The London School of Economics and Political Science How the Beast

The London School of Economics and Political Science How the Beast Became a Beauty: The Social Construction of the Economic Meaning of Foreign Direct Investment Inflows in Advanced Economies, 1960-2007 Lukas Andreas Linsi A thesis submitted to the Department of International Relations of the London School of Economics for the degree of Doctor of Philosophy, London, August 2016. 1 DECLARATION I certify that the thesis I have presented for examination for the MPhil/PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without my prior written consent. I warrant that this authorisation does not, to the best of my belief, infringe the rights of any third party. I declare that my thesis consists of 83,051 words. 2 ABSTRACT Dominant approaches in International Political Economy treat inflows of foreign direct investments (FDI) only as a material fact, a physical flow of capital. The analysis of the perceptions of inward FDI presented in this research, however, reveals that the meaning that policymakers and analysts attribute to FDI inflows goes far beyond that. What is more, the predominant interpretation of the meaning of FDI inflows has changed dramatically over time: While they were perceived primarily as a threat to national economic development from the 1950s to the 1980s, they came to be gradually re-interpreted as a sign of economic success in the 1990s. Focusing on these developments in the major OECD economies, this research aims to make sense of this stunning transformation in the social interpretation of inward FDI and to examine the implications of these ideational evolutions for policy outcomes. To do so, the research adopts a mixed methods research design, which combines quantitative approaches with the insights gained from qualitative historical analysis: After providing a nuanced theoretical discussion of the significance of economic narratives in international economic affairs and a broad overview of the key developments in FDI policies and relevant policy discourses in the six largest advanced economies during the post-war era, the research subjects the theoretical argument to two quantitative tests at large cross-national samples using data from public opinion surveys and general election results; finally, a qualitative comparison of relevant developments in the United Kingdom and France analyses the impact of these ideational changes on FDI policy-making processes in empirical depth. 3 PREFACE On 31 December 2010 I arrived in Vientiane, the capital of Laos, as a tourist. I was excited to have set foot on officially communist land for the first time in my life. On the same night, at the public New Year’s celebration on the capital’s main square, an odd detail caught my attention: the beautiful historic surroundings were decorated not only with national flags, sickles, hammers and red stars, but, most prominently, with orange-blueish advertisements for Tiger, a popular Asian beer brand owned by Heineken Asia Pacific, a Singapore-based subsidiary of the famous Dutch brewing company. It was not exactly the promotion I had expected self-declared Marxist- Leninist party officials to be supportive of. And the youth of Vientiane, presumably having been taught the evils of foreign capitalists throughout their formative years, didn’t hesitate to add their endorsement to the powerful multinational. With excitement and pride they held their Tiger bottles (which, as I came to learn later, were produced and distributed by the Lao Asia Pacific Brewery, a joint venture between Heineken International and the communist government of Laos) high up into the night sky. The crowd’s enthusiasm about their bland, overpriced and politically incorrect drinks left me confused at first; but suddenly it all made sense as I started to realize that the ugly Tiger signs all over the beautiful square were not simply advertisements; they carried an important message: “We are part of the global economy now and that is ‘cool’”, roared the Tiger. Two years later, when I started familiarizing myself with the existing literature on foreign direct investments in the International Political Economy literature at the beginning of my PhD studies, I had long forgotten the excitement of Vientiane’s 4 youth. Reading my way through the field in long hours at the bustling LSE library I realized that nearly all of the recent literature had strongly focused on examining how political factors influence a country’s attractiveness to foreign multinationals, but – in contrast to the classic literature on the topic of the 1970s – it gave very little attention to the question why countries want FDI. That FDI is ‘good’ and that governments would want it seemed to be largely taken as an obvious fact, which wouldn’t need much explaining. However, to my own surprise, I realized at the same time that this conclusion was not supported by the empirical literature examining the economic effects of FDI, which seemed in effect fairly sceptical and ambivalent about the question whether they are a ‘good’ or a ‘bad’ thing. It wasn’t that clear, after all, if the Tiger’s arrival in Laos was really so great… Puzzled by this apparent divergence between what the economics literature said about FDI and what almost everyone seemed to believe it said, I decided at some point to dedicate my PhD studies to an attempt to better understand why governments around the world were so keen to attract FDI. And when – trying to get a better grasp of the political history of global FDI - I started reading through historical documents, the puzzle just kept becoming more puzzling. I was intrigued to learn that it wasn’t only Lenin and his disciples who used to condemn multinationals, but that not too long ago respected members of Thatcher’s Conservative party in the United Kingdom, a Democratic presidential nominee in the USA (long before the rise of Trumpism well understood…) and even the editors of the Financial Times seemed honestly worried about FDI inflows and sharply articulated the case for more regulations and 5 restrictions on multinationals. The puzzle then was not only why governments were so keen to attract FDI, but also why they used to hate what they now love. After wrestling with this two-layered puzzle for four long years, I think I have an answer, which – although not successfully explaining every detail of FDI politics of the last six decades – I believe makes some sense. And although it has almost nothing to do with Laos (or beer), it is based to a large extent on the powerful symbolism of FDI that seemed so obvious in Vientiane on 31 December 2010 and which has regularly come back to haunt me since then. Angling for the sometimes seemingly elusive answer to this puzzle has not always been an easy undertaking, but it was overall a hugely rewarding experience. Mostly so thanks to the many wonderful people I had the chance to encounter during this journey. I acknowledge that life is too short to read long prefaces, but nonetheless I wish to express my gratitude to a number of individuals who made these last four years a period of my life, which I will keep in very good memories. Without any doubt, my largest intellectual debt goes to my supervisor at the London School of Economics, Professor Jeffrey Chwieroth. I am very glad that I don’t need to engage in speculations about the potential counterfactual outcome of this research project in absence of Jeff’s continuous input and guidance, for it is obvious that it would be so much worse. I wish to express my gratitude for his inspiration, friendship, generous support and wise advice throughout these four years and for the many pointed and always constructive criticisms, which have kept me focused and the thesis on track. 6 I also very gratefully acknowledge the significant institutional and financial support that I received from the London School of Economics, as well as from Professor Fabrizio Gilardi and the Institut für Politikwissenschaft at the University of Zurich and Professor Rawi Abdelal and the Weatherhead Centre for International Affairs at Harvard University, which very generously hosted and supported me for substantial periods of my time as a doctoral student. Approaching the end of this long journey and reflecting upon how I got into these turbulences in the first place, I realize that I owe much to it to Lloyd Gruber, Darryl Jarvis and Ashish Lall. Apparently their teaching during my graduate studies at LSE and at the Lee Kuan Yew School of Public Policy in Singapore was inspiring enough to shift a notable part of my mind’s limited attention-span away from my efforts to save the world towards the (usually) more modest concerns of IPE. Equally, Lauge Poulsen also deserves a special mention for providing critical support at the very beginning of this project and for hitting the ball roughly in the direction of the shape that this thesis finally took on. For taking their time at some point during the past four years to share their insights and views about what has been my personal obsession during that time and on how to turn the latter into a dissertation, I am very grateful to Robert Falkner, Stephen Woolcock, James Morrison, Colin Hay, Peter Hall, Louis J. Wells, Peter Katzenstein, Cornelia Woll, Leonardo Baccini, David Soskice, Vivien Schmidt, Tarak Barkawi, George Lawson, Joshua Kertzer, Geoffrey Jones, Ronald Krebs, Catherine Boone, Kenneth Thomas, Leonard Seabrooke, Frank Schimmelfennig, Klaus Dingwerth, Clint Peinhardt, Eric Neumayer, Ben Lauderdale and Lauren Philips.

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