Amounts and Types of International Investment

HENRY FORD builds an automobile assembly plant at Manchester, England, and organizes the Ford Motor Company, Ltd. Through this English subsidiary the American parent company controls Henry Ford and Son Co., Ltd. (Cork, Fordson tractors), Ford Motor Company A. G. (Berlin), Ford S. A. Française (France), Ford Motor Company d'Italia (Italy), Ford Motors Ibérica (Spain), and half a dozen other Ford production and sales organizations throughout Europe. The I. G. Farbenindustrie. important German dyestuff and chemical concern, is represented by the American I. G. Chemical Company in the United States, while a subsidiary, Agfa, distributes photographic supplies in many countries. The Lautaro Nitrate Company, Ltd., operating in Chile, borrows $32,000,000 by means of a bond issue floated in the American market through the National City Company, the Bankers Company of New York, and other investment houses. Dutch, Swiss, German, French, and English investors send their money for building railroads in the United States, and then in Canada. The Deutsche Bank undertakes a project for laying rails through Asiatic Turkey to Bagdad and the Persian Gulf. Standard Oil prospects, drills wells, installs refineries, pipe lines, or selling organizations over most of the world. A German metallurgist on a honeymoon trip finds specimens of iron ore in Morocco, sends prospectors, bribes the Sultan and the necessary officials to get mining rights, and hires international lawyers to defend the validity of his concessions.

All these very diverse business proceedings are alike in one respect. They involve what is called an export of capital (import of capital from the standpoint of the country in which the investment is made), giving rise to relatively long-term investments abroad. It is the political implications of such long-term private international investments that this book studies.



Figures regarding the total amounts and geographical distribution of international investments are guesses. When made with sufficient care they deserve to be called estimates. A large number of such estimates are assembled in Appendix A, where they will be available to specialists. Meanwhile some of the salient facts about international investments may be presented graphically.

The chief sources of capital for international investment in the period ending with the great war were Great Britain, France, and Germany. Countries of second rank with respect to total foreign investments were Holland, Belgium, Switzerland, and---a late comer whose investments by 1914 were probably equal to those of any of these latter countries-the United States. Chart 1 reveals the dominant position of Great Britain in the pre-war capital markets. It was not always thus. From the end of the middle ages until the Napoleonic wars the center of financial energy had moved gradually westward and northward through Europe, from northern Italy to Spain and Portugal, then to Holland, to France, and finally to England.(1) Early in the 19th century, when the modern era began, England was the undisputed financial center of the world. Around the middle of the century France appeared by the side of England as an important capital-lending country; Germany entered in the late 'seventies or early 'eighties, the United States about 1900. Down to 1914, however, the citizens of Great Britain maintained their preëminence as foreign investors. British investments at that date were double those of any other country (in billions of dollars, Britain almost 20, France 9, Germany 7, U.S. 2 1/2) and were growing at the rate of approximately 900 million dollars a year. French foreign investments were increasing by some 240-350 million dollars yearly, German by 125, American by 125-150.

The world war diverted vast sums of European capital from peace-time purposes and destroyed quantities of industrial equipment, while still larger quantities suffered for want of repair and replacement. Most important of all, the war threw out of balance countless delicate adjustments of the economic organization itself, reducing its capacity to produce income for consumption and investment. After the war currency uncertainties, and in some cases runaway inflations, interfered with the normal investment of capital and wiped out large sums in existing obligations. From this whirl of war and post-war confusion, Germany emerged owing huge sums abroad for reparations, badly in need of capital, but possessed of technical competence and business skills. As a result, interest rates were high and prospects attractive; so Germany, having been one of the chief investing nations, became a leading borrower. French investors, who had shown a decided preference before 1914 for "conservative" placements in bonds of the Russian Tsarist government, saw large portions of their savings wiped out altogether by the war and its aftermath. It was late in the 1920's before currency and exchange difficulties had cleared sufficiently to permit new foreign flotations in France---and then the world depression began. English investors, with their widely scattered interests in the colonies and dominions and in foreign countries all over the globe, fared much better. After some new investments in the 1920's, the best estimate for 1929 of total British holdings abroad falls only a little below the corresponding estimate for 1913. (This is in money terms. Since the price level was about 35 per cent higher in England in 1929 than in 1914, the figure for 1929 overstates the real value of the investments as compared with 1914.)

