WOLL - THE ROLE OF INVESTMENT PROMOTION ORGANIZATIONS IN THIRD WORLD DEVELOPMENT - VI - 2007103102

Role of Investment Promotion 1

Running head: ROLE OF INVESTMENT PROMOTION ORGANIZATIONS

The Role of Investment Promotion Organizations in Third

World Development

Enrique A. Woll B.

CENTRUM Católica

October 31, 2007


Abstract

The capitalization imbalance between the northern

hemisphere, and the southern hemisphere, developed

countries and the underdeveloped, and between OECD

countries and the rest, suggests that something may be

failing in the capital markets’ capacity to arbitrate

investments: It would seem that it does not function

effectively, and that the not so uncommon perception of

increasing relative backwardness of the Third World is

true. If so, beyond investigating its causes, it is

necessary to investigate the attributes, achievements, and

plans of existing multilateral and governmental poverty

eradication and economic development organizations, and of

their private counterparts, and the regulatory

environment, in order to determine the need and

opportunity for the creation of new private-public systems

to increase the north-south investments rate.


The Role of Investment Promotion Organizations in Third

World Development

Simply stated, this article constitutes a preliminary

search for the underlying causes of, and relationships

between, the capitalization imbalance between developed

countries and the underdeveloped, the capital markets’

international investments’ arbitration capacity, and the

relative backwardness and extreme poverty of the Third

World and Fourth World, respectively. It identifies key

research questions that deserve to be addressed in this

quest. It is inspired by the dire circumstances faced by

the poorest of the poor, and the apparent need and

opportunity for the creation of new private-public systems

to increase the north-south investments rate.

The Nature of the Problem

Echoing a common perception of increasing relative

backwardness of the Third World, Messinger & McCullough

(2005) reported that:

We live in a world of both endless possibility and

immense injustice. The disparity between the very

rich and very poor continues to grow, creating

dangerous inequality. A world in which few prosper

and many starve offends our commitment to fairness

and insults our belief in justice for all. (para. 16)


The gravity and intolerable nature of the phenomenon of

extreme poverty and inequality they protest is readily

apparent when one considers that “One billion people in

the developing world live on $1 or less a day, lacking

clean water, electricity, food, education and medical

care” (Messinger & McCullough, para. 1).

In this unhappy context, Manfred Schekulin (2005),

Director, Export and Investment Policy, Australian Federal

Ministry of Economics and Labour, and Chair of the OECD

Investment Committee, in taking stock of the effects of

Foreign Direct Investment, or FDI, on development over the

last decade, noted what, for the destitute, is surely

reason for hope:

Private investment is a dominant force driving

globalization. Cross-border investment flows have

tripled over the last decade alone and foreign

capital stocks are now twice the size of global GDP.

Private investment is acting as a powerful catalyst

for growth and, and as emerging economies from Asia

to South America have shown, is one of the surest

ways to sustained poverty reduction. (p. 26)

But Schekulin, though, was quick to point out that not all

countries are benefiting fully from the potential of

higher investment:


Flows of international capital to developing

countries are concentrated in a handful of economies,

with Africa virtually absent as an investment

location. In 2003, five non-OECD countries accounted

for more than a quarter of the total value of OECD

country investment outflows. (p. 26)

And thus, in the context of the capital markets’

capacity to arbitrate north-south investments, Schekulin

(2005) brings to mind, and makes it apparent, and all but

evident, that the natural selectivity of capital flows, in

so far as its dark side is concerned, that is, its

exclusionary effects, if clearly beyond the bounds of

reasonable caution, hesitancy, or the sporadic flights to

which transient adverse market reality will encourage

investment, or if transcending, by far, the available

market information that would explain its persistence,

would be the real nature of the problem, the proximate

cause behind the marked capitalization imbalance between

the hemispheres. However, of course, in addition to any

functional irrationality, there would be acting upon and

determining such seemingly capricious flows, albeit in

unknown measure, many significant limitations the capital

markets are evidencing today, of a practical nature, such

as technological insufficiency, and domain limitations,


posing as flaws or imperfections, as well as other,

perhaps more directly tractable causes of this imbalance,

of a social, economic, and political nature, both

spontaneous and imposed, including through governmental or

multilateral action or inaction (Johnston, 2004; Ali,

2005; Schekulin, 2005), that, in concert with the

foregoing, may further and crucially diminish the urgently

required and reasonably expected southward flow of FDI,

and thus constitute formidable pillars of underdevelopment

for the Third World. But in the final analysis, this would

be the problem that would matter: Insufficient southward-

bound FDI flows, whatever its causes, in the context of a

marked north-south capitalization imbalance, and extreme

welfare differences, when capital is deemed essential to

production, and increased capital to increased

productivity and development, when inadequate

capitalization levels may serve to perpetuate the status

quo. Evidently, if real, it should be simultaneously

targeted from many places and angles.

