Thursday, February 16, 2017

How American Capitalism Serves Poorer Nations

By Tom Rogan.
"Right-wing philosophy assumes that market forces best allocate economic capital. Conversely, left-wing philosophy assumes that government management of economic capital best empowers society. And this debate doesn’t just matter here at home. In today’s globalized economy, left-wing theorists also claim that American capitalism is hurting poorer nations.

That accusation demands an answer. Because nothing could be further from the truth. It’s time the record was set straight: American capitalism is a great servant of poorer nations.

Consider how U.S.-led research efforts benefit poorer nations. In India, for example, a world-leading joint U.S.-Indian team is developing affordable, high-quality heart valves. Combining U.S. investment and medical experience with skilled Indian researchers, the team will provide affordable options for poor individuals in desperate need. And even when that project is completed, Indian researchers will take what they have learned and apply that knowledge to the long-term benefit of their people. Here we see American wealth and knowledge shared in the durable service of our own and foreign interests.

Yet business-related investment is where American capitalism’s greatest benefits are felt. By opening the markets to U.S. consumers, poorer nations have been able to build huge industries for the export of basic goods. While those employed in these industries do not make much money, they do make something. In turn, U.S. families benefit from thousands of dollars of annual savings by purchasing these cheaper goods in our stores.

Foreign investment by U.S. corporations is equally crucial. Vietnam offers a great testament here. After all, according to Vietnam, “As of April 20, 2016, Vietnam had 806 U.S. valid investment projects, registered at over $11.7 billion.” And while that investment number is not world-leading, it does speak to a broader trend.

An increasing number of major U.S. corporations from a wide array of sectors—including Intel, Microsoft and Coca Cola—are now investing in Vietnam. And in doing so, they bring capital, jobs and wealth. In part, that’s why the vast majority of Vietnamese citizens are avowedly pro-capitalist. They have seen communism and they have seen capitalism, and they prefer the latter.

As an extension, there are two unique advantages that U.S. corporate investment brings to foreign nations. First and most important, American companies are bound to U.S. legal obligations. This protects foreign nations from the kind of corruption that defines Chinese corporate investment.
Second, because of their focus on consumer services at the higher value end (think Apple and iPhones) and professional services such as finance and software development, U.S. corporations offer foreign nations new opportunities in goods and services, but also in diversification.

Earning potential in these sectors is far greater than sectors like that of agriculture. In that regard, U.S. investment brings the foundation for long term increases in living standards and quality of life. With time, these developments benefit Americans in offering new, higher-wealth export markets.
That said, it would not be fair to say that American beneficence is the primary motivation of foreign investments. Ultimately, the motivation rests in the realistic prospect of profit. And in that sense, before they invest large sums, U.S. companies need confidence about a foreign nation’s contract law protections, political stability, long-term tax policy, and general economic stability. Alongside its sustainable economic growth rates, declining inflation rates, and its young population, Vietnamese efforts to simplify foreign investment have thus met a warm reception. The country’s leaders understand that to help their people, they must choose a different course to the anti-private sector rhetoric like that of Venezuela.

Sadly, the same understanding is not shared by every nation. In Brazil, Russia, and South Africa, political corruption, economic mismanagement and bureaucratic minefields have deterred hundreds of billions in potential foreign investment. And while India, under Prime Minister Modi, is reducing its red-tape obstacles, vested interests are making that effort more difficult than India’s interests suggest it should be. The simple point here is that private interests need confidence that they will find a return on those investments. Absent that confidence they will simply refuse to invest.

Of course, it isn’t just capitalism with which America serves less-wealthy nations. On the continent of Africa, for example, American taxpayers are empowering impoverished peoples with improved health and better infrastructure. In those efforts, we’ve saved tens of millions of lives and improved hundreds of millions more.

And that’s just the tip of the iceberg. More generally, across the world, cutting edge U.S.
development efforts are investing in better lives and stronger societies. Nevertheless, we should not neglect the importance of capitalism in improving lives. Far more than any other economic theory, it remains the world’s most crucial mechanism for greater human opportunity.

Tom Rogan is a foreign policy columnist for National Review, a domestic policy columnist for Opportunity Lives, a panelist on The McLaughlin Group and a senior fellow at the Steamboat Institute. Follow him on Twitter @TomRtweets."

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