It was in the investment position of the United States that the most striking development occurred. American capital in the 1920's not only helped to reconstruct war-exhausted Europe, but supplied the world with large funds that, in an earlier epoch, would have been recruited in London, Paris, or Berlin. At the same time, investors and business men throughout the world continued to be attracted by opportunities in America, with the result that the United States, by 1929, not only rivaled Great Britain in the total amount of capital owned abroad but also had within its borders the largest sum of foreign-owned long-term investments in its history. It became the world's second-greatest lender and remained one of the two greatest borrowers. Chart II, which shows estimates of foreign investments in the United States and investments of United States citizens abroad at various dates, does not include inter-governmental war debts.

In Chart III the attempt is made to give some idea of the order of magnitude of total international investments in the world at certain dates and to indicate the relative holdings of important lending countries. The task has been done in detail for 1929, with particular attention to minor capital-exporting countries, by methods which are indicated in Appendix A. The reader must realize that many of these estimates are very crude, indeed, though others are based upon compilations which are fairly accurate, within the limitations imposed by the nature of such data. It will be seen that the total long-term investment across international boundaries at the onset of. the world depression is put at some $47,500,000,000 by this method. No estimates are presented for any time after the end of 1929. Drastic price shifts, bankruptcies, defaults, currency and exchange dislocations, and general business and political uncertainties make it impossible to say, as yet, what has happened to world investments in the depression.

To what parts of the world did the capital exports of the lending nations flow? Chart IV depicts the geographical distribution of long-term holdings which had resulted by 1913-4 from the investment activities of Britain, France, and Germany, respectively, and Chart V does the same for British(2) and United States investments in 1930. Striking facts about British foreign investments at both periods are their wide scatter over the world and the comparatively minor placements in Europe. A third fact, only partly apparent in the charts, is that nearly half of all British external investments in 1913-14 were in the dominions and colonies (48 per cent), and that by 1930 this proportion had become nearly two-thirds (62.4 per cent). French and German investments in 1914, especially French, were largely concentrated in Europe. The three large fields of American investment indicated by the 1930 distribution are Latin America, Europe, and Canada, with less than 10 per cent invested in Asia and elsewhere.

Looking at the matter now from the standpoint of the capital-importing countries, Chart VI reveals the investment fields of the world having the largest gross amounts of foreign-owned capital in 1929-30. Here again, strong reservations must be made regarding the validity of the data, but, except in a few cases, they are probably accurate enough to give a rough idea of each country's quantitative importance as a recipient of international investment. This method of estimation gives a total figure of $54,600,000,000 for the aggregate long-term international investments of the world in 1929-30. In view of the large amount of guesswork at the basis of such calculations, it is rather surprising that this figure differs from the total arrived at in Chart III by but seven billion dollars.

The following countries are the largest long-term lenders and borrowers per capita(3):



Total long-term investments abroad per capita of population, 1929.

Total long-term investments from abroad per capita of population, 1929.

(Dollars per capita.)

(Dollars per capita.)
Switzerland 493 Canada 623
Great Britain
(United Kingdom)
397 Australia 592
Holland 294 New Zealand 555
Belgium 186 Cuba 360
United States 119 Chile 310
France 85 Uruguay 303
Sweden 82 Argentina 268
Australia 39 South Africa 163
Canada 36 Belgium 149
    Norway 143
    Mexico 141
    Costa Rica 129
    Venezuela 127
    Denmark 102
    Honduras 85
    Paraguay 84
    Dominican Republic 83
    Bolivia 67
    Sweden 65
    Brazil 64
    Peru 63
    Switzerland 62
    Persia 56
    Finland 52
    Germany 52
    Guatemala 51

The smallest per capita foreign investments received from abroad were found in China ($7), India ($8), British West Africa ($10), and Haiti ($11).

