9_Law and State_Volume 17

56
Johann Hellwege
2nd Thesis
Import substitution has led to the establishment of branches of foreign
enterprises, which have made no contribution to economic growth and
have negatively influenced income growth through exploitation.
Foreign branch firms’ growing share of Latin American industry’s production
is certainly a justified cause for concern and represents a social
policy problem for the governments who are instrumentally utilizing
nationalism. To speak of “exploitation” because foreign industrial enterprises
pay wages which are lower in comparison with industrialized
countries, but which still are usually well above the minimum wage and
the local wage level, is to misunderstand the economic realities of a high
labour supply and comparatively lower productivity18. Although it has
been demonstrated that the profit rates of foreign investments frequendy
exceed by far what they are claimed to be, because within the enterprises
the most varied profit-concealing techniques are widespread, still the
question remains whether Latin America therefore is the area which
promises the highest profits to foreign investments. Considered on the
basis of the size of investments made and demonstrated profit rates, the
enterprises might well consider foreign investments in the industrialized
countries to be more interesting. Simply pointing to the high profit rates
and the high share of transferred profits, even if the profits were returned
100% to the mother country, does not prove that the foreign direct
investments do not contribute to domestic income growth, for other parts
of the value produced do remain in the country. Based on the attempts at
quantitative estimation of the income effects in the country which have
so far been made, critics can no longer rightly reproach foreign private
investments for not contributing to the growth of national income18.
In terms of the concern’s internal affairs, a foreign subsidiary in Latin
America is frequently only of secondary importance. This fact, however,
does not prevent the same enterprise in Latin America from obtaining a
power position which becomes a socio-economic and political problem for
the host country. Just as one can reproach the foreign concerns with not,
or not adequately taking account of these corollary effects of their actions,
so too one can remind the political leaders of Latin America, and especi
ly Latin American social scientists, that it can be dangerous to equate a
foreign subsidiary’s position in the context of the indigenous economy
with its significance within the overall context of the concern. In the pas
and in the present, there is no shortage of examples of how the econotm
power of foreign enterprises has been used to obtain massive influence 0
to intervene in domestic and foreign politics, public opinion, legis anon,