SOME DANGERS OF INWARD INVESTMENT

Inward investment is uncritically welcomed and even sought by local authorities, because it is thought to be a relatively easy way of gaining income, jobs and status for the area. But, as experience is starting to show, it also brings many problems and any income that it brings is often outweighed by heavier costs of many kinds. The jobs it brings seem to miss local people, and outsiders are brought in to fill them. The promises that inward investment makes are not met.

Bristol's Experience of Inward Investment

In the early 1980s, the City of Bristol (in the U.K.) believed that the best way to help the economic viability of the City and its people was to go all out to attract high-tech business. Business parks and their infrastructure were built.

But in 1991, as reported on BBC Radio 4 at the time, the Council publicly admitted the tragic fault of their policies as:

The City changed its policy, to provide types of business opportunities which are small and suitable to the needs of local people, and that take account of local qualifications.

More Generally ...

Bristol's is not an isolated case. Many are the problems brought about by inward investment, some direct but many indirect and longer term. Here we examine some of the problems that can occur as a result of inward investment. Most occur in the local area:

in addition to an important non-local phenomenon:

One of the main root causes of these problems is that incoming organisations have less loyalty to the local community than local organisations, and know less of local ways. Linked with this is a tendency in many cases to unfairly favour incoming organisations.

Dependency

The local community becomes dependent on incoming organisations for jobs, rather than building up their own local economic vitality. The full range of local management and entrepreneurial expertise is not developed, but rather it is stifled. (A limited range of local skills might be developed, but not the full range the community needs to stand on its own feet; in particular it is rare for an incoming organisation to fill its top management with local people.) Dependency on the incoming organisation is built up. Then when the incoming organisation closes its local operations local people are left stranded. The effect is pronounced with the incoming organisations are large - and it is often the large, high profile, inward investment that is sought.

Loss of Local Control

The construction and the running of facilities brought about by inward investment will not be under local control. Therefore they will often be insensitive to local conditions and needs. Decisions are made that do not take these needs into account - and local people can do nothing about it.

Inward Investment is Fickle

This is a particular danger when the incoming organisations are based in other countries and cultures. The inward investment is sought and agreed when their economies seem sound, such as in South East Asia. But, as we have seen, even South East Asia economies can collapse. The effect of these sudden fluctuations are carried through into the local community; often large numbers of local people are laid off. And, because of the dependency that has been fostered, the local community is in no state to cope with such large sudden disruption.

For instance,

and a myriad of smaller cases that we seldom hear of, which all add up to local misery and a sense of betrayal:

The sense of betrayal is made worse because in many such cases the incoming organization is often given government grants and easy access to land, especially greenfield land, and, shortly afterwards, disappears from the area. Some are cowboys; others leave because of external fluctuations, but in either case the community and environment both sustain damage (as detailed in other sections) yet the highly-touted benefits of allowing these firms to come does not materialize. Via left the Borders merely because they had other plants there were "more cost effective". Nothing about loyalty and gratitude for past favours.

The message is clear: inward investment is fickle.

Local Assets Destroyed

Often local assets are destroyed, and in particular natural habitat. Either a large incoming organisation is given special permission to build on greenfield sites, though this is rare. Or, and this is very common, business parks are planned in a hope that unspecified inward investment can be 'attracted', and these are often on greenfield sites and other sites that are valuable as natural habitat and local footpaths and walks can become unattractive and uninteresting. It is business parks that are the more devastating because they are speculative 'opportunities', and local opposition to them is often stifled or unable to be sufficiently focused. In addition to this, greenfield areas are designated for housing to house the incomers - lower than average density in order to 'attract' incoming top management - and more land is taken for roads and services.

Consider what happens when a piece of woodland, or other natural habitat, is destroyed. When people are displaced they can (almost always) find elsewhere to live. But this is not true for the denizens of natural habitat - birds, mammals, reptiles, amphibians, invertebrates, etc. If their habitat, e.g. a small wood holding 10,000 of them, is destroyed, they have nowhere to go, and thus the whole population dies out. If the 'inward investment' is fickle, as above, and disappears after a mere ten years as OptecDD has done, then the wildlife community cannot be re-created. Destroying wildlife habitat is a one-way process that cannot meaningfully be reversed.

Local Firms Undermined

In many cases local firms, which should be being built up, are undermined by the inward investment. The larger incoming firm can compete unfairly with local firms for good employees, input resources and markets, because they can cross subsidize these operations from outside the local community.

Effect on Local Jobs

Often incoming organisations seem to 'offer jobs' (e.g. 6000 by LG in South Wales). An attractive offer, but ...

Many of the top jobs are filled from outside. In the case of LG many of the skilled jobs come from Korea with the firm.

If the incoming firm is merely moving from another part of the U.K. then there is no net benefit to the U.K. as the jobs 'gained' in one place are 'lost' in another.

Though sometimes local wages might increase (as above) sometimes they drop because of inward investment. Wales has one of the lowest wage rates - 1-50 per hour is common, and considerably lower is not unknown even though illegal.

