The Selling of America

Foreign capital rushes into the U.S., creating jobs and some controversy

"It is as if the rest of the world knows something about the U.S. that Americans themselves no longer dare to remember."

Edmund Stillman, director of Hudson Research Europe, Ltd., Paris

While Americans agonize over the lation's real or imagined woes, many people from far off are raiding their savings accounts, borrowing money, taking their business profits and betting on the future of the U.S. Not since British loans helped finance the building of the nation's canals and railroads in the 19th century has the U.S. displayed a more magnetic attraction to overseas investors. Foreign money from almost everywhere is flooding into co-op apartments in Manhattan and Miami condominiums, sprawling petrochemical complexes in Houston and quaint dairy farms in Vermont, suburban shopping centers and downtown office buildings and hotels. Capital from overseas is financing the construction of new factories in every region and the takeover of old-line U.S. corporations of every description. The money is going into farm land, ranch land and waterfront resort communities.

The investment rush has been building for years, and now it is gaining momentum. One factor is the dollar's slump, which has enabled holders of West Germany's mark, Switzerland's franc, Japan's yen and other strong currencies to buy a piece of the U.S. at bargain prices. More important, in the new economic climate of high-energy prices, sluggish international growth and protectionist trade sentiments, the U.S. appears to be the country best suited to ride out the tempest. It also seems the nation least vulnerable to the terrorism that is ravaging Italy and haunting West Germany, or the political unrest that is polarizing Canada and spreading like a plague through the underdeveloped nations. People everywhere are coming to the same conclusion that Johann Wolfgang von Goethe expressed two centuries ago: "Amerika, du hast es besser"(America, you have it better).

Since 1974, foreign investments in the capitalist bastion of America have been growing by an average 13% annually, and now total more than $171 billion, or two-thirds as much as the sum of U.S. investments abroad. Moreover, the gap between U.S. investment in foreign countries and vice versa is narrowing. For example, U.S. capital did much to fuel West Germany's postwar economic miracle, but now West Germans invest more in the U.S. than Americans put into the Federal Republic.

The figures would be much larger if Government tallies could track all foreign investments. No one knows how many millions, or even billions, are borrowed every year from U.S. banks by foreign investors to set up or expand U.S. businesses. Nor are there data on the annual profits that foreign companies reinvest in the U.S. There is also no way of knowing how many suitcases stuffed with cash are sneaked out of Italy, Brazil and other countries that have strict foreign-exchange controls and slipped through airport customs into the U.S.

The foreign-investment surge is not only helping to ease the nation's balance of payments deficit, but is also providing an estimated one new job for every $26,000 of foreign capital. At least $1.6 billion in corporate and real estate investment entered the U.S. last year, and that alone created 60,000 new jobs. Says Felix Rohatyn of Lazard Freres & Co.: "The main problem over the next ten to 15 years is going to be employment. For that reason alone, foreign investment that creates jobs is welcome."

The investments fall into four main categories:

Corporate direct investments. Nearly 1.1 million people work for foreign-owned companies in the U.S., and the number is growing daily as more European and Japanese companies set up manufacturing and assembly plants around the country. Volkswagen's $250 million investment in its plant at New Stanton, Pa., which by year's end will employ 4,000 workers, is only the best-known example. West German cuckoo clocks are now being made in Virginia, French Rossignol skis in Vermont, Japanese zippers in Georgia and British irrigation hoses in North Carolina. Italian shoes are turned out in New Hampshire, and 50% of the Sony television sets sold in the country are assembled in San Diego. Explains Michael Hamilton, an investment banker with First Boston International in London: "During the 1960s, European companies had to invest whatever funds they had in their own countries. Americans appeared dominant in management skills, technology and products. For Europeans to think then that they could take on U.S. companies in the American market was beyond imagination. Now, however, American firms are no longer regarded as invincible."

