The trade deficit has become a topic of conversation for the first time since 1773. What is lost in the discussion is the severe competition for foreign direct investment (FDI). Almost every country in the world has a national agency with significant resources and overseas office to attract investment. The United States has three individuals at the U.S. Commerce Department in Washington, D.C., armed with a website and glossy brochures. This is the U.S. version of “A League of Our Own” and a poster child for American smugness.
To show the interrelationship between trade and investment, I will use a well known Seattle area example, telling a story which, for obvious reasons, Crosscut has not been willing to publicize.
Crosscut Public Media, led by a notorious Seattle robber baron named David Brewster, is considering moving its headquarters. Online news is but a public front for a vast multi-million-dollar empire including a $40 million measuring device manufacturing plant located in Republic, Washington and a brewery in England. The measuring devices are used in legislative bodies to test the level of hot air and to alert people if the temperature reaches dangerous levels. (The website, Crosscut.com, is used to drive the amount of hot air up and down, as a way of showing off the device's quick-trigger responses.)
Naturally Crosscut is wondering: Where is the best deal available? What city in the world will offer the best incentive package to relocate the technology company and the band of ruffians that are employed?
Crosscut is considered a plum for business-attraction agencies. Every country in the world has an investment attraction agency that combs our country looking to bring jobs to their country, states, and cities. Many have offices in various regions of the United States to be better able to work the prospective clients. The goal is jobs and economic activity. It does not take a complete relocation of the corporate headquarters. The robber baron can still live on Lake Washington awaiting a sunny day to sit outside. The desire is to get the multitude of worker bees, the Steve Dunphys and Jordan Royers, to either relocate or to open new positions for local talent to write stories and make the high tech devices.
“Invest in Australia” was the first agency to approach Crosscut. This agency is the top layer of a systemic approach to attracting investment. The agency works with state-level agencies such as "Invest in Victoria" or "Invest in New South Wales," and these in turn work with the cities such as Melbourne or Sydney. The Australia organization recognizes they have a system of government with national, state, and local governments. Each level has assistance to offer and they work together as a team. They cooperate to compete.
What happens to the American trade position if Australia is successful and Crosscut relocates to Alice Springs?
Let’s say Crosscut currently ships half its product around the US and half overseas. If production is moved to Australia, an export becomes an import and an American export is lost to Australia. Our trade deficit deteriorates because of investment attraction. We gain an import and lose an export. Steve Dunphy becomes Crocodile Dunphee and has to do stories on the Outback Conservancy.
Seattle’s Sister City in Korea offers even more incentives. Daejeon is a city at the junction of two rivers with bike and jogging paths along both. It is 10 miles from a national park with mountain hiking and 15 miles from one of the historic centers of Korea. It is 50 minutes from Seoul on high speed rail. It is a nice place.
Daejeon is also the center of Korean science and research. It has the Korean MIT as well as a national university. It has the national science museum and over 20 national research centers. These include national research centers for cancer (which partners with the Hutch), defense, aerospace, electronics, geology, and maritime. What can Daejeon offer Crosscut?
Daejeon’s guide begins with these words: “Foreign-invested firms or R&D centers investing in FTZs will be exempted from national and local tax in accordance with the Foreign Investment Promotion Act, the Special Treatment Control Act, and the City’s Ordinance on the Foreign Investment Promotion.” The incentives include waiver of the national income tax and local taxes if the investment is over $30 million, and lease incentives. If the investment employs over 20 citizens there are subsidies. If it is an R&D center, up to 80 percent of the salaries can be paid with a dollar lid. Finally, cash grants can be given in certain circumstances. Daejeon has a one-stop shop for foreign investors. Daejeon has an excellent guide, “Living in Daejeon” a guide for foreign residents, And yes, there is a COSTCO store.
Andalusia, Spain a few years ago presented its ability to put in the infrastructure and build your building. As with other examples from around the world and as with the New York Yankees, signing bonuses are extensive.
A number of years ago a delegation from Taiwan was visiting Seattle. They were promoting investing in five key industries in Taiwan including IT and new materials. A member of the audience asked a question of the speaker: What are the impact fees in Taiwan? The speaker said he did not know what this was. We in the audience did because of the issues with Boeing when they expanded Paine Field for the 777 production.
The questioner then described the charging of the company for infrastructure. Again the Taiwanese speaker look perplexed and discussed the question with his colleagues. He then said he understood. Yes he said, if you invested in the five industries they would build the roads, put in the sewers, and make any necessary infrastructure investment to make your investment work.
The Greater Seattle region is working to enhance the attraction of investment that creates jobs here. The Trade Alliance is promoting the region to international markets. The development agencies such as Enterprise Seattle, Tacoma-Pierce County Economic Development Board, and the Economic Development Council of Snohomish County can assist with showing people around. The State’s Department of Commerce has three people (if they survive the budget cuts). And yes, the US Commerce Department has two people and a great website, “Invest in America.”
That's pretty puny. As with trade, tourism, and the other components of international competition, we have not confronted the new realities. We still compete with the pre-1905 flying wedge while our opponents use an innovation called the forward pass.
Where is Crosscut moving? The winner turns out to be Bordeaux, France, which won the high-tech business when "Invest in France" offered a location next to a wine bar and unlimited access for 10 years. Au revoir!
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