How to Attract Capital; W. Wriston

HOW TO A TTRACT CAPITAL THE DEVELOPMENT of a country requires the investment of large sums of money. vVhere this money comes from and the manner in which it is spent are critical problems which go far beyond economic theory and are likely to have an impact on the political future of the world. Many years ago Mr. Thomas Braniff at the inaugural flight of the Braniff Airways into Buenos Aires, had an interview with the then dictator of the Argentine, Juan Peron, who inquired of him how to attract private capi tal. Mr. Braniff replied that it was a very simple thing. "Capital goes where it is wanted and it stays where it is well treated." Nobody has ever said it better. It is true of all capital, both foreign and domestic, for domestic capital flees from the same conditions which repel for eign capital. The number one condition for the retention of local capital and the attraction of foreign capital is a relatively stable currency. If the currency of your country is depre ciating at the rate of 20 to 40 per cent a year, there is not Mr. Wriston is Executive Vice-President of the First National City Bank of New York. This article is condensed from his address given at the Bank's Customers Overseas Conference, May, 1963.

201 202 WALTER B. WRISTON much point in saving your money as all that will happen is that you will watch the reward of your labor wiped out by rising prices. People who work hard and acquire capi tal quite naturally want to invest it in something to con serve the fruit of their labor, to take care of their old age, and to pass· on to their children. I t is, therefore, perfect nonsense to talk about stopping the flight of capital, much less attracting foreign capital in an atmosphere of runaway inflation. Money runs downhill toward the hap piest blend of high reward and safety, and nobody has ever found a way to make it run uphill for more than a very limited period of time, even through a series of highly technical and questionable gimmicks. The second basic requirement for the attraction of capi tal is some reasonable expectation that the rules of the game will not be changed with any great frequency.

Private capital can adapt itself to most rules, provided always that the expectation exists that the game will be played by those rules over a period of time. It is for this same reason that private capital is frightened away by direct economic controls. While the private investor will ingly accepts the risks of the free market place, he almost inevitably shies away from situations where arbitrary de cisions by government administrators .can make or break his business. Third, through curious mental processes which are un known to me, some countries proceed to nationalize all the subsidiaries of foreign companies without fair or ade quate compensation, and then express amazement that there is no capital inflow from foreign sources and, in HOW TO ATTRACT CAPITAL 203 fact, large capital outflows from their own people. Re spect for property rights is a fundamental prerequisite for private investments whether foreign or domestic.

There is no real shortage of capital in the world, and I do not know of any major project which has been held up solely because of the lack of money. Capital is plenti ful wherever it is "wanted and well treated." The real bottleneck in the development of the world is the short age of human capital: people with the skill, training, and education intelligently to employ the world's resources. The facts are that when political freedom and free enterprise spread, markets increase, and that the expan sion of markets is only prevented through political moti vation. The interest of American business in the expan sion of a free enterprise system around the world as part of a free political system is based not only upon moral considerations, but on the hard fact that there is no mar ket for consumer goods among slaves. The problem is not one of division whereby the static resources of a coun try will be reallocated by some planner's program, but it is a problem of addition and multiplication whereby we must set our minds to increase the production forces and to broaden the areas ·0£ freedom and trade.