The Case for U.S. Business Abroad
HODGES, CHARLES
A defense of U.S. firms with Latin American holdings The Case for U. S. Business Abroad By Charles Hodges To understand the forces at work in the Western Hemisphere, we must realize that most of...
...3. The export of American capital will only increase the alarming difference in economic levels between the U.S...
...The Costa Rican leader, furthermore, wants American properties "sold on long-term credit to Latin American institutions...
...This essential capital, in turn, must come from national savings??as Costa Rica's new chief of state insists??or international investment...
...This was despite the fact that the United Fruit Company operates on less than 5 per cent of Costa Rica's area, and its agricultural activities are in what had been valueless coastal lowlands...
...2. There is no advantage to underdeveloped countries in foreign investments "exercised on a large scale," for they act frequently "as a suction pump," with only the bitterness of exploitation remaining in the less developed country...
...The new Congress has now accepted the revised agreement, so that it represents a thoroughly constitutional obligation...
...that they will have reasonable freedom to manage, operate and control their enterprises...
...Of this, U.S...
...The great need for capital has been underscored by the unbiased experts of the Twentieth Century Fund in a recent study of Costa Rica...
...Instead, however, the substantial sums believed being amassed are going into "land purchases, building and the accumulation of money, both within the country and abroad...
...The world might well remember that the 1950 legislation which puts the dollar to work on Point Four programs around the globe in no wise assumes that the American Government is to replace private enterprise...
...he remarks that they "have the land, and the rain, and the hands" as their own capital...
...firms developing Latin American resources had failed to improve the living conditions of Latin American peoples...
...This Congressional directive is in direct conflict with what we can call "something-for-nothing" leadership...
...Business leaders in Latin America must be equally aware of the need for sound business operations on both sides of the national fences to expand mutually profitable economic relations in the Western Hemisphere...
...They range from chemicals and food to electrical equipment, motor vehicles and rubber products...
...The United Fruit bore the brunt of the income tax, with its subsidiaries paying just under 49 per cent of the total receipts...
...Nine-tenths of U.S...
...What more does the new President of Costa Rica really want...
...But the simultaneous Washington pressure for a United Nations code to safeguard private investors against the loss of existing capital and earnings by threatened confiscation, expropriation or nationalization has been given a chilly reception...
...True, non-reproducible wealth is extracted, but this unlocking of otherwise unused resources??here advanced technical skills and heavy capitalization are essential??takes place under terms which have become progressively more liberal to the peoples of Latin America...
...Under it, the company paid directly to the Costa Rican treasury in 1952 the sum of $3.6 million...
...that they will enjoy security in the protection of their persons and property, including industrial and intellectual property, and no discriminatory treatment in taxation and in the conduct of their business affairs...
...Although already cleared, this land can be put back into cultivation only at a cost of about $500 per acre for planting such crops as abaca (manila hemp), African oil palm and cacao...
...and the rest of the world...
...Charles Hodges is Professor of International Politics at New York University...
...And, from our point of view, Latin American imports fall just short of one-third of our total from all parts of the globe??our exports southward, roughly a quarter...
...This means primarily with U.S...
...Therefore, their economies are meshed tightly with world markets and prices...
...While "the world at large" is a pretty vague proposition, it means the United Nations, with doles from a common fund...
...But the corporations also carried liabilities??mainly to local creditors in these same Latin American countries??reaching almost $2.5 billion...
...Diseased banana land, consequently, now can be reclaimed for other cash crops instead of reverting to coastal jungle...
...Congress stressed that our neighbors must accept the responsibility for providing satisfactory operating conditions...
...It is often forgotten that the United States was built up to its present level of prosperity with other people's money in its resources...
...The representatives of smaller and less developed countries want no less than a quarter of a billion dollars under UN control to finance low-interest, long-term projects...
...This money provided facilities for people who broke the prairie to raise wheat which bought back the railways, literally owned overseas or mortgaged for the payment of bonds in foreign hands...
...There still is a large place here for private enterprise before we turn to intergovernmental deals and politically inspired world funds...
