Investment Key Variable, though Not Any Type of Investment

ECONOMICS, 28 Oct 2019

Roberto Sansón Mizrahi | Opinion Sur – TRANSCEND Media Service

It is claimed that investment is a key variable in every development process, but, beware, not any type of investment. There are investments that contribute to the pursued development and others that hurt it or do not impact on the chosen path. Therefore, it is not right to talk about plain investment without delving into such heterogeneous universe and discerning which investment to make and who does it. Those are two intimately related critical issues.

In the current wealth concentrating process it is important to discern how and where investment is generated; who are its owners; how it is used; why should we accept profit and greed as main motivators for investing; which are its social and environmental impacts; and, very important, why do they generate systemic instability.

Main investment decisions are taken by the owners of capital emerged from the concentration process; an unbridled eagerness of accumulating power and wealth prevails which leads to maximizing profits and make them sustainable. It is considered that in the capitalist system an actor who does not follow such principle will end up displaced by more aggressive and skilled competitors. The other great investor is the State whose investments vary in sense and magnitude according to the social forces that control it. The rest of economic actors with investment capacity subordinate to those who play as coxes of global and national economy. Large majorities that do not have investment capital contribute their labor and creativity to the productive process, key factors though not well compensated in the development of nations.

It is worth making explicit that investors invest their own resources in addition to others which are not their own. The more powerful actors are, the more possibility of obtaining leverage for their investment with third parties’ resources, being those loans with interests and repayment periods, contributions from other investors who share risks and results, non-reimbursable public subsidies, or services and infrastructure provided by the State. These actors also influence public policies to favor themselves. Thus, they operate with major advantages; they impose prices and conditions to suppliers and consumers, have less financial costs and larger capacity for evading or eluding full payment of taxes, possibility of acquiring competitors and promissory emergent ventures, capital flight. All this allows them for obtaining succulent rates of return that cycle after cycle favor the accumulation of large surpluses, thus becoming main decision-makers regarding what, where, when and how much to invest or disinvest.

Is this unavoidable? Are there no other options?

Certainly, there are other courses of action orientated towards transforming the concentrating dynamic through politics; that is, with exogenous interventions in the markets. This implies give way to another economic rationality and very different coxes sustained by ever more clarified social coalitions organized to free captured democracies. Establishing new courses and ways of functioning is a complex but unavoidable challenge; these transformations are indispensable when the purpose is securing the general wellbeing and protection of the environment. Indeed, it cannot be expected that the privileged resign those privileges graciously. The breach of neoliberal order is never free of resistances, shudders, and struggles to direct change. A lot has been written and debated regarding these issues.

Another type of investment, how to generate it, and possible results

Transforming the concentrating dynamic demands establishing comprehensive policies that, among other important decisions, regulate and orientate the flow of investments. For that, it will be necessary to take action in so diverse fronts such as the current investment flow that formats the structure and functioning of the national productive matrix, the dynamic that predominates in value chains, and enabling new investment channels and spaces.

  • At the productive matrix level, the challenge is to promote investments that serve a sovereign national development, discouraging those that mine its sustainability and inclusive dynamic. Two examples. In contexts of foreign currency shortages and recurrent bottlenecks of the external sector it is not convenient to concentrate investments  in sectors intensive on imports as they would make tensions worse, rather promote investments in exporting sectors (foreign currency generators) and sectors that substitute imports (foreign currency savers). Another example refers to countries with poor energy sources; there it is not convenient to concentrate investments in sectors intensive on energy use unless, previous or simultaneously, it were possible to increase the local offer of energy.
  • Regarding value chains, the prevailing internal dynamic favors leading enterprises that concentrate larger results generated by the joint effort of chain members. It is imperative to establish regulations and internal spaces for negotiation of prices and commercial conditions so that all the members participate fairly in the results to capitalize, strengthen, and diversify their productive capacity.
  • An area that requires major attention and innovation is the generation of new productive actors of medium size and popular base (capable of including today lagged or unemployed sectors) not lead by profit but by solidarity with the communities they belong, needed to secure jobs and income that sustain the good living of families and protection of the environment. For that, it will be necessary to establish financial and technical instruments specialized in this type of ventures. At the beginning, it will require the mediation of the State as it is less likely that this support system could emerge spontaneously. Even though, there are some pioneering experiences to support inclusive ventures that are worth to consider, their scale is small and they operate in quite difficult conditions. To secure a wide sectorial and territorial coverage, it is necessary to form trusts specialized in channeling investments towards inclusive ventures and, at the same time, developers that supported on the local scientific and technological system provide assistance of excellence for these startups and accompany them in their initial phases.

