in other markets in their area of expertise. thus, we have seen them expanding directly into overseas markets in transport, packaging, building supplies, shopping malls, property services, etc., mainly activities that cannot be serviced via exports, but require direct investment. i think this trend is to be applauded, and is a sign of the success of australian business rather than its inadequacy. although we are nowhere near as far down this path as, say, the netherlands or switzerland, their success shows that it is not only the major countries that can create viable international companies. so far, i have not mentioned the other catchphrase - the “ branch economy ” - the belief that the companies in the peripheral countries will be swallowed up by larger companies centred mainly in the united states ( and, to a lesser extent, europe ), leaving only branch operations behind. this is a more difficult concept to pin down, although i do not wish to dismiss it as a concern. there certainly are powerful forces towards centralisation that operate within economies, and between economies. these centripetal forces are primarily the result of improved technology, particularly in communications, media and transport. they are best analysed within the framework of “ winner - take - all markets ” rather than in the more conventional discussion on globalisation. if this is our concern, i. e. our best companies are falling into foreign hands, the thing we should mainly worry about would be a big rise in inward direct investment, but we have not seen this - we have seen r. h. frank and p. j. cook, “ the winner take - all society ”, the free press, n. y., 1995. a reasonably steady trend over recent years. again, if this is our concern, we should applaud the success of australian companies operating abroad, as shown by the recent strength of outward direct investment - although there will inevitably be tensions about where these companies will be listed and headquartered. it will take a long time before we can put these issues into perspective. we are still too heavily influenced by the events of recent years whereby everyone seemed to be comparing themselves unfavourably against the us economy, and finding that they were losing out in the investment community ’ s esteem. that situation is changing and, when the dust settles, i suppose some of the more extreme views about the magnetic pull of investment to the united states will recede. as explained, we have already seen this happening

investment has resumed again in recent quarters. incidentally, inward direct investment continued at a relatively steady pace over recent years, and was largely unaffected by the tendency described above. in the past, it was inward direct investment that attracted unfavourable comment. foreign investment and multinational corporations were viewed with suspicion and accused of buying our best companies ( in some sense, the opposite of the “ we are off the radar screen ” argument ). now the interesting tendency is in the opposite direction - australian direct investment abroad is greater than foreign direct investment in australia. also, australian portfolio investment abroad has risen strongly. what does this mean? does it support another often - heard view that there are no good investment opportunities in australia, and firms and investors are forced to go abroad? the first thing to note is that australia is still an overall net importer of capital, i. e. more is invested in and lent to australia from abroad than we lend to or invest in other countries ( a necessary corollary of running a current account deficit ). since the government has little or no role in these investment flows, it is the world and australia ’ s private sector players that have chosen this outcome. notwithstanding this consideration, some people are still troubled by the amount of portfolio investment abroad by australian institutions and direct investment abroad by australian companies, accusing them of turning their backs on australia. i think the situation is a bit better than this. my guess is that the bulk of the portfolio investment abroad is just a sensible diversification of assets by australian investors and institutions. in 1983, before exchange controls were abolished, australian portfolios had zero international diversification, and in time we will reach a level that is appropriate to our circumstances. in the meantime, we will see outflows as we move from zero to the optimal level. in addition, we should not forget that other countries are also diversifying their portfolios, and in the process purchasing australian equities and bonds. world bank, “ globalisation, growth and poverty ”, 2002. on direct investment, we are going through the second phase of australian companies buying overseas assets. in the first phase in the late eighties, it was done rather indiscriminately with a lot of investment outside the investor ’ s normal area of expertise. the results were not very good. more recently, however, most of it has been done by successful australian firms that have reached their limit of expansion in their own industry locally, but are good enough to compete