The Official James Petras website

Introduction

In the beginning, decisions were made to limit the scope of foreign investment to particular sectors and in some cases to a limited time frame via ‘fade-out formulas’ (over time the foreign shares would be bought out by the public sector).

In the last decade of the ’socialist’ regimes (before their demise in the late 1980’s) the governing elites widened the scope of private and foreign capital and, in some cases, signed agreements with the IMF, which accelerated the process. With the collapse of the ’socialist’ regimes in the former Soviet Union and Eastern Europe and the ascendancy of pro-capitalist policies, the ruling elites and foreign capital proceeded to pillage the public sector to an unprecedented degree. Foreign capital and newly minted local oligarchs ran amok, grabbing and stripping public assets, raiding the public treasury, seizing natural resources, public utilities, the mass media and energy resources. This led to unprecedented and rapid impoverishment of the great majority of the working population, stripped of social wages (the termination of free health, education, cultural and other social benefits) and the growth of monstrous socio-economic inequalities between the upper 1% of multi-millionaires and the lower 80% of the population. Large-scale out-migration, corruption on a scale never experienced in modern history, and powerful murderous international gangs organized and traded in hundreds of thousands of women and girls (sex slaves for international brothels), narcotics and illicit arms sales.

Similar selloffs of public assets in Latin America, Asia and to a lesser extent Africa were accompanied by large-scale corruption, and in many cases long-term loss of leverage over their economies, resulting in economic stagnation and unprecedented social inequalities.

By the end of the nineties, the disastrous political and socio-economic consequences of the rapid and massive conversion to capitalism and the unregulated invasion of foreign capital in the former ’socialist’ and nationalist countries was recognized by several socialist and nationalist regimes which had not taken the leap into the abyss of ‘free market’ capitalism. Debates and discussions about the role of foreign capital emerged within and between the rulers of these regimes and a wider public of intellectuals, workers, and political activists. One group calling itself ‘market socialists’ argued for a greater or lesser role for foreign capital, while others, referred to as ‘orthodox Marxists’ citing the debacle in the ex-USSR, argued against any large-scale, long-term openings.

The debate has continued, the issues shifting with circumstance and context. The ‘market socialists’ emphasize a new dimension, ‘globalization’, which they argue ‘demands’ greater responsiveness to ‘market signals’ (competitiveness) through ‘links’ with foreign capital. In contrast the ‘orthodox’ Marxists reject foreign investment (FI) and point out the increasing threats from the links between FI and ‘militarist imperialism’, citing the US-EU’s Balkans Wars, the US-led invasions of Yugoslavia, Iraq, Afghanistan, and Haiti as well as the US sponsored coup in Venezuela and the overt military threats against Iran, Syria and Cuba. For reasons of national security, the orthodox Marxists argued for fewer openings to foreign capital.

The ‘market socialists’ have been unable to effectively counter the facts about imperialist aggression, except to cite the possibility of ’separating’ the role of foreign capital from the behavior and interests of the bellicose imperialist state - an argument not without merit under certain circumstances. Nevertheless the economic arguments of the market socialist still carry weight and have had considerable influence over state policies, leading to ‘piecemeal’ adaptation by the orthodox Marxists.

In the following sections we will outline the arguments of the ‘market socialist’, neo-liberals and other advocates who promote foreign capital. This will be followed by a critique from an un-orthodox Marxist position. We will conclude by specifying alternatives to reliance on foreign capital, at least in terms of any major role in the economy and a discussion of the political foundations sustaining anti-imperialist positions.

Arguments for Foreign Investment:

The seven most common arguments in favor of foreign capital usually base themselves on the following propositions:

There is a shortage of capital, therefore foreign capital needs to be attracted in order to develop the economy and encourage foreign lending.

The country needs foreign capital as a source of ‘know how’ ‘providing management and marketing skills — to secure export markets and competitive advantages.

Foreign investment provides advanced technology to modernize the economy and upgrade productivity and therefore competitiveness.