It may be startling to some readers to find many of the important lending nations also listed among the important recipients of foreign capital:---the United States, Germany, Great Britain, Japan, Belgium. (Charts III, VI.) The totals on our charts represent the aggregate results of a vast number of individual transactions, not unitary actions by indivisible entities called "nations." Thus, while Ford is erecting branch plants in Germany and thereby increasing American capital exports, I. G. Farbenindustrie acquires interests in the United States and sends capital for investment in the reverse direction. Or, an American bond-buyer buys German municipal securities, while a German speculates in American stocks. The growth of international capital investment thus reflects the increasing integration of the world's economic organization. Indeed, the amount of these long-term, boundary-crossing investment ties is in a certain sense a measure of the degree to which the economic integration of the world has outstripped its political integration, or, to put it in another way, the extent to which the mechanism of production and distribution over the world is becoming unified in spite of political separatism. Here we are touching upon the fundamentals of the political problem of international investment.

Will recovery from the world depression, "when, if, and as" it appears, bring renewed international investments? Will the growth trend of the last hundred years continue, thereby proving that recent interruptions due to war and depression have been, like similar interruptions in the past, but temporary? The answer will depend mainly upon political factors. The purely economic tendency is plain. First of all, the notion that capital investment goes only from industrial to non-industrial regions and as undeveloped countries become industrialized the volume of international investment must necessarily decline is false. The data of Chart VI and Chart II are enough to disprove that theory. Secondly, there are fundamental factors of a technological sort at work in the modern world which tend toward more rather than less international investment. As the world "shrinks" under the influence of successive developments in methods of transportation and communication it becomes increasingly possible and profitable to make and control large capital investments at a distance. As industrial technique advances in the direction of large-scale enterprise, great capital investments in plant and equipment are necessitated, and at the same time the production stream out of which new capital can be saved is increased. There is no indication that these technological factors are likely to reverse themselves in the near future. Indeed, transoceanic aviation, streamlined land transport on still growing networks of steel and concrete, world-wide telephony and picture transmission, the development of scientific management techniques making possible central planning of larger and larger productive units---not to speak of such wonders as stratosphere navigation and the tapping of atomic energy that may be looming on the scientific horizon---make it a fairly safe prediction that the technological forces of the future will still be toward the economic integration of the world, implying larger fixed investments over larger areas. If that is the case, there is no doubt about the future bringing world-wide investment relationships beside which the present ones will seem puny---except for the possible interference of the political factors broadly denoted by the term "nationalism." It is quite possible that a sufficiently widespread and intense political nationalism might continue to block the basic technological forces tending toward world economic integration. It seems more probable on the whole, however, that political nationalism will itself eventually give way under the steady pressure of these tremendously powerful forces, as other political localisms have done in the past-free cities with their local tariffs, provincial patriotisms, and "states' rights." But this is only a hazard.



Regardless of whether capital crosses boundaries as profusely in the future as in the past, it is beyond peradventure that the volume of international investment already existing in the world is enough to raise serious political problems. Before proceeding to the systematic study of these problems it will be useful to set up a scheme of classification by which international investments can be grouped into types according to characteristics that may have political significance. This will serve both to re-emphasize the amazing variety of relationships lumped under the term "investment" and to call attention to the fact that this study does not pretend to deal with all types, but focuses upon long-term, private (non-governmental) investments.

I. Long-maturity and Short-maturity Investments. From the standpoint of the number of months or years which are contemplated as the duration of a particular capital placement, international investments may be classified into long-term and short-term. The first, only, are the subject of this book. Examples of long-term investment are: the building of railroads, plantations, or industrial enterprises, or the purchase of bonds and stocks of such enterprises. Long-term transactions relate to what is spoken of as the "capital market," and long-term securities are handled by investment banks. Short-term transactions, on the other hand, are associated with the "money market" or the market for "funds"; they are the chief business of commercial banks as distinguished from investment banks. They typically involve loans to importers and exporters for the financing of goods in shipment---a matter of thirty or ninety days, perhaps; deposits in foreign banks, which may be withdrawn at will or after notice; investments in acceptances, brokers' loans, treasury certificates, and the discounting of commercial paper. Short-term international investments have played an important rôle in the international problems of the post-war era, politically and economically. Especially in times of currency uncertainty the presence of enormous sums of highly mobile capital which may move suddenly from one country to another has presented baffling difficulties to finance ministers and central bankers, and the threat of such movements has been employed as a political weapon. This interesting field of inquiry must be left, however, to other investigators. The remaining classifications which follow are intended to fit long-term international investments only.

