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Navigating the Globalization Dilemma: Democratic Pressure and the Making of U.S. Inward Foreign Direct Investment Policy in the 1970s

Published online by Cambridge University Press:  30 November 2018

Matthew J. Baltz
Matthew J. Baltz*
Affiliation:
Bucknell University
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Abstract:

The tension between democratic institutions and the project to integrate international markets for trade and investment has been an enduring feature of the contemporary era of globalization. This article analyzes how officials in the executive branch navigated this tension in the making of inward foreign direct investment policy during the 1970s. Based on recently declassified archival sources, it traces how top officials in the Ford administration decided to establish a new interagency committee in order to appear responsive to congressional pressure and still leave its “open door” investment policy intact. Yet this measure only marked the first step in resolving their political dilemma. Lower-level functionaries then had to manage the problem of how to give the new committee the appearance of strength while also maximizing its discretion to be weak. Overall, this article contributes the first comprehensive account of both phases of the policy-making process using new archival evidence.

Keywords

Committee on Foreign Investment of the United States (CFIUS)Henry KissingerNixon administrationinward foreign direct investment (IFDI)globalization
Type
Article
Information
Journal of Policy History , Volume 31 , Issue 1 , January 2019 , pp. 101 - 125
Copyright
Copyright © Donald Critchlow and Cambridge University Press 2018 

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Footnotes

This work was supported in part by the Gerald R. Ford Presidential Foundation under its Research Travel Grants Program.

References

NOTES

1. During the first half of the 1970s, annual IFDI inflow reached a peak of $4.7 billion in 1974. Board of Governors of the Federal Reserve System (U.S.), Rest of the world; foreign direct investment in U.S.; asset, Flow [ROWFDIA027N], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/ROWFDIA027N (accessed 27 June 2018).

2. As the economist Dani Rodrick has noted, this tension arises as sovereign governments seek to integrate their domestic markets more deeply with the rest of the world, thereby restricting the policymaking space open to the influence of domestic politics. See Rodrik, Dani, One Economics, Many Recipes: Globalization, Institutions, and Economic Growth (Princeton, 2007);Google Scholar Rodrik, , The Globalization Paradox: Democracy and the Future of the World Economy (New York, 2011).Google Scholar

3. “U.S. Policy and Objectives on International Investment,” 29 April 1974, White House Special Files, Subject Files: Confidential Files, 1969–74. [CF] FO 4-3 Box 33, Nixon Library.

4. For a broader discussion of the political economy issues associated with multinationals and foreign direct investment at this time, see Gilpin, Robert. U.S. Power and the Multinational Corporation: The Political Economy of Foreign Direct Investment (New York, 1975).CrossRefGoogle Scholar

5. Bergsten, C. Fred, “Coming Investment Wars?” Foreign Affairs 53, no. 1 (1974): 135–52.CrossRefGoogle Scholar

6. Niehuss, John M., “Foreign Investment in the United States: A Review of Governmental Policy,” Virginia Journal of International Law 16 (1975–76): 65–102.Google Scholar

7. Gerowin, Mina, “U.S. Regulation of Foreign Direct Investment: Current Developments and the Congressional Response,” Virginia Journal of International Law 15 (1974–75): 611–47.Google Scholar

8. Pastor, Robert A., Congress and the Politics of U.S. Foreign Economic Policy, 1929–1976 (Berkeley, 1980).Google Scholar The other social scientific studies of CFIUS’s history are by Barbara Jenkins and C. S. Eliot Kang, both of whom focus primarily on the reform period of the late 1980s or rely primarily on Pastor’s account. Jenkins, Barbara, The Paradox of Continental Production: National Investment Policies in North America (Ithaca, 1992);Google Scholar Eliot Kang, C. S., “U.S. Politics and Greater Regulation of Inward Foreign Direct Investment,” International Organization 51, no. 2 (Spring 1997): 301–33.CrossRefGoogle Scholar

9. Baltz, Matthew J., “Institutionalizing Neoliberalism: CFIUS and the Governance of Inward Foreign Direct Investment in the United States Since 1975,” Review of International Political Economy 24, no. 5 (2017): 859–80.CrossRefGoogle Scholar

10. Pastor, Congress and the Politics of U.S. Foreign Economic Policy, 248–49.

11. Ibid., 250.

12. Ibid., 248–49.

13. Ibid., 250.

14. Flanigan to Nixon, “Memorandum, Subject: International Investment Reform,” 29 April 1974. White House Special Files, Subject Files: Confidential Files, 1969–74. [CF] FO 4-3 Box 33, Nixon Library.