Foreign capital will increase the competitiveness of local producers, driving out the inefficient firms while encouraging local firms to become more efficient.

Foreign capital will lower prices, extend and improve services to consumers.

Foreign capital will increase competitiveness in global markets, increase exports and secure overseas market shares.

Foreign capital pays better wages, provides better working conditions and pays more taxes than local producers.

There are differences among the publicists advocating foreign investment. The points of differences include:

Whether foreign capital should be allowed the same terms as local enterprises, or whether there should be differential tax rates, restrictions in areas of investments (some argue ’strategic areas’ like energy should remain under state or national ownership) etc. In the case of export processing zones, advocates of FI encourage lower tax rates, rents and labor standards for FI.

Whether foreign-owned enterprises should only produce for the export market or for the internal market as well (export trading zones).

Whether foreign capital should be obligated to reinvest a percentage of its profits into the domestic economy or whether it can remit all its profits to the home office.

Whether foreign-owned firms should be obligated to invest substantial sums to upgrade firms and modernize production.

Whether foreign firms can own majority, minority or all shares in an enterprise. Similar differences exist on management rights between foreign and national owners.

What kinds of incentives to offer foreign firms, in terms of tax concessions, land grants, infrastructure investment by the state, job training by the local government etc?

The longevity of foreign ownership especially of mineral and subsoil rights; should it be in perpetuity, or leases over extended or shorter time periods; whether contracts should allow for renewal and options, sanctions for non-compliance etc..

In other words among the advocates of foreign investment there is a range of positions on the scope and depth of concessions which accompany the promotion of foreign capital. During the 1980’s the general tendency was for governments to expand concessions to foreign investors. Since the 1990’s, as public regulations severely weakened, rules governing the entry and operations of foreign capital have been relaxed.

As a result the debate on foreign investment today has generally followed the lines of how many and what types of incentives to offer foreign capital, without evaluating whether foreign capital brings in its wake greater development problems than it is purported to overcome.

Arguments Against Foreign Investment

The decision to open a country to foreign investment raises profound political, economic, social and cultural questions that go beyond short-term calculus of the costs and benefits that accrues to a firm or even economic sector. In most cases the initial ‘openings’ lead to subsequent large-scale, long-term strategic invasions resulting in a whole series of unanticipated but predictable outcomes.

First and foremost foreign ownership of strategic industries and resources leads to the states’ loss of decision-making, in shaping investment decisions, pricing, production, and future growth. The foreign owners decide which enterprise in their empire will expand, stagnate or decline depending on the labor costs, taxes, transport and communication networks. The new owners decide whether to conduct research within the enterprise or at the ‘home office’. Foreign investment, expecially large scale buyouts of strategic enterprises, severely compromises national sovereignty and converts political regimes into ‘hostages’ of the foreign owners. No doubt prior agreements between foreign investors and regimes establish rules which may be applied to each case, but they are subordinated to and conditioned by the willingness and ability to enforce them and the foreign investors’ willingness to abide by them. Experience tells us however that in most Third World states the initial agreements to privatize are rife with corruption and the subsequent presence of large-scale foreign enterprise can easily lead to influencing administrators and regulators into lax enforcement of contracts.

Foreign investment brings initial capital, but leads to long-term, large-scale outflows of profits, to the home office, contributing to the de-capitalization of the economy and balance of payments problems. Turning over state enterprises to foreign investors (or local oligarchs) leads to a decline of state revenue, increased unemployment and in some cases of plant closures in regions where the rates of return to the company are below expectations.

The result of foreign capital’s ‘rationalization’ and ‘restructuring’ may increase enterprise profits but activate a negative multiplier effect in the primary and tertiary sectors. For example, a multi-national firm may close down a rail line and its attendant machine and maintenance shop because the rate of return is only 2% in order to increase overall profit to 15%. These closures however may lead to a 25% decline in commercial, industrial and agricultural production in the regions adversely affected; a 20% increase in bankruptcy of local firms and a 15% increase in unemployment. The net gain by the MNC is an absolute loss to the region and its labor force.