II. Governmental and Private Investments. The public or private status of those who send capital abroad or receive it from abroad obviously has a direct bearing upon the political implications of the investment. From this point of view we may usefully distinguish four main types of international investment and two hybrid types which are combinations of some of the first four:

1. Intergovernmental loans.

2. Loans by private persons to foreign governments.

3. Governmental investments in enterprises outside the government's own territory.

4. Investments by private persons in private ventures or loans to private persons abroad.

5. (First hybrid type.) Investments by private persons in foreign ventures, with a subsidy or guarantee from (5a) the government of the capital-receiving country, or (5b) the government of the capital-providing country.

6. (Second hybrid type.) Mixed enterprises---i.e., corporate organizations in which voting stock is held by one or more governments as well as by private persons.

Types 1, 2, and 3 are not dealt with in this book. Attention is concentrated upon type 4 (which defines the rather special sense in which the term "private investments" is used in this book), and upon the hybrid types, 5 and 6. The first justification for this somewhat arbitrary delimitation of the field of study is the practical one that an individual investigator, confronted with the voluminous, thinly scattered, and unassembled source material relevant to the politics of international investment, must concentrate his interests somehow. This study might have been restricted to one region.---for example, the politics of foreign investment in China, or Mexico, or Persia, or Latin America, including both private and governmental investments. Or it might have centered on the investment politics of the United States, or France, or Great Britain. It has been chosen, instead, not to limit the geographical scope of the investigation, but to exclude some types of investment in order to concentrate on others. This seemed to offer certain advantages for purposes of reaching objective generalizations based on the comparison of many specific cases. The second justification for this choice is that loans to governments, having relatively direct and obvious political implications, have received more attention from writers in this field than have "private" investments.

Intergovernmental loans (type 1) are not common except in time of war. Examples: the war loans of the United States government and the governments of Great Britain and France to their allies, out of which the "war debts question" arose. When intergovernmental loans do occur in time of peace they almost always imply some political connection, though this may be becoming less true as governmental agencies increasingly intervene directly in the export and import trade. Example: Italian governmental loans to Albania (1931) as part of the Italian program of alliance or penetration based on considerations of military and political strategy.

Loans by private persons to foreign governments (type 2) may be further divided into loans to national governments and loans to municipalities, states, provinces, or particular government-owned enterprises such as railway systems. Examples appear in the bond market quotations of any metropolitan newspaper. Particular political significance has been attached to such loans as those floated by the Russian government in the French market before 1914; American loans to Caribbean governments; loans to the Khedive of Egypt, the Sultan of Morocco, the Bey of Tunis, and other rules of "backward" countries; American private loans to Allied governments before 1917; and loans to China---to mention only a few. In former times, almost all foreign investments were loans to governments, and despite the great development of international industrial and commercial investment during the last century they still constitute a very considerable fraction of all international capital transactions. The proportion of government loans among French pre-war foreign investments was very high---well over half. About 28 per cent of British foreign investments in 1913 appear to have been of this type, and the percentage was higher, about 40, in 1929. Government loans were a comparatively small part of United States foreign investments before the war, perhaps as low as 10 per cent, while the total of national, provincial, municipal, and government-guaranteed issues held in the United States in 1930 was 40 per cent of the estimated total United States foreign investment.(4)

Governmental investments in enterprises outside the government's own territory (type 3) have been relatively rare, but sometimes they have played a very important part in politics. The example most often cited is the purchase by Disraeli, for the government of England, of a block of Suez Canal shares in 1875. Other examples: The Anglo-Persian Oil Company, in which the British government owns more than half of the common stock; coal mines in the Saar, owned outright by the French government until the settlement which followed the plebiscite of 1935; the Panama Canal, constructed and owned by the United States government; the Canadian Grand Trunk Railway, government owned, and running for part of its route through the United States; Amtorg, Intourist, the United States Shipping Board, and other governmental trading and shipping agencies which operate in foreign countries. In many cases, such as that of the Anglo-Persian Oil Company and the Japanese and Russian railways in Manchuria, government-controlled enterprises abroad have also had a partly private ownership, partaking, therefore, of the character of "mixed" enterprises.

