When I was at the start of my previous career as a journalist, writing for the Investor Chronicle, and also pregnant with child number 1, I was taken by a stockbroker (I think it was Smith New Court, bought by Merrill Lynch in 1995) on an investor tour of Budapest and surroundings. It was the early 1990s and the “shock therapy” privatization of companies in former communist countries was underway. A visit etched in my memory was the day trip to Ganz Electric on the outskirts of Budapest, where it seemed like iron ore came in on one side and everything from tractors to trains to light bulbs came out the other. But the office suite’s toilet paper was locked away in a cabinet to which only the manager’s fearsome secretary had the key.
Ethan Kapstein Exporting Capitalism: Private Enterprise and US Foreign Policy brought everything back to me because one of the chapters covers this post-perestroika period. (Indeed, my previous job was to interpret perestroika for Western European clients of an economic forecasting firm and I, like many others, came to realize that the material production figures of the bloc had led us to greatly overestimate earlier figures for economic growth in those countries.) Kapstein, now a professor at Arizona State and director of a Center for Conflict Studies at Princeton, had previously been a banker and worked for the US government and the OECD. He has therefore served on various front lines in variously struggling economies. This experience informs the analysis of the book. I found it to be a very interesting read.
The book is a story of the ups and downs of the United States’ constant focus on the use of private investment, particularly FDI, as a vehicle for economic development and a servant of American foreign policy objectives – above all, limit the spread of communism to developing countries. Beginning with postwar Taiwan, the United States emphasized the central role of private enterprise. One explanation is ideological, America’s deep respect for business and the marketplace. Another is sheer pragmatism: official aid will never be enough to meet the scale of investment needs in low- and middle-income countries. A third is an implicit theory of change: that multinational FDI builds local supply chains and has multiplier effects, establishing long-term roots for sustainable development and inoculating local populations against socialist ideas and other foreign influences. undesirable (from the American point of view).
Of course, the record is mixed, to say the least, even among post-communist countries. Multinationals called upon to invest have their own objectives, which are obviously not aligned with long-term national development needs. Some – like ITT in the overthrow of Allende in Chile – have played deeply troubling roles. In hindsight, shock therapy was too much shock and not enough therapy – the idea being to create people with enough market interest quickly enough to prevent a reversal of communism. But the heterogeneous local institutional and political conditions proved to make a big difference in the results.
The historical chapters of this book are fascinating. I was stopped short in one of the last chapters by the reflection that times are changing (indeed) and the United States is now converging on Chinese state capitalism. This seems like a weird overinterpretation of change – more complex than often painted – away from globalization. And anyway, as this chapter observes, public aid is still absolutely eclipsed by investment needs. The private sector will fill the void, otherwise the investment will not take place. It would be good to get away from the old chestnut that the state and the market are opposites, when they succeed or fail together, and for the same reasons. The history of FDI underscores the need for contextual nuance. Still, a very interesting and enjoyable read, gaining a lot from the author’s personal practical experience.