Foreign investment leads to unbalanced and overly specialized production, principally the expansion of highly volatile commodities at the expense of a diversified economy with a broader production and trade base. Most foreign investment seeks to earn hard currency by investing in commodities with a high export component, like oil, soya, iron, copper which complement their domestic requirements or those of industrializing economies. The net result is a ‘boom and bust’ economy in which high exports and revenues inflate regime revenues and imports prior to a harsh fall in commodity demand leading to serious trade deficits, sharp cuts in spending, rising unemployment and increase indebtedness.

Foreign enterprises secure long-term tax concessions and large-scale public investments in infrastructure (transport and communications) as a condition for investment. In other words the state loses revenues and socializes the costs for foreign capital profiteering. Moreover through transfer pricing and ‘imaginative accounting’ foreign capital engages in large-scale tax evasion. The net result is that foreign capital’s tax payments are not commensurate to the state subsidies required to ‘attract’ and maintain the foreign investors.

Foreign capital in many cases does not create new enterprises or expand markets: in recent years they buy out local enterprises, in many cases profitable firms, at ‘political prices’ - in corrupt bidding contests. In some cases they buy state telecommunications or oil monopolies and convert them into private monopolies, thus imposing m0onopoly prices unhindered by public accountability or social needs. Moreover foreign capital frequently does not bring in any ‘new capital’: they borrow from local banks (the savings of local depositors), convert devalued debt paper to buy enterprises at nominal prices, and receive loans backed by the state from international financial institutions.

Foreign capital tends to create ‘enterprise enclaves’ that import technology (charging royalty fees) and are linked to outside production and distribution networks, thus having a minimal impact on the local economy. There are numerous examples: the better known are assembly plants in which the manufacturing and distribution is done elsewhere, by other subsidiaries of the MNC, and the only contribution to the local economy is the payment of subsistence wages. Primary materials exporters, extract iron, copper and soya and it is processed overseas where value added and jobs accrue to the recipient country. The raw material exporters employ few workers, the countries are converted into ‘monocultures’ and their economies are subject to volatile shifts in their revenue base. Depending on income from a few exports or a single export (like oil) and overseas remittances does not constitute a political economy.

Foreign investment has captured the important banking sector, shaping state credit and interest policy and more important deciding what sectors and enterprise receive credits and at what interest rates. Foreign ownerships of banks leads to privileging and lending to foreign-owned firms (’most credit-worthy’), those which earn hard foreign currency (agro-mining export firms) and systematically excluding small businesses, farmers and peasants producing for the local market and employing the majority of the labor force. This leads the latter to depend on usurious moneylenders or to divert capital from production to speculation.

Moreover given the preference of foreign capital for extractive industries, their influence among local government elites and their backing by the IFI, foreign investors have been at the forefront devastating the environment. Timber barons and soya exporters are demolishing the Amazonian rain forest. Oil companies devastate the land and water in Nigeria and around the Caspian Sea. The increase in revenues to the federal state is hardly ever used to compensate for the destruction of the local agricultural and fishing economy. Instead state revenues are recycled to build roads and ports linking environmental predators to external markets.

Foreign investment plays a large role in the Third World and the ex-Communist countries in large part because of the liberalization policies imposed or promoted by the IFI. As part of the liberalization process, restrictive tariffs and regulations are lifted regarding foreign ownership but also for the massive entry of subsidized food and cheap industrial products. Whatever dubious benefits foreign investors might provide is more than offset by the loss of local agriculture and manufacturing production and jobs due to the cheap imports. Moreover foreign ‘competition’ between large-scale MNC and local established and start-up companies is so lopsided that few survive. The net result is not to increase the competitiveness of local firms but to drive them out of business, or to sell out to the larger firms. Even when foreign owners relocate plants in the ex-communist countries and the Third World, the move is conditioned on maintaining labor and social benefits at low levels. Once labor demands wage increases and tax holidays end, capital relocates to a cheaper area.

