The militarist Frank Gaffney, head of the Boeing-funded Center for Security Policy, has been leading the charge to prevent shareholders of Unocal from selling their company to Chinese oil company CNOOC. In recent congressional testimony, he urged the federal government to intervene to prevent this merger on national security grounds. He wildly insinuated that the Chinese are plotting “electro-magnetic pulse attacks” on America from 40-400 miles in the sky.
His core national security argument comes from a convoluted 2002 article in Insight magazine, which claims that the Chinese are conspiring to take over a tiny mine owned by Unocal in California. The mine, known as Molycorp, was once the source of some “rare earth oxides” helpful in the making of American guided missiles and smart bombs. If the Chinese get control of Molycorp, Gaffney claims, America might find it difficult to make many more of its weapons of mass destruction. However, in the same testimony he admits that Molycorp was shut down 7 years ago. In a bizarre twist, the mine was rendered uneconomical after being hit with environmental fines for poisoning the habitat of the desert tortoise.
The paranoid Gaffney also admits that the Chinese already supply 88% of global demand for rare earth oxides. Evidently, the WMD makers who fund Gaffney’s outfit have been getting their bomb components from China for 7 years without worries. This line of reasoning for blocking a foreign investment may seem pathetic, but Gaffney is actually considered an influential national security expert.
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I realize Gaffney’s arguments appear bogus, but if I interpret correctly, you are otherwise for the CNOOC-Unocal deal if they have the highest bid.
I disagree with you. The Chinese government owns 70% of the company. i would be against it even if China were a relatively free nation, because government nationalization of private property is a bad idea whether our government does it or another government does it.
The legitimate national security concerns (not Gaffney’s) and the ongoing development of the perfect police state using our technology (rconversation.com is all over this) are reinforcing arguments to the primary one that rejects ALL nationalization of private assets.
If you’re interested, I’ve blogged about this several times. Just put “China” in the search.
Tom Blumer
BizzyBlog.com
To the Communist Chinese sympathizers and apologists, including econ blog supporters:
You want to sell Unocal to an element of this nation? Why?
Chinese General Threatens Use of A-Bombs if U.S. Intrudes in Taiwan
Chinese hawks reveal ‘hideous face of terror’
Beijing plays down general’s threats
The bullies in Beijing
other articles – take your pick
What part of this situation do you not understand?
What I do understand is that for at least the last 100 years American foreign policy has had little to do with the security of this country. No, its purpose generally has been to establish American economic and military hegemony throughout the world, not through achievement and good example, but through the use of force. Also driving our foreign policy is the Wilsonian totalitarian nonsense of making the world safe for democracy. To paraphrase an insightful person whose name I do not recall, American foreign policy has degenerated into the obviously self-contradictory principle of perpetual war (and confrontation) for perpetual peace.
U.S. foreign policy is a disgusting betrayal of the non-interventionist principles upon which our country was founded and that were generally practiced in the early days of our nation. Like the welfare state, the warfare state, if not destroyed, is a cancer that will eventually kill the liberty we still have. But then again, individuals like Mr. Gaffney place little value on liberty. Evidently, they care much more about establishing U.S. government dominance over other countries and peoples based on some twisted and perverted meaning of the phrase “national security”. And this dominance must necessarily extend over Americans also. For many years now our foreign policy has been eroding the liberties and material standard of living of Americans. Make no mistake, a totalitarian foreign policy is intrinsically intertwined with a totalitarian domestic policy. It is no coincidence that the considerable erosion of our domestic civil and especially economic liberties that has occurred in the twentieth century has taken place alongside the implementation of our interventionist foreign policy. Whether our foreign policy is driving our domestic policy or whether it is the other way around, I do not know; there are good arguments from both perspectives. But I do believe that both represent different sides of the same totalitarian coin, different aspects of the same totalitarian mindset.
Maybe, I am imputing too much influence to ideology as the driving factor behind the thinking of those like Mr. Gaffney on both side of the political spectrum. Maybe, to a considerable degree, policy is driven more by the practical economic consideration of who signs your paycheck, of where the funding comes from.
