Democratic countries in the developing sector, such as Poland and South Africa, are losing out in the race for American
export markets and American foreign investment. Dictatorships such as China or semidictatorships such as Indonesia are winning.
And the trend is growing. As more of the world's countries adopt democracy, more American businesses appear to prefer dictatorships.
If trade and investment strengthen developing countries, then U.S. businesses may be weakening the very countries they
say they most want to help.
These are the conclusions of a report recently released by the New Economy Information Service (NEIS), a think tank set
up to gauge the effects of globalization.
"The democratic countries in the developing world are losing ground to more authoritarian countries when it comes to competing
for U.S. trade and investment dollars," NEIS said.
"This finding," it said, "raises the question of whether foreign purchasing and investment decisions by U.S. corporations
may be inadvertently undermining the chances for survival of fragile democracies."
NEIS compiled the report using U.S. government and World Bank figures on trade and investment. It borrowed political ratings
compiled by Freedom House, a human rights organization that ranks countries as "free," "partly free" or "not free" based on
the level of their political rights and civil liberties.
In 1989, when the Cold War ended, democratic countries accounted for more than half--53.4 percent--of all U.S. imports
from Third World countries, not counting oil. Today, with more democracies to choose from, the democratic countries supply
barely one-third--34.9 percent--of U.S. imports from the Third World, it said.
After the same decade, democracies got 28 percent of American manufacturing investment in developing countries, up from
26.2 percent when the Cold War ended. This slight improvement--1.8 percentage points-- paled beside the 5.7 percentage-point
growth in U.S. investment reported by dictatorships, especially China.
China, which ranked 18th among recipients of U.S. investment in 1989, is in fourth place now, ahead of long-established
democratic partners such as Argentina and South Korea.
The NEIS report asked why dictatorships are outbidding democracy for the American market, but said it does not know. "We
are left with as many questions as answers," the report said.
"Something is going on, and it's worth pursuing," said NEIS Executive Director David Jessup. "We can't say that U.S. businesses
have an absolute preference for authoritarian countries. I doubt that the issue of democracy-or-no-democracy is on businessmen's
minds when they make an investment decision. But maybe it's an unconscious preference."
Wages tend to be lower in dictatorships than in democracies, giving businesses in dictatorships an advantage on selling
exports abroad. The investment question is more complex than that, Jessup said, but the report suggested a combination of
factors--lower wages, easier environmental laws, bans on labor unions--that give dictatorships an edge.
Such rulers tend to be strong leaders who can provide quick decisions, deliver results and stamp out opposition. These
qualities can appeal to many business leaders, who themselves operate in a non-democratic structure.
When Indonesia overthrew its dictator, Suharto, and installed a less authoritarian leader, investors tended to sit on their
hands. One currency expert, Ron Leven of J.P. Morgan, was quoted as saying that "democracy is a desirable form of government,
but it's not necessarily the most efficient form of government."
There is an "amorality" here, said Thomas I. Palley, assistant director of public policy at the AFL-CIO and a member of
the NEIS team. "Profits and morality don't mix very well."
Palley noted that dictators, not having to answer to voters or a legislature, can often deliver investment incentives--such
as tax breaks, freedom from environmental laws and a docile work force--that are powerful lures for foreign corporations.
But the U.S. government is part of the reason democracies come up short in luring investors, Palley said. "It says that,
if you deal with these guys (dictators), you make them more open. This provides the moral reasoning that businessmen want."
The result is a boom in investment and trade with China in the interest of "engaging" the Communist regime there.
Four countries--Brazil, Mexico, Malaysia and China--account for 67.6 percent of all American investment in Third World
manufacturing. According to Freedom House, China is "not free" and the other three are only "partly free."
Meanwhile, such "free" countries as Taiwan, Thailand, Chile, Costa Rica, the Philippines and Bulgaria lag far behind.
Because of Mexico and Brazil, the "partly free" countries lead the other two categories among America's economic partners.
Over the past 10 years, both the "partly free" and "not free" countries have gained in their share of the American market,
NEIS said, while the "free" countries have gone steadily downhill.
If these countries' share of Third World exports have slid from 53.4 percent to 34.9 percent, their share of high-profit
manufactured exports has fallen even further, from 56.7 percent in 1989 to 35.1 percent now.
It is not as though there is a shortage of democracies to do business with. According to Freedom House, 24 countries--including
such Central American neighbors as Panama and El Salvador and ex-Communist industrial nations such as Poland and the Czech
Republic--have become "free" countries in the past decade.
Another 22, including Russia and Ukraine, have moved up from "not free" to "`partly free."