...The American farmer, too, is very much interested in foreign trade...
...We are to put the governmental squeeze on private enterprise...
...He rhetorically scouts the idea that much wealth is required to develop a country such as Costa Rica...
...presumably, Washington is to finance the nationalization of American business by other Latin American nations to which the Figueres plan might appeal...
...The old-style sugar and banana plantation economy is being replaced by highly scientific tropical agriculture involving heavy expenditure for research...
...Figueres, fortunately for inter-American relations, opposes "the opposite way" of expropriation by the small countries, which is, "like all violence, fraught with disadvantages for all...
...relatively richer and the "owned" countries relatively poorer...
...the company, from the end of 1949 through 1952, brought $56.9 million into the country...
...This is also an invitation to Washington...
...Foreign markets have to be found for 12 per cent of our barley, 40 per cent of our cotton, close to 50 per cent of our wheat, and almost 60 per cent of our rice crop...
...He wants technical aid "given, wherever necessary, for the gradual transfer of ownership and responsibility...
...receive on dollars put to work in Latin America...
...companies pay $250 million in customs duties, franchise and other taxes into the coffers of Latin American republics...
...firms with Latin American holdings The Case for U. S. Business Abroad By Charles Hodges To understand the forces at work in the Western Hemisphere, we must realize that most of the sound and fury raised against American business is not made by Communists...
...This article is a reply to the broad issues raised by Costa Rican President Jose Figueres ["We Don't Want Foreign Investments," The New Leader, August 31, 1953...
...That is, with one qualification...
...Great sums in trans-Atlantic money were made and lost here from the 1830s to the 1890s...
...This per-worker data will be news, I suspect, to the United Fruit Company...
...At the present price level, the amount of capital investment required for the banana business, on the basis of number of workers employed, is estimated at $5,000 per laborer...
...What return does the U.S...
...The burden of President Figueres's argument was that U.S...
...We believe his article will stimulate provocative discussion of this controversial theme, and hope to print in a future issue a rejoinder by President Figueres...
...Coffee, sugar and bananas, plus war-planned expansion of cacao and fibers, make the countries of Middle America basically one- or two-commodity lands in terms of their exports...
...foreign investments in agriculture are located in Latin America...
...holdings should be gradually turned over to local ownership...
...This American enterprise, in total, provided just short of 11 per cent of all the Government's revenue...
...The United States, of course, is invited once again to put up the major portion of the dollars...
...The wide gap between the rising peon population and low productivity can be eliminated only by a rapid expansion of the national economic machine...
...The fastest proportional growth of U.S...
...Even the two-fifths of American capital in the controversial oil and mining industries can be justified...
...Take the clarion call for American business to "go home" recently sounded by Costa Rica's new President, Jose Figueres...
...They only have "to add an investment of $100, $200 or $300 per worker," which can be saved by Costa Ricans...
...As for direct taxes, United Fruit paid roughly 35 per cent of the total...
...investment in manufacturing abroad??270 per cent since 1940??is in Latin American enterprises...
...corporate and private income taxes still to be paid out...
...He states his reasons for urging the retreat of the dollar simply and directly: 1. There are no surplus U.S...
...The terms of the new arrangement were approved by Figueres, who had led a popular revolt against an attempt by the defeated administration to brush aside the results of an election...
...He has also been a radio news analyst, newspaper correspondent, and adviser to the Government of China...
...Latin America's vicious circle in elementary economics is largely self-made...
...They are found primarily on the rimlands of the Caribbean, although Texas cotton interests have even gone into South America...
...Let us place what President Figueres chooses to call "the crumbs" of foreign enterprise in the Costa Rican economy...
...The Figueres formula for foreign business to arrange its progressive economic strangulation, it is noted, implies that "the business firms themselves could only cooperate, not take the lead...
...This leaves $615 million net for American investors, of which $100 million is retained in Latin America...
...Economists would also stress that about 10 per cent of our manufactured products must be exported for two important reasons...
