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Recovering Foreign Direct Investment

As China, India, Russia and other countries have become more attractive places to invest, the United States has watched its share of foreign direct investment (FDI) rapidly decline—from 41% in 1999 to under 20% today. Unless the United States changes its behavior and begins to compete for investment, this decline doesn’t appear to be slowing down. Jonathan Browning, president and CEO of Volkswagen Group of America, addressed this concerning trend Monday at the Brookings Institute. Drawing on his experience opening a new Volkswagen assembly plant in Chattanooga, Tenn., last year, Browning challenged the United States to stop picking technological winners or losers and begin supporting a level playing field through deregulation. In short, Browning recommended that the United States encourage competition. The negative economic news aside, an increase in competition sounds promising. Competition has a habit of getting rid of apathy and stagnation in our personal lives as well as in economics. It has a history of driving athletes to push the limits of the human body, of forcing thinkers to clarify and refine their ideas, and of cultivating growth through incentives and challenges. But in an economic context, we quickly become uneasy with competition. We view it as the destructive force that allows large companies to triumph over small businesses or as a ruthless system that compels people to make decisions based solely on costs and benefits. Some may agree with Wendell Berry who called the “ideal of competition… destructive both of nature and of human nature because it is untrue to both.” So why would we seek to encourage such a force? Shouldn’t we seek to restrain it? Reducing competition could make things easier. Without the constant pressure to improve and excel, we are free to rest in complacency, reflecting on past successes or future dreams. The trend in the United States’s share of FDI shows the result of this lethargy. But just as we are spurred to greater intellectual and physical performance when we are placed in intense competition, businesses achieve greater efficiency, prosperity and innovation when competition forces their growth. The same force that allows large companies like Costco and Wal-Mart to grow also rewards the ideas of the aspiring entrepreneur. If we listen to Steven Conover’s advice and shift the economic debate from the budgets and taxes in America to the potential for economic growth, we will find ourselves discussing the importance of fostering competition. In the meantime, a healthy dose of competition on the international stage may provide just the right incentive to spur the United States towards halting the decline in its share of FDI and beginning to attract increased investments from abroad.