And Mr. Henderson, thank you for the posting that so clearly illustrates the contradictions, inconsistencies, and self-serving nature of Mr. Gaffney’s reasoning.
People who dont want to sell their shares to Chinese companies should not do so. They have no right to interfere in my decision to sell my shares to whomever I please. If you don’t like what I am about to do with my property, you should offer me a higher price than the Chinese are offering. If you use government force to restrict my freedom of action, you are effectively nationalizing (claiming partial ownership of) my property.
Mr. Henderson,
You are absolutely correct regarding the property rights issue, and from both an ethical as well as an economic efficiency standpoint, this issue should be of overriding importance. Unfortunately, however, I do not think the likes of Mr. Gaffney care much about property rights. His views remind me of Bill Buckley’s statement regarding the Cold War that we must tolerate an oppressive domestic government because only “a totalitarian bureaucracy within our shores” could defeat the Soviet Union.
Thanks again for your comment.
What everyone is failing to understand, but will understand in a few short years, America will go looking for oil in many places of the world only to find Chinese already there. I am in the oil business in Texas and have been following the megatrends (supply and demand) for over 30 years. The oil crisis we see today is only the birth pangs of something much more serious in the next few years…yet, no one wants to hear from an American oilman…
Mr. Blumer and Mr. Movie Guy are of the opinion that the government owns the mind, body and personal property of all its subjects. And if we have the audacity to have different interests than the state, we are committing treason. A good example of contemporary American political philosophy.
I’m looking for the part of my post where I said that the “government owns the mind, body, and personal property of its subjects” and that I’m looking out for the interests of the state. It’s not there, Steve.
JH wrote “People who dont want to sell their shares to Chinese companies should not do so. They have no right to interfere in my decision to sell my shares to whomever I please.” JH, a Unocal shareholder who is against the CNOOC deal will be forced to sell anyway if the majority of his “fellow” shareholders (in reality the institutions like Fidelity and the like) vote for it. Now you can argue that that’s the way the game is played, but that reality makes your statement about an individual’s ability to sell or not sell to whom they want more than a little invalid.
Again, somebody tell me why the Chinese nationalizing Unocal would be okay, but the US government doing so wouldn’t be. (I am intensely against nationalization, if that’s the source of any confusion–my post said “because government nationalization of private property is a bad idea whether our government does it or another government does it”)
And tell me if this were 1955 and there was a 70% Russian controlled company bidding for a big oil company, that we would not have had a problem with it.
When something is nationalized, that means that it is taken under the threat of violence. In this case, the Chinese government has already coerced a sum of money out of its citizens. Whether the money is hoarded, invested or spent, that money is distorted away from its optimum use. The use of that money thereafter as part of a voluntary exchange is not coercing the recipient of the money.
In other words, if you say the sale of Unocal to China is nationalizing the company, you should also say that it is de-nationalizing the money paid for it, which the shareholders apparently see as the greater value.
It’s fine to propose a voluntarily boycott of doing business with one government (or any) on moral grounds, but you should be careful not to call for government intervention in the name of opposing other government intervention.
On Kudlow & Co. on Friday, Mr. Gaffney repeatedely stated the the market does not always work, while debating Jerry Taylor of the Cato Institiute. I believe that it is clear from this statement that Gaffney is not interested in economic debate. Much to Taylor’s credit he criticized the national security specialists for their paranoia and for getting us involved in a needless war in Iraq and intensifying tensions around the world. He questioned whether or not these same folks ought to be allowed to drive the nations security policies.
A question for those who believe that the purchase of UCL by CNOOC is a form of nationalization. Should we consider the purchase of all goods and services by governments as a form of nationalizatoin? If a company, individual, or group of individuals decide to voluntarily sell their goods and services to a government, are they participating in the natioanalization process? Is it so different if an asset, or a means of production, is sold?
Regards,
TDL
If anyone is interested, the phrase “perpetual war for perpetual peace” is the title of a book published in 1953 by historian Harry Elmer Barnes.
Dn. Mike, what you do not understand is that there are alternatives to petroleum in every aspect. Petroleum is merely cheaper than the alternatives.