What are called "International private investments" in this book (type 4) include only investments by private individuals or firms in private enterprises or loans abroad, not loans to a public authority or from a public authority. Private investments so defined include both "portfolio" investments, insofar as they consist of securities of private enterprises abroad, and "direct" investments---that is, establishment of branch factories or the acquisition of commercial equipment in foreign countries. Examples: the bonds of United States railway companies floated in England, oil wells in Mexico owned by United States and European investors, the plantations of the United Fruit Company in Costa Rica and Honduras, Krupp industrial securities sold in the United States.

The two hybrid types of foreign investment (types 5 and 6) have been rather important in international politics. Railways in Tunis before the French occupation, for example, were constructed and operated by rival French and Italian companies, with subsidies from their respective governments. The famous Bagdad Railway, center of much pre-war diplomacy, was a private enterprise to which the Turkish government guaranteed a certain annual revenue per completed kilometer. Instances of mixed enterprises have already been given in connection with governmental investments abroad. (Suez Canal, Anglo-Persian Oil, Manchurian railways.) The Oriental Development Company, operating in Korea, Manchuria, and elsewhere, may be added; it is owned in part and controlled by the Japanese government. In Europe, the Compagnie Internationale de Navigation Aérienne, which created a French-controlled aviation network in central Europe and the Balkans, has provided an interesting example of the international mixed enterprise. Guaranteed and subsidized by the French government, it received subsidies and had representatives on its board of directors from several other governments; twenty per cent of its stock was owned outright by the government of Czechoslovakia.(5)

III. Migration or Non-migration of Management. There are two types of international private investment from this point of view:

1. Loans to foreign individuals or corporations (not conferring management control on the lender).

2. Direct investments (in which management, as well as capital, is "exported"). Direct investments differ considerably in their political implications according as the management is exercised a) under the general laws of the capital-receiving country, b) under special concessions or franchises, or c) in unorganized territory, under government-like authority set up by the investor.

The first type comprises those investments in which the investor is a mere provider of capital---a lender, a bondholder---not a proprietor or manager. This is a common relationship between capital-exporting regions and relatively undeveloped but progressive, technically-competent countries. American railroads were financed in Europe but managed by Americans, and bonds of Argentine industrial companies have been sold abroad. Much capital moved into Germany after 1924 in the form of industrial loans. Capital may also move abroad without an accompanying migration of management through the purchase of stocks, if the amounts acquired are not sufficient to give control of the company. European purchases of many American stocks have been of this type.

In the case of direct investment, management, as well as capital, migrates across national boundaries. The foreign investor is a proprietor, not merely a lender. He may operate in a foreign country under the general business laws of the country, as does the Ford Company in Germany, Canada, and France. Or he may operate under a special concession (franchise)---that is, some privilege or right granted by the government, usually implying a degree of monopoly. This type of investment is a common sort in undeveloped countries where the government is not strong or commercial law is not well adapted to industrialism. It is customary in the more advanced capitalistic countries mainly in connection with public utilities---railroads and street car lines, telegraph and telephone systems---where there is a strong element of natural monopoly. Examples: the Yalu timber concession acquired along the boundary of Korea and Manchuria by Russians shortly before the Russo-Japanese War; foreign-built railways in China; oil and mining and railway concessions in Turkey, Mexico, and South America. In those regions of the earth that industrial civilization regards as most primitive and "backward" the proprietor-investor may operate where no recognized law exists; there he sometimes imposes his own will as law and sets up a regular political administration. Examples are the "chartered companies" of Africa and Asia: the British South Africa Company, the (earlier) British East India Company. In this case, not only capital and management but also government itself may be said to constitute part of the migrating element in the foreign investment.