Two Classes

In some cases two classes build up in the local community. Towns and villages become divided between 'community' and 'commuter' areas (a clear example of this can be found in New Mills, Cheshire). Though such divisions are not usually intended they happen because of two factors. One is that, as just mentioned, the management of incoming organisations is filled with incoming people while lower grade jobs are filled with local people; thus the perception grows, linked with the dependency above, that local people are not so worthy of the higher status posts. The other is that extra housing that is built for incoming top management tends to be situated away from where local people live, thus exacerbating the division by a geographical separation.

Disruption of Local House Prices

When a large firm comes in, such as LG Newport, house prices both drop and rise. They drop near the huge plant - and the compensation available in the case of LG is not sufficient. Then they rise further away from the plant, out of the reach of local people. This creates, as just mentioned, two classes and also forces some local people out of the area.

New housing is often built, thereby reducing the pressure on prices a little. But the problem is that these are often sparsely distributed executive houses, which make very inefficient use of land and thus consume much more land than is necessary.

Increased Local Tension

The fact that local firms are undermined and that two classes develop leads to increased tension in the local community. People are not just consumers of jobs and goods 'provided' for them; people are human beings (some would add, created in the image of God), which means they have capacity for vision and morale. When this is damaged then bitterness takes root as local people feel at a disadvantage, an air of hopelessness and lack of dignity can pervade the local community, and such things as vandalism increases.

Increased Local Costs

As a result of these problems brought about by inward investment, the costs of maintaining local community services increases. One example among many others is schooling. With lowered morale and increased bitterness and hopelessness, children become more unsettled and harder to teach, thus more resources (both economic and in terms of teacher effort and frustration) become spent on tackling these problems and the costs increase. People may resignedly accept it because the effect is gradual and imperceptible, yet a major contributor to it is the original 'inward investment', which now contributes nothing to meeting these increased costs. Thus the 'inward investment' is merely income and not profit; in many cases it represents a loss to the local community even in financial terms. Another example is of a different kind: many of the more gifted or qualified of local people who join the incoming organisations and gain some career advancement there, then move elsewhere, often within those organisations, and are lost to the local community. This effect is so pronounced in developing countries, in that their 'best' people come to the West in such numbers that the economic value of such people exceeds the aid that the West gives those nations.

Lower Quality of Life

To enhance quality of life is one of the main aims of the more recent planning guidelines, and also other government initiatives such as research funding. But, because one or more of the above problems of destruction of local resources, undermining of local firms, the development of divided communities and increased community tension occur, the quality of life of local people deteriorates. Quality of life is not the same as standard of living (which might appear to increase for a time); it is deeper and much more important, and especially for the longer term. The link between this and the increased breakdown of family life has not been disproved.

Lower Wealth Creation

Wealth creation is the other main plank of government strategy. But wealth creation is not the same as increasing GNP or money flow; it must take into account the destruction of assets and the lowered ability of local people to create their own wealth. In this way inward investment, while it might appear on the surface to enhance wealth creation, can actually damage and undermine it. The increased dependency and lowering of top management experience among local people is particularly worrying in this regard.

Diversion of Local Resources

Resources of the local community are diverted from building up local enterprises and communities to seeking and maintaining and meeting the costs of inward investment. A proportion of almost every budget in the local authority is diverted, either formally or informally, towards inward investment. All this resource is resource that would often be better spent on building up the local community and encouraging local enterprises.

Further, the measure of number of jobs created per hectare of land destroyed is lower for inward investment than for local investment.

Inward Investment Subverts Government Guidelines

Lastly, inward investment in not just a local matter, not just affecting the local community.

The U.K. Round Table on Sustainable Development studied the development process in depth and, in 1997, came to the pessimistic conclusion that while national Government policy and guidance is for sustainable development, "mechanisms are not in place on the ground" to achieve it in practice. It gave the example of Northamption, which, contrary to the national guidance, allowed a firm to close its town-centre operation and move to a large development outside, with the results such that an increase in car use was inevitable, as well as a damaging of the centre of the town's vitality.

The reason for such ill-considered decisions, they said, is that Local Authorities feel under many pressures, not least to 'compete' with neighbouring ones for 'inward investment'. For instance, a large developer will play one authority off against another to obtain what they consider 'the best deal', which is often an out-of-town green-field site. Thus this on-the-ground mechanism effectively subverts the Government's intentions in planning.

It is high time to alter these 'mechanisms on the ground'. It is important for Local Authorities to reconsider their 'competition' for inward investment.

Conclusion

Of course, not all instances of inward investment brings all these problems; but it is a fact that many inward investments do bring many of them, especially over the longer term. We are not saying there should be absolutely no migration of organisations. What we are saying is that inward investment should not be uncritically welcomed, that each and every of the problems associated with it should be carefully considered before each inward investment is agreed, and for each that is agreed, sound steps be taken to prevent and ameliorate each problem; moreover, the cost of amelioration should be borne by the incoming organisations.

Because of the irreversible damage caused (e.g. loss of wildlife habitat), it is imperative that the utmost caution be exercised in all decisions that result in it. The damage should only be allowed in the most exceptional circumstances. Inward investment is seldom such. Possibly a local firm might be allowed to expand, causing such damage, but inward investment is in too many cases totally unnecessary, and there is not sound, overwhelming reason to cause such damage.


Dr. A. Basden, Cheshire Federation of Green Parties, Cllr. K. Armstrong-Braun, Broughton Green Party, 25th January 1998, 1 August 1998.

Copyright (c) Andrew Basden 1998.