By Nora von Ingersleben and Braden Cox
The United States currently faces the worst financial crunch and crisis since the Great Depression. Thanks to the sub-prime mortgage disaster, banks have incurred billions of dollars of losses. Write-downs, combined with the opaqueness of complex financial instruments and the decline in net worth of many borrowers resulting from a drop in house prices, have led banks to sharply reduce their lending. For small and medium-sized enterprises (SMEs) in the IT sector, this means it is much harder to raise capital to develop innovative new products, jeopardizing America’s position as the most innovative and most economically successful country in the world.
Despite the dearth of capital available to U.S. companies, lawmakers in recent months have paid increased attention to the geographic origin of investments coming from outside of the United States, subjecting proposed investments from Asian and Arab countries to much stricter reviews than investments from other regions of the world.
Keeping a watchful eye on foreign investments to ensure that they don’t have negative consequences for national security is certainly important. However, at the same time, policymakers need to realize that foreign direct investment (FDI) is highly beneficial for the United States and restricting it will have severe economic consequences, especially in the current climate of sharply reduced domestic credit availability. With the Committee on Foreign Investment in the United States (CFIUS), a useful tool exists for balancing safety and growth. This balance can only be achieved, however, if lawmakers refrain from making the CFIUS review process into an arena for political wrangling.