Foreign investment falters as debt grows, regulation expands

A new federal program to attract foreign investment in the U.S. has suffered from the Treasury Department’s massive bond sales and from what continues to be a challenging regulatory environment for business, but that hasn’t fazed the Obama administration.

On June 15 President Obama signed an executive order, which created a program at the Department of Commerce entitled SelectUSA. The purpose of SelectUSA is to generate job growth and to further the economic recovery. (Obama maneuvers on debt deal while GOP demands a plan)

“The Initiative will provide enhanced coordination of Federal activities in order to increase the impact of Federal resources that support both domestic and foreign investment in the United States,” the executive order said. “In providing assistance, the Initiative shall work to maximize impact on business investment, job creation, and economic growth.”

In order for the new pro-business program to work the government needs to make some fiscal policy changes.

“One of the best things we can do is for the federal government to stop competing with the private sector for investment dollars,” said Bryan Riley, an economic policy expert at The Heritage Foundation. “They can do that by reducing the federal deficit.”

Riley said that massive federal borrowing through Treasuries has hindered foreign investment in the U.S. private sector.

“The marketing campaign is in contradiction with the federal government borrowing billions of dollars abroad,” Riley said. “I imagine a bunch of government bureaucrats were asked to come up with a way to promote foreign investment. Instead of recommending anything to actually make the United States a more attractive environment for investors, the best they could come up with is a website listing all the government incentives (handouts) that are available and promoting the United States to foreign investors.”

According to a U.S. Department of Commerce report titled “Foreign Direct Investment in the United States,” FDI in 2008 “surged to a historical peak” of $328 billion. A year later that fell to $140 billion, but in 2010, FDI “rebounded” to $194 billion. New regulations, however, have made it hard for foreigners to make investments in the U.S. One regulation that stands in the way is the implementation of ObamaCare that requires employees to provide health insurance for their workers.

“In 2010 new federal regulations added $26.5 billion to the cost of doing business in the United States,” Riley said. “Under the Obama administration there has been no targeting of foreign investment. There have not been specific moves to restrict foreign investment. What there have been is general economic policies that have made the U.S. a less attractive place to do business.”

The national debt has grown from $5.6 trillion in 2000 to over $13.5 trillion in 2010. By selling Treasury bonds, the government is able to finance the deficit. Foreign investors have a guaranteed interest return when they purchase Treasury bonds.

“Foreign investment certainly benefits Americans. However, the biggest barrier to foreign direct investment is the federal budget deficit,” Riley said. “Last year the government borrowed $707 [billion] from abroad. That $707 billion could have been directly invested in the U.S. private sector or [spent] on U.S. exports had it not all been spent on Treasury bonds.”

If people choose to invest in the federal government for its stability, then they won’t invest in the private sector.

“It’s a secure investment and a secure return,” Riley said. “Many investors like that security.”  The private sector might not always have that guarantee.