Political influence of foreign investors increases with their greater presence in the local market, their control of strategic sectors of the economy and the emergence of western-trained political leaders promoting ‘free enterprise’. Equally important foreign owned enterprises employ executives, managers, lawyers, publicists and economists, with linkages to the political elite, who frequently move into key political positions (presidents of the Central Banks, Ministers of Economy and Finance) and implement macro-economic neo-liberal policies which maximize benefits to the foreign investors at the expense of the local labor force and treasury.

Equally important foreign owned enterprises play a lead role in banking, industrial and other business associations, leveraging them to secure policies favorable to their interests.

Finally foreign-owned firms gain management control over ‘national’ enterprises, either through buy-outs, ‘management contracts’ or by subcontracting to satellite medium-size firms that become dependent on the ‘core’ foreign-owned firms, and frequently and forcible back their policymakers. Foreign-owned firms, expecially US, MNC frequently act as conduits for imperial state policies. They do so by disinvesting in countries, which are on the US State Department blacklist, and relocating productive facilities to pro-US countries. US MNCs ‘house’ and provide a false cover to intelligence agents, pass on economic intelligence to the CIA, and refuse to supply repair parts to countries in conflict with the US. US banks facilitate capital flight, tax evasion and laundering money for wealthy elites and, in the process, weaken US adversaries and competitors frequently reducing production, refining or services to countries in conflict with the imperial state.

Infrequently ‘marginal corporations’ or even subsidiaries of major corporations do not follow the line of the imperial state, either because the profits are too lucrative to overlook, competitive pressures from other MNC are intense, and/or because the long-term incentives offered by the targeted state offset the risks of antagonizing imperial policymakers.

Foreign-owned firms are at least initially run by expatriates at least at the most senior positions. ‘National’ executives are usually hired to handle (1) links with the local regime, (2) labor relations, (3) tax evasion or to secure exonerations from payments and (4) public relations campaigns and political advice.

Contrary to the ‘expectations’ or propaganda of neo-liberal ideologues, foreign-owned firms do not usually transfer technological research and development (R and D) to Third World countries. Over 80% of the firms’ R and D are conducted in the home office in the imperial state. What are transferred on occasion are the results of R and D and at a stiff price in royalty payments over an extended period of time. In fact foreign investors frequently buy out local productive units, strip their assets, take over their customers, markets and distributive networks and then either close out the firm or merge it with a foreign-owned conglomerate, resulting in mass firings, reductions in services and higher costs to consumers.

In summary foreign investment has strategic disadvantages, endangering national independence, popular sovereignty, and severely compromising the capacity of the state to represent its citizens, expecially the working class and the peasants. Equally important foreign investment has built-in mechanisms, which contribute to low re-investment rates, de-capitalization of the economy and balance of payments problems.

Alternatives to Foreign Investment

Foreign investment increases inequalities, and produces a polarized social structure, as a result of the low tax rates, the high rates of return and the pro-foreign investor outlook of the state. The ‘residual benefits’ to the ‘receiving country’ are usually concentrated in the hands of local ‘political facilitators’, top and middle management, and subcontractors and distributors. Clearly large-scale, long-term foreign investment furthers the goals of the imperialist state; indeed it embodies imperialism, and is one of its economic engines and driving forces.

Foreign investment in the broadest sense is incompatible with any notion of anti-imperialist politics. Which is not to say that in limited circumstance (in time and place) under specified political conditions, under particular sets of regulations, administered by select group of regulators, foreign investment can be useful.

In the face of the overwhelming historical and empirical limitations and negative impacts of foreign investment (FI), its advocates resort to the argument that ‘there are no alternatives’. They argue that without FI there can be no development, no access to markets, and no technological advance and no progress.

On the contrary, we will argue that there are very solid empirical and historical grounds for arguing that there are substantial financial and economic resources which are available to popular regimes, which are more efficient in producing positive growth and have none of the negative social and political outcomes and accompaniments of FI.

Alternatives to Foreign Investment

Reinvestment of profits from lucrative export industries and strategic domestic enterprises via public ownership back into the domestic economy. Profits, which would be remitted abroad by foreign capital, are channeled inward to expanding local production, producing a ‘multiplier’ effect and increasing local consumption demand in a virtuous circle.