In summary

Even though investment is a key variable in national development, it matters not only its magnitude (how much is invested) but also who invest and in what they invest. If largely concentrate groups were to invest in businesses with vested interests, then, it would only imply the reproduction cycle after cycle of the concentrating process. While some of their investments may help in making an inclusive and sustainable development more dynamic, others might threaten this type of development. Thus, the need for regulating current investment flows, securing equity in value chains, and establish new investment channels that promote medium-size ventures of popular base. It is about redistributing not only income but also an important factor that helps generate it: investment.

The purpose is not to affect national productive capacity but rather strengthen and redirect it towards general wellbeing and protection of the environment, transformation that makes for the social and environmental sustainability of development; that is, eliminate social injustices, environmental destruction, and recurrent situations of systemic instability that challenge contemporary course.

When it is preached to let markets orientate economy, as if those who control markets could lead us to better destinies, it is necessary to unveil what is artfully concealed. While markets enable adopting innumerable decisions, the course to follow and way of functioning, that is, the context in which a market operates, should necessarily be established and normed by society as a whole. There is no privileged minority or automatic pilot that could effectively manage communities’ actions, crossed by a diversity of interests, needs, beliefs, longings, emotions, and perspectives of what ought to be done. Such varied and changing group of factors generate tensions and conflicts that must be addressed and know how to channel. Believing that markets by themselves will provide solutions to such complex situations and, together with it, that the most appropriate ordering principle of economic functioning is maximizing profit, is something that is not in line with reality. It is worth making explicit that there is not just one type of market but rather several and diverse, with more or less concentration. Left at their own dynamic without exogenous regulations, markets will inevitably be dominated by the most powerful actors, guided by the zeal to protect their interests, and not those of the entire society.

The fundamentalism of maximizing profits leads to invest only when there are favorable perspectives and disinvest or retract investment when expected returns are low or negative; these actors enlarge setbacks and help generate systemic instability. Instead, other actors, especially small producers that invest to obtain results compatible with sustaining jobs, covering needs, and caring for the environment, resist unfavorable situations, do not make them worse. With an important caveat. Even those small when they grow can reproduce the hegemonic behavior and add to the herd orientated towards protecting their own privileges. The underlying challenge is much larger. Together with transforming the context in which we all operate, it is decisive to free us individual and socially from the submission imposed through the colonization of our minds and subjectivities. It will be a hard but unavoidable task to recognize and assume different values, habits, and behaviors than those imposed by the concentrating process. This makes for a new perspective regarding the planet, humanity, and sense and meaning of life.

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Opinion Sur is a non-governmental, nonprofit group from Argentina dedicated to promoting sustainable economic and social growth in developing countries. Opinion Sur creates original ideas and strategic action plans to share with policy makers, entrepreneurs, academics, NGOs, and the public through advisory services, and a series of products: two monthly online publications – Opinion Sur and Opinion Sur Joven. Through Opinion Sur Journal, a free and non-partisan online publication, it circulates ideas that contribute to the sustainable development of countries in the Southern Hemisphere. This publication, which is also available in Portuguese and Spanish, focuses on three complimentary areas: Development; Geopolitics; and Transformations. Currently, there are more than 70,000 subscribers spanning across the five continents. More…

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