As the supply of oil drops, if it ever does, the price will rise and one by one the alternatives will be cheaper. As the price rises, the incentive to create new alternatives will also occur, as will “squeezing more out of a barrel of oil” just as Standard Oil did in the 1800′s with all those waste products from making kerosine like gasoline, naptha, parafin. That’s not to say that the maximum usage has not already been found, just that maximum effective usage will occur in order to maximize profits. Just like now.
The world will never run out of oil, it will simply get more expensive. Personally, I love telecommuting rather than driving to work.
Well, first, this has to happen. Chinese-held dollars have to be invested in US assets to make the books balance.
And second, to see libertarians arguing for the “right” to sell a business to a foreign government convinces me that they are a bunch of unprincipled loony tunes who will never accomplish anything.
Geez, I thought I sent a comment, but maybe not.
Anyway:
- Steve, I never said “that the government owns the mind, body and personal property of all its subjects,” nor could anyone reasonably infer that from what I wrote.
- JH, I am opposed to nationalization and said so, whether it’s by our government or CNOOC pretending to be an independent company but really 70% owned by the Chinese government.
- TDL’s question about whether the government buying anything from someone else is a form of nationalization seems not to be relevant. If I sell something, say, pencils, to the government, the government doesn’t own me, it owns the pencils. If I sell my pencil-making company to the government and the government continues to operate it, it has nationalized my pencil company and is engaging in activities best left to the private sector. Big difference.
Either social organization/cooperation is accomplished through a recognition of each individual’s property rights (beginning with his/her self ownership) and the free exchange of property made possible by the market economy, or it is accomplished through violence, e.g. government action.
And there is no question in my mind that I would rather accomplish nothing than “accomplish” something bad.
Also, I’m old enough to remember that during the late 1980s similar, but admittedly modestly different, warnings were made regarding the Japanese purchase of U.S. assets.
The anti-trade nationalists neglect a few factors. 1) Unocal itself is the recipient of government subisidies. In aggregate dollar terms, America is the king of subsidy and unfair trade. 2) Refusing to trade with the Chinese until they become totally “free market” is a standard that requires no trade with anyone — including U.S. companies. 3) The China National Offshore Oil Company is an example of the de-nationalization of state run enterprises that is privatizing and weaning them off of the state. China should be rewarded for embracing capitalism. The more Chinese companies profit by engaging in the global market, the less dependent they will be on state support and the more they will focus on pleasing customers instead of the state. Those who would embargo trade with CNOOC risk having privatization fail and forcing the company back under permanent state dependency.
JH, I recognize the risk of not doing the deal, but it seems that there is a bigger risk OF doing the deal, which is that China would think that no one will ever push the issue of majority state control over companies (effective nationalization), and that they will therefore never budge from it. I think the risks involved in that are greater than the risks you identified. The Chinese government could solve the majority ownership problem by selling 30% of the 70% it owns to the public, or issuing enough new stock to the public to bring its ownership level below 50%.
I’m also put off that China thinks it has enough latitude to get the deal done and threaten to nuke Taiwan and us at the same time.
J. Henderson,
On the whole, you and a few of the blog posters have demonstrated little fundamental knowledge of background facts of the CNOOC-Unocal purchase proposal and related strategic matters pertaining to China. Instead, you are treating it as a mere isolated commercial undertaking, which understates the measures that the communist central government of China has directed its crude oil corporations to undertake. Moreover, you are ignoring if not completely treating with contempt the U.S. laws governing such a U.S. corporate asset sale to foreign interests.
In a follow up post, you stated the following: “People who dont want to sell their shares to Chinese companies should not do so. They have no right to interfere in my decision to sell my shares to whomever I please. If you don’t like what I am about to do with my property, you should offer me a higher price than the Chinese are offering. If you use government force to restrict my freedom of action, you are effectively nationalizing (claiming partial ownership of) my property.”
