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We are the great and powerful USA. Ignore the dysfunction behind the curtain

Sabri Ben-Achour Oct 31, 2013

We are the great and powerful USA. Ignore the dysfunction behind the curtain

Sabri Ben-Achour Oct 31, 2013

President Obama addressed hundreds of global investors and business people today at the SelectUSA Investment Summit in Washington, imploring them to put down financial roots here. 

“There is no better place in the world to do business than the United States of America,” the president said. “Think about it — globalization and technology mean, you can go just about anywhere. But there are a whole lot of reasons you ought to come here.”

President Obama went on to laud the American worker, the low cost of energy, and the country’s steady economic growth.

In the halls and corridors of the Marriott hotel, investors from every corner of the globe mingled with economic development corporations from around the U.S., making connections and getting pitched on sweet deals and incentives to do business.

If you think the U.S. is the natural, number one place for the global investor to land — think again. 

 “The United States share of global foreign direct investment has fallen a lot in the last ten years,” says Matt Slaughter, who teaches at Dartmouth’s Tuck School of Business and is scheduled to address SelectUSA. He says in 2000, the U.S. share of foreign direct investment was around 37 percent and “by 2012 that share had fallen to just 17 percent.” 

That’s bad for two reasons.  One, foreign direct investment creates jobs that the U.S. desperately needs. Two, it creates good jobs.  

“U.S. affiliates of foreign-headquartered companies in the United States pay compensation that is one-third higher than companies in the rest of the private sector in the U.S.,” says Slaughter.

Why is it then that the U.S. isn’t as attractive as it used to be? For one thing, emerging economies, such as Brazil or China, have become more attractive as they’ve grown. But that’s only part of the story. 

“It’s not so much the government dysfunction, that’s kind of normal now,”  says Kent Smetters, professor at the Wharton School of Business at the University of Pennsylvania. It’s more that tax rates have gone up, the corporate income tax rate in the U.S. is the second highest in the industrial world.”

That won’t change without comprehensive tax reform, which the Congress has long put off.

“Events like SelectUSA Investment Summit can do a lot,” says Slaughter.

They can foster connections and networking, and they can let investors know they are welcome. 

But a summit alone “cannot enact comprehensive tax reform, comprehensive immigration reform, it cannot rebuild our infrastructure,” he says.  “Those harder policy changes are hopefully going to come in the future but time will tell.”

All of those factors contribute to the challenge of attracting foreign direct investment.  So while the SelectUSA event may get foreign investors to come along for a date, they may need more to tie the knot and move in.  

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