Boston — FOREIGN investment in the United States was at a record high. Businessmen and bureaucrats across the ocean were calling the shots, hiring and firing Americans, selling their wares to a hungry American consumer market. Foreigners owned American factories, real estate, and businesses. Americans were getting fed up. Things got ugly. Americans revolted and seized foreigners' property or destroyed it.
Sound like the plot of another ABC-TV miniseries? Actually, it happened 210 years ago, during the Revolutionary War.
Since then, for the most part, Americans have tried to be self-sufficient, although there have been important periods when Americans turned to foreigners for money - most notably in the building of the railroads in the mid-19th century.
Yet nothing rivals the foreign investment at work in the US today.
``There's been a geometric increase in foreign investment since the '70s,'' says Susan Tolchin, a professor of public administration at George Washington University and co-author of a book on the subject due out later this year.
Foreign ownership of American assets is worrisome to many Americans. But turnabout is also fair play.
Americans continue to own vast assets in other countries. And in truth, says Professor Tolchin, much foreign investment has helped to revitalize parts of the US economy. Some 2.5 million to 3 million American jobs are with companies owned by foreign nationals; the total US labor force is 118 million. Increasing numbers of Americans work for Japanese bosses or for companies with headquarters in Paris or London or Brussels.
For the Japanese in particular, all this investment represents a recycling of huge trade surpluses they have been running with the US. Like the oil-rich Arabs in the '70s, Japanese are buying into America.
Nissan operates an auto plant in Tennessee; Toyota has one in Kentucky; Honda in Ohio; Mazda in Michigan. Sony employs Alabamians; Sanyo, Arkansans; Fujitsu, Californians. Nippon Kokan of Japan owns half of National Steel. Sumitomo Bank has a minority interest in Goldman, Sachs & Co.
But it is not just the Japanese. Nestl'e of Switzerland owns Carnation foods. A British pension fund owns the Watergate complex in Washington, D.C. A Mexican national owns United Press International. And, of course, lower-profile investments such as office buildings, shopping centers, and farmland are very popular with foreigners.
All this is causing concern. With those new factories, a sizable portion of US automaking is now being done under Japanese supervision. It's the same with consumer electronics, photocopiers, and, to a lesser extent, the semiconductor, computer, tire, steel, machine-tool, and banking industries.
If it weren't for foreign investment, though, the US economy might by now have stalled, what with the incredible borrowing that the US Treasury has had to do to finance the military buildup, without new taxes, of the Reagan years. Japanese investors routinely buy upward of 25 percent of long-term US government bonds when they are auctioned.
FOR decades, Britons, Germans, Japanese, Middle Easterners, Latin Americans, and others have favored American stocks, bonds, factories, and real estate.
As the dollar has weakened against the currencies of these nations, the rush to invest in America has accelerated. Economists say the dollar's nose dive earlier this year will speed this process even more.
The reason is simple: The yen, mark, and other currencies are worth more and more dollars. Foreigners can pay more dollars for assets in the US.
Is the selling of America bad?
There are arguments on both sides of this issue. No one really knows the answer. At the least, the United States is finally beginning to experience what many other nations have felt at the hands of US multinational corporations. In this and many other ways, economic forces are breaking down national borders and the world is becoming one big economic machine, with the US strong but no longer supreme.
``It's the reverse of what we are used to,'' notes Earl Fry, a professor of political science at Brigham Young University and authority on the subject. ``But it's also a sign of growing economic interdependence. It's just that with it comes vulnerability.''
In many ways, global economics is a closed system - ``a seemless web,'' as Sam Nakagama, a New York-based economic consultant, puts it.
Capital flows freely around the globe, seeking the best return and lowest risk possible. It springs from the US, Japan, Europe, and all points in between. It ends up anywhere an investment looks promising and reasonably safe.
SO money is flowing to the US as never before. It is sloshing into two categories of international investments: direct and portfolio.