You do not have your facts straight. Your Unocal shares, if you actually own any, are subject to a number of U.S. federal security laws and SEC oversight. Purchase and/or sale of such shares is based on consideration of federal laws governing such stock ownership. Moreover, in the specific case of a proposed sale of a U.S. corporate asset to a foreign entity, such consideration requires review compliance by the Committee on Foreign Investment in the United States (“CFIUS”) in accordance with the Exon-Florio provision. These are all legally binding matters that you or anyone else could or should have fundamental knowledge of when purchasing shares in any U.S. corporation. To whine subsequently is disingenuous, if not a sign of basic ignorance and disdain for U.S. security laws. All of which were in place before you purchased public ownership shares of any U.S. corporation. The situation is simple. If you don’t like the rules, don’t play the game.
The broader issues
To discuss the potential sale of Unocal to CNOOC/PRC (70% communist state ownership) with absolute disregard for PRC’s military and strategic expansion goals, and growing relations with a few less-than-desirable nations borders on the absurd.
It might help if some read up on China’s ongoing efforts to upgrade its military capabilities, complete with ready assistance from Israel, Russia, others, and a similar burning desire by France and Germany. Weapons, related technology sales, and platforms, including AWACS.
Historically, the United States and its allies, including Western European nations, Australia and New Zealand, embarked on an economic package of relations with the largest communist nation-state on the planet in hopes of collapsing the existing communist central government of China. The intent and hope was that the people would become addicted to capitalism and would overthrow the communist government and dictatorship of the People’s Republic of China. That was the common knowledge “unofficial” goal.
What has transpired instead is that the communist central government of China is being provided with considerable additional financing, disproportional global foreign direct investment (FDI), dual usage technologies, and accommodation by the Western nations on a number of fronts. So, Western powers are now helping finance and grow the capabilities, ambitions, and reach of the central government of the largest communist nation-state on the planet.
Evidence of the China’s communist command economy and centralized control was again recently demonstrated with the firewalling of the global internet, thereby eliminating web sites that discuss democracy and freedom. No accident. Strictly a central communist dictatorship decision.
The new problem will be the forthcoming European Union (EU) effort to eliminate the weapons, weapons systems, and weapons technologies 1989 embargo presently imposed on European corporate sales to China. That issue came to a head in the U.S. House of Representatives last Thursday. A last minute effort by the U.S. Chamber of Commerce and National Association of Manufacturers (NAM) among other groups identified in a flyer handed out during a House vote on the “East Asia Security Act” resulted in over 100 House Member votes being changed after being cast. That is unprecedented in my recollection. The final vote, 213 to 205, fell short of the needed two thirds majority required under the rule that applied to this particular bill. Read this for more details. Also note this and this.
For a broader intelligent perspective, this four-page article is worth noting. International Economy – The China Temptation
Labeling those who question or oppose the potential sale of Unocal to CNOOC/PRC as “anti-trade nationalists” is ridiculous and intentionally demeaning. That’s not the issue. What is under consideration is the sale of a strategic energy corporate asset with known and projected field energy yields. Substantial future yield capacities for natural gas based on existing global leases.
Supporting, opposing, or questioning the merits of the potential sale of Unocal to a corporate interest of a large communist nation-state should involve a reasonable and hearty discussion of many factors of consideration. Your shotgun approach and single testimony example simply eliminate known or potential opposition through dismissal of any concerns, and other strategic facts and considerations.
I suggest that your present communications on this important subject do not measure up to the expected standards of the Ludwig von Mises Institute. At least not among the members whom I know provide generous financial contributions to the Auburn, Alabama-based institute.
Wow, the anti-free trade, pro-intervention shills are out in force. Why they enjoy hanging out on Austrian websites is beyond me.
Wow, the anti-free trade, pro-intervention shills are out in force. Why they enjoy hanging out on Austrian websites is beyond me.
My guess would be trackback. Maybe this article got onto Blogdex?
At first I’d say it’s good that we face challenge and defend against criticism.
But, then I realized that this could be a “broken window” compared to reconciling/uncovering the finer points of Austrian economics as we often do in discussion.
Zuzu,
To elaborate on your posting. The anti-free trade, pro-intervention types also generally represent a militaristic attitude that believes that if the U.S. does not act, our country will soon be ruled by the Chinese. In my opinion, its the cold war rhetoric re-packaged for more modern times. Or we can go back to Wilson’s rhetoric as to how the Germans were so terrible for peace in Europe, with no other countries having any guilt whatsoever. Just subdue and “democratize” imperial Germany, and all will be fine.
