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.
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 businesses brought wealth to the City, but only to a minority
- The result of the policies was more rather than less unemployment of
local people than before, and whatever jobs there were available to local
people were of low wage kind and did not help the lower paid to escape the
- On housing, this brought a similar problem. More local people were
homeless than before as the new houses were taken by those brought into the
City by the new businesses. This of course put the price of housing out of
reach of local people.
- To achieve these sad ends much local Green Belt had been destroyed.
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.
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.
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.
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.
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.
and a myriad of smaller cases that we seldom hear of, which all add up to
local misery and a sense of betrayal:
- The promise of LG in South Wales went sour when the South East Asian
economy collapsed in 1997-8.
- In 1998 Siemens made 1500 redundant in North East England - and it was
reported "The employees are being given counselling" - a fine compensation
for all the other types of damage done to the local area outlined below!
- Soon after than Fujitsu closed in the same area with a loss of another
- In 1998 Hyundai stopped work on a large site near Dunfermline,
Scotland, because of downturn in the S.E. Asian economy. They had
promised, would 'provide' 2000 jobs, and of course the site cannot be put
back to its original use.
- In September 1998 Via Electronics closed two plants, with a loss of
1000 jobs, at Galahsiels and Selkirk in the Scottish Borders, an area of
small towns that can ill afford such economic shocks.
- OptecDD came to Flintshire, Wales, in 1988, and are now discarding 114
jobs in two sites.
- Halla Euro Enterprises came to Merthyr Tydfil, Wales, and are now
discarding around 100 jobs.
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.
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
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.
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
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.
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.
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
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.
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.
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.
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.
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
It is high time to alter these 'mechanisms on the ground'. It is
important for Local Authorities to reconsider their 'competition' for
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.