UNITED STATES GOVERNMENTAL INVESTMENT GUARANTY PROGRAM FOR PRIVATE FOREIGN INVESTMENTS, DEVELOPMENT, AND APPLICATION, 1946-54*

Abstract

THE CLIMATE FOR private foreign direct investments from the United States in the postwar period 1946-54 was characterized by political, social, and economic obstacles emphasized in the minds of investors by unstable world conditions and the fear or threat of war. Governmental programing of economic development appeared as a new postwar deterrent to such investments; the capital flow between governmental and intergovernmental agencies was substituted for the traditional flow of capital between individuals. With the introduction of the European recovery program, a system of governmental investment guaranties for direct investments from the United States was provided for in the Economic Cooperation Act of 1947 and was renewed in subsequent foreign assistance legislation. Through the governmental assumption of the risks of inconvertibility and expropriation under the investment guaranty program, government officials and congressmen expected the investment climate to improve sufficiently to promote United States direct investments abroad. The investigation reveals that investors utilized $48.6 million in guaranties during 1948-54 ($33 million, allowing for reductions due to cancellations, conversion, or returns of the guaranteed investments) for investments in Western Europe; the available guaranty authority was $200 million. In comparison, United States postwar private foreign direct investments averaged some $1.2 billion annually. The investigation reveals that, in addition to small utilization of the guaranties, large internationally well-known corporations rather than small business or firms without foreign investment experience utilized the guaranty protection during 1948-54. The investment guaranty program did not promote new direct investments from this country, nor did it increase significantly the volume of these investments. Private business opposed the guaranty measure partly be-