Unfortunately, some things never change.
Paul D, zuzu, Dennis Sperduto:
“Wow, the anti-free trade, pro-intervention shills are out in force. Why they enjoy hanging out on Austrian websites is beyond me.”
“My guess would be trackback. Maybe this article got onto Blogdex?”
None of what you have said would apply in my case. I am very familiar with the institute on Mag Ave. I have proudly watched its facilities grow substantially since 2000. It’s located a few doors down the street from Don DeMent’s sub deli; across the street from what used to be the drill field, now a huge parking lot with a co-located credit union; down and across the street from the AU School of Business, the location of which used to be university owned dorms, including Mag Dorm; and the DTD House next door was as well torn down since 2000.
I also don’t shill for anyone. I simply pointed the other side of the argument. The one being ignored in the cocoon of isolated thinking as evidenced in this post.
“At first I’d say it’s good that we face challenge and defend against criticism.”
“But, then I realized that this could be a “broken window” compared to reconciling/uncovering the finer points of Austrian economics as we often do in discussion.”
It would have been better to bring forth a meaningful argument or counterpoint than retreating. Credibility and advancement of principles always matter most. Particularly as decisions are under consideration. In this case, national decisions. And future international decisions.
The anti-free trade, pro-intervention types also generally represent a militaristic attitude that believes that if the U.S. does not act, our country will soon be ruled by the Chinese. In my opinion, its the cold war rhetoric re-packaged for more modern times. Or we can go back to Wilson’s rhetoric as to how the Germans were so terrible for peace in Europe, with no other countries having any guilt whatsoever. Just subdue and “democratize” imperial Germany, and all will be fine. Unfortunately, some things never change.
Dennis, you in particular have a lot of mouth, but offer little meaningful substance. Your property rights argument was notably lame in light of existing securities laws and regulations. Similarly, prejudging those who even question the possible sale of Unocal to a foreign interest as anti-trade, pro-intervention, and militaristic is typical of childish labeling, but not grounded necessarily in reality.
I pointed out the general elements of opposition to such a sale. Nothing more.
It would be beneficial if all of you could eliminate the elements based on merit, not teenage rhetoric. Unless, of course, you are ill-equipped to do so.
I could have just as easily put forth a pro-sale argument. But if I had, it would have been much more substantial and factually-based than what has been posted thus far.
I’m re-posting this related posting here:
I thought this was funny, from
http://news.yahoo.com/news?tmpl=story&u=/nm/20050713/pl_nm/energy_unocal_congress_dc_5
The second to last paragraph shows lawmakers saying it is “naive to focus on market logic”. There you have it. Market logic can cause one to loose sight of the bigger picture and make the mistake of thinking that 0.23% of the market is insignificant.
“The only witness called who saw no harm in the proposed CNOOC-UNOCAL linkup was Jerry Taylor, director of natural resource studies at the free-market-oriented CATO Institute, who argued the deal could never give China an “oil weapon.”
“He said Unocal production accounted for a “small and trivial” 0.23 percent of world oil output and any oil China derived from Unocal would displace oil it now buys elsewhere.
“China would have to occupy the entire Middle East to have a significant impact on oil flows and prices, Taylor said.
“But Taylor was attacked by other witnesses and by lawmakers, who said he was naive to focus on market logic.
“Robin Hayes, a North Carolina Republican, closed questioning with a warning that: “It would be a catastrophic mistake to allow Unocal, a security asset, to be sold to the Chinese government-slash-military.” “
Movie Guy,
“Dennis, you in particular have a lot of mouth.”
Well, I take that as a compliment, since my comments were initially addressed to Mr. Gaffney’s remarks, and given his comments and mindset, I stand by what I said. The remark by North Carolina Republican Robin Hayes, who “closed questioning with a warning that: ‘It would be a catastrophic mistake to allow Unocal, a security asset, to be sold to the Chinese government-slash-military’” leads me even further to believe that my comments were accurate.
Please read John V. Denson’s “The Costs of War”
or any of the works of Harry Elmer Barnes.
