Private capital flows to emerging economies hit an all-time high in 2005 -- a whopping $358 billion. The last time the number was anywhere near that high was 1996, when $328 billion changed hands, just before the Asian financial crisis gave the global economy a sucker punch in 1997.
Private capital flows include commercial bank lending, direct foreign investment, and equity investment through the stock market. (Emerging economies are those that haven't yet reached fully developed status.) China, as has been the case for years, led all nations in gobbling up private capital -- some $50 billion in 2005.
As pointed out in a speech last year by Rodrigo de Rato, the managing director of the International Monetary Fund, "private capital flows long ago" overtook "official lending as the main source of financing for many emerging market countries..." This increased mobility of capital is a defining characteristic of globalization. Instead of looking for productive investment opportunities at home in the U.S. or Japan, or the European Union, investors in those regions are looking for higher yields elsewhere.
The negative consequences of this capital movement for the manufacturing industry in the advanced countries has been well covered. But the Wall Street Journal pointed out an interesting aspect to the story that's received less attention. An increasing amount of that capital is now coming back to its starting point. The emerging economies of the world are beginning to feature their own internationally aggressive corporate entities, and they are using the capital that's been poured into them to purchase strategic assets in the developed world.
According to the Journal, "Companies from emerging markets, armed with piles of cash from rising commodity prices and abundant financing, are snapping up targets in Europe and the U.S., a trend that could shift the global economic balance of power in some industries."
High prices for oil and other commodities, fueled by a steadily growing global economy, are part of the reason, helping, for instance, a Dubai port operating company backed by the government to come up with $6.8 billion to purchase the Peninsular & Oriental Steam Navigation Co., one of Britain's oldest corporations. But another key source of funding has been the money funneled into stock markets in those countries by investors desperate for high returns. The benchmark index for India's stock market climbed 50 percent in the last 12 months, and that's sent India on a shopping spree.
It's hard to know what all this means. Could greater cross-ownership between the developed and the developing world lead a more positive congruence of interests at venues like the WTO? Or are we just viewing the ongoing coalescence of a super-elite class of international multinationals, beholden to no government and no principle but the bottom line?
The Journal does offer one ray of hope about the development: "companies from developing nations are tending to focus on deals with a longer-term view to potential profits. Many don't have the same shareholder pressure to show quarterly profit growth as do publicly held companies in the U.S. and Europe."
In other words, they are empowered to make sensible decisions for long-term economic health, rather than quick fixes to boost stock prices. One could argue that the U.S. in particular could use a solid dose of that kind of thinking. So bring on the Brazilians and the Indians and the Chinese. If we can't build up our own economy, maybe they can.