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Alien Investors

The last I heard of Lawrence Summers, he was performing somersaults as president of Harvard, trying to ingratiate himself with the faculty he had offended by, among other things, frankly discussing some ideas–taboo in academia–about the linkages between sex and success.

The somersaults were to no avail. Summers’s tenure as president came to an abrupt end last year and he returned to his post teaching economics as the Charles W. Eliot university professor. This was Harvard’s loss and our gain, for whatever one made of his ridiculous efforts to back away from his own thoughtful if provocative words, he is back in the public eye not as an administrator of an impossible faculty but as an economist with his finger on a number of vital issues.

One such issue is the accumulation of capital reserves and sovereign wealth funds (SWFs) in the developing world. Governments ruling industrializing countries are sitting on huge and growing piles of cash. They need to park this money somewhere. Increasingly, as Summers is not alone in pointing out, they are shopping abroad and “are now accumulating various kinds of stakes in what were once purely private companies.”

The pace is accelerating, notes Summers:

In the last month we have seen government-controlled Chinese entities take the largest external stake (albeit non-voting) in Blackstone, a big private-equity group that, indirectly through its holdings, is one of the largest employers in the U.S. The government of Qatar is seeking to gain control of J. Sainsbury, one of Britain’s largest supermarket chains. Gazprom, a Russian conglomerate in effect controlled by the Kremlin, has strategic interests in the energy sectors of a number of countries and even a stake in Airbus. Entities controlled by the governments of China and Singapore are offering to take a substantial stake in Barclays, giving it more heft in its effort to pull off the world’s largest banking merger, with ABN Amro.

What exactly is the problem with this? Discussion of this trend, notes Summers, has focused almost entirely on issues of local control, openness in decision-making, and in certain sectors, the national-security implications, as in last year’s scuttled attempt by Dubai to buy a company that manages American ports. Although those issues are all worthy of close scrutiny, Summers sees a deeper problem:

The logic of the capitalist system depends on shareholders causing companies to act so as to maximize the value of their shares. It is far from obvious that this will over time be the only motivation of governments as shareholders. They may want to see their national companies compete effectively, or to extract technology or to achieve influence.

We have seen the degree of concern over News Corp’s attempt to buy the Wall Street Journal. How differently should one feel about a direct investment stake of a foreign government in a media or publishing company?

If these are not yet burning issues, the foreign acquisitions of recent months, and the growing quantity of cash available to governments like China’s, tell us that they will be soon.

Congress, however, shows no sign of paying heed to the implications of foreign governmental investment. Yet what would be the consequences, for example, of a shield-law for journalists, of the kind Congress is once again considering, if some of the reporters making use of such protection to ferret out, say, Pentagon secrets, were the employees of, and under the control of, a rival or hostile power?

Is anyone thinking about such things, and what is to be done? Summers himself does not have an answer, but at least he has made the problem a focus of debate. If that seems inadequate, it also seems wise.



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