Once the largest creditor nation, the United States is now the world's largest debtor. Although no one doubts that the United States has increased its dependence on foreign capital, what all this borrowing tells us about the American economy is a matter of dispute. Some economists liken the United States to a rising corporation, attracting investments from other corporations eager to share in spectacular profits. According to this image, far from being a sign of decline, foreign investment in the United States is a sign of success. While this image is appealing, if the United States were truly a rising corporation most foreign investment would presumably be direct investment, which gives the investor some ownership, the better to profit from the strength of American business; however, most foreign investment in the United States is portfolio investment, which confers no direct ownership. Other economists compare the United States to a declining corporation; according to this image the United States, no longer competitive in world markets, is running a large trade deficit that can only be financed by borrowing from abroad.
There is some truth here. The United States has fallen behind its competitors in many areas and the trade imbalance has therefore widened. However, both images fail to acknowledge fully the role that the globalization of United States corporations has played in creating the foreign debt.
