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Jewish World Review Sept. 28, 2000 / 28 Elul, 5760

James Freeman

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Consumer Reports

Let Foreigners Buy Our Companies --
IN HIS policy column this week, Jim Glassman makes the case for getting European governments out of the airplane business. On Capitol Hill, Senator Fritz Hollings is making the case for getting European governments out of the telephone business. Good ideas both, but the way Hollings is trying to achieve his goal could mean trouble for American consumers and investors.

The South Carolina Democrat has been pushing a bill that would prohibit buy-outs or mergers of American telecom companies with companies that are at least 25%-owned by foreign governments. With time short before the elections, Hollings’ Foreign Government Investment Act is unlikely to see the Senate floor. But Hollings has succeeded in adding a related provision to the appropriations bill for Commerce, Justice, State, the judiciary, and related agencies. The Hollings provision would prohibit the FCC from spending any money in FY 2001 reviewing such mergers, throwing a big monkey wrench into the Deutsche Telecom- Voicestream deal.

The “CJS” bill will come to the floor soon and if it passes, Hollings, as a likely member of the conference committee, will try to convince House members that a merged bill should include his foreign ownership limits. The House version of the appropriations bill, which has already passed, includes no such provision.

Why is Hollings trying to stop government-owned firms from buying US assets? The media have focused on concerns over national security issues, mentioned in Hollings’ various rants on the subject. But according to his staff, the real objection is economic – he thinks that companies backed by governments enjoy an unfair advantage, with low-interest loans, favorable regulatory treatment, etc. I agree. We should make companies compete in a free market.

But Hollings’ solution is to punish American consumers and investors, adding a new layer of regulation to an already heavily-regulated telecom industry. Why limit the choices that American consumers enjoy? Maybe Voicestream customers will have access to new features once the well-funded German firm completes the merger. No matter who owns them, if foreign companies want to come over and invest a lot of their money in building new American infrastructure and offering new services to American consumers – why on earth would we want to stop them? And why limit the potential pool of buyers when Americans are looking to sell their shares? Doesn’t the government want Voicestream shareholders to get every nickel they can from the market?

Yes, it may be difficult for some American firms to compete with a company receiving government help, but history says that we win these battles. The Japanese government took an active role in helping Japan’s computer industry, and the results were disastrous – for them. Threatened by government-funded Japanese competitors in the mid-1980s, Intel abandoned the low-margin memory chip business. The firm staked its future on microprocessors and left those Japanese business-government partnerships in the dust. Last week’s bad news on revenue forecasts doesn’t obscure the big picture – Intel leads the world in computer chips, and the Japanese are nowhere. The same thing happened in HDTV and supercomputers.

I’m not saying that intervention in the markets by foreign governments is a good thing. I’m saying that we thrive when we stay committed to open markets, so instead of regulating our markets, let’s figure out how to reform theirs.

JWR contributor James Freeman is editor of Tech Central Station. Comment by clicking here.

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