15. Ruggie, John Gerard, “International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order,” International Organization, International Organization, 36, no. 2 (1982): 379–415.CrossRefGoogle Scholar

16. Friedman, Thomas L., The Lexus and the Olive Tree (New York, 1999), 87.Google Scholar

17. Trade policy is the paradigmatic example of institutional arrangements designed to accomplish such relocation. The general effect, as Chorev found in her analysis of U.S. trade policy since the New Deal, is liberalization accomplished through a process of “shifting authority, both at the national and international levels, away from politicized sites of decision making, such as Congress and diplomatic negotiations” to “bureaucratic and judicial sites, where exogenous voices and political deliberations are effectively filtered out.” Chorev, Nitsan, Remaking U.S. Trade Policy: From Protectionism to Globalization (Ithaca, 2007), 202.CrossRefGoogle Scholar

18. “Foreign Investment in the United States: Part I,” Hearings Before the Subcommittee on International Finance of the Committee on Banking, Housing and Urban Affairs, U.S. Senate, 93rd Cong., 2nd sess., 23 January 1974, 14, 125.

19. Niehuss to Eberle, “Mid-East Investment in the U.S.,” 6 December 1974, Council on International Economic Policy Files, 1978–79, RG 56 General Records of the Department of the Treasury, Office of the Secretary, Assistant Secretary International Affairs, Office of International Investment, Box 1, National Archives at College Park.

20. Enders to Bennett, “Memorandum, Subject: Inward Investment Policy Review,” 21 January 1975, Council on International Economic Policy Files, 1978–79, RG 56 General Records of the Department of the Treasury, Office of the Secretary, Assistant Secretary International Affairs, Office of International Investment, Box 1, National Archives at College Park.

21. “VIII. Recommended U.S. position on Foreign Investment Summary,” draft, 15 January 1975, 5, Council on International Economic Policy Files, 1978–79, RG 56, Office of International Investment, Box 1, National Archives at College Park.

22. “Inward Investment Policy Review: Comments on Treasury Paper VIII,” 15 January 1975, 5, Council on International Economic Policy Files, 1978–79, RG 56, Office of International Investment, Box 1, National Archives at College Park.

23. Memorandum from Enders to Bennett “Subject: Inward Investment Policy Review,” 21 January 1975, RG 56, Office of International Investment, Box 1, National Archives at College Park.

24. Indeed, in public testimony given soon after CFIUS was established in May 1975, Enders himself expressed concern that the setting up of reporting requirements where investors have to ask for permission would be “a very serious precedent for other governments” and would “encourage the development of bureaucracies throughout the industrial world to do just that, and they’re hard to control once they’re created.” Also concerned about the tendency for institutional drift, Enders added that “they may be created with liberal intentions and find themselves ultimately used with far more interventionist, and far more damaging intentions.” “Foreign Investment Legislation,” Hearings Before the Subcommittee on Foreign Commerce and Tourism of the Committee on Commerce, U.S. Senate, 94th Cong., 1st sess., 7 and 12 May 1974, 86.

25. A memorandum of a conversation that took place three weeks prior to the pivotal 24 February meeting provides further insight on the views of the principals at the Treasury and State departments. When Simon expressed concern to Kissinger about Enders’s potential interest imposing quantitative limits on foreign investment, Kissinger replied that “I do want them out of national security industries and those areas where their investment control would be demoralizing to citizens. But, beyond that, our principal objective should be to maximize their dependence on us.” To this, Simon replied, “I’m glad to hear that. That’s the only reason I’m here—to make sure you have not been brainwashed. I’ve been hearing different sorts of things from levels underneath ours.” “Memorandum of Conversation,” 3 February 1975, in Foreign Relations of the United States, 1969–76, vol. 37: Energy Crisis, 1974–80 (Washington, D.C., 2012), 128–33.