...savings "looking for investment opportunities abroad," because American industry "needs all national savings, and will need them for a number of years to come, to commercialize" the tremendous developments our technical research makes possible...
...His novel proposal gives a new twist to the theme of nationalism??that we are to buy ourselves out of Latin American development and give know-how and plant to our Hemisphere neighbors, with Washington arranging the withdrawal...
...The survey bluntly says that it would help if "her nationals had enough confidence in the country to invest substantial amounts of their own savings in long-term projects...
...Behind this inventory, with its expanding employment, payrolls and taxes, is one means by which our neighbors can pay their own way to better standards of living...
...News to economists is his observation that we do not need "the earnings coming from a few billions invested abroad...
...Nor does it check with the cost of developing substitute crops, as in the case of abandoned banana land...
...Washington's balance-sheet on direct company investments south of the Rio Grande to Cape Horn shows total earnings, before taxes, to be a little under a billion dollars a year??$905 million in 1950...
...His most recent book is Problems of Postwar Reconstruction...
...that they will be given reasonable opportunity to remit their earnings and withdraw their capital...
...Permanent American ownership of vast underdeveloped areas "tends to make" the U.S...
...proposal to condition our major contribution on a general cut in armaments, providing budget savings for this purpose, is sharply resented...
...Thus, on the 1950 book value of roughly $5 billion dollars, Americans actually received earnings totaling $500 million, with U.S...
...To date, unfortunately, alien dollar owners have been willing to do what native holders of colons, sucres and pesos decline to do...
...prices, because one-half of Latin America's foreign trade is with its North American neighbor...
...The U.S...
...The current Costa Rican thinking on investment is revealed by President Figueres when he stresses that "the real need is for knowledge??knowledge of how to produce things, knowledge of how to administer the things produced and accumulate capital and grow...
...The foreign holdings of stock in these corporations take another $40 million...
...therefore, he said, these U.S...
...There must be put behind those bananas the Latin American version of what went into the wheat...
...There is nothing fuzzy about this Figueres proposal for a new dollar diplomacy...
...Over a quarter of all imports and at least a sixth of all exports can be traced directly to U.S...
...Two aspects of these working dollars need emphasis: Three-fifths of the total??agriculture, manufacturing and public utilities??are activities which definitely do not "pump out" Latin American assets...
...There is nothing a bunch of bananas??or a pound of coffee from a Costa Rican finca??cannot do that a bushel of American wheat did...
...But this is being held up by the lack of capital...
...And these ingredients are no mystery to private enterprise: business know-how...
...This economic team speaks out on the advantage to Costa Rica in attracting foreign funds, not in scaring them away...
...Needed dollar exchange is also gained from United Fruit operations...
...European investment in the past hundred years teamed up with American pioneering to open and exploit this country's resources...
...That is to risk developing the latent but real wealth of these countries with saved dollars for what is actually a managerial service charge...
...That is a leadership which apparently banks heavily on the world at large making handouts of know-how and credit??in other words, experience and savings??which in the past have been secured through private enterprise at a price...
...capital put to work in foreign fields...
...trained manpower: and, above all, the will to accumulate capital, even if it means the end of living graciously up to the last peso...
...The United Fruit Company subsidiaries, operating under a new deal negotiated with the Government at the end of 1949, spent $22.8 million in the Central American republic in 1952...
...stockpile list...
...The answer is, unequivocally: A lot more...
...Latin America, in the strategic picture, is the major single source of some twenty critical materials on the U.S...
...In effect, he wants Washington to plan a systematic withdrawal of American business from the whole Latin American field...
...Selling abroad means the difference between profit and loss in many cases, and more than 5 million workers in our industry hold jobs that depend upon our being able to sell these exports...
...Manufacturing and utilities fill two big gaps in Latin American economies??gaps where native wealth until recently would not take the risks involved...
...Here, too, we spelled out what we expect from them: "It involves confidence on the part of investors, through intergovernmental agreements or otherwise, that they will not be deprived of their property without prompt, adequate and effective compensation...
Vol. 37 • January 1954 • No. 4
