While the U.S. government is bristling at the moves offshore by U.S. pharmaceutical manufacturers and other companies in hopes of enjoying a more favorable tax climate (a phenomenon known as tax inversion), a new report from the Brookings Institution reveals that state and local governments aren’t doing a very good job in the opposite direction: attracting and retaining foreign direct investment (FDI) in the United States.
In an interview with USA Today, Devashree Saha, lead author of Brookings’ report, “FDI in U.S. Metro Areas,” explains that mergers and acquisitions are the main driver behind FDI, rather than the opening of new businesses and offices. Saha believes local and state governments would be better off focusing on retaining foreign companies who already have a U.S. presence rather than trying to entice new companies (usually through expensive subsidies) to set up shop in the U.S.
“Policies that narrowly focus on [new business] openings are probably not going to give you a big bang for your buck,” Saha told USA Today.
The Brookings report also points out that foreign-owned U.S. affiliates directly employ 5.6 million people, with 2.2 million of them being in the U.S. manufacturing industry. That translates into foreign-owned companies accounting for almost 20% of all manufacturing jobs in the U.S., and more than half of the workforce in such sectors as automotive parts and basic chemical manufacturing. That’s an impressive number of jobs whether or not you’re in favor of foreign manufacturers having such a large foothold on U.S. soil.
Overall, 5% of all jobs in the U.S. are due to foreign-owned businesses.
Most of the FDI jobs (74%) are centered in large cities, according to the Brookings report, with Bridgeport, CT, registering the highest percentage of private employment coming from foreign-owned businesses: 13%. Conversely, Provo, UT, had the smallest percentage among the 100 largest metro areas, at 1%. More FDI tends to occur in the eastern half of the U.S., the report notes.
And foreign-owned companies tend to pay more than their U.S.-based counterparts, with the difference being substantial: $77,000 vs. $60,000, on average.
The report also observes:
FDI is a critical conduit connecting U.S. metro areas to a global network of trading partners and investors. Altogether, 115 different countries and 445 different global city-regions… invest directly in the U.S., with the average large metro receiving investment from 33 countries and 77 different foreign city-regions. Each linkage not only enables the flow of capital but builds business relationships and also infuses U.S. metro areas with new knowledge, technology and ideas.
If you accept Brookings’ premise, then, the benefits of FDI should be so obvious that any city or state should be eager to attract more of it. Besides higher wages, the benefits also include increases in trade, R&D spending and productivity gains.
Still, as we noted at the outset, despite a presumed slowdown in the rate of U.S. companies offshoring production work overseas, there’s been a distinct uptick in the number of U.S. companies shifting their corporate base of operations to other countries (Ireland appears to be the country of choice at present, at least for pharmaceutical companies), which if nothing else indicates that Ireland’s strategy for attracting FDI seems to be working out quite well indeed.