Direct investment is exemplified by Japanese auto factories in Kentucky and Tennessee. Money in direct investments tends to stay put. Portfolio investment is usually in the form of purchase of US stocks and bonds by foreigners. These come and go with the touch of a computer key.
Professor Tolchin at George Washington University figures portfolio and direct investment in the US together amounts to $1.5 trillion. But the yearly increase in such investment is still a tiny percentage of the US gross national product. Tolchin says her figures are rough estimates, mainly because portfolio investments are so volatile.
``It's all happened so fast we don't know what's going on,'' she says. ``We have no handle on where the money is coming from or how much it is.''
But it's worth keeping all this in perspective. Direct investment in nonfinancial companies rose an estimated $9.4 billion last year; that was down from $17.2 billion in 1985 and $26.2 billion the year before. It is growing, but perhaps not as ``geometrically'' as before. And foreigners actually own less of the federal debt (11 percent) than they did at the start of the decade (14 percent). That's because the debt has ballooned, of course, but it also indicates that Americans still buy American debt more than foreigners do.
``We've got a long way to go before we are in Canada's shape,'' Professor Fry says. Foreigners own 25 percent of Canada's nonfinancial industry - the highest total in the industrial world. Eighty percent of that amount is controlled by Canada's southern neighbor. That has caused concern in Canada over whether the nation is becoming too Americanized.
The popularity of sushi and Toyotas among the yuppie crowd notwithstanding, Japanese investment is nowhere near to causing US culture to be submerged. Only 2 to 3 percent of US industry is foreign-owned, and no more than 20 percent of that amount is in the hands of any one country (Britain).
Investment in the US soared in the 1980s for many reasons. First, there are the natural advantages: access to a large, well-integrated market where it is easy to do business; cheap energy and raw materials; reasonable real estate prices compared with Europe and Asia. But things really got rolling when the US trade deficit shot up. That put huge surpluses in the hands of other nations and caused them to want to recycle their money into the US economy.
Here's how that worked: The US trade deficit can be traced to the strong dollar; the strong dollar to high interest rates; high interest rates to heavy government borrowing. By early 1985, the US trade deficit had exploded. Congress was feeling the heat from Americans whose factories were closing and whose jobs were being lost to overseas rivals. ``Trade protection'' was on the rise.
SO the government acted. Treasury Secretary James Baker Jr. and his counterparts from Britain, France, West Germany, and Japan agreed in September 1985 to devalue the dollar. A weaker dollar, they reasoned, would help American businesses compete by making American goods and services cheaper. Such an economic reconfiguration has worked before, most recently in the late 1970s.
By early this year, the dollar was at a postwar low against the yen, the mark, and other currencies, and there was some evidence that US exports were increasing. Finance ministers met on Feb. 22 of this year to try to stabilize the dollar at that lower level.
There's little doubt that fiddling with exchange rates will eventually bring things back in balance. But first must come a lag known to economists as the ``J curve.'' Sales are made at new exchange rates, which worsens the nominal figures but not the actual volume of goods. This can last up to 18 months before exporters and importers change their buying habits.
During this time, Japanese and other foreign capitalists have become much, much richer. They have had millions more yen and other currencies to recycle into the US economy. And that has caused a wave of purchasing of US assets.
Kazuo Nukazawa, an economist with Japan's leading business association, the Keidanren, told the Monitor last year that Japanese companies began to invest heavily in US factories in the early '80s largely to alleviate the rising tide of protectionism in the US by showing a willingness to create new jobs for Americans. It was a political move, he acknowledges. It was also aimed at getting Japanese companies inside US borders to ensure access to markets in case trade barriers were erected.
But by last year, Mr. Nukazawa said, the yen was so strong and the dollar so weak that Japanese companies were deciding to buy into America because it was an even more economical country to them than Japan itself.
So the trend continues. And with it may come social tensions in the US as the new owners of all-American companies in all-American towns are based in Tokyo or Frankfurt or Riyadh.
But if kept in perspective, everyone can win. At its best, foreign investment can build factories, create jobs, put money into the US economy, yield a good return to the foreigners, and knit the economies of the world more closely.