The Importance of the North-South Capitalization Imbalance

To be clear about the transcendental importance of

the problem presented by the referred apparent capital

markets’ irrationalities, and limitations, in the context

of societal vices which gravely distort, and even impede


their normal workings, and detracts from the flows of FDI

to where they are needed the most, and of investigating it

in search of theoretical and practical solutions, it

should be noted that very few of those living in the post-

communist 21st century, regardless of latitude, or country,

would dispute the fact that direct investment is

inextricably linked to the opportunity to work, survive,

and prosper, whether it be of national origin or FDI,

private or public, or whether it be in general

infrastructure, buildings, equipment, or technology, or

whether it be in intellectual property, proprietary or

indeed public-domain. Further, it is common knowledge in

the contemporary world that investment, particularly of

private risk capital, is the crucial engine of development,

in any country, and is especially important in the case of

FDI and Third World countries (Schekulin, 2005),

increasing their capitalization for growth ("Wrong Way

Around," 2005). Thus, it would be unnecessary to prove

that, in a general sense, inadequate capitalization levels

would restrict the welfare and development of these

countries, at least relative to that of other better

capitalized ones in the First World, helping to explain

the widespread tangible problem of people living on a dollar

or less a day, and that, conversely, increased FDI flows


would be beneficial to them and the underdeveloped

countries they live in, by increasing their absolute

levels of capitalization (Schekulin, 2005) and employment.

Finally, if there is doubt regarding the extreme to which

the north-south capitalization imbalance has manifested

itself, and how likely it may be that this situation will

change spontaneously, or soon, it should be considered

that only two of the thirty OECD countries to date,

Australia and New Zealand, are in the southern hemisphere.

See Appendix.

Poverty Eradication and the State of the Art of Development

In connection with the grave problem of extreme

poverty and inequality, Messinger & McCullough (2005,

para. 3-4) claimed that the achievement of the Millennium

Goals of the United Nations, agreed by all of its 189

member states in 2000, of reducing global poverty by the

year 2015, and halving the number of the extreme poor, is

possible given three main requirements: (a) international

debt relief for the poorest countries, (b) increased

development aid from the wealthiest countries, and (c)

trade agreements that are fair and do not pose a threat to

livelihoods and or medical needs of the extremely poor.


According to Messinger & McCullough (2005), in June

that year the United States and Great Britain agreed to

cancel the debts of 18 countries with the International

Monetary Fund, the World Bank, and the African Development

Fund, but over a dozen countries that qualified but

refused to comply with harmful economic policies required

by creditors were turned down. In 1970, per Messinger &

McCullough, the world community set the goal of raising

humanitarian aid to the poorest countries to 0.7% of the

gross national product of wealthy nations, but as of 2005

the United States was only contributing a scant 0.16% and

had no plans to increase it. Messinger & McCullough set

forth an example of how trade deals can be harmful to poor

countries, citing the case of the Central American Free

Trade Agreement, or Cafta, stating that:

As written, Cafta would benefit a relative few at the

expense of the poorest of the poor. Lack of access to

lifesaving medicines, lax labor laws and heavily

subsidized American produce flooding into the region

– forcing small farmers out of work and deeper into

poverty, as the North American Free Trade Agreement


has already done in Mexico – are all potential

hazards of this unjust policy. (para. 15)

FDI, which includes such things as acquisitions,

mergers, and factories built abroad, and increases both

the integration of global markets and the rate of economic

growth in receptor countries, by an estimated 0.4% for a

one-percentage-point rise in the ratio of the stock of FDI

to gross domestic product, is for those reasons a closely

watched statistic in the world ("Wrong Way Around," 2005).

The biggest source of FDI are the wealthiest countries in

the Organization for Economic Cooperation and Development,

OECD, but, in recent times, after its flows peaked in 2000

as a result of massive cross-border mergers between its

member countries, a three year slump ensued ("Wrong Way

Around," 2005), to the detriment of developing countries.

Fortunately, in 2004 a new report from the OECD showed

that total FDI outflows from OECD countries, though below

their 2000 peak, by far, were at $667.8 billion while

inflows were only slightly over $400 billion ("Wrong Way

Around," 2005), and importantly, though tempered by a

disturbing caveat:


Foreign direct investment is beginning to flow in the

right direction: out of the slow-growing wealthy

countries and into emerging markets. But overall,

capital is still moving from the developing world to

the developed—and, in the process, helping to

increase the imbalances that put the world economy at

risk (para. 1).

