Swing of the Pendulum: Investing in the U.S.

WESTERN EUROPE

The most important development in international trade for a generation has been the flow of U.S. corporate capital to Europe. From $1.7 billion in 1950, it grew last year to $20 billion. The cash has not only fueled much of the postwar European boom but has created controversy among Europeans, particularly in France, who profess worry about an American economic "takeover."

Now the, flow, if not the furor, is beginning to subside--and the money has started to go the other way. Partly because of balance of payments considerations and partly because European laws and work practices are discouraging some U.S. companies, new U.S. investment in Europe this year will run about 4% under the prevailing $3 billion annual rate, and may slide even farther next year. Meanwhile, the value of European-owned plants and equipment on U.S. soil is rising sharply. The total crept up from $2.2 billion in 1950 to $7 billion last year, will sprint to $10 billion this year. That may be only the beginning. In a recent speech before a group of U.S. bankers, Jacques Maisonrouge, the French-born head of IBM World Trade Corp., echoed the conviction of many businessmen that the U.S.-European-investment "pendulum is now swinging the other way."

Wipe Out. During its first 100 years or so, the U.S. economy was supported by European capital. Europeans bankrolled Thomas Jefferson's Louisiana Purchase ($11 million), and European financiers were principal backers of the railroads and the steel, petroleum, mining, cotton and Southwestern cattle industries. The European stake in the U.S. peaked at $7 billion in 1914, but it took two world wars to all but wipe it out. German plants in the U.S. were confiscated in both world wars. Other Europeans sold off their U.S. holdings to raise cash for their war efforts.

Many factors have influenced the current revival of European investment in the U.S.--and not the least is American encouragement. European businessmen can find a California-development office in Frankfurt or go to Brussels to see representatives from Illinois, Ohio and New York. As part of its program to help offset the continuing outflow of U.S. dollars by increasing foreign investment, the Commerce Department last spring set up an office in Paris.

Still the Biggest. Common Market experience has accustomed many manufacturers to a "multinational" outlook. There is also a weakening of the persistent European notion that U.S. antitrust and securities laws are somehow stacked against foreign operations (they are not). But the main drawing card is that the U.S. market is still the world's biggest and most profitable. Describing his own experience last June, Marcel Bich, whose Bic pen company bought out Waterman Pen Co. in 1959, could hardly contain himself. "The States, it is tough," he declared. "But when it works, it pays!" Bich has long since recouped his $10 million investment in Waterman, last year cleared $6.4 million.

Other Europeans agree. Items:

> Britain retains by far the biggest U.S. stake. It has $2.9 billion invested, mainly in petroleum (Royal Dutch/Shell), chemicals, textiles, insurance and a range of consumer items that includes Brown & Williamson's Viceroy cigarettes, Unilever's laundry products and Good Humor ice cream, and hot-selling Capitol Records, in which EMI Ltd. has a controlling interest. Current sterling-export restrictions are making expansion difficult but not impossible. Much as U.S. firms do in Europe, Bowater Paper went to U.S. capital markets for its share of a new $14 million newsprint plant that it is building jointly with the Newhouse newspaper chain.

> The Netherlands ranks second, with $1.4 billion, partly because of its shares in the Anglo-Dutch companies, Unilever and Shell. Following a trend toward joint venture, chemical-making DSM and PPG Industries (formerly Pittsburgh Plate Glass) are building a $20 million plant in Augusta, Ga., to make caprolactam, a nylon ingredient.

> Switzerland is third in investment ($949 million), but first in secrecy; its ministry of economic affairs regards attempts to measure the country's U.S. interests as "industrial spying." The Swiss stake, nonetheless, is growing. Nestle has increased its holding in Libby, Mc-Neill & Libby (food canning) from 20% to 35%. Alusuisse is building a $63 million aluminum-processing plant at Lake Charles, La., and Swiss watchmakers are buying heavily into Waltham, Elgin and other U.S. companies.

> West Germany, whose surprisingly small ($247 million) U.S. stake reflects a caution resulting from wartime confiscations, may become the biggest investor within the next decade. Hoechst, Bayer and BASF are leading a current surge of interest in manufacturing on American soil the chemical products that they now export to the U.S. The West German government, uneasy about its big trade surplus (TIME, Oct. 25), is strongly urging others to build abroad.

> France, showing a facile disregard of its own campaign against "Americanization" at home, dropped its stiff capital-export restrictions, and is rapidly increasing its $247 million U.S. interest. The latest in a new wave of ventures comes from Pechiney, which last month announced plans to build a $190 million aluminum smelter in Maryland with its own 46%-owned Howmet Corp.

> Sweden and Belgium also have sizable U.S. stakes ($217 million and $193 million), mostly in oil, glass, bearings, machinery and appliances.

One sign of the trend's strength is the arrival in the U.S. of European bankers similar to the march of U.S. banks into Europe during the 1950s. Within the past year, British, German, Dutch and Belgian investment and commercial bankers have considerably expanded operations in New York--the better to serve the growing European encampment.

This file is automatically generated by a robot program, so reader's discretion is required.