Corporate acquisitions. More and more foreign corporations are buying control of American companies whose stock prices are depressed; that, of course, is cheaper than starting from scratch. Banks are prime targets. Two weeks ago Britain's big National Westminster Bank Ltd. reached agreement to buy 75% of the shares of New York's National Bank of North America for $300 million. Many manufacturing companies are also being acquired. Foreigners now control companies producing such well-known products as Baskin-Robbins ice cream, Mounds and Almond Joy candy bars, Keebler biscuits, Deer Park spring water, Pepsodent toothpaste, Bantam Books, Alka-Seltzer, One-A-Day vitamins, Calgon bath oil, Bactine antiseptic, S.O.S. soap pads, All and Wisk detergents, Foster Grant sunglasses and Magnavox TVs.

The takeover trend is providing badly needed capital for stagnating domestic firms and bringing in fresh management techniques. In 1976 Britain's computer giant, I.C.L., Ltd., paid $30 million for some money-losing branches of Singer. Since then, I.C.L. has doubled the labor force of these operations and expects the business to grow by a remarkable 500% this year.

Stocks, bonds and Government securities. Foreign money, much of it from Britain and Arab countries, is swirling through Wall Street. Corporate securities held by foreigners as portfolio investments have grown from $34.9 billion in 1974 to $57.7 billion last year. In recent weeks foreign buying has become a major force behind the dramatic rise in the U.S. stock market. Overseas investors also hold an estimated $7.6 billion in U.S. Treasury bills and notes, more than four times as much as in 1974. By making the investments, foreigners are helping to finance the nation's excessive deficit spending, thereby eliminating the need for the Government to borrow the money domestically and divert it from productive investment at home.

Real estate. Scarcely a single community does not feel the impact. In Bade County, Fla., a consortium led by Canada's Markborough Properties is spending $1 billion on an 18-year project to build an entire town, Villages of Homestead, that will add more than 14,000 homes to the tight south Florida market and provide 4,000 jobs. On South Carolina's Kiawah Island, the Kuwait Investment Co. is building a $500 million resort community. In New Orleans' old Vieux Carre district, an Iranian investment foundation is helping finance the development of a 23-acre complex of offices, apartments and a glass-enclosed shopping mall.

Any American owner of a high-quality shopping center, hotel or office building can find foreign investors eager to take it off his hands for a top price. The $100 million Atlanta Center office and hotel complex was begun in 1973 with a $10 million participation by Kuwaiti investors; the Kuwaitis have now bought out their American partners. Two weeks ago, a consortium of European banks paid $62.5 million for one-half ownership of Houston's tallest building, a 50-story office tower at One Shell Plaza, and the 29-story Two Shell Plaza.

Newspapers and magazines in Europe bulge with ads for investment opportunities in American land and buildings. Says Jack Shaffer, a senior vice president of New York City's Sonnenblick-Goldman Corp., mortgage bankers: "Many of the foreigners who invest in U.S. real estate are the wealthiest people and richest institutions. They don't want to get rich. They are rich. They just don't want to get poor."

To serve these rich clients, investment firms abroad are now specializing in American property. Some are one-or two-man operations, and several are as large as West Germany's Lehndorff Management Ltd., which has invested some $300 million in U.S. properties for 1,800 investors. Reports TIME Bonn Correspondent Barrett Seaman: "An American kind of optimism is everywhere. In Frankfurt, a consortium of banks offered $60 million worth of over-the-counter investment shares in a Houston office building for about $10,000 each, and in three weeks sold out the offering to customers, many of them walking in off the streets. One Munich businessman has gone into partnership with some American friends to invest in New York City. They have already picked up a loft building in SoHo and an old office building on lower Fifth Avenue. Now the group is toying with the notion of plunging into a truly speculative venture in the economically depressed West Bronx. The Muenchner's reason is simple: 'Why not? The property we're looking at is available at a price that makes it quite impossible to go wrong.' "

Predictably, there are occasional grumblings about the blossoming foreign presence. Southern Florida has long had a large Cuban population, but more recent arrivals include tens of thousands of French Canadian small businessmen and their families, who have fled Quebec out of fear that it may secede from Canada and pitch the country's economy into a tailspin. In Hollywood and Hallandale, just south of Fort Lauderdale, 20% of the population is now French speaking; the Canadian flag flies over bars, restaurants and motels, many of which are Canadian owned. Longtime residents gripe that the new arrivals are clannish, refuse to learn English and do not participate in the life of the community.

