The Balance Sheet of US Foreign Policy 1940-2013

Summary : (Part 3 of 4) I argue that commenter Matt’s view of US foreign policy, as presented in Part 1, makes no sense because the “returns” from that investment climate are laughably low. I present a balance sheet of American internationalism since 1940. ( Cf. parts 1, 2, 4 )

In part 2 of this series, I showed that the control and ownership of Third World assets by the rich countries peaked in 1914 and diminished to almost nothing by the 1950s. But that diminishing trend was reversed some time in the 1980s and we have every reason to believe there’s a now a long-term, secular trend for rising ownership of Third World assets by the rich countries. Of course, there are today a few more countries considered rich who have started exporting capital, but that is a minor phenomenon compared with what looks like a throwback to the early 20th century.

Has Matt’s view of US foreign policy been vindicated ? Is the “carve-up” of the Third World the dividend the United States is receiving for vanquishing the Soviet Union and all other alternatives to American capitalism ? Since Matt asserts the United States has had a global strategy to create a “favourable investment climate” for itself in the Third World, we are justified in asking, what in the end has the USA gotten out of that strategy ?

(All the tables in this blopost were compiled from data I’ve assembled in this spreadsheet, wherein I also detail the sources and the calculation methods.)

First, the benefits side of the ledger :

The above represent the existing, cumulative stock or overall investment position (not flows of capital) in the companies, factories, real estate, mines, oil refineries, and other productive assets, owned by American entities and citizens, and located outside the United States. The figures also include bank deposits, but do not include “portfolio investment”, i.e., stocks and bonds. (But even now portfolio capital is still something which bounces around the stock & bond markets of the rich countries.)

So all assets accumulated in the past, which have not been liquidated or depreciated away, are summarised above. Basically about $4 trillion out of the total ~$4.7 trillion are located in developed countries or in Caribbean bank accounts (and some tourist infrastructure).

First, relative to the US capital stock, American-owned assets abroad are puny. Capital stock figures are not published regularly, so I can’t compare them easily. But the wealth (not GDP, which is income) of the United States is between $60 trillion and $80 trillion in current dollars.

Second, despite the FDI boom, US-owned assets in individual countries are still relatively meager. For example, those American-owned maquiladora factories exporting all manner of goods to the USA notwithstanding, the US-owned share of Mexico’s capital stock is perhaps 2% (conservatively assuming a 3-4 to 1 ratio of capital stock to GDP). There’s nothing to brag about here for an economic imperialist, let alone for the unchallenged hegemon bestriding the unipolar world.

The comparable figure is even smaller for Brazil. It’s slightly bigger for Chile, on the order of 4%, which reflects investor confidence in that country. But really, if you removed Brazil and Chile from the South American totals, it’s as though South America barely existed. Most of the “other Caribbean” are, again, bank deposits and tourist infrastructure in the French and Dutch Caribbean. So when you realise that Mexico, Brazil, Chile and the “nice” Caribbean account for almost all of the relatively meager US-owned assets south of the Rio Grande, the whole idea of an investment-driven foreign policy that the United States was willing to fight gargartuan wars both hot and cold over is….there’s no other word for it….a joke.

Matt has argued perhaps Africa was too poor to matter. Actually, almost the entire Third World hardly seems a bother…

Now, the FDI position data above do not include exports or “factor income”, i.e., dividends, interest payments, rents and other returns to assets held abroad. Here follow my computations of the net cumulative resource flows to and from the United States and the Third World between 1940 and 2013 :

I stress : the above do not represent flows of investment capital. Rather, they represent the net proceeds from exports and imports between the United States and developing countries, plus the balance of repatriated investment income (like profits from foreign operations, or dividends, or interest on debt, etc.), plus transfer payments like immigrant remittances, foreign aid grants, humanitarian relief and charitable donations.

Note, the biggest numbers above are in the trillions. I also stress the word “cumulative” : I’ve added up all the annual data for exports, imports, incomes and transfers. Normally these would be expressed as percent of GDP, year to year, but I have chosen to convert all the nominal data into constant 2013 dollars and aggregate the years for a reason which will become clear soon enough.

Also, for the earliest years (i.e., before the 1970s), I could not easily find complete investment income data. I only found incomes received by the United States from developing countries, but not the income outflows and transfers from the USA. But I’ve included the incomplete data in the 1940-2013 aggregates, because the incompleteness biases the data against my view anyway.

Most of the enormous resources flowing out of the United States went to China just in the past 15 years. But nearly $3 trillion went to other developing countries over the same time period.

But the pattern that’s most strikingly contrary to what we should expect if Matt’s theory were correct, is that these resource flows into the Third World get bigger as we approach the present. In part, this is because even the poorest economies have grown in size in the last 75 years. But it’s remarkable, even as the Cold War has receded from memory, and even as the Neoliberal Imperium has stormed nearly all redoubts of economic nationalism, the undoubted hegemon that is the United States has reaped such meager rewards. Actually, at least as judged by net resource extraction, no rewards at all !

In terms of the resource extraction from the periphery by the “metropolitan core”, the Third World looked more stereotypically colonial in the 1940s, 1950s and 1960s, at the height of economic nationalism, than it would later, when nationalism was defeated. And it’s almost certain that had it not been for the debt crisis of the 1970s and 1980s, the resource flows would have been even more favourable even earlier for the Third World.

Now, I’m not disputing the world has been “neoliberalised” to a great extent. Obviously other rich countries, besides the United States, have resource flows with the Third World. If a neoliberal world with a “favourable investment climate” had been the goal of US foreign policy, then it seems to have been achieved, but largely on behalf of non-Americans.

What about the costs of getting to this point, of American military dominance coupled with an underwhelming American share of the spoils ? The cumulative costs in 2013 dollars of the US engagement in the world since 1940 :

Those are all trillions. The second column excludes foreign aid spending in case there’s been double-counting in the balance of payments data from earlier. These figures do not include the $1 trillion of military spending in the period 1900-1940, or any interest payments on debts incurred as a result of any of the wars at any time, or the potential economic efficiency costs of those expenditures, or the supplemental appropriations for the Vietnam and the Korean Wars, which I could not locate quickly. But what’s a couple of trillion ? They do include, as far as I know, all the off-budget supplemental appropriations for Iraq and Afghanistan up to 2010.

Now, all this we know in retrospect. Maybe the American launch out of isolation and into the world was a kind of runaway train, with a logic and momentum all its own. But that “retrospect” has got a 75-year span. You would think even a half-rational actor or an outright half-wit might have realised a mere few decades into the costly project that it just didn’t make any sense if the ultimate goal was a “favorable investment climate”. At some point you need to see returns. And given the resource flow patterns that exist right now, you could not amortise those $50 trillion at all !

If there was a kind of long-range but flexible strategy by the United States to create a “favourable investment climate” for itself in the Third World, then it must have been implemented by rank nincompoops. Or, another possibility is that Chomskyians have overextrapolated from the Central-America-Caribbean model of the interwar era to the whole world.

(The comments section on this post is closed. If you’d like to comment, please go to Part 4, “The Mystery of US Behaviour in the World”.)