The distinction between migration and non-migration of management presented here is roughly the same as that between "portfolio" and "direct" investments developed by the United States Department of Commerce in its periodical estimates of American holdings abroad. Chart VII compares the geographical distribution of these two types of American investment at the end of 1930, as estimated by the Department. Direct investments in Europe were less than half as large as portfolio investments (including government bonds, of course), while in Canada and South America direct investments predominated slightly. The size of the securities holdings in Europe was largely the result of the enormous volume of German capital issues floated in the United States after 1924, and to a lesser degree to the offerings of French, Italian, Swedish, and British securities. In Asia and Oceania the American interest was principally in securities, while in the West Indies, Mexico, Central America, and Africa practically all of the holdings were direct investments. In general, securities holdings seem to predominate in the "older," and better-established countries, direct investments are the rule in "backward" countries, while the two types balance in countries which have undeveloped natural resources and at the same time are relatively stable politically. There are exceptions to this rule, however, notably in the case of Great Britain, where there is a striking predominance of American direct investments, probably accounted for by close cultural and business ties.(6) A recent investigation showed that direct business investments are and always have been of overwhelming importance in China. "China is probably the world's outstanding example of the preponderance of such investments." At the end of 1930 nearly 80 per cent of the total foreign investment in China was in this form, mainly in railways and shipping, the import and export business, manufacturing, and real estate, with smaller sums in banking and finance, mining, and public utilities.(7)

IV. Politico-Economic Characteristics of the Capital-Receiving Area. International investments may again be divided into three types, according to the politico-economic features of the investment field:

1. Those in the "old" countries-highly industrialized, with political systems relatively well organized and adapted to capitalistic types of economic enterprise. Examples: England, Scandinavia, the United States, France.

2. Those in "new" countries-with relatively undeveloped resources, but having Western industrial technique and relatively stable political organization of the Western capitalistic type. Examples: Argentina, Chile, Canada, Australia, the United States in the 19th century.

3. Those in "backward" countries---non-industrialized, lacking techniques and political organization of the Western capitalistic type. Examples: Central Africa, some Central American countries, China, Persia.

Perhaps it is too soon yet to see clearly whether a fourth type will become a fairly common feature of international economic relations, namely, private investments in countries undergoing an avowed social revolution a) of the left, with workers' dictatorship and expropriation of private property, as in Russia, or b) of the right, with private property recognized, but subordinated to various "national purposes" by the government, as in Germany.

It seems probable that, in general, the mere amount of foreign capital invested within a country indicates little as to the likelihood of the investment becoming involved in international political trouble. Much more significant is the proportion which foreign economic enterprise bears to native enterprise, or the amount of foreign investment in relation to the general economic development of the country. Lacking any reliable objective index of the industrial advancement or economic power and productivity of all the countries in which foreign capital is invested, in the following table the estimated amount of foreign long-term capital within each country in 1929 has been divided by the total value of its exports and imports for that year, with the following interesting results:(8)

Countries in which investment from abroad was a high per cent of annual foreign trade, 1929. Arranged in order from 500% (Mexico) down to 171% (Argentina). Countries in which investment from abroad was a low per cent of annual foreign trade, 1929. Arranged in order from 13% (France) up to 53% (Germany).
Mexico France
Bolivia Holland
Uruguay United Kingdom
Brazil Latvia
Australia Czechoslovakia
Cuba Italy
Canada Switzerland
China Chile
Persia Jamaica
Rumania Denmark
Peru Austria
Guatemala Sweden
Dominican Republic United States
Honduras Finland
Venezuela Germany

V. The Employment of the Investment. It is convenient to distinguish five chief types of employment:

1. Investments primarily for trading purposes-commercial.
2. Transportation and communication investments.
3. Investments in the extractive industries.
4. Manufacturing investments.
5. Finance---banking and loan company investments.