The most vocal complaints come from farmers, who have a visceral attachment to the land. They are torn by conflicting feelings about foreigners who offer premium prices for their acreage. Farmers often sell out, only to wind up leasing the property back from the new, absentee owners and working for them as tenant farmers. When farm children grow up, they must sometimes seek other occupations, because land prices are so high that they cannot afford the life their parents led. Complains Vernon Conrad, vice president of California's Fresno County farm bureau: "Buying by outsiders is taking away the family-based farming communities that have helped make this country what it is." Laws preventing or limiting foreign ownership of land have been enacted in Nebraska, Indiana and Iowa, and the Illinois legislature this week will consider a prohibition of its own. There are enough loopholes to enable foreigners to avoid the restrictions, but doing so may become tougher in the future.

Farmers notwithstanding, most Americans welcome foreign capital. A typical reaction comes from Lisa Freeburn, 21, who left her job as a bank teller to become a receptionist for the German-owned Keiper U.S.A., which opened an auto accessories plant in Battle Creek, Mich., 20 months ago. Says she: "I like it much better than the bank. There's more international atmosphere here. You get a bit of both cultures."

In Pittston, Pa., a community of 60,000 that slipped into decline when its coal mines gave out, West Germany's Schott Optical Glass company opened a manufacturing plant in 1969 with 60 employees. It now has 600. Reports TIME Correspondent Gisela Bolte: "City fathers have hired a consultant in Switzerland to recruit other foreign companies. A Swiss firm that has developed a friction reducing process for machinery will soon open in Pittston. To make the community even more attractive, the local airport runway will soon be extended to accommodate jumbo jets. In addition, a 42-acre industrial park has been declared an international trade zone, where companies can set up assembly plants that will be exempt from U.S. customs duties so long as the products are exported. Schott's home-office executives find the Pittston employees industrious, hard working and more eager for overtime than West German workers." Company employees also feel well treated by management. Says Joe Chmiel, a foreman: "It's the best company I ever worked for. I've been here nine years and never missed a day. The pay is more than reasonable, and you can get advancement."

Hungry for job-creating investments from abroad, 20 state governments have set up promotion offices around Europe. Several offer longterm, low-interest loans. The states also pitch job training programs, corporate tax deferment plans that stretch out for years and, of course, the lure of the vast American market, which is bigger and faster growing than all of the Common Market. Business people are also impressed by lower labor costs in the U.S. than in many European countries. In West Germany, for instance, wage costs are about the same as in the U.S., but employer contributions to pension, health and other social insurance programs are far steeper.

Both sides benefit from this selling of America. For too long, international investment has been a one-way street, with the U.S. spending billions to set up plants and factories abroad. U.S. multinationals have spread prosperity around the globe, but they have also eliminated jobs for American workers at home, and this has increased pressure to block imports that further threaten American jobs. Now foreign investors are returning those jobs to the U.S., and that will make it more difficult for the U.S. to revert to nearsighted protectionism. Explains Economist Louis Wells of the Harvard Business School, an expert on multinationals: "When you've got a foreign-owned final assembly plant in the U.S., you can't cut off imports of parts as easily."

It makes no difference whether the foreign funds are scared money fleeing political and economic uncertainties, or entrepreneurial investments seeking opportunities for profit. An open-door welcome for all is the least that can be expected from the world's principal champion of free-market capitalism. For all its problems, the U.S. remains a land where foreigners by the millions still see immense potential, plentiful resources, an unshakable faith in the sanctity of private property, and a trust in the rewards of initiative. Now that they are able to afford it, there is nothing that should stop them from trying to invest in--and enhance --America's riches.

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