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Budget Crunch Forces Bureau of Economic Analysis To Cut Back Data On Foreign Direct Investment & Multinational Activity In U.S. And Abroad
By Richard McCormack
richard@manufacturingnews.com
At a time when foreign direct investment (FDI) in the United States is skyrocketing, the Bureau of Economic Analysis has determined it doesn't have the money to collect data on the nature of those investments. In its latest annual report on FDI, which found a 72 percent increase in 2007 to $255 billion, the BEA said that it is "eliminating the survey of new foreign direct investment in the United States."
It notes that it will continue collecting data on foreign direct investment, but that "it will no longer be able to separately identify the portion accounted for by investments in newly acquired or established U.S. affiliates." Only 8.6 percent of FDI in the United States ($22 billion) went toward creating new businesses or building new factories. The vast majority goes toward purchasing existing assets of U.S. companies.
Budget pressures will also force BEA to stop collecting detailed data on the financial investments being made by multinational companies both in the United States and overseas. And the agency will stop gathering data to measure how spending on research and development is impacting U.S. gross domestic product.
The decision to stop collecting the data was made because the agency does not have enough money, say BEA officials. The agency received a congressional appropriation of $77 million in its current fiscal year, up from $76 million in 2007, but the increase was not enough to cover salary increases for staff.
By no longer collecting data on the different types of foreign investment in the United States, BEA expects to save $600,000.
But others both inside and outside the government expressed consternation over the agency's decisions not to track the specifics of foreign investment and the overseas investment activity of multinationals. What would possess BEA to scale back on this data collection activity at the moment it has become such a hot political issue, ask those involved in economic policy activities.
By not delineating the difference in foreign direct investment between greenfield projects and existing business asset purchases, free-market economic idealists will be able to continue making the claim that the United States is benefiting from "insourcing," say those who question BEA's decision not to continue collecting the FDI data. By not knowing what is happening with the globalization of the U.S. economy, those concerned about the sell-off of America won't be able to raise a fuss.
BEA said political or ideological considerations had nothing to do with discontinuing the series. "It's a matter of we had to cut something and the decision process is to first look at the things that BEA gives top priority," says Obie Whichard, BEA's associate director for international economics. BEA's primary mission is to produce the GDP statistics. Its second and third primary duties are to collect information to carry out programs required by law and information required to implement federal programs.
"The multinational company program is outside of those areas," says Whichard. "We are required to collect some information and we will continue to have fairly detailed information; it's just we won't have as much as we had previously."
Data on foreign direct investment will still be reported by companies in annual balance-of-payment transaction reports. Foreign firms will also report on an annual survey that collects information on their operations in the United States.
"We are quite aware of the investment trends and we'll continue to collect statistics that allow them to be measured and monitored," says Whichard.
The multinational information that will be dropped pertains to the reporting thresholds of financing operations of U.S. affiliates of foreign companies and foreign affiliates of U.S. companies. Right now there is a $30-million threshold for reporting asset sales or net income from overseas operations. The BEA will raise that threshold but hasn't decided yet on a number. With higher thresholds, "there would be a higher degree of estimation in the numbers and we wouldn't be able to publish the results in quite the same detail and still maintain our standards for quality, so we would reduce the detail," says Whichard. "The bigger companies would report fewer items....We wouldn't be able to publish as much detail by country and industry, particularly when you try to cross classify by country and cross industry."
The R&D data that will be dropped was started two years ago as a means of measuring the impact research is having on the economy. In its first report on the subject in 2007, BEA and the National Science Foundation found that GDP would have been $284 billion higher in 2004 had R&D been considered an investment. Accompanying the release of the R&D estimates, Commerce Secretary Carlos Gutierrez said: "Our data must keep pace with the changing and growing economy, and more improvements are planned. For example, an initiative of the Department's Census Bureau to collect additional data on the services industries will help us better understand the importance of R&D in that dynamic sector as well." National Science Foundation Director Arden Bement, said of the R&D estimates: "NSF is proud of this partnership. It will lead to a better understanding of the importance of R&D to economic growth, scientific progress and international competitiveness." So much for that good idea.
Is the data gathering apparatus of the federal government being starved at a time when data series need to be modernized in order to measure the impacts of globalization on the U.S. economy? "That is a decision for Congress and the public through Congress to make," says Whichard. "I'm not in a position to determine how [Congress] wants public funds to be allocated."
On its Web site, BEA says that it "recognizes that reduction or elimination of any of its statistics is not desirable for its data users. Careful consideration has been given to which statistical programs should be reduced in an effort to make these changes as unproblematic as possible."
Little public concern has been raised about the decision to stop collecting the FDI, multinational investment and R&D data. Nobody from Congress has called BEA to ask questions.
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