Control of foreign trade would increase retention of foreign exchange in order to avoid overseas seepage, allocate hard currency to priority enterprises which increase local production, employment and popular consumption.

Invest pension funds in productive activities and distribution rather than holding them in private banks or trust funds.

Create development banks to channel overseas workers’ remittances into productive, job-creating activities. In many countries overseas remittances as a leading source of hard currency, are used for local family consumption and marginal economic activities. The neo-liberal state uses the hard currency to service the foreign debt.

Moratorium on debt payments based on the need to investigate whether earlier loans took place within a legal framework, whether they resulted in productive activity and whether they financed corrupt practices and unproductive uses (military expenditures). Determination should be made whether the original principal has been paid and if loans were originally borrowed by private firms, in which case debt payments should be cancelled or referred back to original borrowers. The state should not accept socializing the bad debts of private firms’ mismanagement and poor judgment in investment decisions, nor the careless high-risk loan decisions by creditor institutions. Past lenders and borrowers should assume the risks of profits and losses, rather than saddling the populace with payment for loans from which they were neither consulted nor benefited.

Recovery of treasury funds stolen and property illicitly privatized by previous regimes. Overseas accounts based on illicit transfers especially by business and political elites should be impounded as part of an anti-corruption commission headed by independent tax lawyers and representatives of the mass organizations. Enterprises privatized under dubious circumstances should be re-nationalized.

Recovery of unpaid taxes especially through tax evasion by MNCs and international firms. Offenders should be investigated and prosecuted, including stiff penalties. The state should demand full recovery of back taxes or undertake seizure of physical and liquid assets of the delinquent foreign firms. The state can demand that the accounting sheets of MNCs be open to public inspection, to foil the common practice of intra-firm ‘transfer pricing’ and thus artificially and illegally lowering profits and income to evade adequate tax payments.

Graduated land taxes and expropriation of underutilized or speculative land can provide land for agrarian reform and low-income public housing. This will increase agricultural productivity and food for local consumption as well as exports. Extensive estates and plantations illegally occupying public lands should be expropriated without compensation. Compensation for expropriated land should be paid in long-term bonds based on past tax-declared value (or at market value, if the estate owners are willing to pay back taxes on the difference between the declared and market value.)

Overseas holdings or investments by public firms should be liquidated and the revenues reinvested in upgrading national productive infrastructure and processing industries. Excessive foreign reserves should be downsized and put to work in diversifying the economy. Reserves should be held in diverse currencies and should not be deposited in overseas banks, where an imperial adversary could hold the funds hostage. Holding a ‘devaluating’ currency because of past ‘reputation’ or because of ‘neo-colonial’ linkages is both bad politics and bad economics.

Maximizing employment of under-employed labor - running in some cases to 80% of the labor force - in large-scale infrastructure projects can compensate for ’scarce capital’ and become a source for initial capital accumulation. Likewise underutilized educated, skilled workers and professionals can provide innovations and organizational breakthroughs, which can increase total output and increase productivity.

Any serious examination of the social economy of most countries would discover there are multiple national sources of capital without relying on foreign capital. These sources have all the advantages of raising the rates of capital investment with none of the political uncertainty, economic vulnerabilities and social inequalities associated with foreign capital.

Worst Case Scenarios: FI as a Last Resort

Let us assume that a Third World country has few overseas earnings, sparse or non-existing pension funds, an honest tax administration but few taxable sources, but with valuable resources which require high initial capital investments and new technology. Obviously external financing or expertise is required. The question then becomes what are the optimal short-term and strategic contracts, which will minimize the negative effects, enumerated above.

