American companies are gradually coming to terms with the consequences of globalization. The fiscal and trade deficits have combined to erode the value of the dollar. Unable to fight cheap imports and short of working capital, thanks to tight credit, many companies are just folding up and are being bought out by foreign enterprises at discount prices. While it is true that foreign investments are aiding job creation and also helping in increasing American exports, the fact remains that today millions of Americans are working for foreign employers, and their numbers are rising by the day.The reasons for this are simple. The dollar's weakness has made American assets cheap, and because of the mortgage crisis credit has dried up forcing many American companies to sell their assets in order to stay afloat.
In the decade up to 2006 foreign companies invested more than $1.7 trillion in American companies, mainly in order to get a foothold in the American market.In 2007 alone foreign investors spent $414 billion for buying shares in American companies.Today such foreign controlled enterprises employ more than five million American workers, which is about five percent of the total labor force.Interestingly they paid an average annual salary of about $66,000, almost 30% higher than wages for similar work at American companies.Most of the foreign capital, almost two thirds, comes from Europe, although of late sovereign wealth funds from the Middle East and state owned enterprises from Russia, China and else where in Asia have also shown interest, raising fears that national security may be compromised. At the moment the British are the largest foreign investors in America, followed by Japan.
American people have had a mixed experience of global investors. Some have stayed on, increased investments and generated further employment.Many have shifted to other low cost centers at the first available opportunity, leaving behind entire communities struggling with unemployment, a problem which has been made worse by the present mortgage crisis.
What makes investment in America so attractive is its political stability, depth of the capital market, and the quality of its infrastructure. It is also the single largest market in the world, and buying up an American company is the fastest way to get into it.
What is bothering policy makers is if a recession sets in and the dollar drops further, then the pace of foreign acquisitions could increase. They are particularly wary of the activities of the sovereign wealth funds and are disturbed by the possibility of their acquiring control over the financial system or sophisticated military technology. There is a debate going on whether this is OK or bad.The only thing certain is that America will now be influenced by economic decisions taken outside her national borders.