Indeed, Ben Bernanke, a governor of America’s Federal

Reserve, “argues that the recent increases in the current

account deficit are in fact the result of a global savings

glut pouring out of the developing world” ("Wrong Way

Around," 2005, para. 9). And, focusing on what might also

encourage the flow of capital from the developing world to

the developed, and reduce or reverse the proper flow of

FDI, it should be noted that:

Glenn Hubbard, a former chairman of President George

Bush’s Council of Economic Advisers, argues that the

culprit is weak financial systems; countries with

poor investor protections, fragile equity markets and

shaky banks offer few attractive opportunities for

domestic savers. Government policies are also to


blame, such as China’s machinations to keep the yuan

weak, which forces it to buy massive amounts of

dollars that are then invested in American

securities” ("Wrong Way Around," 2005, para. 10).

According to Ali (2005), “the world economy is in

urgent need of a flow of FDI from the developed world into

the developing countries, not vice versa” (p. 1). In fact,

Ali proposed that since the early 1950s it has been

recognized that for countries that have been recipients of

FDI, it has been the most crucial factor in enhancing

economic development and ensuring a reasonable standard of

living. But Ali went further than Glenn Hubbard ("Wrong

Way Around," 2005) on the topic of factors limiting FDI,

parceling out the blame to include developed countries,

stating that not only had trade and FDI been used to serve

political goals but also that “. . . superpowers have

frequently employed their political leverage not to

further stability and economic progress in developing

countries but to ensure the submission of the developing

countries to their cultural and political domination” (p.

1). Expounding even further, Ali claimed that not only are


most multinational companies driven [only] by profit

maximization, thus failing to notice lesser but

interesting investment opportunities capable of healthy

returns, but that, “In addition, contrary to the

globalization trend and the call for an integrated world

economy, increasing numbers of MNCs espouse nationalistic

investment policies. Consequently, they discriminate in

their investment choices and destination according to

their home country’s preferred foreign policy” (p. 1). The

inconsistency of such nationalistic policies by developed

countries with the principles of market economy place the

disfavored countries in vulnerable economic positions, and

together with the noted active political accommodations by

MNCs and their zeal for profit maximization, would largely

explain the widening gap between rich and poor countries,

according to Ali, through diminished FDI inward flows to

the latter, and may in fact constitute the first pillar of

underdevelopment.

But looking at factors internal to developing

countries that help to explain the unfavorable financial

markets reality, and the sometimes inadequate concomitant


government monetary policies, even in major ones such as

China, Ali (2005) identified the core nature of the

backwardness that characterizes such countries, that may,

to some degree, be self-reinforcing: (a) the absence of a

vibrant middle class, (b) the absence of mature legal

institutions, (c) the absence of transparent operations,

and (d) the absence of remedies against fear and political

instability leading to corruption. Ali proposed a

convincing interpretation of the manner in which fear and

political instability operates on the nurturing and

cultivation requisite to the emergence of sound

institutions and practices, and perverts development:

In an environment of fear and instability neither

nurturing nor maturity thrives. Worse, because of

instability and frequent change in alliances,

politicians in these countries are more likely to

seek easy means to accumulate wealth, irrespective of

legitimacy. Thus, it is to their advantage not to

establish legal traditions and due process of law.

However, because of their national and international

networking, they tend to gain the trust and support


of the power elite in the developed world. This

appears to give them legitimacy and strengthens their

economic positions. Consequently, profound and

desired changes necessary to strengthening investors’

confidence in the institutions, especially legal

ones, of many developing countries have become an

impossible task. (p. 1)

Thus, the second pillar of underdevelopment for poor

countries, and many developing countries, may be the

corruption which stems from an environment of fear and

instability, impedes the emergence of sound institutions

and practices, and diminishes FDI inward flows.