Movie guy: Your real problem is that I expressed “disdain” for a law that you support, and that I ridiculed a supporter of that law. Let me take this opportunity to reiterate my disdain for all government violations of private property rights.
The tone of your posts here seem directed at debating the whole national security issue soup to nuts, and criticizing everyone who does not post an in depth defense of free trade taking account of facts which you personally consider relevant. That is a bit unrealistic. If you want to understand the complete basis for free trade and the entire case against government coercion of property owners, I invite you to read Human Action. That way you will gain the same basic understanding of economics that readers of this blog are presumed to have. You should also refer to Hoppe’s writings on majoritarian democracy for a perspective on why laws often undermine the common good.
J. Henderson,
You have no idea what you’re talking about with regard to my views. Prejudging me is a waste of time.
I simply built a strawman for discussion purposes, as it is interesting that anyone associated with Mises Institute would take a pro-sell position on the sale of a corporate to a another corporation which is 70% owned by its national government. But having taken such position, in this case a related blogger post, let’s see if you can defend it based on the merits.
Your first follow up post (prior to my second post) begins down that road, but certainly falls short in many ways.
The real problem is that your argument is weak, if not amateurish and uninformed in some respects. And that is a problem whenever the institute attempts to influence public thinking, whether influencing five individuals or five million individuals. Even in blogland. As Brad Stone advised, it’s important for libertarians to be good communitarians.
Neither you nor Dennis Sperduto have named any authors or publications that I am not very familiar with. Your collective attempts to divert attention to the works of Denson, Barnes, and Hoppe do not address the merits, pro or con, of selling Unocal to a foreign interest as nations around the world ramp up in preparation for potential energy or delivery shortages.
Paul Edwards gets closer with his reference to one news article. The article, though, overlooks some of the other statements rendered by Jerry Taylor, CATO, during the House committee Q&A. I sat there and listened to Jerry say that he didn’t have any problems with the sale of other crude oil energy assets such as Exxon. No problems at all. Well, that was hardly an effective communication to the House committee. Moreover, it dismissed his contention that Unocal only represented a tiny piece of crude oil/gas supply and technology. Further, that also overlooks the lease holdings of Unocal and projected field potential, both of which exceed Chevron holdings. So, there is much more under consideration regarding this matter.
Just sitting back in the institute’s blog cocoon and saying that you hate the leaders and laws of the United States is an inadequate response to real world interaction and societal participation when, in fact, libertarians have a valued opportunity to be good communitarians, influencing the views of others instead of just talking to the choir or those around the kitchen table. Instead, your efforts focus on typical whining without offering a realistic and saleable alternative to ongoing decisionmaking processes. If you can’t sell your ideas, or package them in such fashion as to render meaningful influence, then your communications deserve reexamination. They are ineffective.
For your information, I also thought that Frank Gaffney’s written testimony was very weak. But Jerry’s presentation wasn’t meritorious, either. His written testimony was unsubstantial and ineffective, taking on the appearance of a freshman research effort. Further, the testimony stated a number of inaccuracies with regard to forward projections. And the testimony references list was very weak, indeed. I and others feel that Jerry Taylor was ill-prepared for testimony before the committee. Essentially, CATO has been on a downhill slide for some time, so perhaps it shouldn’t be a surprise.
Supporting the sale of a corporation to another corporation majority owned by a national government is a very odd position for a libertarian associated with Mises Institute to undertake. Your private property approach, as though you own stock in Unocal, doesn’t solve the moral or social dilemma of supporting a free enterprise corporate sale to a government, or majority share thereof.
Frankly, I don’t believe that you, J. Henderson, own any Unocal stock. But it you do, then I suggest that you first argument is with the board of directors of Unocal. They haven’t accepted the CNOOC bid thus far.
It is highly questionable, by the way, to suggest that the potential sale of Unocal to CNOOC is a free trade issue. In the background, the sale goes to a national government which has formally stated that energy development is its number one objective. CNOOC will never be free of the reach of the PRC national government if the current form of government is retained by its citizens. Chevron, on the other hand, is not owned in part or full by any national government.
