Foreign Investment is Not “Neo-Colonialism”

by George Hess

An enduring notion held by anti-capitalists is that multinational investment in developing countries is an inherently malicious process that is injurious to the recipient parties involved. For example, they would infer that this investment is an expression of neo-colonial dominance and control. Even operating voluntarily and without inherent coercion, it is seen by the left as destructive and as a means of undermining a nation’s culture and identity while promoting economic dependence. Che Guevara articulates this perspective in the following statement:

“’Underdevelopment’, or distorted development, brings a dangerous specialization in raw materials, inherent in which is the threat of hunger for all our peoples. We, the “underdeveloped,” are also those with the single crop, the single product, the single market. A single product whose uncertain sale depends on a single market imposing and fixing conditions. That is the great formula for imperialist economic domination.”

Investment in these economies is deemed coercive: the global market is said to consist of strong central economies which drain the resources, both material and human, of dependent economies at the periphery. Furthermore, multinational corporations and investment firms promote all manners of social ills like environmental destruction and humanitarian crisis. These dealings are of a parasitic nature, where the host nation is bled dry of its resources with no attention paid to economic or environmental sustainability. Neo-colonialism, as such, is used to refer to any developed manipulation of developing economies. This term has even come to characterize free market associations with developing economies outside of the hegemonic influence of governments and military powers.

Conversely, free market proponents assert that voluntary contracts between individuals in developed and developing nations are beneficial to both parties. The developing single export state is one stage in a progression from “underdeveloped” to industrialized. Free market firms are checked in ways that hegemonic foreign governments and traditional colonial powers are not. For example, businesses are bound by voluntary contract, and they are immediately accountable to their consumer base for any perceived slight. This accountability characterizes free markets outside of a traditional view of imperialism. Businesses with unsustainable business models are subject to the backlash of investors. Businesses that commit humanitarian or environmental violations are responsible to shareholders and consumers. These contracts act on a voluntary basis driven by the consent of client countries and the moral leanings of those who engage in trade.

Do investors or consumers care what companies do in developing countries as long as they are able to profit off of the spoils? Consumers and investors are actually more empathetic towards 3rd world issues than many would ascribe. There is a tremendous amount of cognitive dissonance that must be accepted for consumers at large to accept humanitarian transgression as viable. This backlash is evident in consumer based movements that target specific concerns. For example, fairtrade and organic foods are two movements facilitated mainly by consumers that are aimed at providing adequate compensation for products or for advocating sustainability. Furthermore, non-profit groups and consumer awareness advocates may cooperate with media to bring transparency to social issues that would otherwise remain unaddressed beneath the safeguard of government confidentiality and colonial, or nation-run, contracts.

The idea of a self-sustaining economy operating as a unit independent of international markets is an antiquated notion with its roots in mercantilism. This way of counting imports and exports in certain markets fails for the situation as a whole. The free market maximizes efficiency. To diversify each individual country in every market ignores principles that empower the free market system. The notion of a single export economy is not inherently negative. For example, deforestation in South America is driven largely by farmers. “Slash and burn” agricultural practices are unsustainable and ineffective. A free market distribution of industry would posit that agriculture would take place in more suitable climates and conditions. Economies situated in tropical rain forest areas would not be compelled to diversify into agriculture. Rather, those economies would be able to focus on industries more suitable to their environment while importing food from areas more suited to agriculture.

Thus, free market investment in developing countries verges less on neo-colonialism and more on the maximization of industry. To characterize multinational investment in such a way presumes that economies operate with the intention to benefit only the investing parties, rather than as a mutual system. A directional economy, reminiscent of colonial trade, is a vestigial notion that is incompatible with voluntary systems of trade where self-determined individuals are free to choose which contracts favor their self-interests.

However, it is important to make the distinction that aggressive actions by governments do not fit into the capitalist paradigm. In fact, these actions are neo-colonial and impede countries’ rights to self-determination. For example, Commodore Perry’s threats to bombard Japanese cities in 1853 if they didn’t open themselves to trade were coercive and morally reprehensible. The Opium Wars and the Treaty of Nanking were likewise coercive and morally reprehensible. Peaceful investment and voluntary interaction between individuals, however, is a far cry from these actual neo-colonial policies and exists for the mutual benefit of both groups.

What does this all mean? Neo-colonialism has inappropriately become a buzzword cast upon any interaction between the developed and developing worlds. Foreign investment in the industrialization and economic growth of developing nations is not inherently coercive or unjust. Rather, this form of interaction vindicates capitalism as a system of peaceful exchange, especially when juxtaposed against the imperialist policies of nations in the past. As a system, capitalism has served to promote cultural exchange, raise the general standard of living, and to provide growth and opportunity for developing nations.


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