The optimal approach is to dis-assemble the ‘foreign investment package’ - to minimize direct foreign ownership and long-term management control. To maximize strategic national ownership and control it is preferable to sign short-term management contracts which include training of national replacements over a fixed period, preferable from countries with less intrusive imperial states. Likewise where technical assistance is necessary, for lack of know-how of specific processes, it is preferable to contract technical advisers to work in tandem with local specialists, while local technical expertise is being prepared for future takeover. If foreign MNC are required to construct local productive facilities, ‘turnkey contracts’ should be signed in which the MNC are guaranteed a certain rate of profit over a specified time period after which ownership is handed over to national owners. Specific contracts with time limits allow the nation to maximize the employment of national skilled professionals, managers and workers. The widening pool of available high-skill specialists in the global market, provides a variety of choices and practically eliminated dependence on a single country (particular imperialist countries) and certainly avoids depending on foreign investment with the long-term loss of ownership, control and strategic investment planning.

To limit entanglement with foreign capital, it is essential for the country to invest in professional and technical training, research and development, all of which can be done through selective overseas studies or by importing specialists from abroad.

Advantages of Worker-Engineer Public Control (WEPC)

There are a number of significant advantages to relying on ‘Worker-Engineer Public Control’ or WEPC over foreign-owned MNC in pursuing a development strategy.

Tax Evasions and Tax Revenues

The multinational corporations are masters in the art of evading taxes and corrupting local regulators. WEPC, operating with ‘open books’ and independent auditors responsive to workers and consumers can minimize tax evasion, leading to increases in revenues, sound fiscal balances and low levels of corruption.

Social Investment versus Profit Remittances and Privileged Salaries

Profits under the MNC-dependent strategy are largely invested overseas, in exorbitant salaries, bonuses and expenses for the CEO’s and other management elites. Under WEPC model profits are reinvested in expanding local production, social development programs and improvements in working conditions.

Capital Flight versus High Reinvestment Ratios

The MNC model is based on volatile movements of capital, including capital flight, leading to greater investment instability and fluctuations in state revenues. The WEPC leads to higher and steadier re-investment ratios, greater stability in employment, investment and public revenues.

Speculative Investment versus Long-Term Investment in Research and Development

One of the basic demands of the MNC’s is the deregulation of financial markets, in order to move capital back and forth between fixed to ‘liquid’ investments. This has led to the growth of speculative investment, which has provoked severe crises throughout the capitalist world. Under the WEPC model, highly regulated financial transactions minimizes the flow of capital into speculative activity and maximizes financing of product innovations, research and development.

Capitalist versus Social Welfare

Under the MNC model, the state provides enormous subsidies to foreign investors, in the way of tax exonerations, rent-free land, state-funded infrastructure development, low interest loans and de-regulation of labor and environmental laws. Under the WEPC model, both costs and profits are socialized - providing free health, guaranteed employment, livable and fixed pensions, child care, safe work conditions, adequate vacations and continuing education to upgrade skills and productivity to increase leisure and study.

Mobile Capital/Fixed Labor versus Fixed Capital/Mobile Labor

Under the MNC model capital ‘relocates’ to maximize profits, lower taxes, undermine working conditions, avoid health and pension obligations. Under the WEPC model ‘capital’ is fixed to specific location and labor is trained and mobile moving up in skill level employment, assuming leadership roles and engaged in lifetime education and job training. Under WEPC there is no ‘contracting out’ or ‘outsourcing’ or ‘temporary work contracts’. This model takes advantage of a stable skilled work force applying its knowledge and experience to improve production without the frequent disorganization caused by worker turnover.

Potential Problems in the WEPC

There are several problems that can occur under the WEPC. These include:

Decisions favoring greater consumption over productive investment

Bureaucratization of organization

Worker indiscipline (tardiness, absenteeism etc.) leading to a decline in production and innovation

Loss of competitiveness due to state protection

Excess or insufficient taxes to the central government

Inter-sectoral inequalities due to differential rates of productivity or prices

Over-emphasis on social benefits as opposed to individual consumption

Marginalizing issues of gender, race and ecology

The WEPC model to be effective requires that its leaders and popular supporters have a long-term ‘holistic’ view of the development process, in order to balance the demands for immediate consumption with investment in medium and long-term production. Inevitably, especially in the initial phase of the model, there will be strong pressure to ‘make a difference’ with regard to past capitalist approaches which perennially postponed popular satisfaction in order to ‘increase the pie’. The new regime will have to adjust to this political demand by initially providing significant social impact programs - like free medical care and higher education, rent reductions and debt forgiveness — in order to gain the confidence of the working classes and to demonstrate that the new regime represents a break with the past. The social impact programs will also secure the loyalty of the popular classes and give them a stake in defending the regime, an important issue given the likely hostility of the imperial powers and the local ruling class.

