This post is at least a year old. Some of the links in this post may no longer work correctly.
27 Jul 07
In a move billed as brilliant, two Asian state-controlled investment firms are putting as much as US$19-billion into Barclays Bank, giving Barclays a stronger hand in its bid to acquire banking giant ABN Amro of the Netherlands. If Barclays were to win ABN, beating out Royal Bank of Scotland, the governments of China and Singapore would end up owning 8.8% of the new global institution, the fourth largest bank in the world by market capitalization.
It’s a “masterstroke,” said a Financial Times columnist. Maybe it is. But it is also the latest in a growing and disturbing trend, namely the expanding role of state-controlled corporations and government investment firms in world finance. The Barclays deals are particularly instructive, especially for students of crony capitalism.
Imagine, as a parallel, if George W. Bush, President of the United States, were to appoint Dick Cheney as CEO of a new operation called the U.S. Investment Development Fund. The fund’s job would be to invest future Social Security surpluses in strategic corporations, at home and abroad. Chairman of the new fund could be, say, George Bush Sr., the president’s father, with maybe Don Rumsfeld on the board, along with a group of other former Bush associates.
One can imagine the fits of global economic apoplexy if such a corporation were to come into existence and if, for example, it became a key investor in Petro-Canada as part of a strategy of building up U.S. energy security. Or if it were to set down in France and make a takeover bid for a couple of local banks and shares in one of the Airbus companies.
Compare that (so far) unlikely scenario with what’s actually happening in Asia today. One of the Barclays investors is China Development Bank. It aims to put up to US$13.5-billion into Barclays. Initially set up to invest in Chinese industry and infrastructure, using money borrowed from the government, the China Development Bank is spreading its wings abroad. It’s headed by Chen Yuan, the 62-year-old son of Chen Yun, one-time Communist Party leader who, with Mao Zedong and Zhou Enlai, is considered one of the Chinese dictatorship’s founding fathers. The revolution continues.
Also investing up to $5-billion in Barclays is Singapore’s Temasek Holdings. Temasek calls itself a “private Asia investment firm,” but it is actually a branch of the tightly controlled family enterprise called Singapore. The CEO of Temasek, which holds Singapore government investments, is Ho Ching, the daughter-in-law of Lee Kuan Yew, former Prime Minister and founding father of the not-so-democratic city state. Lee Kuan Yew himself, now 83, heads up another Singapore investment operation, GIC, which invests Singapore’s foreign reserves. Lee’s son, Lee Hsien Loong, is now Prime Minister.
Together, Singapore’s GIC and Temasek control more than US$200-billion in state assets, much of it spilling out to other countries. A story this week in The Age, one of Australia’s leading newspapers, catalogued the Australian businesses and privatizations gobbled up by Singapore: shopping centres, department stores, satellites, hotels, power utilities, gas pipelines, airlines, mobile phones. “Does anybody else out there feel a little uneasy about this phenomenon,” asked the writer, Stephen Mayne, “especially given the secretive, autocratic and undemocratic tendencies in the Singapore government?”
No public annual reports are issued by the Singapore funds. They are protected by special legislation. These are not free-enterprise companies driven by entrepreneurs and shareholders; they are state corporations established to fulfill government objectives, which could change with the next political windstorm. They are political institutions, not business institutions, and the difference is more than just one of form.
Wherever these state corporations exist – China, Singapore, Russia, Saudi Arabia, Abu Dhabi, Qatar – they derive their financial wherewithal through government power. Most of it is nationalized and expropriated wealth, taken from taxpayers and citizens who enjoy limited or little economic freedom. Singapore isn’t exactly China, but it’s no champion of individual freedom and open markets.
If the rising power and influence of these state corporations should be checked – on the grounds that they are dangerous parodies of free market capitalism – what is to be done? Nothing, some say. Let them invest as they want, putting their money at risk in ventures that can only benefit the countries and shareholders who get the investment. Take the money and run. So what if our banks or electric power utilities are owned by a foreign government?
Germany and other countries are looking at screening foreign government investment flows. Some want reciprocity. A government of Canada panel, now reviewing foreign investment, will look specifically at measures that could be applied to state-enterprise investments flowing into Canada. If Canadians do not favour Canadian government takeovers of industries, why should we endorse foreign government takeovers?
The argument against taking action to curb the spread of state corporatism, articlated yesterday by a Financial Times columnist, is that restriction on investment “runs against the presumption of open markets and can be politically explosive.” But the sources of investments out of places like China, Dubai and Singapore are not “open markets.” And if they are politically explosive, so be it. That’s because they are political investments using state power, and by definition explosive.
We in the capitalist West wouldn’t accept investments from George Bush’s United States Investment Development Bank, and for good reason. Why should we think any differently of investment from the China Development Bank?