Foreign Ownership Is Not a Threat
But stupid legislation is
The recent eruption over the Dubai Ports World deal sent me down memory lane to another such episode of national hysteria that occurred nearly two decades ago. In the 1980s, I was a producer for the weekly PBS television series, American Interests. American Interests was a foreign policy program and it afforded me a front row seat to cover such exciting issues as the crackup of the Soviet Empire and U.S. military adventures in places like Lebanon and Grenada. Looking back, the most wrong-headed foreign policy phenomenon of the time was Japanophobia. Japanophobia was the unreasoning fear that Japanese companies were about to buy up everything in sight in America. The iconic event that focused the public's fears on an imminent Japanese buyout of America was Mitsubishi's purchase of a majority holding in New York City's Rockefeller Center in 1989.
"Japanese Acquire Real Estate, Suspicion in the U.S.," ran one headline in the Los Angeles Times in December 1989. Another, also in December 1989, appeared in The New York Times reading, "Huge Japanese Realty Deals Breeding Jokes and Anger," The Times' story quoted a Long Island Rail Road engineer saying, "Certain things are sacred, "Radio City, the tree. What are they going to do, have a bonsai now that it's 51 percent Japanese?" The Times also reported that outside the Center, a woman was selling T-shirts that say, "Welcome to Wokafellar Center." Michael Crichton capitalized on these popular fears with his 1992 Japan-bashing bestseller Rising Sun.
So ominous were Japanese takeovers, that The New York Times reported, "Some American officials have hinted that the United States may be moving toward a far broader interpretation of 'national security'—the chief rationale for blocking foreign investment at present—to embrace economic matters as well as military defense." Which brings me to House Armed Services Committee Chairman Duncan Hunter (R-Calif.) who is playing defender of American property from the highly speculative depredations of sneaky foreigners. Riding the popular confusion about the Dubai World Ports deal, Hunter is introducing legislation this week that would require majority U.S. ownership of "critical infrastructure." Any companies in charge of critical infrastructure would be required to have a majority of US citizens on their boards of directors; to have their CEOs and chairmen be US citizens; and to have a majority of their shares held by US citizens—among other limitations. Hunter's bill, HR 4881, defines critical infrastructure as "any system or asset, whether physical or virtual, that is so vital to the United States that the incapacity or destruction of such system or asset would have a debilitating effect on national security, on national economic security, on national public health or safety, or any combination of those matters." Hunter's bill specifically includes as critical infrastructure assets involved with "energy, telecommunications, transportation, or information." Authority to create a list of critical infrastructure is vested in the Departments of Defense and Homeland Security. Once an asset is put on the list, any current foreign owners will have five years to sell it to an American citizen or company. First, is there any case in which a company owned by foreigners operating on U.S. soil has ever been purposely incapacitated or damaged in an effort to undermine U.S. national security? Plenty of companies have been mismanaged. Some, like Enron, which was in charge of critical infrastructure in both energy and information, were owned by red-blooded Americans who supported President Bush. Even the demonized Mitsubishi lost pots of money on the Rockefeller Center deal and declared bankruptcy in 1995. The chastened Japanese giant sold Rockefeller Center back to Americans who then turned it around and made it profitable again.
What might be included on Congressman Hunter's list of critical infrastructure? Transportation seems critical, right? So would the Spanish/Australian consortium that has leased the Chicago Skyway Bridge for 99 years be forced to divest? The proposal by the same consortium to lease the Indiana Toll Road might also be blocked. And what about oil company BP; will it have to sell off its oil production assets on the North Slope of Alaska and in the Gulf of Mexico? Surely we cannot trust the French with our precious municipal water supplies. And Canadians have a stranglehold on our vital Blackberry communications systems. Supplies of pharmaceuticals and vaccines are clearly critical to our national public health. Does this mean that the British firm Glaxo would be required to sell SmithKline back to Americans?
Listing "critical infrastructure" already in the hands of foreigners could go on for a long time. However, foreigners invest in the United States not to bring us down but to cash in on the success and growth of our economy. If Rep. Hunter's ridiculous bill somehow got passed, American brassiere and orthotics manufacturers on the verge of bankruptcy would come running to Congress. Alarmed, Congress would then put pressure on the Secretaries of Defense and Homeland Security to find that bras and insoles were somehow "critical infrastructure." (Come to think of it, they probably are critical infrastructure.) Enacting Hunter's bill would also encourage other countries to use the excuse of national security to protect their local industries and block American imports and investments.
The President already has more than sufficient authority under the National Defense Production Act to review "the effects on national security of mergers, acquisitions, and takeovers proposed or pending…by or with foreign persons which could result in foreign control of persons engaged in interstate commerce in the United States." Finally, in the event of war, the United States government would simply take control of any assets owned by a company headquartered in an enemy country. For instance, during World War I the Federal government seized the assets of the German drug company Bayer and sold them off to Sterling Drugs. During the era of Japanophobia, we at American Interests put on a parade of wonks and members of Congress debating just how dangerous the threat from Japan was. That threat was hollow. In the current era of xenophobia, producers at Fox News and ABC News are doing much the same thing. It will again turn out that the real threat is stupid legislation, not foreign ownership. As the French say, "Plus ça change, plus c'est la même chose."
Disclosure: I probably own stock in companies that would be deemed "critical infrastructure" under this legislation.