Comment on the Dubai Ports World Fiasco--BECKER

Posner rightly distinguishes the attempted purchase last year of the American oil company Unocal by the Chinese government-owned company, CNOOC, from the proposed operation of six American ports by Dubai Ports World, a company owned by the Dubai government. The case against the takeover of Unical by SNOOC was extremely weak for the various reasons we gave in our blog discussion last August. The case against allowing this Dubai company to be in charge of loading and unloading ships at several ports is stronger, perhaps much stronger, but in my judgment not strong enough. So I do support the decision of the Bush administration to allow the transaction to go through, and regret the Congressional and media opposition that torpedoed it. Posner too readily dismisses the degree of opposition in some American circles to the takeover by foreign companies of certain types of American assets. Such protectionism not only blocked the Unocal takeover, for reasons he agrees are flimsy, but also prevents foreign airlines, even those as innocent as British Airways, from owning American airlines, and from flying from one American city to another. Protectionism is the only reason for the pressure on China to control the rate of increase in its textile exports to the United States. American protectionist sentiment arises whenever it can be disguised as concern over national security, terrorism, health, and other legitimate issues. Protectionism was also manifest when Japanese companies in the 1980's and 1990's took ownership of certain assets, like Rockefeller Center, considered to be American jewels. Anti-Japanese attitudes allowed protectionists to create opposition to these transactions that would not have been possible if British or say Italian companies were involved. In the same way, although the operation of these ports was being simply transferred from one foreign company (British) to another one, dislike of Muslims by many Americans enabled protectionism to be disguised under the cloak of concern over Islamic terrorism. I instinctively am dubious about the legitimacy of the opposition to the Dubai Ports World transaction when it is led by the new Lou Dobbs, the CNN business commentator, who saved his sinking ratings by discovering that he never met any imports to the United States that he likes, whether of goods, services, or people. He may by accident be right in the Dubai ports situation, but his opposition makes me suspicious of the motives behind much of the more vocal opposition. How serious is the risk that this government-owned Dubai company, headed by an American, would either intentionally or through lax management of the ports, have allowed terrorists or major weapons to enter America through the ports they would have operated? This risk is not zero, but I do not believe it is strong enough to justify blocking the transaction. It is doubtful that any information provided to headquarters of the company by American dockworkers, or even by any of the very few Muslim managers of the company, would be of greater value to terrorists than information about port security that can be picked up from media reports, surveillance, and the internet. Furthermore, the major terrorist attacks in recent years, such as 9/11 and those in other countries, did not (as far as I know) depend on information passed to the terrorists by sympathetic companies operating trains, ports, airports, airlines, or other vital sectors. I have expressed my support of appropriate ethnic and other profiling in prior blog discussions and elsewhere, but the risk has to be sufficiently large to justify taking actions that inevitably arouse antagonism. Several airlines from Muslim nations, such as Kuwait Airlines, Biman Bangladesh Airlines, Emirates Airlines, and Saudi Arabian Airlines, fly into the United States every day. Should they be banned because someone in these companies might connive to allow terrorists on board who plan to hijack a plane and then fly it into a major building in New York, Washington, or elsewhere? Should all citizens from Saudi Arabia be banned from entering this country because a few might turn out to be dangerous terrorists? Terrorist profiling means that extra attention is paid to members of groups that are likely to commit terrorist acts, not in most cases that they are completely excluded from entering. For this reason, applicants from a country like Saudi Arabia who want to enter this country to study or as tourists should be scrutinized much more carefully than applicants from say Sweden. Extra scrutiny should be given to the activities of airlines with access to American air space that may pose greater risks than airlines like BA. Extra scrutiny should have been the way to handle any terrorist risk posed by the Dubai Ports World management of the ports under their control. The extra cost of an intensive inspection of cargoes entering these ports would have been worth furthering the belief that the US does not simply plead the case for globalization when confronted by restrictions placed by other nations on American exports. Such an action would have sent a message that while the US takes terrorism very seriously, it would not use that concern as a cover for opposition to foreign ownership of American assets. As Posner indicates, part of the concern arises from the apparent laxity in protecting against terrorist threats entering through ports. That has been noted many times as a defect that deserves high priority. I am no expert on this, but I would be easily convinced that this country is not doing a good job of inspecting containers entering American ports, and personnel on ships that dock at these ports. These concerns should be addressed, and exposure and correction of lax port enforcement should have high priority. However, blocking the operation of several ports by this Dubai company at best trivially help overall enforcement. Worse still, it could create complacency about protection of entry of terrorists and weapons through American ports that would be far more damaging to US security that allowing the Dubai transaction to go through. Perhaps as Posner argues, not much harm will result from opposing the Dubai Ports World management of a few American ports. Yet it gives still another signal to the world that when conditions are ripe, protectionist sentiment in the US will gain the upper hand. This is presented as anti-Islam or anti-terrorist, but is I believe at heart anti-free trade and anti-globalization. To me that is the main cost of the Dubai Ports World fiasco.

Comments

[Corey]

"Even the French, who are introducing 2 year trial employment periods to combat 23% youth unemployment, disagree with you."

Oh please, 600 French students stormed the Sorbonne because of that change in the law and were tear gassed. I think it is still very much a live question in France. And 2 year trial employment for youths is STILL much better than "at-will" employment until you die. Germany has been doing very well with a for cause rule, as has Japan.

"There is no suggestion P&O or the ports it is selling is in distress. So your explanation is irrelevant here... The horse whip problem mentioned above is inevitable. Whether it is caused by changes in technology or taste is irrelevant."

Oh great arbiter of irrelevance, who first mentioned distress. Thank you for pointing out the irrelevance of that.

I didn't say changes in technology OR taste. I said workers being underbid. You all are the ones who want the job loss to be inevitable. Good way out of anyone having to feel guilty about them. Union-busting, benefit reductions, systematic layoffs and rehiring, there are many ways to reduce costs of employment. Then we say "business necessity" or "technological paradigm shift" and Wall Street cheers. Yay!

"Furthermore, such rules provide no guarantee of employment in a field, because firms fail."

Yes, but that's the point, they actually have to fail. Can't just swap out management, fire a bunch of people, and keep using the accumulated business goodwill. A "for cause" rule is meant to tilt the scales a little bit on the question "do I fire Ben now so I can record his former compensation as a profit?"

Yes, sooner or later jobs become obsolete or disfavored. At that point, no one can save them. However, we are talking about eliminating jobs BEFORE they are obsolete, because someone else can do it cheaper in Mexico or because the profit margin, while still positive, has dropped below the rate that will sustain executive pay packages.

Imagine me saying to someone, you will die someday so I might as well just shoot you now and reduce overpopulation. How does that argument differ from. "Job loss is inevitable here so lets do it now when it will save the most costs?"

Protectionism of any sort, including locking out direct foreign investors, is inefficient in one sense. But that doesn't mean it is bad overall. If other vested interests (reliance on employment, profit on fixed infrastructure capital) are being preserved, they can outweigh.

We don't let employers beat workers with sticks, even if that would increase production. That's a tradeoff of efficiency for a social norm. It happens all the time. My observation of this blog is that people tend to overvalue market norms and undervalue relationship norms.

[Arun Khanna]

Guerra-Pujol asked, "Would it not be more principled to favor the free flow of all forms of capital, whether they be goods, services, or peoples?"

Free trade in goods and services does not undermine the rule of law and does not potentially impair legal citizenship rights.

In my view, it would be better to compare illegal immigration with smuggling of goods.

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