We’re just speculating here… The rise of Wall Street and the fall of American investment

On a list of people who understand international investment, the president of the International Institute of Finance surely belongs near the top. So I was surprised to find myself, midway through a panel discussion last October, correcting the holder of that office on that very topic.

At issue was “Foreign Direct Investment” (FDI), which entails foreign residents holding ownership of American businesses. While commentators like to trumpet such “investment” as beneficial to the American economy, in fact it rarely is “investment” at all. “When we talk about foreign direct investment,” I explained, “about 98% of that is foreigners just buying American companies, not actually making tangible investments domestically. The same goes for most of what we call investment on Wall Street, which is just assets passing back and forth.” This did not sit well with my fellow panelist, who responded, “I actually think the majority of foreign direct investment in the US is actually greenfield investment, creating new jobs.”

So I looked it up. The Zoom era, for all its limitations, does ensure that speakers always have the Bureau of Economic Analysis at their fingertips. Thus, I could say when the conversation turned back to me, “I just pulled up the BEA press release because I want to make sure. Of $200 billion of foreign direct investment last year, only $4 billion of that was greenfield; virtually all of it was acquisitions. We see the same thing when we talk about investment generally, from Wall Street. Most of what we call investment today is the acquisition of an asset. When a private equity firm buys a company, it has not invested, it has traded a pile of money for a pile of equity.”

This confusion over the nature of investment is pervasive among economic policymakers and commentators, has bled into the popular culture, and threatens the nation’s future prosperity.

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