Sunday, March 26, 2006
Missing the Point of the Ports Problem—Getting Foreign Governments Out of U.S. Security Related Business
Media pundits, political elites and academics fret about Dubai Ports World’s control of the operation of several key ports on the U.S. East coast for all the wrong reasons—security concerns, control of the management of key U.S. assets by foreign corporations, anti-Arab discrimination, usurpation of government by the executive branch at the expense of the legislative branch. Some have even noted a connection between the Dubai Ports deal and the January 24, 2006 nomination by President Bush of a Dubai Ports senior executive as Maritime Administrator, a position reporting directly to Transportation Secretary Norman Mineta. Lost in all the bickering, and political trashing with which those issues are larded, is a key issue worth great thought—that Dubai Ports World is an instrumentality of a sovereign state and not a group of foreign individuals. Does the United States want to turn over control of a key transportation sector to a foreign power conveniently operating under cover of corporate form?
Under the usual circumstances, shareholders own an interest in the corporation. This interest usually entitles the shareholders to rights to control (they elect the directors), and distributions of income (dividends) and assets (either through sale of shares or on liquidation). Individual shareholders usually vote their own interests. The board of directors represents all shareholders. In this country, at least, the board runs the company for the benefit of its shareholders, usually measured by increases in the economic value of the company. But a strange thing happens when the controlling shareholder is a sovereign state. A state, unlike an individual, is not merely interested in maximizing the economic value of its investment in a corporation. A state must necessarily use all its assets for their strategic value in meeting the political, cultural, military, and economic objectives of the state. Those objectives may be determined by reference to the will of the people in secular democratic states. In monarchies, the objectives are an expression of the will and objectives of the monarch or ruling caste. In theocratic states, such objectives may be dictated by conscience, as determined by the religious caste with political authority. But in no case would a state use its interest in any endeavor, even an economic endeavor, in the same way as an individual with no state power. In a sense, then, state ownership of a corporation operating in another country is similar to a state asserting its control indirectly in that country—a sort of imperialism that in other contexts would be condemned as arrogant and unfair and a threat to sovereignty. The worry, thus, is not that people of a particular ethnicity, nationality, religion, or financial power control the corporation—the worry ought to be that a corporation owned by a sovereign state must be viewed as an instrument of that state’s power. Individuals maximize wealth; states maximize their own political interests especially in foreign nations in which they operate in corporate form. States operating directly in other states, or indirectly in corporate form, is not an aspect of economic globalization, but a political intervention in a foreign state that ought to be subject to significant scrutiny.
I guess you have to live in a nation that experienced foreign governmental control of its commerce to understand the danger. That was one of the great lessons of Japan in the late 19th century and of pre-War China that dramatically illustrate the way that foreign control of key national infrastructure, backed by state power, implicates national sovereignty. Consider the following scenario: the People’s Republic of China operates its ports through a local corporation. Assume that it is possible for a foreign corporation to obtain voting control of that corporation. Assume further that a corporation controlled by the United States of America acquires ownership of a majority of the shares of the Chinese company, and on that basis, acquires the right to operate Chinese ports. You can just hear the reaction: Imperialists! The Chinese might rightly consider the purchase an aggressive intervention and a threat to their sovereignty. The United States now operates Chinese ports through indirect ownership of a corporation. Sure, it is a corporation that is running the ports directly, but that company serves its controlling shareholder’s interests. In this case, those would be the interests of the United States. China is now vulnerable to American political pressure, not because the corporation runs the ports, but because the American government owns the corporation. Should America want to put pressure on the Chinese, it can use its ownership interest to induce the board of the company to act in a way that might make no sense if the purpose of the company is to make money, but makes perfect sense if the company is run to maximize its value to the American government. There is a world of difference between Google operating in China as a United States publicly owned corporation, and Google owned by the government of the United States, for example. It would be difficult to envision the Chinese government giving a corporation owned by the American government the contract that China awarded Google.
The real issue for the American government must be the connection between the government of Dubai and the corporation it owns operating as Dubai Ports World. It is one thing for a corporation—a private economic entity—to operate the Ports for the benefit of shareholders who are also private, non-governmental entities or individuals. All of them invest to make money. A corporation that is a front for another government ought to be an entirely different matter. For that reason, the operation of the ports by the predecessor to Dubai Ports World, the privately held Peninsular and Oriental Steam Navigation company, should not be problematic. On the other hand, the control by the Singapore government of certain West coast ports ought to be as troubling as that of the Dubai government on the east coast. Ours should not be an anti-Arab, or anti-Asian, or anti-Muslim policy with respect to the operation of our ports. But ours should be an anti-foreign government control policy, at least with respect to vital sectors of America’s economic infrastructure. What would be deemed offensive and dangerous to the national sovereignty of developing states should be considered equally offensive and dangerous in the United States.