Bloomberg, 19 July 2005:
“Unocal’s asset mix is not a really great fit with Cnooc’s assets,” says Jason McCay, who helps manage the equivalent of $15 billion, including Cnooc shares, at Martin Currie Investment Management Ltd. in Edinburgh. “It’s clearly been a political decision, driven by national strategic priorities.”
Beijing-based Cnooc, China’s No. 3 oil company, is 70 percent-owned by state-controlled China National Offshore Oil Corp. Fu may be putting China’s interests before those of shareholders, says David Merjan, who helps manage $11 billion at William Blair & Co. in Chicago.
“We were extremely uncomfortable when the Chinese government took a more active role in Cnooc,” says Merjan. “We look at this as securing assets as opposed to doing what’s in the best interest of shareholders.”
Sebastiaan de Bont, who helps manage 2.5 billion euros ($3 billion) in emerging-market funds, including Cnooc shares, at Robeco Group in Rotterdam, questions Fu’s acquisition strategy.
“A more gradual approach would be less risky,” de Bont says. “The management has to tell investors first about the deal. What is the value of the merger? The synergies? I wonder if it’s a good thing for shareholders.”
China’s local and central governments control 64 percent of the more than 1,300 companies whose yuan-denominated shares are traded on China’s stock exchanges, according to TX Investment Consulting Co., a Beijing-based research firm.
—-
It would be beneficial if you could eliminate any principal elements of concern based on merit, not rhetoric. Unless, of course, you are unable to do so.
I believe you are ill-equipped to defend the potential sale of Unocal to CNOONC/PRC.
Hi Movie Guy: I’m going to plead guilty to your “you are ill-equipped” argument. However, I have read, and i agree with Featherstone’s short essay “It’s All About Private Property” at
http://www.lewrockwell.com/featherstone/featherstone33.html
If i were able, i’d put forth a great argument like that myself, but failing that, I’ll just point you to it. I think it addresses some of your points. If you read it and find it persuasive, i would find that highly satisfactory. If you read it and you don’t, at least you’ve been exposed to a more convincing argument than i can present. Cheers.
Paul — Yes, I actually did read Featherstone’s 19 July article. I also read his 14 July piece, titled China, Unocal and the Fate of the World. Hopefully others will read both articles.
Parts of the 19 July article are reasonably good.
Charles did miss on a few statements, though. And omitted a few other facts.
Example: “CNOOC even offered to sweeten the pot, with a $2 billion cancellation fee (money paid to Unocal shareholders in the event that CNOOC’s bid fails).”
Actually, that’s inaccurate from my understanding. CNOOC came up with the last minute cash feathering for the shareholders, but it is only valid if CNOOC’s offer is accepted by the Unocal board, shareholders, Committee on Foreign Investment in the United States (“CFIUS”), and the Securities and Exchange Commission (SEC). Further, the CNOOC money is only available to the Unocal shareholders (actually Unocal corporation) if CNOOC does not thereafter complete the purchase acquisition.
It is not dependent upon the bid failing, but rather solely dependent on CNOOC bailing out of an agreed upon offer only if all other formal approvals have been satisfied. So, the Unocal shareholders voting on 10 August are supposed to be swayed by this and push the Chevron offer off of the table.
Moreover, shareholders weighing the tax consequences of both existing offers would probably find the Chevron offer more valuable in terms of net gains. Charles mentioned this consideration in his 14 July article.
I won’t go into all of both articles, but Featherstone covered some of the background details reasonably well while not noting some other significant points relating to CNOOC, Chevron, and Unocal relationships. Interesting facts, including Chevron’s existing retail sales operation in mainland China and current partnerships with CNOOC on specific field operations.
The private property argument being used on this matter is filled with misinformation and illogical assumptions in my view. The U.S. securities laws in force, dating back to 1933 and 1941, govern all stock transactions other than some activities by hedge funds. The net result of such securities laws is that some safeguards are in place for the interests of the investors, the U.S. financial system, and so on. To act as though U.S. securities laws are not in the best interests of investors is to ignore what can occur without them. Simply, if you disagree with the securities laws, work to have them changed. But when you purchase publicly traded corporate stock or bonds, you have agreed to the terms of the trade, including all facets of securities laws overview. Such legal overview includes the review process of Committee on Foreign Investment in the United States (“CFIUS”) and the two principal laws under which the presidential committee fulfills actions as delegated.