In effect, Ali (2005) noting that “the depth of

corruption in developing nations has seriously impeded FDI

flow and constituted a threat to world economic stability”

(p. 1), culminated by calling for responsible leaders to

design “pragmatic means to counter corruption and prevent

poverty” (p. 1). To that end, Ali prescribed that:

It is possible to overcome the vicious circle of

development and build sound institutions, if the

leaders of the developed world embark on designing


policies that prevent political/government corruption

in developing nations, insist on transparent

operations, minimize or end support for corrupt and

authoritarian politicians in the developing world,

and reverse the practice of using trade and

investment in the service of political goals. (p. 5)

To assess the significance of recent world FDI flows,

and gain perspective, it should be fully noted that in

2004 net FDI outflows from OECD countries to developing

countries was in the order of $261 billion, in contrast

with the figure for 2003 which was $134 billion, according

to the organization itself, and to this end, it is

illustrative to briefly examine where some of these flows

went: (a) China, mainland, experienced a record inward FDI

flow of $55 billion in 2004, up from $47 billion in 2003,

continuing to receive a large share of FDI in developing

countries, largely from Hong Kong [non-member], at the

risk of overheating its economy; (b) Hong Kong and

Singapore experienced a total inward FDI flow of $50

billion in 2004, remaining as a significant destination

for FDI inflows; (c) Brazil experienced an inward FDI flow


of $18 billion in 2004, Chile an inward FDI flow of $8

billion, and Argentina an inward FDI flow of $4 billion,

suggesting a South American recovery after the Argentine

crisis, with all figures being about twice those of 2003

levels; and (d) India experienced an inward FDI flow of

$5.3 billion in 2004, up from $4.3 billion in 2003,

estimated at the low end evidencing a steady trend upwards

since the late 1990s, and Russia experienced a growing

inward FDI flow in 2004 after an already strong inward

flow in 2003 (Anonymous, 2005).

In this context, developing countries, while

continuing to be the major recipients of FDI, in some

cases were gaining experience as suppliers of outward FDI,

as were México and Brazil, some of whose large companies

were seemingly engaging in regional integration through

investment to be followed by the establishment of true

international corporate networks (Anonymous, 2005). China

for instance, had entered the arena of enterprise-driven

strategic FDI to secure raw materials, and according to

its Administration for Foreign Exchange experienced a net

outward FDI flow of $1.8 billion in 2004, after a meager


$152.3 million in 2003, and a peak of $6.9 billion in 2001

(Anonymous, 2005). Nevertheless, despite the purportedly

high importance of FDI to development, according to Donald

J. Johnston, Secretary-General of the OECD in 2004, “Human

capital is the most important driver of economic growth.

Physical assets or commodities cannot migrate of their own

volition. Human capital can and does. Obviously,

preventing migration would be unacceptable, the movement

of labour being a fundamental freedom we uphold”

(Johnston, 2004, p. 1). Thus, on the one hand human

capital would be crucial to development, particularly to

developing countries, and on the other, it should be free

to flow to where it would. However, the staggering

magnitude of the adverse social and economic impact on

developing countries which such an unfettered freedom can

have, is easily inferred from the November 2004 article

that according to Johnston appeared in a major Canadian

newspaper, lamenting the exodus of qualified doctors and

nurses from African countries, highly skilled

professionals attracted by the promise of living better

lives in developed countries, but whose departure deprived


their communities of valuable resources in the struggle

against disease, especially AIDS.

Though migration from developing countries to the

developed can carry blessings that ameliorate its

sometimes mostly adverse effects, the real value of

migrants to their countries of origin and destination can

go largely unrecognized, and even exploited: “Migration

can be a positive force if, for instance, it results in

substantial financial remittances back to the developing

world. But the active recruitment efforts by developed

countries – some call it poaching – to induce skilled

doctors, nurses, scientists and engineers to settle in

rich economies, without any compensation for the

investment in these skills made by the taxpayers in low-

income ones, is a concern. These skills are competitively

priced by OECD standards, but they may be scarce and

valuable back home” (Johnston, 2004, p. 1). Thus, an

uncompensated and free-flowing migration of highly

qualified human capital from poor countries, and many

developing countries, to the developed may be a third

pillar of underdevelopment.


Further to the inconvenience of the nationalistic FDI

policies espoused by developed countries denounced by Ali

(2005), Johnston (2004, p. 3) decried as an incoherent

policy “tied aid, which commits recipients of financial

assistance to specific suppliers from donor

countries . . . as it is in direct conflict with trade

liberalization and free markets.” In fact, Johnston (p. 3)

took up the general matter of incoherent OECD policies

that undermine development, and referred to agricultural

subsidies and trade barriers as “. . . notorious examples,

for not only do they prevent the developing world from

fully exploiting our markets, but they prevent our own

citizens from accessing cheaper, often better, products.”

But Johnston (p. 3) is most troubled by incoherence in the

area of migration, “. . . particularly if it means

emptying the developing world of valuable human capital.”

Crucially, in Johnston’s view (p. 3), the plight of

African countries being drained of their most prized human

capital “. . . raises a key question about development

assistance: can governments say they wish to foster

development among poorer countries do so, when at the same


time they pursue policies that impoverish the countries

they are trying to help?”

