, whereas FDI was supposed to contribute strategically to
development since it was focused on infrastructure development.
We need to take a second look at this. When we look at the question of how valuable
is foreign capital, and how much do we regulate it, the answer comes from what our
development paradigm is. For South East Asian governments, from the mid 80s to 90s,
high growth was the key objective. Rapid build-out of the industrial structure was
part of an "industry first" strategy. In this strategy, FDI was essential. Now in
South East Asia, we had tremendous foreign capital coming in, and tremendous growth
that was created. But we also created an economic structure that was not integrated
into the local economy, but rather was integrated, trans-border wise, into the needs
of the Japanese economy. This is because the Japanese were the heaviest investors
in these economies. So, we had the regionalization of the Japanese industrial
structure. This was a structure that mainly responded to the profit needs of the
Japanese keiratsu. And this led to a very flawed economic structure.
Now, when we talk of regulation, there are several issues to look at. First, there
need to be constitutional requirements that there are certain industries you cannot
enter. This would also cover the role of Joint Ventures, Equity Ownership, etc.
That's a first level of regulation. Second, there is the relationship between
foreign investment and local labor and environment. This is very important because
of the mobility of foreign capital. Say you impose environmental standards, capital
can just move to another country. What we need is regulation that goes up to the
regional level, whereby countries in a region draw up common labor and environmental
codes of investment. Third is the mode of development. If FDI builds an industrial
structure that responds to the logic of the metropolitan center, of Japan, rather
than the logic of national development, this will create serious issues. So,
regulation would have to be very strict about what industries FDI can enter. You
also have to be strict about sharing of technology. Finally, there have to be
controls, in terms of investment and inter-linkages to the local economy. There
are obviously different dimensions of regulation. Regulation has to address several
dimensions at the same time-- otherwise it is quite superficial.
All this brings you against the trade related investment measures of the WTO.
Once you talk about regulating foreign investment so that it builds up to a regional
structure, you begin to impact on trade amongst subsidiaries of corporations.
Thus you are now violating the trade-related investment measures of the WTO. This
will be major issue as countries try to put regulations on FDI.
Q. Are there concrete examples where countries have done a good job of balanced regulations?
A: There are some good examples in Latin America. In South East Asia, the Malaysian car industry was created through regulations and technology sharing. They loved Mitsubishi away from a regional strategy towards one of supporting building a car industry in Malaysia. Now we may have some disputes as to whether Malaysia should have a car industry, but let us recognize that it did build up a car industry through regulation of the Transnationals (TNC). We can say the saga of the "Proton Saga" is a very interesting example of successful regulation. Of course, from the point of view of development, we may question whether we should be in business of creating car industries in many countries. I am sure the NGO community would divide on this issue.
Q: Are there any industries, where you would completely block privatization and FDI. In countries like Bangladesh, there is lot of talk of privatizing inefficient public utilities.
A: When it comes to the basic utilities, our experience with FDI is a bad one-- especially in privatization of the water system in Philippines. If we look at Singapore, Hong Kong, Korea, and Malaysia-- public firms are consistently on top. I'm talking about the MRT in Hong Kong and Singapore, Petronas in Malaysia, and Posco in S Korea. These are state-run and yet, extremely effective, firms. So, before we go to the easy option of FDI, we should really look at how such very successful state-run firms were created in these countries.
There are of course times when we may need to borrow from outside to build up our industry and infrastructure. We should not be against borrowing per se, but need to question the terms of debt. We will also take FDI when we need it, in order to refurbish some of our industries. But it is important to maintain control of this investment, through rules that specify majority ownership for locals and management control. We really need to put national safeguards, and also need to be practical at the time of implementation. The key thing is a pragmatic approach that does retain control for the country. But we need to move away from this hoary idea that private is always best and public is bad. Certainly in the Asian context, we have enough examples of successful public firms, and really rotten private or foreign-invested firms.
Q: What about the shortage of indigenous capital? In places like Malaysia there may be sources of capital (e.g., the Chinese community), which may not apply in a country like Pakistan.
There are various ways to generate capital. First, you can bring it in as FDI. That is fine as long as there are strong controls. Second, you can borrow from international agencies. The key there is the terms of indebtedness. We need to avoid the pattern of the '80s and '90s where there was perpetual debt, because interest rates were so high. Finally there is the role of state and taxation. Do not underestimate the resources of local elite. Enough revenue can be raised if you have an efficient tax system. In the Philippines we have an elite that is extremely rich. If we can get hold of some of their surplus wealth through taxation, this would go a long way to meet the needs of national investment.
Again, we need to be principled and pragmatic when dealing with raising capital. I feel that, to go to international markets because you do not have the political will to tax your local elites is a very bad trade-off.
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