United States Foreign Investment and Dollar Shortage: A Comment

Abstract

SO many important documents born on both sides of the Atlantic -the Fifth Report of O.E.E.C. on the one side and the Randall Report on the other, to name the most recent -have stressed the desirability of increased private investment in Europe as a means of correcting the continuing weakness (to put it no more strongly) of Europe's dollar trading accounts, that it is refreshing and salutary to read the persuasive criticism of the concept presented by Mr. Ernest Bloch.2 His discussion leads him to the view that States private investment cannot be considered as making any appreciable contribution either directly or indirectly to the dollar shortage. I Looking this problem from the receiving end, so to speak, I wonder if this somewhat sad conclusion is wholly warranted? As to the facts, there can be relatively little disagreement. Private investment by the United States in the world as a whole during postwar years, Mr. Bloch suggests, has been at least equal to that of the twenties; 4 certainly this is so if one allows for the re-investment of undistributed earnings during postwar years and for the changes in prices. Taking the net movement of long-term capital during the I92 0'S shown in recent data, private long-term United States investments abroad (including the reinvestment of undistributed earnings) rose from $6.5 billion the end of I9I9 to $I5.2 billion the end of I930, an annual average growth of $790 million.5 For the post-war period, the same data indicate a growth of private long-term United States investment abroad from $I2.3 billion the end of I946 to $22.I billion the end of I953, an annual average growth of $I400 million.6 As Mr. Bloch remarks, post-war private foreign investment has been very much lower in relation to GNP than during the I920'S. I make the ratios 0.95 per cent over I920-29 and 0.47 per cent during I947-53.7 It is true, of course, that if one adds in the enormous dollar flow pumped out to the world economy since the war in the form of United States government grants and loans, the ratio of the total dollar-flow to GNP is vastly increased. But the significant fact remains that the private United States propensity to invest abroad is only one half of what it was in the twenties. Now that the flow of government grants to the outside world is coming to an end, it would be an optimist indeed who would argue that the private propensity to invest funds abroad will rise as the public propensity declines. The shift in the private propensity, one suspects, is a great deal more permanent than the enormous postwar flow of government dollars. But it is on the flow of private American capital to Europe that the discussion must center in this context. As Mr. Bloch points out, the flow to this area has been relatively insignificant. In I929, about I9 per cent of United States direct investment abroad was directed to Europe; of the increase of $4.3 billion in such investment between I929 and I950, only $0.3 billion, or 7 per cent, has gone to Europe.8 Between end-i95o and end-I953, the total value of private long-term United States investments abroad increased by $4.6 billion; the value of such investment in Western Europe increased by only $o.s8 billion.9 Nor is this all. Earlier data have indicated that for the world as a whole re-invested earnings accounted for about 37 per cent of total private United States foreign investment dur-