To Johnston (2004, p. 3) this perverse incoherence in

government programs, for instance “. . . in terms of a

development strategy when OECD member governments actively

solicit skills from the developing world that cannot

easily be replaced,” or in respect of agricultural

subsidies and trade barriers, is common, and seems to stem

mainly from political imperatives:

The general problem is a lack of coherence among

policies: one set of policy objectives conflicts with

or undermines another. Alas, policy incoherence in

government programmes is common. As a former

politician and cabinet minister in a G7 country, I

enjoyed a first hand view of that. In every instance

I recall, incoherence was rooted in what were

perceived by some as political imperatives. (p. 3)

And in respect of incoherent policies at the OECD level,

beyond recognizing and championing the organization’s role

in pointing out how some of their policies undermine

development, Johnston suggested that: (a) some coherence


might be restored to the economics of migration by public

policy in destination countries that required some

compensating payment in exchange; (b) development requires

a policy environment built on the rule of law and

institutions that enable the economy to prosper, and to

this end the widespread failure of the development

community in identifying, adapting, and applying

development-oriented policies within their governments and

the OECD must be recognized and reversed; (c) the OECD

development community must embrace a new role and transmit

its expertise in matters relevant to the creation of legal

and institutional environments for prosperity in order to

increase the effectives of their development and donor

policies; and (d) Governments in developing countries need

to ensure coherence in their own policies in such matters

as the creation of a favorable investment environment, and

institutions building, as policy coherence for development

is required of them too. In this manner, by contrast

between what should be and what is, Johnston has

identified what may turn out to be a fourth pillar of

underdevelopment, namely incoherent government and


multilateral policies under the influence of political

imperatives.

Schekulin (2005), recognizing the cited concentration

of FDI flows as a geographic imbalance, remarked that

issues such as market size and geography matter in the

context of intense competition between developing

countries to attract investment, but emphasized the

importance of the quality of the business and investment

environment, and of having the right policies in place, by

pointing out that countries with unsatisfactory conditions

loose out the most:

A poorly conceived investment attraction strategy may

create incentives which distort business decisions,

and in some cases even deter private investors.

Providing tax concessions, for instance, will have a

limited impact, or indeed do more harm to the

business climate, if these are compensated by other

new taxes, or draw funds away from education. (p.

27).

The need for coherent policies for investment and business

promotion and facilitation raised by Johnston (2004) and


Ali (2005) was further and importantly defined by

Schekulin (p. 27) when he stated that “These must be aimed

at correcting for market failures and developed in a way

that can leverage the strong points of a country’s

investment climate.”

According to Schekulin (2005) there is no single

policy instrument that will effectively enhance inward

FDI; tax breaks and other easy fixes, such as subsidies

alone, will not work when bureaucracy is too costly, and

what is required instead is a range of conditions that

will attract and sustain investments over the long run,

namely the enactment of high standards in: (a)

transparency, (b) procedural fairness, (c) openness, and

(d) corporate responsibility. In this regard, “. . . the

OECD with non-OECD governments, the World Bank and other

organizations are developing a Policy Framework for

Investment (PFI) . . . to support governments’ efforts to

attract and to reap the benefits of global investments”

Schekulin (p. 27). The PFI was designed to advance the

United Nations Monterrey Consensus of 2002, reached by 182

governments in recognition of the crucial role of private


enterprise in any poverty reduction strategy, and in

September 2005 the UN World Summit “. . . renewed its

commitment to mobilising private investment, both domestic

and foreign, for advancing economic development and as a

way to achieve the goals of the Millennium Declaration”

Schekulin (p. 27). In this context, the PFI was designed

to help build a coherent framework for investment, and

should be used as a tool to assist various types of

countries “. . . to benchmark their strategies against

broadly accepted international practices” Schekulin (p.

27). The PFI emphasizes ten domains important to achieving

and maintaining stable macroeconomic conditions, which

have a strong impact on the investment environment

according to Schekulin (p. 27): (a) investment policy, (b)

investment promotion and facilitation, (c) trade policy,

(d) competition policy, (e) tax policy, (f) corporate

governance, (g) corporate responsibility and market

integrity, (h) human resource development, (i)

infrastructure development and financial services, and (j)

public governance.


