INVESTMENT: A Safe Haven for Frightened Funds

Whatever the merits of the quarrels in Washington these days about the health of the American economy, there is one element of the business scene so bracing that Commerce Department officials become ecstatic when they talk about it. The flow of foreign funds into the U.S. has crested in a seemingly endless wave that is nourishing local economies from ailing New York to the striving Sunbelt states. Since 1971 total foreign direct investment has more than doubled from $13.7 billion to an estimated $30 billion in 1976. The Western Europeans, in particular, have been snapping at every investment opportunity—Midwestern farms to outright acquisitions of sizable companies. Says Richard Roberts, a senior international investment adviser at Commerce: "This investment is the hottest thing on the economic scene, and is probably the best-kept secret in Washington."

Western European investment in the U.S., as measured by Government figures, has grown by almost $9 billion since 1971, to $19 billion today. While those longtime investors in America, the British, Canadians and Dutch, have steadily increased their stake, the French, Germans and Swedes have been pumping funds across the Atlantic in truly spectacular fashion. In six years, German investment has increased by 138%, to $1.9 billion; the Swedes have tripled their investment, and the French have raised theirs by almost 470%. Operating through businesses they control or family investment companies, such influential individuals as France's Baron Guy de Rothschild, Britain's Sir Jimmy Goldsmith and the Agnellis of Italy have all acquired seasoned American businesses.

Flight Talk. The phenomenon reflects both cold economics and some fevered concern about political and social malaise abroad. Canadians fret about increasing tensions between the French-and English-speaking communities. Middle Easterners are apprehensive about what they see as political and economic drift in the European countries, where they have traditionally salted away their wealth. Says Dr. Nazmi Abdel Hamid, former governor of Egypt's Central Bank and now an adviser to the Arab-European Bank: "Increasingly,

Arabs feel the safest place to put their money is in the U.S."

So, for that matter, do the Europeans themselves. American officials do not like the term, notes Paul Baudler of the U.S. Chamber of Commerce in Frankfurt, "but if you talk to a German banker, he'll talk about 'flight capital.' " A long list of gloomy economic realities —slumping stock values on European exchanges, high unemployment rates, the rise of left-wing parties and the inability of liberal, middle-of-the-road governments to deal effectively with these problems—has prompted a chorus of Spenglerian gloom from European business leaders.

Guido Carli, the former governor of the Bank of Italy who now heads the Italian Confederation of Industry, openly forecasts "an era when private industry is no longer able to make a profit." In West Germany, Kurt Richebacher, chief economist of the Dresdner Bank, speaks of "a grave profitability crisis." In Belgium, Baron Leon Lambert, chairman of the Compagnie Bruxelles Lambert, flatly declares that European regimes are "impotent before the enormousness of the political, economic and social problems that confront us."