Anyone Remember the Eighties?

One of the worst parts about living through the eighties was listening to all the angst about Japanese companies "buying America".  I never really understood the issue that people had with foreigners buying American assets (beyond pure xenophobia).  It was all especially puzzling because most of the wailing came from people who are today wailing about American outsourcing.  So its bad when American companies buy productive assets in other countries AND its bad when foreigners buy productive assets in this country?

Anyway, I missed it the first time around, but apparently Paul Krugman is upset that a Chinese company might buy Unocal.  Here are his reasons for concern:

Yet there are two reasons that Chinese investment in America seems different
from Japanese investment 15 years ago.

One difference is that, judging from early indications, the Chinese won't
squander their money as badly as the Japanese did....

The more important difference from Japan's investment is that China, unlike
Japan, really does seem to be emerging as America's strategic rival and a
competitor for scarce resources - which makes last week's other big Chinese
offer more than just a business proposition.

His first is just laugh out loud funny.  We actually have an economist claiming that the world was better in the 1980's because there was a huge market inefficiency (ie, the Japanese overpaid for unproductive assets). 

His second argument seems to be that US supplies of oil are more secure if American companies own them.  This is stupid.  If he means that it is more secure economically, then he should have his economist merit badge taken away for life.  Even he must know that oil is a fungible commodity, and as such trades world wide at a price set by supply and demand.  If more of Unocal's oil goes to China, this replaces other oil coming from somewhere else that is now available on the market.  And, if he means it is safer politically, he forgot to study the last 50 years of history.  Every major oil producer of the world - Saudi Arabia, Mexico, Venezuela, etc are pumping oil that used to belong to American oil companies, but was nationalized and taken from them.  Does Mr. Krugman's statement mean that the left and the NY Times are suddenly more ready to support the property rights of American oil companies overseas? I doubt it.  It is actually an improvement over history that a totalitarian state like China is actually buying American oil assets rather than just expropriating them.

By the way, I call Mr. Krugman's view of national economic success the "monopoly board" view of the world.  In his mind, America and China are playing monopoly, and once China gets St. James Place, America can never own all the oranges.  This is not the way the world works.  When America grew economically in the last century, it did not mean that all the other countries had less opportunity to grow.  In fact, we pulled many countries along with us.  His zero-sum view is just the macroscopic counterpart to the zero-sum based worry about rich people getting richer in this country.

Marginal Revolution and Cafe Hayek both have good analyses of Paul Krugman's neo-mercantilism.

Postscript:  Gee, I hate to play the race card, but why is it we always get a national panic when it is China or Japan buying US assets and not when it is the Dutch, the English or the Canadians (who are far larger investors in US assets and companies than the Chinese)?


  1. Roaring Tiger:

    As ever, good article! I've been blogging quite a bit about the CNOOC bid too although from a bit of a different view point but your supply and demand observations are bang on, as is your xenophobic pokes.

    I admit to my own swidge factor over the idea of a Chinese company purchasing an American one but also acknowledge its source is nationalistic pride mixed with xenophobia. Once you move beyond that, then it's time to look at the deal with straight capitalistic eyes -- and leave the decision in the hands of Unocal shareholders.

  2. Big Cat Chronicles:

    Zero-sum thought and European stagnation

    Marc Schulman highlighted a Wall Street Journal (Europe edition) op-ed piece by John Kornblum, a former US ambassador to Germany....

  3. dearieme:

    Would I be wrong to guess that many people who are agitated about the Chinese purchase on race grounds are the sort of people who readily accuse others of racism concerning blacks?

  4. benway:

    There is a key difference between the Unocal buyout offer by a Chinese company and the buyouts by Japanese companies in the 1980s. China is not a capitalist nation. The buyout by the CNOOC amounts to a buyout of a corporation by a foreign nation. Unocal will be OWNED by the People's Republic of China.

    There are economic differences related to this. For instance, Japan was/is mostly a free market. It was reasonable to expect that as its corporations created wealth, that wealth would benefit the overall economic prosperity of its population by virtue of that mostly free market. As the Japanese became more wealthy, they were free to invest and spend that money in a global marketplace. There is no such expecation with a buyout by a Chinese company. Quite the opposite. The wealth created by a Chinese owned Unocal will go to fund the state's oppression of its people.

    My argument is largely a moral argument. In practice, I still say that the decision rests with the Unocal shareholders. In my own affairs, I choose not to do business with entities that I find to be evil (and morally, communism is evil). I hope the Unocal shareholders maintain a similar philosophy.

  5. Michael H.:

    Hi Coyote
    Alex Tabarrok (of Marginal Revolution) also had a very good commentary:
    He was countered by Henry Farrell of Crooked Timber:
    Alex showed up in the comments and directly debated Henry. That comment section is excellent.
    Alex also commented about these comments here:

  6. BridgetB:

    Hi Coyote,

    Benway (above) makes an excellent point. Business in China is still VERY closely linked to the looters, err, The Party.

    But there is another side to consider. The only good I can see come of this is that China is changing. There is tremendous opportunity for business, of course, if it werent for The Party standing in the way of an actual free market what with the bribery, violence, threat of force, red tape, and lack of many rights that are necessary for free enterprose to fourish independent of the State. I cant say much better about the US markets at times.

    But, like I said, China is changing. Its awesome. And people can see that. It is a huge area of opportunity. Hell, its an example to us all. I guess you have to start somewhere. But dealing with looters, handing over my company to them--too risky for me (and makes my skin crawl)!

  7. markm:

    Why do I get the feeling that you all are carefully avoiding talking about the elephant in the room? In Beijing, they don't think the Cold War is over, and they are building up their forces to take the place of the Soviets. Meanwhile, we are pretending that China will never be our enemy, making it easy for them to steal military technology, and helping pay for their military expansion.

