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boasts a particular focus on the employment effects of foreign direct investment. Yet even here the amount of information is meager, providing data on total TNC employment in only a handful of developing countries. The most interesting and relevant part of this study was an analysis of the employment effects of foreign direct investment by U.S. TNCs. It reported that, in 2003, 9.8 workers were employed for each $1 million of FDI stock owned by U.S. TNCs in the manufacturing sector in developed countries, whereas the same stock of FDI in developing countries employed 23.8 workers, or 2.4 times as many.²⁶ As a result, a stock of $281bn in U.S. manufacturing FDI in developed countries employed 2.76 million workers, while a stock of $88bn in developing countries employed 2.1 million workers. The same quantity of investment in extractive industries (mining, quarrying, and petroleum) employs a much smaller number: 1.3 workers in developed countries per $1 million of FDI, compared to 2.5 workers in developing countries. To complete the picture, each $1 million invested in services leads to the employment of 2.1 workers in developed countries and 2.3 workers in developing countries.

      However, this data underestimates TNC employment, since UNCTAD does not count temporary, casual, and subcontracted workers as employees, yet U.S. TNCs have led the way in casualizing Southern labor, as in the case of Coca-Cola, considered below. Counting all of these employees, it is reasonable to conclude that TNCs headquartered in the United States employ more workers in low-wage countries than they do domestically, and, by extension, the same is true of TNCs headquartered in Europe and Japan.²⁷

       The Profits of FDI

      Qualitative differences between N-N FDI and N-S FDI mean they cannot be simplistically compared. Flows of investment and repatriated profit between the United States, Europe, and Japan are symmetrical inasmuch as they invest in one another. In striking contrast, cross-border investments between the Global South and the Triad nations are extremely asymmetric: S-N FDI is negligible in comparison to N-S FDI. UNCTAD reported in 2008 that “the large gap between TNCs from the developed and developing groups remains. For instance, the total foreign assets of the top 50 TNCs from developing economies in 2005 amounted roughly to the amount of foreign assets of General Electric, the largest TNC in the world.”²⁸ In consequence, direct investment and profits flow in both directions between the United States, Europe, and Japan, but between these nations and the Global South the flow has been and continues to be overwhelmingly one-way. As the accumulated stock of FDI in the South has increased, so the return flow of profits has grown into a mighty torrent, which, as Figure 3.1 shows, are now of a similar magnitude to new N-S FDI flows. A particularly striking feature of Figure 3.1 is the steepness of the increase of both FDI flows and profits in the early years of the millennium, consistent with evidence cited elsewhere on the acceleration of outsourcing following the bursting of the dot-com bubble at the beginning of the new millennium.

      According to UNCTAD’s 2008 World Investment Report, the world’s TNCs earned $1,130bn in 2007 in profits from their foreign subsidiaries, 406,967 of which are located in developing economies and 259,942 in developed economies.²⁹ The report provided no breakdown or detailed analysis of FDI profits by firm, sector or country, except for “Annex Table B.14,” which reports that in 2005, the most recent year for which data is available, U.S. TNCs earned $549bn in profits from what it elsewhere reports to be their $2.05 trillion stock of direct investments. Japan, the only other country to report profits from FDI, earned $87bn.

      This UNCTAD table with just two entries exemplifies the scanty information on global profit flows in data provided by public bodies. Furthermore, there are many reasons to question the accuracy of the sparse data. FDI income has three components: repatriated profits, retained profits, and interest payments on loans extended to the affiliate by the parent company, but “many countries fail to report reinvested earnings, and the definition of long-term loans differs among countries.”³⁰ Alexander Lehmann, in a rare IMF working paper on the subject of corporate profits, says, “In practice, only few emerging markets adhere to these standards.”³¹ So poor were the data published by his employer, the IMF, Lehmann turned instead to the U.S. Department of Commerce and its data on FDI by U.S. firms, from which he concluded that the rate of return on FDI in developing countries in the 1995–98 period was at least twice as high as was reported by the IMF. He adds: “The estimates for the return on foreign direct investment suggest that profitability is widely underestimated. U.S. data show returns on total foreign direct investment in emerging markets in the order of 15 to 20 percent. An additional three percent on invested capital [is] paid to parent companies for royalties, license fees and other services.”³²

FIGURE 3.1: North-South Flows of FDI and Profits ($bn)

      Source: FDI flows from UNCTAD (available at http://unctadstat.unctad.org/)

      Twelve years on (Lehmann’s paper was published in 2002), neither the IMF, UNCTAD, or any other IFI has shed any further light on this murky and decidedly non-trivial matter—no further working papers, no studies, no “FDI profits” theme for any of the annual reports, no revision of the data discredited by Lehmann, no attempt to publish new, more credible data. Instead, some dubious estimates with minimal information about how they were compiled and none about how the problems identified in Lehmann’s paper have been addressed. However, what UNCTAD does report is interesting. Its 2013 World Investment Report informs us, “While the global average rate of return on FDI for 2006–2011 was 7.0 percent, the average inward rate for developed economies was 5.1 percent. In contrast, the average rates for developing and transition economies were 9.2 percent and 12.9 percent, respectively.”³³ In other words, the rate of return on FDI was twice as high in developing countries as in imperialist countries.

      UNCTAD publishes no tabular data on income from FDI, even though FDI is central to its remit. This it leaves to the World Bank, which manages the “Primary Income on FDI” database, whose data is presented in Figure 3.1. For the reasons cited by Lehmann and others discussed here, this surely significantly underestimates the true flow of profits from FDI in developing countries. The figures it provides for the 1995–98 period suggest a rate of return of around 4 percent, just one-fifth of the rate of return discovered by Lehmann for this same period.

      Lehmann pointed in particular to a general failure by national authorities to collect data on reinvested income, that is, FDI profits that are not repatriated but used to finance an expansion of the TNC’s affiliate. The World Investment Report of 2013 reported that around 40 percent of FDI profits in developing countries is retained in the host country, but “not all of this is turned into capital expenditure; the challenge for host governments is how to channel retained earnings into productive investment.”³⁴ This alludes to the fact that not all retained earnings are reinvested in the affiliate that generated this income. The TNC may use these funds to invest in domestic government debt, in portfolio investments, in domestic stock markets, or any other legal or illegal activity that it thinks will be profitable, yet there is no publicly available information on the extent to which TNCs use their foreign subsidiaries as financial conduits rather than production facilities.

      Declared profits also ignore underreporting, transfer pricing, and other widespread practices of dubious legality. Jennifer Nordin and Raymond Baker, a leading authority on “the countless forms of financial chicanery … prevalent in international business,”³⁵ reported in the Financial Times that

      over the past four decades or so, a structure has been perfected that facilitates illegal cross-border financial transactions…. Many multinational companies and international banks regularly use this structure, which functions by ignoring or skirting customs, tax, financial and money laundering laws. The result is nothing less than the legitimisation of illegality…. By our estimate, it moves some $500bn a year illegally out of developing and transitional economies into Western coffers.³⁶

      The

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