INVESTMENT: A Safe Haven for Frightened Funds

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In this atmosphere, the U.S. beckons as a safe haven, both for foreign companies and wealthy individuals. Today, says Rob Hazelhoff, a director of Holland's Algemene Bank Nederland, "most entrepreneurs regard the U.S. as the last bulwark of capitalism. They feel that America can hold out, and this is the main psychological factor behind the rising investment." Profit margins of U.S. corporations are now almost twice those of European firms, partly because productivity is higher. The U.S. has become something of a cheap-labor market in comparison with its European trading partners. Until the early 1970s, European labor was less costly than American. But all that has since changed. Washington devalued the overpriced dollar, inflation gathered momentum in Europe, and powerful European labor unions began winning not only higher wages but all sorts of other benefits.

Barre's Law. These and other factors have altered some old established patterns of foreign investment in the U.S. While British investors still have the largest stake in their old colony, the big change in recent years has been the surge in investment by the French and the Germans. The French stake in the U.S. economy has grown more quickly than any other, expanding from a mere $300 million in 1971 to an estimated $2 billion today. French officials are actively encouraging firms to move abroad. Says Premier Raymond Barre: "You can't take on the Germans and the Americans, let alone the Japanese, unless you have a well-diversified international industry, which implies foreign direct investment on an ever increasing scale." Michelin, the big tire firm, is leading the way with plans to spend upward of $400 million to produce its radial tires in four American plants.

Barre's law has also spread to West

Germany, whose businessmen are rapidly becoming enthusiastic investors in the U.S. For years a kind of national taboo in Germany against "exporting jobs" limited U.S. ventures to capital-intensive firms like chemical-making Bayer or Hoechst. Now a conviction is spreading that, as one leading German banker put it, "our domestic market is saturated, and our population is overaged and shrinking. It's just prudent business that if you have a market, your production should follow." With that argument, Volkswagen's boss, Toni Schmucker, persuaded German unions and political leaders that an American plant was vital if his company were to regain its traditional substantial share of the U.S. market. Volkswagen will invest $200 million in a Pennsylvania assembly plant that will begin turning out the popular Rabbit model.

The newly rich OPEC countries, concerned that Americans might think of such investments as attempts to use oil profits to "take over" the U.S., tend to make "passive" investments—in Treasury bills, bank deposits and corporate securities. The Saudis, who invested $14 billion in U.S. securities in 1976, are especially cautious. Explains Abdel Aziz Qoreishi, governor of the Saudi Arabian equivalent of a central bank: "We consider our surplus only temporary. We expect to bring the money home as our development plans get into high gear."