State Capitalism and Foreign Investment
Remember the concern with Dubai Ports World? A company owned by Dubai was going to run our ports. "You are xenophobic, anti-Muslim, anti-Arab," cried the deal supporters. Not so, we retorted. There is a fundamental difference between privately own companies and state owned ones, between market and state capitalism. Hence, state owned companies should be treated differently because while profits motivate businesses, geopolitical strategy motivates governments and, ultimately, the businesses they control.
State capitalism and resource nationalism are set to become two of the main economic issues of our time. Across Asia, Russia and the Middle East, governments look set to use their countries' currency reserves and savings to acquire overseas assets.
That amount ($300,000bn) represents the single largest pool of cash that any government has thrown at anything, ever. Adjusted for inflation, the United States' largest effort, the Marshall Plan, comes in at just over US$100- billion. In essence, China is about to throw a very large rock into the pond without telling anyone where specifically to expect the splash.
Canada saw a small example of national corporatism at work last week when Abu Dhabi National Energy Co. announced the purchase of Northrock Resources Ltd. of Calgary for $2-billion....Why would a state-owned water- filtration company from the Middle East be interested in Calgary oil? Something to do with getting a window on the United States oil market, a company official says. But if Canadians wouldn't let the government of Canada nationalize Petro-Canada to get a window on the oil industry, why do we let Abu Dhabi do it?
All a US politician needs to ask is: should China be able to secure intellectual property rights overseas, when it cannot guarantee to safeguard such rights for foreign firms in its market? [....]While the fear is a protectionist response, the west should use the growth of state capitalism to force positive changes in the investing countries' home markets.... Chinese banks may buy, own and exert full control over British banks, but could the reverse happen? If the west accepts that Chinese firms can buy freely overseas, this should lead to pressure for China to open its domestic markets further. Similar pressure should be applied to other countries with large state funds that invest overseas.
The private enterprise corporate model assumes a free market in capital that flows to the investments and corporations based on market principles and freedom of contract. National corporatism inserts the power of government, and then pretends the old market rules still apply. What it creates, however, is a new economic model, in which economic competition is between national governments rather than between businesses.
The latter delivers freedom and prosperity, the former promises control and international conflict.