26. Bennett to Simon, “Meeting on Foreign Investment in the United States, Feb 24, at 10:30 AM,” Council on International Economic Policy Files, 1978–79, RG 56, Office of International Investment, Box 1, National Archives at College Park.

27. Cohen, Benjamin J., In Whose Interest? International Banking and American Foreign Policy (New Haven, 1986);Google Scholar Spiro, David E., The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets (Ithaca, 1999).Google Scholar Both authors provide detailed analyses of these relationships, as well as the variety of special concessions that were made by Treasury on behalf of several Arab governments in the years that followed. Neither, however, examines the implications of this relationship in the establishment of CFIUS.

28. As Bennett would later warn in Senate testimony: “You have to be careful. I know who is investing in U.S. Treasury bills, but this law says I would have to make that information public, and I’m afraid that would be very deleterious to the sale of Treasury bills.” “Foreign Investment Legislation,” Hearings Before the Subcommittee on Foreign Commerce and Tourism of the Committee on Commerce, U.S., 94th Cong., 1st sess., 7 and 12 May 1974, 86. The veil of secrecy surrounding Saudi investments from this period would not begin to be lifted until 2016. See Wong, Andrea, “The Untold Story Behind Saudi Arabia’s Forty-One-Year U.S. Debt Secret,” Bloomberg Online (30 May 2016), https://www.bloomberg.com/news/features/2016-05-30/the-untold-story-behind-saudi-arabia-s-41-year-u-s-debt-secret (accessed 30 January 2018).Google Scholar

29. The names and affiliations of all participants of this meeting can be found in Council on International Economic Policy Files, 1978–79, RG 56, Office of International Investment, Box 1, National Archives at College Park.

30. The lone exception in the pages of briefing materials was a short acknowledgment that “there is no single, specific protection” against foreign investors “depriving US of productive capacity by: a. buying a plant and closing it or moving it abroad; b. letting the plant depreciate; c. cutting essential expenditure like R&D; d. selling off key assets.” Not surprisingly, none of these issues were ever raised during the decisive meeting of 24 February 1975. “Foreign Investment in the United States: Summary of Issues and Background, Foreign Investment Meeting,” 18 February 1975, Folder: Foreign Investment in the U.S. (2), Federal Reserve Board Subject File: First National City Bank, Box B48, Arthur Burns Papers, Gerald R. Ford Library.

31. In this respect, Diane Kunz was correct to characterize petrodollar recycling as the impetus for CFIUS’s creation. But such a conclusion should only be made along with the recognition that this was the Executive branch’s preferred official framing of the IFDI issue, and was in some ways a deliberate simplification of the broader congressional debate underway at the time. Kunz, Diane B., Butter and Guns: America’s Cold War Economic Diplomacy (New York, 1997), 256–57.Google Scholar

32. “Minutes of Feb 24, 1975 Meeting to Discuss Policy Re Foreign Direct Investment in the U.S,” 1 Council on International Economic Policy Files, 1978–79, RG 56, Office of International Investment, Box 1, National Archives at College Park.

33. Technically, in the actual meeting minutes, Defense did not specifically endorse any option beyond indicating the need for a law requiring full disclosure of any investment by a foreigner in a U.S. firm. However, a handwritten tally of positions apparently recorded during the meeting had Defense in the Option 1 camp. Ibid., 4.

34. Ibid.

35. Seidman to Ford, “Memorandum, Administration Policy Re Foreign Direct Investment in the U.S.,” 3 March 1975, Folder: Presidential Handwriting, 3/3/1975, Box C14, Gerald R. Ford Library.

36. “Foreign Investment Act of 1975,” Hearings Before the Subcommittee on Securities of the Committee on Banking, Housing and Urban Affairs, U.S. Senate, 94th Cong., 1st sess., 4–6 March 1975, 24.

37. Butler to Kienlen, “Proposed Executive Order on Foreign Investment in the United States,” 11 April 1975, WHCF, FG 412, Box 211, Gerald R. Ford Library.

