Protecting China’s “sensitive” corporate monopolies

The more China’s publicly owned enterprises fatten the bank accounts of Communist Party insiders, the more sensitive authorities are to informed dissent. Chinese state capitalism isn’t halfway to anywhere—it’s arrived. What’s the point of carrying on about fixing what’s been fixed?

Ian Johnson in the New York Times reports:

“Over the past decade, state companies have maintained and expanded control over industries like automobiles, aviation, chemicals, energy, information technology, machinery, metals, steel and telecommunications.

“Mainstream criticism of this trend, however, is limited. A propaganda department directive this year explicitly banned the term 'monopoly' to describe state-owned enterprises. Journalists say they regularly have articles kept from publication if they discuss the deadening effect of state control over so many industries.

“This contrasts with the first two decades of China’s economic opening, when the overall trend was toward relaxing state control, and pro-market economists were household names.”

Click on: www.nytimes.com/2012/06/17/world/asia/in-shift-china-stifles-debate-on-economic-change.html?src=twrhp

The impulse behind this crackdown is universal. Elites may go in for recreational gambling, but have no interest in ideas that threaten their security.

The form of China’s attack on the abstractions of Milton Friedman and market economics is, nevertheless, laughably crude—it’s the work of amateurs.

In the West, publicly owned corporations have almost entirely outlived their original logic—accelerated provision of modern services and infrastructure. However, after being around for decades, they protect themselves effectively with more subtle techniques.

Rather than fight the word “monopoly,” they usually overwhelm its negative connotations with other concerns. Our monopolies are called “iconic” or “essential services” or “bulwarks” against outside cultural and economic dominance. The alternatives are portrayed as exploitative profiteers.

Time—in the West and, eventually, in China—is the greatest factor that favors the perpetuation of monopolies.

The longer they’re around, the more the alternatives look unreal and “ideologically driven.” Time, unfortunately, also corrodes their value, whether privatized or not.

China’s public corporations are “commercial”—just like ours

The International Energy Agency (IEA) obliged its international member states recently by baldly asserting in a report that China’s formally communist public energy corporations operate on their own. Said the report’s co-author Julie Jiang in a release, “These are far from puppet companies operating under control of the Chinese government, as many have assumed. Their investments in recent years have been driven by a strong commercial interest, not the whim of the state.”

Click on: https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20110218/RBCHINAOILMCCARTHYATL

This statement of opinion, allegedly, will help the Government of Canada allow government-owned Chinese energy companies to buy energy assets in Canada. Ottawa needs explicit assurances that these companies will make “commercial” decisions, rather than political ones, and, handily, a renowned think-tank has said they can.

“It’s an authoritative, international, Western-oriented agency,” said Wenran Jiang of the report in an interview, who holds a research chair at the University of Alberta’s China Institute. “If they [IEA] identify these trends, then it makes the life of bureaucrats in Ottawa so much easier” in dealing with Chinese acquisitions.”

This is surprising. The finding of the IEA is a sham platitude that we use about our own commercial crown corporations, and it is beside the point.

You don’t get to be appointed the CEO of a government corporation in France, Canada, Quebec, Ontario or China without already demonstrating exceptional political skill. You must have the ability to not need to be directed by the state in making business decisions that the state will find to its liking. Great bureaucracies everywhere aren’t led by “puppets” but by politicians—whether friends of a president or not.

It’s silly to expect politicians heading ministries or their agencies to be “commercial” during office hours and to play politics strictly on weekends.

The unacknowledged and obvious problem for Canada, however, is that the prospective corporate buyer is an emerging superpower. If it takes offence when our regulators assert a Canadian interest, it can cause us significant harm.

We have already chosen to have a lopsided relationship with our powerful neighbour by choosing to be independent. However, we have been political and military allies, and we trade with each other according to the rule of law.

Canada has no reassuring track record of respectfully disagreeing with the People’s Republic of China. Their bids for Canadian assets may be too good to resist. Tangible net benefits may be compelling. Nevertheless, it should be well considered in advance: once a piece of Canada is owned by the proud state of China, can it ever again be regulated as just another commercial enterprise?

Conrad Black and Michael Bryant: optimists and industrial interventionists?

Conrad Black, investor and conservative, and Michael Bryant, corporate lawyer and former Ontario Liberal cabinet minister, both, with grace and courage, stood up recently to personal misfortune and, most likely, visceral fear. That they are both on their feet throwing punches in public demonstrates an underlying optimism about their own lives that gives optimism fresh weight.

But, still we don’t have to take their advice, especially when their optimism is directed toward the behaviour of governments in the private sector.

Conrad Black:

“The ideologically motivated nationalization of what Marxists call the commanding heights of industry is nonsense. But the opportunistic acquisition, as temporary trustee for the private sector of the country, of a non-management position of influence in a strategic and under-valued company, can be justified. C.D. Howe and R.B. Bennett would have taken this step, and whichever of them was in opposition would have commended the other for doing so. It is not too late. At the very least, Frank Stronach, one of Canada's outstanding industrialists, should be tangibly but not wastefully encouraged in his exploration of hybrid and electric automobile design and production.”