The stores and forts of the Hudson Bay Company are examples of the first type from an earlier time. Today, the warehouses of the International Harvester Company in South America, the sales agencies of the Singer Sewing Machine Company in Japan, and the stores of rubber and copra traders in tropical lands may be cited. Trading investments are those which usually appear first in regions newly opened to exploitation. They are usually followed by transportation and communication investments---the Chinese railways, the Indo-European telegraph across Persia, aviation lines and radio telegraph stations in South America. Investments of this sort are economically important because they must come before certain other types of enterprise can be started in a country, and they are politically important not only for this same reason, but also because they have been proved to possess great strategic value in international struggles of an economic, political, or military nature. Investments in the extractive industries may be devoted to agriculture, stock-raising, lumbering, mining, or to the exploitation of oil wells. Examples: the plantations of the United Fruit Company in Central America, the copra plantations of the Godeffroy firm in Samoa, the timber properties of United States newspapers in Canada, foreign-owned silver mines and oil wells in Mexico. Foreign investments in manufacturing industries may be illustrated by Japanese-owned cotton mills in China or by American branch plants and industrial loans in Europe. As examples of banking and loan company operations abroad we may cite the National Bank of Haiti, owned first by French and later by American capital, the National Bank of Albania, organized by Italian banks under the auspices of their government, and the multitude of branches operated by the International Banking Corporation, the Deutsche Bank, and the Banca Commerciale throughout the world.

The tabulations of Sir George Paish(9) show that almost half of British publicly-issued foreign investments before the war were in transportation and communication---44 per cent, to be more exact---and all but a very small part of this in railways. The next largest employment of British investments at that time (30 per cent) was in loans to governments, and a considerable share of this was doubtless put into railways. Other employments were: extractive industries 10 per cent (mainly in mines, then rubber, oil, tea and coffee, and nitrates); banking, finance, and real estate 8 per cent; commercial, industrial, and manufacturing 7 per cent---of publicly-issued British investments abroad.

VI. Political Characteristics of the Capital-Providing Area. An important distinction for our purposes is that between investments emanating from the great powers-Britain, France, the United States, Germany, etc.---and investments made by citizens of lesser powers, such as Holland, Belgium, Switzerland, and the Scandinavian countries. Furthermore , the policies of the different great powers may be quite unlike among themselves either in regard to foreign investments of their citizens in general, or concerning investments in particular regions.

VII. Objects Sought by the Investment. The great bulk of international investments are made, of course, in the hope of reaping a pecuniary profit for the investor. There are investments, however, made not for profit or not wholly for profit. Such, for example, are the very important holdings of American and European churches and missionary societies in such countries as China---hospitals, schools, and the like. But there is a second type of non-profit-seeking investment quite unconnected with missionary or charitable activities which Is very important to a study of the political effects of international investment. These we shall call "patriotic investments "---investments made with somewhat less than the normal regard for profit and loss, and devoted to the purpose of promoting the "higher" aspirations of a national state, such as the acquisition of new territory, the preparation of strategic military or naval bases, the opening of virgin territory for imperial expansion, or the forestalling of expansion on the part of a rival power. We may set up the following classification:

1. Investments for private profit, business only.

2. Charitable or missionary investments.

3. Patriotic investments.

a. Subsidized by the home government.
b. Stimulated by it, but not subsidized.
c. Stimulated by patriotic, imperialistic visions of individuals, by colonial societies, etc., but not directly by the government.

Examples of type 3a are Italian enterprises in Tripoli before the Italian conquest of 1911, French and Italian enterprises in Tunis before the French occupation of 1881, Russian timber operations on the Yalu River before the Russo-Japanese War, and the main Italian investments in Albania today. Type 3b is illustrated by certain American investments in the Caribbean region. The work of the British East Africa Company and the British South Africa Company, African developments fostered by German colonial societies, and explorations fostered by the Comité de l'Afrique Française may be said to be, in part, examples of type 3c.

VIII. Successful and Unsuccessful Investments. "Success" is here meant in the business sense. The political implications of investments which pay their own way and of others which experience defaults, repudiations, moratoria, or bankruptcles may be quite different. For example, the large foreign investments in Germany after 1924 have become an international political question because payments were first reduced and then suspended.

Chapter Two

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