Does national ownership matter?

Does national ownership matter?

Sunday, January 06, 2019

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Foreign direct investment (FDI) has been a dominant feature of small developing economies, such as Jamaica's. In the era of plantation slave economy under British colonialism, the plantations and the large businesses, such as commercial banks, were foreign-owned.

These foreign owners lived in Britain (Tate & Lyle, Barclays); the United States (United Fruit Company, Alcoa, Reynolds), and Canada (Bank of Nova Scotia, Royal Bank, Alcan).

Jamaican-owned businesses were mostly in merchant activities, which largely explains why entrepreneurs have only recently appeared, with a few exceptions like Jamaica Producers and GraceKennedy.

The fact that the profits from these foreign enterprises were transferred to the country of ownership lies at the heart of their development and Caribbean underdevelopment. As the late Trinidad and Tobago Prime Minister Eric Williams explained in Capitalism and Slavery, profits from the Caribbean financed the Industrial Revolution in Britain.

Sir Arthur Lewis prescribed that the level of investment had to be substantially increased in order to raise the rate of economic growth. Governments were too poor to raise the level of investment and hence this would have to come from the private sector, either by FDI or by local private investment.

With the coming of political independence, nationalists realised that they had to (1) increase private investment — by tax incentives and import duty concessions — and (2) retain more of the surplus/profits by getting foreign-owned businesses to reinvest their profits through a programme of “Jamaicanisation”, ie, allow some Jamaicans a minority share ownership.

The Government of the 1970s felt that (1) more FDI was a contradiction because global interests of foreign companies require them to act in their interest, which might not be in the best interest of Jamaica.

The result would be that FDI would not raise the level of gross investment. Furthermore, foreign ownership means the denationalisation of decision-making about resource allocation in Jamaica.

(2) The propensity of local private owners to send profits out of Jamaica was just as high as foreign-owned companies. The solution was for the State to own certain industries, such as public utilities and to take minority ownership in the bauxite/alumina companies.

The developmental role of the State was very popular in many developed countries in Europe and Asia and in developing countries in Latin America and Africa.

Since those days, successive governments in Jamaica have reverted to the private sector investment-driven model. FDI dominates tourism and bauxite mining and refining, the two engines of nascent economic growth.

The private sector has lost some of its world-famous brands, eg, Tia Maria, Red Stripe Beer, Appleton Rum, the cement company, electricity generation. There is foreign control even where there is not FDI, eg, the two international airports.

The problem is that Jamaica may not be retaining enough of the profits generated by the local private sector. Foreign ownership and/or control mean that decisions about resource use, reinvesting or repatriating profits are based on the interest of their global operations and not necessarily Jamaica's.

Food for much thought.

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