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From the Desk of Jack Healy

Needed Benefits of Direct Foreign Investment

By Jack Healy, Director, MassMEP

When a recent news article reported the sale of Worcester-based Morgan Construction Co., established 1888, to the Austrian based Seimens AG, it was received as something of a passing. Since most of the wealth that built the cities of New England came from the industrial enterprises that were establish in the Morgan Construction era, we have a tendency to perceive such change as something of a loss.

However, the reality of this change is a testimony to the value that firms like Morgan Construction, now a global enterprise with 1,100 employees, have created. This is not new to the city of Worcester, as, over the years, we have seen similar acquisitions, such as St. Gobain's acquisition of the Norton Company, Metso's acquisition of the Jamesbury Corp., and Allegro Micro Systems' acquisition of Sprauge Electric. While this trend of direct foreign investment is currently accelerating because of the deterioration of the dollar, it is not a new phenomenon. 

As noted in a recent Wall Street Journal commentary:

The US economy has long benefited from foreign direct investment. Dutch capital helped put our young nation on a vigorous growth path when President George Washington took his first oath of office. Scottish trusts were critical in financing America's extraordinary 19th-century railroad boom. In recent times, overseas companies have pumped hundreds of billion of dollars in the US.

This same commentary went on to discuss the results of these investments:

Research and development is also obviously critical to our future, and foreign companies spent over $31 billion on research and development in the US in 2005. That's 13% of all R&D outlays in the US. Foreigners investing in the US are also more likely to reinvest here, furthering innovation and economic growth. The Congressional Research Service reports that foreign firms in the US reinvested $48.6 billion (45%) of their income back into the US economy in 2004. Last year alone saw capital inflows of over $183 billion. The overall value of direct foreign investment in the US totals around $2 trillion. 

The state of Maryland, with 5% of its state's private sector work force located in direct foreign owned enterprises, is now focusing the state's economic development efforts on attracting additional direct foreign investments. The Governor has appointed a new Director for International Trade and Investment, and a whole new economic program is being launched to support this initiative that positions their state as "the land of pleasant living."

As was pointed out in a recent report issued by the Mass Alliance for International Business, Massachusetts, with 6% of its workforce being provided a livelihood working in foreign-owned US subsidiaries has not lost any ground in this area. Massachusetts is now ranked 11th in the US and first in New England relative to the number of employees supported by foreign-owned subsidiaries. 

Recent Mass Alliance for Economic Development newsletter reports indicate that direct foreign investment in Massachusetts may well be increasing, as noted in the following announcements:

  • Pittsfield-based Sabic (Saudi Basic Industries Corporation) recently purchased General Electric's plastic division for $11.6 billion. This division is a large employer of over 450 people in the Berkshire area and the acquisition is viewed as a promising event for the area.

  • Novartis AG of Switzerland has announced that it is moving its Vaccines and Diagnostics division's global headquarters to Cambridge.The Swiss biotech company is building a new 500,000 SF facility in Cambridge. This new facility will employ 250 people.

  • Bayer HealthCare, a US subsidiary of the German-based Bayer AG, announced plans to invest $100 million dollars in an expansion of its East Walpole facility.  There are currently 500 people employed at this facility and 70 additional jobs will be created as a result of this expansion

The purpose of communicating all of this is to illustrate the economic benefits of direct foreign investments, and to counter some of the "Fortress America" rhetoric that has become so commonplace in the Presidential primaries. Lou Dobbs aside, direct foreign investment, like any investment, should be welcomed. The word "foreign" should probably be modified to something like "Inward" as there is usually a negative connation to the meaning of the word "foreign" that should not be there. There is nothing negative about the results of such investment, especially when you consider that direct foreign investment within the manufacturing sector alone supports over 330,000 direct and indirect jobs throughout New England.

As the dollar continues to fall in value there will certainly be an increase in investments, mergers, or acquisitions within US companies. While such activity may be viewed negatively by some, we should feel that with all of the viable investment opportunities in the world today, such inward investment in our manufacturing community is a signal of its value, and a significant contrast to the off-shoring trends being practiced by US-based manufacturers.

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