Read more: http://www.nationalpost.com/todays-paper/prisons+pirates/3962237/story.html#ixzz17ojLGZLw

“So why do we continue to back the losers? Michael Bryant, a former Attorney General and industry minister for Ontario, who is now practicing law at Ogilvy Renault, jumped in with his analysis: "When governments withdraw from a loser, they are withdrawing from a voter." Because politicians don't want to turn their backs on constituents and jobs, they end up subsidizing dead industries. "Maybe governments could be more brave," he added.”

Read more: http://www.financialpost.com/news/past+black/3865177/story.html#ixzz17oiWhdOs

Note the words now underlined above: “opportunistic, temporary, non-management position of influence, strategic and undervalued company, tangibly but not wastefully encouraged.” Black is a highly resourceful, premeditated wordsmith and throws himself at his qualifiers. Bryant, chastened by real government experience, only adds “more brave” to help out.

Black is an eminent conservative. He can’t support an interventionist industrial policy for ideological reasons. So, he says his doesn’t. His qualifiers, however, are the euphemisms of most industrial policies launched since the collapse of the idea of simply nationalizing industry for the common benefit. His words are not the muscular words of old socialists; they are more likely to be found in briefs to governments by industries in trouble or by clever investment bankers. But, the same faith in “creative” government is there.

The public investments Black is inviting Liberals and Conservatives to undertake demand a level of technical knowledge, market insight, and management deftness and, yes, political courage in government that is not there on a routine basis, and cannot be promised in advance to justify pro-active investment in the market place. Investing in “winners”  in mature markets isn’t the same as public investments in basic infrastructure or public procurement practices that reward competitiveness and support long term research and development.

Harper and Obama intervened in the auto sector, not because they saw “value” others missed or thought those around them had too much talent to waste exclusively on non-commercial public service. Rather, they tried to serve a core public responsibility—to curtail recession and act as “last-man-standing” in an emergency. This guardian role for government is more consistent with government skills and, in the long-run, has proven to best serve high-value economic activity.  

Canadian Auto Worker’s play for permanent public ownership in autos

To the delight of skeptics, market uncertainty has not stopped government shareholders in Canada and the United States from successfully selling off the first tranche of their $60 billion equity/loan bailout of General Motors. Indeed, as Canadian Auto Workers President Ken Lewenza exclaimed, it was “a roaring success in financial terms.” Anticipating that governments may be able to recoup their entire investment, he reasserted that the rescue was both necessary and successful. In an essay published in the National Post, however, he leaped from there to a far more contentious position: rather than sell off the rest, the Government of Canada should retain a permanent equity position in General Motors in order to establish a “more stable Canadian automotive footprint going forward.” Click on: http://www.financialpost.com/todayspaper/Keep+foothold/3859706/story.html

Egging on debate and framing his position as steady-as-you-go common sense, Lewenza stuck out his chest and asserted: “Of course, free marketers will howl about creeping socialism. They are the same naysayers who denounced the rescue effort in the first place . . .”

Let’s have a national debate and let’s hear the arguments without deceitful stereotypes.

First, his vision was not shared by those who designed the bailout and then stood up to its critics. Stephen Harper, Barack Obama, and Ontario’s Premier Dalton McGuinty financed an emergency rescue, not a permanent partnership structure for the North American auto industry. Each saw the bailout as a lesser evil to the loss of a million jobs. And each assured competitor companies, legislatures, and taxpayers alike that they were not turning government into a profit-seeking manufacturing enterprise.

Second, Lewenza’s proposal—that Canada keep a minority share of an American multinational manufacturer in a fiercely competitive multinational industry—isn’t “creeping socialism” by any known definition. To those reasonable folks who assume that an idea accused of “creeping” must have some merit: don’t be fooled. Lewenza’s idea is not socialism, compassionate pragmatism, or even fascist syndicalism. It is not designed for the common good—it’s a protectionist gambit for one special interest in Canada.

Third, he doesn’t aim to change the new corporate culture of General Motors or the North American auto sector. He acknowledges that the successful initial public offering will continue to repair GM’s public reputation—“not just with financiers, but with consumers.” However, keeping the taxpayer at the table (along with, hopefully, one government board member on a twelve-member board) won’t make the company more effective or credible in Canada. It would only leave the taxpayer that much more vulnerable to being hit up again—and leave the CAW with the illusion that it was still negotiating with a privileged employer. While he suggested cheekily that what’s good for GM isn’t necessarily good for the whole country, he wants to implicate Canada more deeply in its future prospects. 

Fourth, using a little public ownership in one automobile company to, supposedly, anchor a “fair share” of production in Canada is probably self-defeating and futile. Without accepting the implicit defeatism of the suggestion that Canada may not continue to get more investment than the “fair share” provisions of an antique Auto Pact that was negotiated some 40 years and four or five investment cycles ago, continuing public equity in one company would inevitably add to the business risk calculations of other companies interested in investing aggressively in Canada.

Fifth, while Germany and other countries have blended public and private ownership in manufacturing, Lewenza doesn’t try to argue that their results are better. Amongst the major developed economies, in fact, North America’s privately owned and operated manufacturing sector is still spectacularly productive and innovative. Its ruthlessness and volatility is not everyone’s cup of tea—but it works.

Activist government in North America is part of the auto industry’s history and prospects. However, wouldn’t it be best to restore manufacturing generally rather than compromise its  internal dynamics with meddlesome public ownership?