Hamish McRae: Foreign investment has been great (for us). But is globalisation all it's cracked up to be?

Clare Short once put the point in her pithy style: "People have accused me of being in favour of globalisation," she said. "This is equivalent to accusing me of being in favour of the sun rising in the morning."

But if the reality of globalisation is now universally accepted, its benefits - and its costs - are now being scrutinised more robustly. There is more concern about the need to share the benefits, more interest in the implications for corporate structures, and more discussion about the limits of the phenomenon.

Whenever you are confronting a huge subject, some numbers help to put it in perspective. The Economist Intelligence Unit's "World investment prospects to 2010" is just out, with the subtitle "Boom or backlash?" Its answer to its own question actually is "neither": that things will turn out somewhere between the two. Nevertheless it is the right question and the EIU brings together a host of data in a helpful way.

The first chart shows just how important globalisation is to Britain as an investor. It shows the stock of foreign direct investment, or FDI, held by different countries. (Direct investment means a company building a plant overseas; portfolio investment means buying the shares of a foreign enterprise.) As you can see, the UK is second only to the US in terms of these direct investments it owns overseas.

FDI is not the measure of globalisation by any means. You should also look at the growth of international trade in goods and services, which characterised the early stages of globalisation. You should also take into account portfolio investment, which is playing an increasing role in cross-border financial flows. Still, FDI was the principal vehicle that has driven Chinese growth - US companies investing in China to provide them with cheaper goods - so it is perhaps the most useful measure of what is happening now.

The second graph shows the flows of FDI through the late 1990s boom and then the early 2000s slowdown. It is now recovering, but I suspect that most people do not realise that we are still well short of the peak. You could almost say that the last downturn led to a crisis of confidence among foreign investors. While the stock of such investment has continued to grow, the rate at which it increased slowed sharply. We are still moving to an ever more globalised economy, but at a somewhat less heady pace than during the late 1990s.

Does this show a certain disenchantment with the whole business? I think the answer to that is yes and no. Yes, in the sense that companies making foreign investments are becoming more circumspect in their decision-making process. No, in that any investor with an excess of capital is still as eager as ever to scour the world for profitable investment opportunities.

The UK seems as popular as ever as a place to build plants. The third graph shows the EIU projections as to where the FDI investments will go from 2006 to 2010 - who will get most of the cake. As you can see, the UK is expected to be second only to the US in terms of receipts.

This is encouraging, because we have benefited hugely from such inward investment. Our motor industry is a classic example of that. Our home-grown manufacturers essentially failed, with the rump of the British Motor Corporation collapsing last year. But Nissan in Sunderland has built Europe's most productive assembly plant and plans further expansion there. The essential point of FDI is that you don't get just investment; you get know-how and you get export distribution too.

So why is such investment regarded with suspicion? Richard Lambert, the new head of the CBI, gave a partial explanation with his speech on Tuesday when he said that public trust in business and its leaders had collapsed over the past 30 years.

You could make a rational argument that British business is rather better run now than it was 30 years ago, when the likes of British Leyland were making their strategic mistakes. But he is probably right in his analysis. Normally decent people will sneer at the word "profits", apparently unaware that taking inputs and selling the output for more is adding value to those inputs, whereas not making a profit is not adding any value to those inputs. (Yes, I know that presumes perfect competition and we live in an imperfect world, but the point here is that globalisation increases competition and so reduces the protection of inefficient companies.)

Insofar as globalisation is the corporate world writ large, there is a similar suspicion of it. This is notwithstanding the evident reality of its role in increasing living standards in China and India in the most dramatic of ways. Of course, the benefits of the Chinese and Indian booms have been unevenly spread and arguably the spreading of wealth is taking longer than it should do - a point incidentally being made by David Cameron. But surely that is where the concerns should be directed, not at the process that generates the wealth in the first place.

Besides, we ought to ponder why some countries have been so successful at attracting investment and why others have not. Why, most obviously, is the US so good at getting other people to invest there? It must be partly the size of the market, but it must also have something to do with the transparency of financial markets, the stable political system and so on. Of the developing countries, only China appears in the top 10. The top 10, by the way, is projected to attract more than two-thirds of the total. I have not shown the next 10, but Singapore comes in at 13, Mexico at 16 (just behind Ireland), Brazil at 17 and India 19.

You have to wonder why India is so far down the list. Or that Mexico, with its physical proximity to the US and its 106-million population, is unable to attract more investment than Ireland, on the fringe of Europe and with a population of 4 million. Is it just tax? Surely it can't be.

Will there be a backlash against FDI? This is tackled in an article by Karl Sauvant, the executive director of the Columbia Program on International Investment. He acknowledges that there are signs of a possible backlash, but argues that at present these do not add up to a serious challenge or presage a marked slowdown in flows. But attitudes could change. It will not only be economic factors that determine these, but also security, political and social factors.

That is surely right. A force as big as globalisation will not peter out suddenly, quite apart from the fact that it is not in the self-interest of anyone to allow that to happen. But nothing is for ever and at some stage in the future we will have to come off the curve. We will have to stop the move to an ever more globalised economy: to move to a plateau rather than slipping back. That will be the dangerous time, the time when the world really tests Clare Short's perception of the inevitability of it all.