38. McCloskey to Lynn, 25 April 1975, WHCF, FG 412, Box 211, Gerald R. Ford Library.

39. The phrase “in the judgment of the Committee” was also added at CIEP’s informal request to the Treasury Department. Collier to Levi, 1 May 1975, WHCF, FG 412, Box 211, Gerald R. Ford Library.

40. Smith to Griffin, 11 June 1975. Letter reproduced in “The Operations of federal agencies in monitoring, reporting on, and analyzing foreign investments in the United States, Part 3,” Hearings Before a Subcommittee of the Committee on Government Operations, House of Representatives, 96th Cong., 1st sess., 30 July 1979, 305.

41. The key passage of the press release, “Formation of Committee on Foreign Investment in the United States,” dated 21 May 1975, states that “private investors wishing to consult on major foreign investments in the United States should contact the Secretary of the Committee on Foreign Investment in the United States,” Office of Economic Affairs, L. William Seidman Files, 1974–77, Box 115, Gerald R. Ford Library.

42. “New Administrative Procedures on Foreign Investment in the United States,” Unclassified Treasury Department Cable, Council on International Economic Policy Files, 1978–79, RG 56, Office of International Investment, Box 1, National Archives at College Park.

43. “Summary of Minutes: First Meeting of Committee on Foreign Investment of the United States, May 20, 1975,” Office of Economic Affairs, L. William Seidman Files, 1974–77, Box 115, Gerald R. Ford Library.

44. Adams to Wallich, “Committee on Foreign Investment in the United States,” 17 July 1975, Box B48, Arthur Burns Papers, Gerald R. Ford Library.

45. Griffin to Yeo, “Government of Romania-Island Creek Joint venture,” 21 August 1975. Memorandum reproduced in “The Operations of federal agencies in monitoring, reporting on, and analyzing foreign investments in the United States, Part 3,” Hearings Before a Subcommittee of the Committee on Government Operations, House of Representatives, 96th Cong., 1st sess., 30 July 1979, 312.

46. “Summary of Minutes: Second Meeting of the Committee on Foreign Investment in the United States, July 18, 1975,” Office of Economic Affairs, L. William Seidman Files, 1974–77, Box 73, Gerald R. Ford Library.

47. “Memorandum of Conversation: Assistant Secretary of the Treasury Parsky, Ambassador Jacques Kosciusko-Morize, and Jacques Henri Wahl, Executive Director for France of the International Monetary Fund,” Thursday, 11 September 1975, Office of Economic Affairs, L. William Seidman Files, 1974–77, Box 74, Gerald R. Ford Library.

48. Parsky to Executive Committee of the Economic Policy Board, “Proposed Acquisition of Copperweld Corporation,” 30 September 1975, Office of Economic Affairs, L. William Seidman Files, 1974–77, Box 74. Gerald R. Ford Library.

49. “Guidelines for Committee on Foreign Investment in the United States,” 1 October 1975, Draft, Office of Economic Affairs, L. William Seidman Files, 1974–77, Box 115, Gerald R. Ford Library.

50. “Guidelines for Committee on Foreign Investment in the United States,” 20 October 1975, Final Draft, Office of Economic Affairs, L. William Seidman Files, 1974–77, Box 115, Gerald R. Ford Library.

51. Ibid., 6.

52. “Guidelines for Committee on Foreign Investment in the United States,” 1 October 1975, Draft, Seidman Files, 1974–77, Box 115, Gerald R. Ford Library, 14.

53. “Guidelines for Committee on Foreign Investment in the United States.” October 20, 1975, Final Draft, Seidman Files, 1974–77, Box 115, Gerald R. Ford Library, 9.

54. Ibid.

55. Berger to Katz, “Inward Foreign Investment: Near Term Policy Perspectives,” 1 December 1976. Memorandum reproduced in “The Operations of Federal Agencies in Monitoring, Reporting on, and Analyzing Foreign Investments in the United States, Part 3,” Hearings before a Subcommittee of the Committee on Government Operations, House of Representatives, 96th Cong., 1st sess., 30 July 1979, 247.

56. For further details on this chapter of CFIUS’s history, see Baltz, “Institutionalizing Neoliberalism.”

57. Pastor, Congress and the Politics of U.S. Foreign Economic Policy, 248.