The  high and growing level of capital exports  from the “mature”  to “emerging” countries  in the current year   (see Insight , The flow of capital going into the Emerging Countries )  is  big   enough to provoke  some thinking on the general situation of world’s economy. The   figures for   private    capital export have  risen to a level never reached before, that is, 1041 billion dollars for the year 2011. Of this figure 574 billion dollars are Equity Investment, of which 423 are Direct Investments, and the rest 151 billion  Portfolio investments. Private Creditors count for 467 billion dollars. Such a high level of capital export must be considered both from the point of view of its consequences and also of its origin. The usual, simple explanation for it is  “globalisation”, a trend that started many years ago. 

However, the  present  size of capital movements must  mean something more than what was originally considered  as globalisation , that is , a search for  areas  where labour cost would be lower than those of the “mature” countries . There is, also, a growing sensation that that this kind of globalisation is rebounding back to the rich markets of the “mature” countries. The simple mechanics may be explained as follows. Entrepreneurs  who produces something that cost  them  , suppose ,$ 10 d,  and is sold at $ 20 , would be strongly interested   to delocalise  their production in countries  where their    total cost would be $ 5.  They would   import back the products  and sell them in their market  to   at  a slight discount ,  let’s suppose at $18, with an margin of  $ 13 , a 30% increase .The small cost of  container transport  makes it possible. However, in the course of time that  production will grow in the “emerging” country ,  with  local entrepreneurs  paying  not $ 5 but , say,  $ 3 , who  will sell  in the  rich market at  about $ 6,  being ready  for  even lower prices.  No producer with  “mature” countries’ overheads can beat that.

The original delocalised producers   are therefore thrown out of the market, unless  they accept  selling at  a loss , or to buy the competitor’s production  for marketing, with lower margins. Production of labour intensive industry, where the labour force is more numerous, tends to disappear in “mature” countries and the original de-localisers are in any case in trouble. The apparel industry of Europe seems to be going through such a phase. So, obviously,  globalisation reduces employment in “mature” countries. Yes, is often the answer, but the rich countries produce things that require high technology and great skills .... an objection that dies when one looks at the origin of the most sophisticated electronic gadgets.

The matter has also another aspect. This huge outflow of capital means, basically, that investment capital produced in rich countries is invested somewhere else. Investment stagnates in “mature” countries, and that has a depressing effect on employment.  Companies and rich people   of “mature” countries tend not invest in their countries, and the industry reduces both its labour force, and the level of innovation. The sheer size of capital exports suppose that of underinvestment must be   quite common in rich countries’ economies.

The huge outflow of capital could supposedly to have two different origins. The first is probably the very resources that the  Government  offers at very low cost to  encourage investment , which  find  instead  higher remuneration  from  emerging countries’ high rate of interest , and  of profit. Perhaps, this is the reason why the American industry does   not take advantage of such a generous offer. This situation shows that  there is no way to get out of a crisis or a  stagnation by trying to facilitate private investment.

The old  remedy , public investment , seems to be  the only  one to have  some  real  effect on the economy , through  an increase in demand. The second   is   delocalisation of production, the usual globalisation, which will slowly reduce the ability to compete of the “mature” countries in the global market. Both outflows have a negative effect,  and produce articles like Paul Kennedy‘s “Crossing a watershed” (IHT, October 26 , 2011)  which envisages  an accelerating process  of decadence of the West , while “the Asian  nations  apprehend  the world’s  futures”.