The false promises of FDI

Daniel Evans says the focus on foreign investment is undermining the Welsh economy.

Dr Daniel Evans is a Research Assistant at the Wales Institute of Social & Economic Research Data & Methods (WISERD)

The Welsh economy is once again performing badly. The Welsh news has a distinct groundhog day quality, such is the steady stream of horror stories about Wales’ desperate economic situation.

This is not a new problem. Wales has been one of the most impoverished regions of the UK (and indeed Western Europe) for much of the twentieth century. Sadly, this is unlikely to change any time soon.

The Welsh Labour government has increasingly focused on foreign direct investment (FDI) as its main solution to Wales’ problems). FDI is widely celebrated in Wales and generally seems to be viewed as a panacea to all our woes. This way of thinking seems to be accepted by all parties.

And why not? After all, the term investment conjures up images of raising people up, of improving things.

But this way of thinking fundamentally misunderstands capitalism. Wales’ persistent poverty is not an unfortunate accident, but is an inevitable and indeed a necessary feature of the capitalist system. As Calvin Jones brilliantly noted previously on clickonwales. In order to change, we first need a grasp of history and the nature of capitalist development. In particular, we need to understand Wales’ function within global capitalism.

Capitalism constantly seeks to discipline the workforce, to keep it pliant. One of the main ways that workers are kept in line is through what Marx calls the ‘industrial reserve army’ of unemployed workers. The existence of this huge pool of surplus labour allows capital to set the working conditions that it chooses. So we work hard and accept poor working conditions because we know we are easily replaceable, because the alternative is even worse. Viewed in this light, unemployment is not an unfortunate accident of austerity, but rather a necessary and desirable outcome of efficient capitalism

Capital’s inherent mobility means that firms are never tied to one particular region. Once they have squeezed as much profit as possible out of a region, they have the ability to move to new regions at a moment’s notice.  Moving around rather than settling in a particular place may seem counter-productive, but it is vital to realise that the current model of capitalism is based on a short termist version of carpet bagging. This mobility means that FDI can be thought of as a wave breaking on the beach: investment washes over an area, bringing jobs and development (exemplified by ‘boom towns’). Yet this development is necessarily temporary: once the region is no longer profitable (perhaps labour may be cheaper in a different area, or perhaps workers are attempting to organise themselves and to demand better working conditions and therefore eating into profit), capital will flee, leaving behind devastated communities, the detritus and sediment left behind by the retreating wave.

Capitalism ultimately creates for itself a ‘reserve’ of places, in a fashion analogous to the aforementioned industrial reserve army of workers.  So just as more workers than necessary are required (so that the reserve workers may be thrown into the breach when required, and so that existing workers’ wages can be suppressed), so there are more regions (i.e. concentrated pools of labour) than necessary available to capitalism. There will never be enough work to go around, and this is particularly the case in our post-industrial epoch.

These places which are left behind constitute what Richard Walker calls the lumpen geography of capitalism. The term ‘lumpen’ comes from Marx’s concept of the lumpen-proletariat, and refers to a condition of perpetual marginality and precariousness. In other words, the ‘precariat’ tend to be concentrated in certain regions.

Just as different workers perform different functions on the production line, different regions perform different functions within the larger mosaic of capitalist production. So capitalism in fact needs these depressed, undeveloped regions- they are not an accident, just like unemployment is not an accident.

Firms ‘investing’ in Wales can enforce the employment relation they choose: whereas in other regions they may potentially have had to deal with higher worker expectations and a less desperate workforce which demands better working conditions, in Wales everything is entirely on their terms. So ‘investor’ firms can pay workers less, they can hire and fire workers at will, and so on. The permanently low labour costs in Wales means firms can make more of a profit.

Logically, the jobs which are created in lumpen regions will almost always be unskilled or semi-skilled, on top of being necessarily temporary.  Again, this is the case in Wales. What’s more, firms can keep coming back to Wales- they know that if they need to establish a branch plant there will always be cheap, compliant labour here. Wales’ ‘product’, its ‘unique selling point’ is precisely its desperation.

Lumpen regions compete against each other for FDI, for the ‘privilege of being struck by lightning’.

The establishment of the Welsh Assembly has given Wales a head start over, say, the North of England in this race to the bottom. Welsh politicians fall over themselves to attract this ‘investment’, offering lower land rates and other grants to investors. Wales’ ‘trade missions’ which claim to be ‘selling Wales to the world’ are essentially pimping Wales out, trumpeting how cheap its workforce is. One of the pillars of the Assembly Government’s plans to secure FDI is advertising the fact that salary costs of Welsh workers are 40% cheaper than the UK average

Where desperation is all pervasive, whoever secures these ‘jobs’ through ‘investment’ will necessarily win over the populace. This is why attracting FDI very much suits the Welsh Assembly. It does not matter that such investments are unwise. Mark Lang poses the question ‘why grow your local economy in a sustainable manner when you could just attract multinationals and create 2726 new jobs instead?’ The answer is simple: the desire to attract headlines and to maintain political control of Wales.

Whilst Wales’ stagnation is not good for the folk who live there, it is extremely virtuous for capitalism and for local political elites. As long as there is a vested interest in it remaining poor, Wales’ poverty will continue.

FDI is a false idol. The decision to invest in Wales is not benevolent, as portrayed in the press, but driven solely by profit. It is parasitic: firms come in, make a profit, then leave. They only stay if the Welsh government, desperate to avoid bad press, provides them with ridiculous subsidies from the public purse. It is imperative that we ask radical questions and interrogate the neo-liberal orthodoxy which has caused misery for much of the world’s population.

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