Posted May 28, 2014 9:38 pm by Comments

The New Yorker has observed (“Thomas Piketty and the Foreign-Investment Question”) that Thomas Piketty, author of “Capital in the Twenty-First Century,” is rather skeptical of the whole idea of foreign investment helping emerging markets as they note the following passage from his book:

None of the Asian countries that have moved closer to the developed countries of the West in recent years has benefited from large foreign investments, whether it be Japan, South Korea, or Taiwan and more recently China. In essence, all of these countries themselves financed the necessary investments in physical capital and, even more, in human capital, which the latest research holds to be the key to long-term growth.

For all of Piketty’s dodgy or faulty data that he used for his book to prove his ideological point of view (see: “Big questions hang over Piketty’s work“), he does have a point about the development of the East Asia Tiger economies.

However, the author of the New Yorker piece (who apparently consulted for Motorola in China) observed:

To profit from their investments abroad, global companies must deploy and increase intangible assets, partly by educating the people with whom they work locally—employees, business partners, and so on. Foreign companies introduce new production methods and management standards, and train local workers to enact them. They also introduce employees to a global network of suppliers and customers, crucial marketing knowledge for startups. In other words, foreign direct investment involves implanting intellectual capital, not just appropriating financial capital.

And let us not forget that the East Asian Tiger economies were very receptive to bringing in and adopting outside ideas (along with using US foreign aid to rebuild their economies and pay for defense) if they thought those ideas or methods would work.

To read the whole article, Thomas Piketty and the Foreign-Investment Question, go to the website of the New Yorker.

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