Geithner: U.S. Monetary Policy in the Global Financial Environment
Results from the Great Cinnamon Experiment

Selective Globalization Syndrome

David Gross tries to start a meme:

David Gross: If the world is flat, capital, goods and services can go wherever they want. But last week, the process of cross-border economic integration suffered the same fate as foolish mortals who would defy Newtonian physics: it crashed to earth. The furious fight over whether several port terminals in the United States should be owned by a company based in Dubai was resolved uncharacteristically and abruptly on Thursday. DP World, owned by the government of the United Arab Emirates, announced it would transfer the American operations of Peninsular & Oriental Steam Navigation, the British company it is in the process of acquiring.

During the port debate, opponents warned darkly of the perils of Arab control of vital industry in the United States, and advocates warned, equally darkly, of the perils of alienating foreign investors. But the maelstrom over maritime services is not the first heated exchange on the way globalization appears to pit national economic interests against national security.

Last summer, anguished protests stopped the Chinese oil company Cnooc from acquiring United States-based Unocal, even though Unocal slakes only a tiny fraction of America's oil thirst. Indeed, the Dubai controversy is merely the latest manifestation of a new condition afflicting politicians, policymakers and ordinary citizens all over the globe. Call it Selective Globalization Syndrome.

The main symptom: a desire to pick and choose the outcomes of globalization, as if from an à la carte menu. For instance, nobody squawked in 2004 when DP World, then British-owned, bought the port operation of Florida's CSX Corporation for $1.2 billion, or when a company based in Dubai bought the Essex House hotel in New York for $440 million last year....

Selective Globalization Syndrome drives politicians and government officials to even more seemingly contradictory stances. For instance, a Dubai-based company controlling East Coast ports is an unacceptable security risk, but Chinese companies controlling West Coast ports is fine. The government body that approves such deals, the Committee on Foreign Investments in the United States, had no problem with China's Lenovo controlling I.B.M.'s personal computer business. But it is examining the proposal by Check Point Software Technologies, an Israel-based company, to acquire Sourcefire, a Maryland-based software company that makes security products used by the federal government.... The United States... is... eager to dictate investment terms to non-citizens.

Buying debt? No problem. Foreign investors own more than half of United States government bonds. The biggest portfolios reside on the ledgers of China's central bank and of various Saudi Arabian and other Persian Gulf government-controlled entities. But equity, which connotes ownership and control, in the same people's hands sparks off Selective Globalization Syndrome.... Selective Globalization Syndrome causes politicians to lash out at symbolic issues they can influence, like the ports deal, because they cannot or don't want to confront the root cause: the propensity of American government and consumers to buy more than they produce, to export more than they import and to borrow more than they save.

The United States runs a gigantic trade deficit, some $723 billion in 2005, which means it exports huge amounts of capital. But the foreigners who receive all those dollars in exchange for oil or manufactured goods are no longer content to park those greenbacks in government bonds. "Why hold Treasuries that give you a mediocre 4.5 percent return over 30 years when you can instead buy higher return capital such as U.S. corporations, factories, ports and real estate?" asks Nouriel Roubini, an economics professor at New York University's Stern School of Business....

The International Monetary Fund has noted that the world's fuel-exporting nations will have a $533 billion current account surplus in 2006. That's a half-trillion dollars for foreign countries, specifically foreign countries from the Middle East, to put to work in government bonds, stocks, real estate and, yes, whole companies.