August 14, 2005
On Chinese Ownership: Some Reactions-BECKER
Most of the comments centered around a possible security threat from Chinese companies buying American companies in various industries, such as the American energy sector that CNOOC tried to enter by bidding for Unocal. Even accepting China as a potential military threat-which is possible but still uncertain- the comments opposing this purchase based on security (or other) reasons were not persuasive.
Some claimed that China could gain important information or even secrets by owning a company like Unocal, but it was never made clear what these were. All pipeline, customer information, etc. is public knowledge, as are most advanced methods for extracting oil and gas. If they need help on gaining access to methods used by other companies, many energy consultants are ready to help them in ways that are fully legal, and are not fully controlled by US policy.
Someone suggested that CNOOC might replace American employees of Unocal with Chinese ones. On the whole, there is nothing to that fear. To be sure, they could bring in some Chinese executives, although that would be at the expense of running the company efficiently. For other employees, They could not get immigration permits to replace the vast majority of Unocal employees in this country.
China does not allow American or other foreign companies to take over Chinese companies in some sectors, or even to enter certain sectors. But why is that a reason for the US opposing CNOOC's bid for Unocal? The case for allowing that bid is that it helps the US for the reasons outlined in my original comment, not that it helps the Chinese, or because of some slavish adherence to principles of "free trade".
Chinese ownership of American companies may not be sufficiently important "hostages" to discourage a military attack on Taiwan or elsewhere. But the point I tried to make on this issue is that China, not America, bears the economic risk from ownership of American assets, since these assets would be taken over by the US in the event of any military conflict, the way German assets in the US were taken over during world War II.
There is evidence, in studies by Solomon Polochek and others, that trade does reduce the probability of conflict between nations, but many other factors are also relevant. So a few examples are not decisive, whether they go in one direction or another. I believe that even the quantitative studies by Polochek and others are far from decisive, but they are the best we have so far.
On an issue raised that is somewhat removed from the main subject, I do believe American airlines should be allowed to fail, as Eastern, Braniff, TWA, and others did fail. To get closer to our present topic, we should remove the obstacles that prevent foreign airlines like BA or Lufthansa from taking over American ones. I believe we should go further, and give many foreign airlines the right to transport passengers between different points within the US.
Posted by Gary Becker at 9:17 AM | Comments (7) | TrackBack (2)
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Comments
The efficient market question is somewhat related to CN0OC. If a foreign company (CNOOC) wants to pay a higher price than a domestic company (Chevron), and the U.S. blocks this transaction, is the price for the company "efficient"? (admittedly, the possibility of a 0% loan available to CNOOC and not to a U.S. bidder may complicate the "higher price" comparison. There may have been other differences in the offers). What is the "risk free" rate in China?
The CNOOC situation raises interesting questions. In general, what are your thoughts regarding which industries should be protected for natl security reasons vs. which should not? (shipbuilding, food production, airlines, etc). Why? On airlines: i was not necessarily going to foreign ownership yet there are advantages to this.
TWA got acquired by American? American showed business savvy on this - purchase and integration? (it has been in the WSJ?) As a result, American is more resilient during a shock (vs. other hub-and-spoke carriers).
Posted by nate at August 14, 2005 2:11 PM | direct link
I find little disagreement on the economic question, yet I don't feel Becker and Posner properly weighed the importance of balancing our foreign policy, human rights, and security interests with our economic ones.
It may be that we can effect our goals more efficiently with more economic ties, but it may also be true that our foreign policy and humantarian interests are undercut, rather than strengthened, by these sorts of entanglements. It seems to me a makes a middle way more likely (China gives a bit, and so does the USA), but if the "middle way" is unacceptable for security or humantarian reasons, are we right to reject it?
Posted by Palooka at August 14, 2005 2:16 PM | direct link
on randomness, business savvy, bad luck, or challenge-seeking behavior: what do you think of leaving the oil industry in the early 2000s and joining the airline industry? (what has happened subsequently). Inverse labor arbitrage?
Posted by nate at August 14, 2005 2:23 PM | direct link
Shdn't government promote Christianity if most of the voters want it to do so? Non-Christians of course have the freedom to move to a non-Christian country should they find it too burdensome.
Posted by Mark Nielson at August 15, 2005 12:39 PM | direct link
Sometimes we have to make a choice between risk (war,even the division of way of thinking)and economy(money),but,first of all(before that),we have to make sure that whether they come to what you defined before.
Posted by anyshine at August 17, 2005 11:42 AM | direct link
There is a void in thinking that reduces all decisions to market efficiency - a corallary would be that the shortest route through a strange city is the most efficient until one learns that they are smack in the middle of a high crime ghetto. There are other considerations to make -nothing operates in a vaccumn -including economic absolutes.
Posted by DL at August 17, 2005 7:11 PM | direct link