This is a tricky one.

People know the neoliberals are screwing countries with austerity, with debt & interest. That's easy to see.

But Foreign Direct Investment (FDI) is a key to the neoliberal Washington Consensus and it's harder to argue against. It's also a big part of Deng's reforms.

So what would you say to someone who says that global capitalism is good because it helps develop countries by direct investment?

  • AssortedBiscuits [they/them]
    ·
    1 year ago

    John Smith covers this in Imperialism in the Twenty-First Century. I haven't read the book in a while, but the tl;dr is that FDI mostly go to factories and other parts of the production process owned by transnational corporations based within the imperial core, so the Global South country doesn't benefit from the investment. If most of the FDI goes to sweatshops that exclusively makes cheap T-shirts that will be sold in Walmart stores, then that obviously wouldn't benefit the host country. It's not a real investment for the host country but a subsidy for Walmart since Walmart controls the sweatshops. This is how neoliberalism's austerity fits into this. The FDI goes to the country and since everything is privatized, the money goes to a bunch of private enterprises and through the Global South country's relationship of dependence with the imperial core, those private enterprises are connected to transnational corporations.

    China avoided this trap because their government actually has control over capital, the Deng reforms stipulated that FDI has to come with knowledge transfer, and Mao's efforts towards educating the previously uneducated peasantry meant there was a huge reservoir of workers who could be trained to put the knowledge transfer into good use. I think China having a huge domestic market also plays into this.

    So, you had sweatshops in China, but because transnational corporation wanted to take advantage of Chinese workers' potential as skilled labor, they also started to build factories that cater towards commodities higher in the production process, so things like car parts and smartphone parts. But with the knowledge transfer and practical experience in creating those commodities, factories higher in the production process but aimed towards the domestic market also started to be build. This means the FDI that went towards those initial factories actually are an investment. However, it's not the actual dollar amount, but the knowledge transfer and opportunity to put that knowledge transfer into practice that is the real investment.

    At the same time, labor arbitrage within imperial core countries meant those countries face deindustrialization. The sweatshops get exported into the Global South, but since Chinese workers are cheaper than Western workers, those factories that turn intermediate commodities into the final product (I'm blanking on the proper term) are also outsourced to China. The end result is Global South countries dig up the raw resources, refine it, and turn it into intermediates, China further modifies the intermediates and assembles those intermediates into a final product, and the US wraps the final product with a plastic wrap and slaps a "made in USA" sticker on it. But being so isolated from the production process as well as the complete financialization of the economy meant the Western countries lose practical experience in manufacturing.

    • PKMKII [none/use name]
      ·
      1 year ago

      Also worth noting that China has been much more willing to amend the terms of their FDI to meet the needs of the country in question.

      The “wrap it in plastic and slap a Made in USA” thing is especially prevalent with Buy America provisions in government contracts. There are a lot of sectors where products just simply aren’t produced in America anymore (speakers are a good example), so to satisfy the requirements they pay contractors to literally just screw in the last few cosmetic bits on a product otherwise made overseas so it’ll fit the “Made in USA” regulations.

    • BagOfBugs [he/him]
      ·
      edit-2
      1 year ago

      Bingo the low-income countries get minimum development

      Hence why railways in africa only like run from extraction region of country to port to facilitate their trade with countries outside africa

      That's why china's investment is resulting in the first railway development places have seen in literally 100 years