Some of the main working features of the PFI, again,

according to Schekulin (2005) are: (a) the PFI policy

domains come with sets of questions to assess quality and

coherence, and make transparent the opportunity cost of

policy to investors, based on OECD and non-OECD experience

and international agreements; (b) the PFI emphasis on

comprehensive coherent policies for investment considers

the broad interests of the community, particularly in

domains that indirectly influence investment climate; (c)

the PFI helps integration of policy regimes across

countries, even in different regions, by facilitating

self-evaluation and mutual assessments, but does not

propose policy prescriptions; and (d) the PFI can help

donor agencies design more robust capacity-building

programs. Schekulin further commented that a taskforce of

government representatives of more than 50 OECD and non-

OECD countries is involved in the development of the PFI,

through extensive regional consultation in every

continent, in order that it be adapted and made relevant

to the varying economic, legal, and cultural realities in

countries in various stages of development, as would a


living instrument that to remain practical evolves according

to circumstances and experience, capturing the attention

and interest of many governments and regional

organizations and initiatives such as ASEAN, SEE, NEPAD

and APEC. According to Schekulin:

The PFI must be seen in the broader context of

multilateral efforts, including the Doha Development

Agenda and the Johannesburg World Summit on

Sustainable Development Declaration, to strengthen

the international and national business environments.

Directed to governments, it complements instruments

addressing good corporate practices, such as the OECD

Guidelines for Multinational Enterprises. (p. 28)

The OECD Guidelines for Multinational Enterprises, adhered

to by some 39 countries, provide recommendations in at

least 28 languages to globally applicable business areas

such as human rights, consumer protection, labor, the

environment, supply chain management, and the fight

against corruption, and their effectiveness is helped by

the fact that not only are countries adhering to the


guidelines home to scores of major multinationals, but

provide 85% of the FDI flows, informed Schekulin.

Possible Needs and Opportunities for Action

As noted herein, there are four areas relating to

poverty eradication and the state of development that may

constitute pillars of underdevelopment: (a) the

inconsistency of nationalistic policies by developed

countries with the principles of market economy together

with the MNC zeal for profit maximization, (b) the

corruption in poor countries stemming from environments of

fear and instability, (c) the uncompensated and free-

flowing migration of highly qualified human capital from

poor countries, and (d) incoherent government and

multilateral policies under the influence of political

imperatives at both ends of the development spectrum. Each

of these pillars may help to perpetuate underdevelopment,

indeed actively foster poverty, at the least by adversely

affecting inward FDI, as their effects may determine the

core nature of the backwardness that characterizes poor

countries, and many developing countries, that may in

addition reinforce the status quo and actually feed back


negatively into a vicious circle that forestalls

development: (a) the absence of a vibrant middle class,

(b) the absence of mature legal institutions, (c) the

absence of transparent operations, and (d) the absence of

remedies against fear and political instability leading to

corruption.

The development community, acting through the OECD,

has taken stock of the alarming level of inequality

between the rich and the poor, developed countries and the

underdeveloped, and between OECD countries and the rest,

and in apparent full consideration of the underlying

causes and effects of underdevelopment, according to the

literature, termed here pillars of underdevelopment, has taken

steps for corrective action by the creation of the PFI, a

new multilateral instrument, designed, in sum, to help

build a coherent framework for governments to attract

global investments, in line with the crucial role of

private enterprise in any poverty reduction strategy, and

as a way to achieve the goals of the Millennium

Declaration, as already noted.


Nevertheless, the capitalization imbalance between

the northern hemisphere, and the southern hemisphere,

developed countries and the underdeveloped, and between

OECD countries and the rest, that at first sight suggests

that something may be failing in the capital markets’

capacity to arbitrate investments, appears not to be

addressed by the organization as a problem per se. Because

of the significance of the identified causes and effects

of underdevelopment in the context of the noted and marked

capitalization imbalance, and the challenging required

corrective actions implicit in them, it would seem

possible that the capital markets as they function today,

would not effectively arbitrate the massive north-south

FDI flows required by developing countries if they are to

narrow the gap that separates the richest from the

poorest, and that the not so uncommon perception of

increasing relative backwardness of the Third World is not

only true, but may be here to stay. Moreover, even if the

PFI and other corrective multilateral measures to come

were efficiently implemented, they may turn out to be

insufficient to provide effective relief, in a timely


manner, to the over a billion desperately poor, and

diminish the dangerous inequality in the world we live in,

without the establishment of new private-public systems to

dramatically increase the north-south investments rate.

The Next Steps in Solving the Problem

The capitalization imbalance between developed

countries and the underdeveloped, between OECD countries

and the rest, and in fact, between the northern and

southern hemispheres, that suggests that something may be

failing in the capital markets’ capacity to arbitrate

investments, needs to be investigated further. It is

necessary to investigate the impact of FDI on

capitalization levels, productivity, and markets, in

developed and developing countries, and on globalization

per se, as well as on development in an integral sense. In

the context of a possibly increasing north-south

capitalization and welfare imbalance, beyond investigating

the issue itself, it is also necessary to investigate the

attributes, achievements, and plans of existing

multilateral and governmental poverty eradication and

economic development organizations, and of their private


counterparts, and the pertinent regulatory environment, in

order to determine the need and opportunity for the

creation of new private-public systems to increase the

north-south investments rate, and their required

characteristics.

