Helping our communities grow is one objective of governors, mayors and their economic co-conspirators. We might thrive better if they focused on helping our communities develop.
Development, as one of my co-conspirators reminds me, is a precursor, a foundation for growth. If diversity of ownership is considered development, then direct foreign investment has many virtues.
When a foreign-owned company invests in a local city or town, it does more than build or re-purpose an existing structure. It hires local labor to do that work and might exhibit different expectations about construction methods and timing. This can be an improvement or a degrading, but it is a difference.
And difference is valuable as a contribution to our understanding of how things are done and how people think.
This shows up again in the management style of the foreign company, in its choices of personnel, its supply chain relationships and its customer service practices.
Indiana has been a domestic branch plant state for the past century. Foreign ownership of Indiana companies has been growing, sometimes dramatically, in recent years. It can be the result of a company starting from scratch (de novo), or the foreign acquisition of, or merger with, an existing firm.
In 2007, Indiana had 2.76 percent of America’s employees who worked for U.S. affiliates of foreign majority-owned companies. This was basically unchanged at 2.72 percent by 2016 (our latest data from the U.S. Bureau of Economic Analysis.)
The actual number of Hoosier jobs in such companies was just 149,100 in ’07 and 193,000 in ’16. That was 5.6 percent of Indiana’s total employment in ’07, growing to 7.3 percent nine years later.
In both years, about 60 percent of those jobs in foreign-owned firms were concentrated in manufacturing. In addition, although the United States and Indiana lost 11 and 5 percent of manufacturing jobs respectively from 2007 to 2016, jobs at foreign-owned manufacturing firms increased by 20 percent nationally and statewide. Perhaps that difference derived from a higher level of efficiency in newer machinery and more resolute management at foreign-owned firms.
Not only does direct foreign investment provide jobs, it announces to the nation that places often overlooked by domestic investors are well-suited for economic stimulus. Think of South Carolina and Alabama with German automotive investments, or Japanese investments in Decatur and Gibson counties of Indiana.
Yet, the greatest benefit of foreign investment could be the diversification of expectations in the community. When Siemens located in Princeton, the local schools were slowly improved. When Siemens left, I am told, the local schools began to regress in quality.
Only the state, its largest cities, and cooperative regions can afford prospecting for foreign investments. Although disparaged by locals, these efforts may offer the greatest returns.
Morton Marcus is an economist. You can contact him at [email protected]. You also can follow his and those of John Guy on “Who Gets What?” wherever podcasts are available. Send comments to [email protected].
Morton Marcus is an economist, formerly with the Indiana University Kelley School of Business. Send comments to [email protected].