    The Chinese government is still very firmly in control, and it is still the government that murdered it's own people in Tianamen Square. There have been just two changes in the Chinese since Mao's day: the governing ideology has shifted just a little from Communism towards extreme fascism, and now that the Russians are too weak to counterbalance them, they are becoming more ambitious.

    Chinese history since the Qin dynasty began bloodily annexing other kingdoms has been one of slow expansion under governments that were as totalitarian as ancient technology allowed. Occasionally the government would become so incompetent as to collapse into anarchy, but pretty soon the strongest warlord would become the new emperor, and recover all the territory. It looks to me like the government intends to return to that pattern, and I doubt that popular discontent will change it.

    What should we do about it?

    1) Make it harder for them to acquire military secrets and technology. I doubt this requires anything more than enforcing the laws that already exist.

    2) Stop pretending that they are following a fair trade policy rather than aggressive mercantilism. It's one thing when we lose manufacturing because they can do it better and cheaper. It's another when American companies are forced to build factories in China because they cannot sell their products there without adding local content. I'd suggest revoking "most favored nation" status, and putting an 5 or 10% tariff on all imports made in China until they lower trade barriers.

    3) Make it clear that we will defend Taiwan, and that we were in error when we agreed that it was Chinese territory. No Chinese government ever sent settlers there, but rather it was settled by successive waves of refugees from changing regimes in Beijing. Beijing ignored it until the 15th Century, treated it as occupied territory until the late 19th century, and established a provincial government over it for less than a decade before selling it to the Japanese.

    4) As for Chinese investment in American companies, make it clear that we view these are foreign government investments, and we will not let them be manipulated to our disadvantage. And if we have to go to war with China, their investments in this country will be confiscated immediately.

  8. Yvonne DiVita:

    This is certainly a learning experience for me. I am a peace-loving professional, a writer by trade, now a publisher and...silly me, I thought the Internet would be (will be) the downfall of the Chinese dynasty. The people, I understand there are a LOT of people in China (yes, I'm being facetious), will not continue to tolerate China's big brother act for a whole lot longer-- because they will insist on the freedom offered by connections via the net.

    Perhaps I'm not even addressing the immediate issue...that of China buying a U.S. company... but, overall, it comes down to the people. And, I think the Chinese, the people not the gov't, are much the same as people anywhere.

    So, while I enjoyed this history lesson, and I feel better informed on economic issues, I still think the Chinese people should not be chastized for the way their gov't deals with world politics. I see four fingers pointing back at us, for every finger we point at them.

    But, that's just my bubble of ignorance.

  9. Anonymous:

    What surprises me most is that America being a promoter of Capitalism itself is now retracting for true nature of the same. US was the promoter of free markets, so if in free markets, companies want to move resources to other cheaper companies or foreign companies want to buy American companies, the American people/government should accept the move. It is all part of the philosophy that was been widely spread by the themselves.

    At one hand, US wants to make the world markets more open, allow WTO to prevail and liberate every country of it's closed door policies and at other hand make a lot of fuss if companies shift labor or work to other nations. Why such hypocrisy?!

  10. vinny:

    BridgetB, you are a typical Super-Americanism people who perceive everything the American way i.e. people should eat american way, think american way, live American way, politic American way.......But you forget the world doesn't only have one country-America!
    The cold war is not over? Because American make the Chinese think this way, because you bomb America making wars all over the world, sorry, it is not the Chinese!!!
    Shot the students? American government did the same in the 1970s as well, pls go to learn your own history well before commencing! So, you mean , when sttudents demostrate in front of White House, they can sit there and live there for 3 month? in front of Bush's office? I doubt so! You think China will not better now if those students succeed? Pls, you, a typical silly American, read too much American newspaper, you don't know how people in other palces of the world - Mid-East, South America and China- think!
    You dare to call Bush's election is democracy? Ha Ha, .........
    Regarding the Chinese history part, I won't say anything unless you have shown to master any knowledge about it. A person even didn't study his own country's history well, how would I expect you have a correct history knowledge pertaining to other's, it is the American way of perceiving things again!
    Why I say you are so self-centered to the American way of perceiing the world and life?

    1) We do not need to steal your knowledge to develop military, neither our Atom Bobs, ships and Aircrafts nor our sending two men into the space!
    2)Besides your history and philosephy, you are also an economic idiot! Suggest u to learn Comparatvie Advantage theory if you ever heard about it. To prove this, "most favored nation" are no more exit becasue of WTO membership (go and study again,oh my god), you are still in the cold war era!
    3)Defending Taiwan? Haaa, PLA has beaten American troops twice, in Korea and Vietnam, who else has ever beaten you? You know why Amercian troop dare not cross into the Northern Vietnam during the Vietnam war? 54000 American died in Korea by a country just founded even without airforce and navy, you dare to say "defend Taiwan" now??? Do you ever know why the Chinese win? And why the korean War is a forgotten war? Why no movies shot regarding the Korean War? Go to America's most famous military school to find out why or the lecturers and soldiers there will tell you why! They will also tell you what is the consequencies to fight a war with China now and tell you that China also has nuclear missiles and submarines, there is no differce by having 1 nuclear bomb and 1 million. Again, I got no comments to your Chinese history!
    4) if you have to go to war with China, your investments in China will also be confiscated immediately too, SB(Sha Bi).
    Wake up, idiot, your people's mind has outdated. The world is different now and you are still in the era of cold war. Stronly suggest you to go to China to have a own look rather read too many American newpapaers, to see how Chinese goverment suppress their own people and how Chinese people suffered, starved, eagered to have American democracy (haaaa)!!!!

  11. vinny:

    Sorry BridgetB, I made a mistake, my comment is for brainless markm, not you , my appologies and continuing to explore China