Questions that Should not go Unanswered

A brief, sober, but thoughtful consideration of the

preceding discussion, should suffice to make evident the

paramount need to find formal answers to the following

fundamental research questions, however evident they may

seem, if any headway is to be made, any time soon, in

solving the Gordian problem of survival, on perhaps

considerably less than a dollar per day per capita, which,

unconscionably, the children, or more accurately, the

underage adults in the one billion strong cohort of utterly

destitute human beings of the current Third and Fourth

Worlds, will likely continue to inherit, as heads of new

families, every year, year after year: (a) is there a

relative backwardness of the third world? (b) could there

be an increasing relative backwardness of the third world?

(c) is there an international capitalization imbalance?


(d) could there be an increasing international

capitalization imbalance? (e) could the causes of an

increasing relative backwardness of the third world be

fully or partially reversible, or even tractable? (f)

could an increasing relative backwardness of the third

world be partially due to an international capitalization

imbalance? (g) could an increasing relative backwardness

of the third world be partially caused by an

ineffectiveness of the capital markets’ capacity to

arbitrate international investments? (h) could an

international capitalization imbalance be partially caused

by an ineffectiveness of the capital markets’ capacity to

arbitrate international investments? (i) could the

effectiveness of the capital markets’ capacity to

arbitrate international investments be partially

determined by functional rationality, technological

sufficiency, domain limitations, social, economic, and

political vices, both spontaneous and imposed, including

through governmental or multilateral action or inaction?

In addition, the following contextual research

questions would need to be addressed: (j) is multilateralism


still a prominent paradigm in the world scenario, and will

it be relevant in the foreseeable future, particularly to

the third world, even if in a diminishing capacity in real

terms? (k) is governmentalism an increasingly prominent and

effective paradigm, in relation to the multilateral

paradigm, and is it declining in relation to the private

paradigm? (l) are poverty eradication and economic

development organizations institutions of recognized

crucial international contextual importance, given the

much publicized abysmal welfare gap, at the individual

level, between the first world and the third world? (m)

are private poverty eradication and economic development

organizations, counterpart to multilateral and

governmental institutions, mainly of a charitable nature,

but of growing international significance and potential

for increased contextual effectiveness, though still

incipient in the third world? (n) could the regulatory

environment in its pertinent dimensions be constructively

evolving mainly at the multilateral level, but require

further adaptation, particularly at the national level?

Finally, and crucially, the following defining

research questions should not go unanswered: (o) could a

relative backwardness of the third world not be expected

to autonomously resolve itself in the current and


proximate international context? (p) would the need for

the creation of new private-public systems to increase the

north-south investments rate exist were it determined that

a relative backwardness of the third world could not be

expected to autonomously resolve itself in the current and

proximate international context? (q) could the timing and

resources be adequate to the demands for the creation of

new private-public systems to increase the north-south

investments rate, given multilateralism and

governmentalism, and the attributes, achievements, and

plans, of multilateral and governmental poverty

eradication and economic development organizations, and

their private counterparts, and the regulatory

environment, and given that a relative backwardness of the

third world could not be expected to autonomously resolve

itself in the current and proximate international context?

(r) could it be found reasonable to provisionally assume that

economic development action for poverty eradication,

particularly by way of increasing the north-south

investments rate, through the creation of new private-

public systems, complementary to the effectiveness of the

capital markets’ capacity to arbitrate international

investments, and to competing multilateral, governmental,

and private organizations in the current and proximate


international context, could be expected to have a

positive effect on the resolution of the abysmal welfare

gap, at the individual level, between the first world and

the third world?

A Framework of Reference for Future Research

Inequality has been inherent in every society since

the dawn of humanity, and evidently may never, and

probably should never be entirely eradicated, lest in the

attempt, the will to have, and to succeed, that drives the

have-nots, and fuels all economic activity, become

irrelevant, and general productivity and welfare decline.

