You don't say! - U.S. CORPORATIONS PREFER DICTATORSHIPS

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CHICAGO TRIBUNE

Friday, 19 November 1999

                     DEMOCRACIES PAYING THE PRICE 
                     GLOBALIZATION SURVEY REVEALS 
                U.S. CORPORATIONS PREFER DICTATORSHIPS 
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        By R.C. Longworth 


American businesses may say they believe in democracy, but they are not 
putting their money where their mouth is, according to a report by a 
Washington-based think tank.

Democratic countries in the developing sector, such as Poland and South 
Africa, are losing out in the race for American export markets and 
American foreign investment. Dictatorships such as China or 
semidictatorships such as Indonesia are winning.

And the trend is growing. As more of the world's countries adopt 
democracy, more American businesses appear to prefer dictatorships.

If trade and investment strengthen developing countries, then U.S. 
businesses may be weakening the very countries they say they most want to 
help.

These are the conclusions of a report recently released by the New 
Economy Information Service (NEIS), a think tank set up to gauge the 
effects of globalization.

"The democratic countries in the developing world are losing ground to 
more authoritarian countries when it comes to competing for U.S. trade 
and investment dollars," NEIS said.

"This finding," it said, "raises the question of whether foreign 
purchasing and investment decisions by U.S.  corporations may be 
inadvertently undermining the chances for survival of fragile democracies."

NEIS compiled the report using U.S. government and World Bank figures on 
trade and investment. It borrowed political ratings compiled by Freedom 
House, a human rights organization that ranks countries as "free," 
"partly free" or "not free" based on the level of their political rights 
and civil liberties.

In 1989, when the Cold War ended, democratic countries accounted for more 
than half--53.4 percent-of all U.S. imports from Third World countries, 
not counting oil. Today, with more democracies to choose from, the 
democratic countries supply barely one-third--34.9 percent-of U.S. 
imports from the Third World, it said.

After the same decade, democracies got 28 percent of American 
manufacturing investment in developing countries, up from 26.2 percent 
when the Cold War ended. This slight improvement--1.8 percentage points- 
paled beside the 5.7 percentage-point growth in U.S.  investment reported 
by dictatorships, especially China.

China, which ranked 18th among recipients of U.S.  investment in 1989, is 
in fourth place now, ahead of long-established democratic partners such 
as Argentina and South Korea.

The NEIS report asked why dictatorships are outbidding democracy for the 
American market,  but said it does not know. "We are left with as many 
questions as answers," the report said.

"Something is going on, and it's worth pursuing," said NEIS Executive 
Director David Jessup. "We can't say that U.S. businesses have an 
absolute preference for authoritarian countries. I doubt that the issue 
of democracy-or-no-democracy is on businessmen's minds when they make an 
investment decision. But maybe it's an unconscious preference."

Wages tend to be lower in dictatorships than in democracies, giving 
businesses in dictatorships an advantage on selling exports abroad. The 
investment question is more complex than that, Jessup said, but the 
report suggested a combination of factors-lower wages, easier 
environmental laws, bans on labor unions-that give dictatorships an edge.

Such rulers tend to be strong leaders who can provide quick decisions, 
deliver results and stamp out opposition. These qualities can appeal to 
many business leaders, who themselves operate in a non-democratic structure.

When Indonesia overthrew its dictator, Suharto, and installed a less 
authoritarian leader, investors tended to sit on their hands. One 
currency expert, Ron Leven of J.P. Morgan, was quoted as saying that 
"democracy is a desirable form of government, but it's not necessarily 
the most efficient form of government."

There is an "amorality" here, said Thomas I. Palley, assistant director 
of public policy at the AFL-CIO and a member of the NEIS team. "Profits 
and morality don't mix very well."

Palley noted that dictators, not having to answer to voters or a 
legislature, can often deliver investment incentives-such as tax breaks, 
freedom from environmental laws and a docile work force-that are powerful 
lures for foreign corporations.

But the U.S. government is part of the reason democracies come up short 
in luring investors, Palley said. "It says that, if you deal with these 
guys (dictators), you make them more open. This provides the moral 
reasoning that businessmen want."

The result is a boom in investment and trade with China in the interest 
of "engaging" the Communist regime there.

Four countries-Brazil, Mexico, Malaysia and China-account for 67.6 
percent of all American investment in Third World manufacturing. 
According to Freedom House, China is "not free" and the other three are 
only "partly free."

Meanwhile, such "free" countries as Taiwan, Thailand, Chile, Costa Rica, 
the Philippines and Bulgaria lag far behind.

Because of Mexico and Brazil, the "partly free" countries lead the other 
two categories among America's economic partners. Over the past 10 years, 
both the "partly free" and "not free" countries have gained in their 
share of the American market, NEIS said, while the "free" countries have 
gone steadily downhill.

If these countries' share of Third World exports have slid from 53.4 
percent to 34.9 percent, their share of high-profit manufactured exports 
has fallen even further, from 56.7 percent in 1989 to 35.1 percent now.

It is not as though there is a shortage of democracies to do business 
with. According to Freedom House, 24 countries-including such Central 
American neighbors as Panama and El Salvador and ex-Communist industrial 
nations such as Poland and the Czech Republic-have become "free" 
countries in the past decade.

Another 22, including Russia and Ukraine, have moved up from "not free" 
to "'partly free."


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| Dennis Grammenos                  |
| Dept. of Geography & Env. Studies |
| Northeastern Illinois University  |
| 5500 N. St. Louis Ave.            |
| Chicago, Illinois 60625           |
| Phone: (773) 794-2605             |
| Email: dgrammen@neiu.edu          |
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