The new model needs to guard against tendencies toward bureaucratization based on delegation of power, differential expertise and the prestige of particular leaders. Formal mechanisms including popular workplace and neighborhood assemblies, popular access to the mass media, referendum on strategic socio-economic decisions and, above all else, a politically educated working class which is exposed to public debate is the best antidote to incipient bureaucratism.

Worker indiscipline ’should’ not occur under WEPC but it does or it will: Some workers will try to lessen their official work in order to carry on ‘under the table’ work; others will take advantage of a lax regime or the apparent lack of sanctions, and increase absenteeism or fake illness; others may be perennially late or fail to adequately perform duties and neglect quality control. Social education on rights and responsibilities must be inculcated in all workers, backed by sanctions including loss of pay, benefits and layoff without pay for chronic offenders. A combination of reward and penalties must continue for an indefinite time, otherwise most workers will have to carry extra societal burdens because of a minority of slackers.

While WEPC economy functions in a world capitalist market place, the enterprises must combine humane social relations of production with improving competitiveness. All WEPC of whatever size, resource base, proximity to imperial centers, level and diversity of production, need to invest in research and development (R&D), to encourage innovations in pharmaceuticals, technologies, quality products and so on to be able to have marketable products at competitive prices. There should be specialized production in countries with favorable endowments in locations, resource bases or skills. Productivity gains should reduce working hours and years of work, extend time for rest and recreation activities, provide opportunities for continuing education as well as quality time for personal and family relationships and friendships. Without constant innovations and competitiveness, market losses will severely hinder the growth of humane social relations.

The socialization of production will not automatically change inequalities in racial and gender relations among the workers and professionals. A concerted ‘cultural revolution’, based on legal, educational and government initiatives will be necessary to begin the process of reversing institutional and attitudinal racism and sexism in all spheres of production, consumption and cultural representations. Direct representatives of racial and women’s class-based organizations must be present in key positions. Likewise socialization of production requires the direct presence of representatives of environmental mass organizations to minimize the excess exploitation of non-renewable resources, environmental pollution, chemical agriculture abuse.

Finally the WEPC faces the problem of inequalities generated by different levels of productivity, value production, and market demand leading to inequalities between factories, sectors and regimes. Decentralized control will accentuate the advantages of some to the disadvantage of others, leading to the reproduction of class and regional inequalities. A system of progressive tax and wage and social subsidies as well as increased investment in upgrading less developed industries and regions can lower the inequalities.

Conclusion

The historical and empirical evidence demonstrates that the political, economic and social drawbacks of foreign investment far exceed any short-term benefits, which are perceived by its defenders. Research has demonstrated that most economies possess the financial and capital resources and underutilized human and productive capacity to undertake successful development without the high political costs which FI brings to bear. An alternative model, the WEPC, provides numerous advantages over dependence on international finance and investor capital. While FI has a general negative role, the WEPC model does not totally exclude FI in specific sets of circumstances, limited in time and location to implement endogenous development. A strategy directed toward drawing on international assistance to complement endogenous growth emphasizes specific contracts with a variety of providers, particularly with those not linked to the imperial state.

While the WEPC model provides an alternative approach, which maximizes national and working-class interests, it has potential drawbacks and internal contradictions, which require constant reflection, deliberation, debate and reforms. Nonetheless the model provides the surest and most direct road to development with democracy, social justice and national independence. The success of the WEPC model, its introduction and sustainability does not depend merely on its socio-economic viability but on national security and cultural policies and institutions.

May, 2005