Nevertheless, evidently, inequality in a globalized world

of extremely rich and extremely poor, with some living

hedonistic lives, and others living lives of mere pain and

want, in full and plain view of each other, shamelessly,

is dangerously destabilizing, and must be tempered within

nations and internationally. In the latter context, aid

from developed nations, multilateral action, and FDI,

benefiting the poor in underdeveloped nations, in the

short and medium terms, and the rich in developed nations

in the long term, must continue to increase. In the

context of this research, relevant history would start at

the United Nations Monetary and Financial Conference at

Bretton Woods, where the foundations for peace and


prosperity were laid toward the end of World War II,

in1944, with the establishment, in principle, of The

International Bank for Reconstruction and Development, the

World Bank, the International Monetary Fund, and the

General Agreement on Tariffs and Trade, or GATT, and may

extend well into the future. Indeed, in view of the

lengthy time it has taken for the Conference’s intended,

but failed, International Trade Office to surface as the

World Trade Organization, in 1995, after the Uruguay Round

of GATT, and in view of the magnitude of the problem at

hand, there would be no immediate end to the cited

perverse inequality, where the extremely poor are

condemned to vicarious “enjoyment” of wealth they too feel

entitled to, on The Rich and the Famous. On the contrary, on

this basis, taken as a common sense but valid indication

of the rate of significant change on the world stage, the

abysmal welfare gap between the First World and the Third

World can be expected to persist throughout the entire

21st century, roughly, should the right solutions be

identified and acted upon promptly and courageously, under

private leadership but with multilateral support, and

indefinitely otherwise. In the end, success is contingent

on the complex realities affecting humanity’s capacity and


commitment to formulate the brave and effective ideas

required to address the underlying nature of the problem.

In this light, it would be wise to consider the

possibility that the pillars of underdevelopment

envisioned herein, as purportedly contextual causal

issues, might lead, together with other factors, such as

those more directly affecting the effectiveness of the

capital markets’ capacity to arbitrate international

investments, to the suspected north-south capitalization

imbalance, and this imbalance, if real, might lead to

underdevelopment, and under-productivity, and thus to the

unacceptable welfare gap, perversely feeding back into the

cited pillars of underdevelopment. And it seems that even

if the pillars of underdevelopment, alone, were to explain

the welfare gap, indeed constitute its entire set of

causes, and even if the welfare gap were resolving itself

or could be expected to resolve itself in the current and

proximate international context, autonomously from the

capital markets’ north-south investments arbitration, it

might still be relevant to consider decidedly

strengthening the north-south capital flows in the form of

FDI, financed by risk capital and not debt, in the

assumption that FDI encourages development, even in


developed nations, as the rate of welfare gap-resolution

is crucial to the needy.

Thus, seemingly, it would behoove society to prepare

to take economic development action, for poverty

eradication, particularly by way of increasing the north-

south investments rate, through the creation of new

private-public systems, complementary to the effectiveness

of the capital markets’ capacity to arbitrate

international investments, and to competing multilateral,

governmental, and private organizations in the current and

proximate international context, on behalf of the severely

disenfranchised and hopelessly poor, in order to have a

positive effect on the resolution of the abysmal welfare

gap, at the individual level, between the First World and

the Third World, and thus on the relative backwardness of

the Third World. In this respect, an adequate benchmark

for measuring the effectiveness of any solution applied,

would be the per-capita welfare statistics, particularly

in reference to consumption, especially in nutrition,

shelter, education, and health, and particularly in

reference to savings, presumably compiled by the United

Nations Organization over the preceding 62 years. Deus fortis

juvat, Deus amantes amat, Ex misericordia Victoria.


References

Ali, J. A. (2005). Foreign direct investment and

development. Competitiveness Review, 15(1), 1.

Anonymous. (2005). Record investment flows. The OECD Observer,

250, 19-20.

Johnston, D. J. (2004). Giving development a chance. The

OECD Observer, 245, 3.

Messinger, R., & McCullough, J. (2005, July 1). This

Independence Day, a chance for global freedom from

poverty. The Jewish Daily Forward. Retrieved October 18,

2006, from http://www.forward.com/articles/this-

independence-day-a-chance-for-global-freedom/

Schekulin, M. (2005). Investing for development: The

policy framework for investment. The OECD Observer, 251,

26-28.

Wrong way around. (2005, June 27). Economist.com, 1.

Retrieved October 18, 2006, from ProQuest database.


Appendix

Organization for Economic Cooperation and Development

(OECD)

30 Member Countries

Australia, Austria, Belgium, Canada, Czech Republic,

Denmark, Finland, France, Germany, Greece, Hungary,

Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico,

Netherlands, New Zealand, Norway, Poland, Portugal, Slovak

Republic, Spain, Sweden, Switzerland, Turkey, United

Kingdom, United States

WOLL - THE ROLE OF INVESTMENT PROMOTION ORGANIZATIONS IN THIRD WORLD DEVELOPMENT - VI - 2007103102

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