If, on the other hand, one does not like the terms and conditions of stock and bond trade/acquisition, no one is forcing another person to purchase such instruments. Alternative methods of privately held company, corporate, partnership, and limited exposure ownership and investment are readily available.
I, too, value private ownership greatly. But I always review the terms of trade related to such ownership prior to entering into any agreements or making purchases. If I don’t like the potential liabilities as stated, I take a pass. If I accept the liabilities of my ownership stake, and make the acquisition, I certainly do not complain later on if such liabilities and restrictions come into play. Why should I? I understood the contract terms going in.
And that’s my point on the false presentation of the private property argument as relates to ownership of Unocal stock shares. The argument is not factually presented.
Movie Guy sez;
“To act as though U.S. securities laws are not in the best interests of investors is to ignore what can occur without them.”
I see – without our vaunted securities laws, some miscreant CEOs might, say, defraud investors and run companies into the ground, wiping out jobs and employment! Can you imagine?!?
Look, no one should have any illusions about the Chinese government – they seem to be planning here fore some vague degree of autarky. As we all know, this is an economic dead-end. Far from criticizing the deal, you should welcome the opportunity for China to fall on its face this way!
And to go WAYYYYY back To Tom Blumen’s remarks RE: Frank Boeing’s, er Gaffney’s objections to the deal, here is a classic case of the pot calling the wok black – Boeing would not exist in the form it is in today without massive military contracts which, as the EU rightly points out have exactly the same economic and geopolitical effect as massive subsidies. Over half of Boeing’s revenue comes from US Government customers. Does that mean that Boeing should be prevented from buying european or Asian companies, or be discouraged in any way from doing so?
Movie guy: I’m glad i mentioned the article then. Your statement that “The private property argument being used on this matter is filled with misinformation and illogical assumptions in my view.” is a great starting point for you to elaborate if you are so inclined. I would be interested in hearing your perspectives.
I will confess up front that like Vince, i would be a hard one to convince that US securities laws are in “the best interests of investors”, however, it sounds like you have other points that would be interesting to hear as well.
Movie guy, You call people ignorant and then make a hopelessly naïve comment that securities laws protect investors, as if the government were an disinterested regulator with no self interest or desire to expand its power and control. This comment does not reveal much understanding of the content of the mises.org site, or indeed the history of regulation in this country.
My post ridiculed Frank Gaffney’s testimony, which you have admitted is weak. So we agree on the substance of my blog. That’s as far as it goes. It is not my job to convince you to become a libertarian.
It is not illogical or uninformed to prefer that the CFIUS allow the CNOOC bid, or to prefer that the government not block foreign investments in the US. Many people buy stock in the hopes that the government will refrain from destructive interventions it has the power to undertake. You flatter yourself by claiming that all smart people would agree with your opinion.
Since you are challenging everyone else’s competence to opine on the Unocal deal, kindly state your own credentials for evaluating the merits of the CNOOC offer.
Henderson,
If you don’t have the ability to offer a better pro-sale argument, you are welcome to acknowledge it.
Your emotional outbursts and continued personal attacks are unbecoming of an individual who made a lead blog post in the interests of generating discussions. It would have been more beneficial in my judgment if you had posted additional information justifying the pro-sale position that you apparently have taken once your argument was challenged.
While your initial post focused on typical ridicule of Gaffney which anyone could have done, your subsequent post focused on the broader issue of supporting the sale of Unocal to CNOOC/PRC. At that point, the broader subject was fair game.
The remarks by most other posters focused on the Unocal sale, which of course is the issue.
Your statement: “Movie guy, You call people ignorant and then make a hopelessly naïve comment that securities laws protect investors, as if the government were an disinterested regulator with no self interest or desire to expand its power and control.”
I will post later regarding U.S. securities laws in response to Paul Edwards.
If the U.S. government doesn’t have any problems selling large amounts of treasury bonds to the Chinese central bank, which in the future could be sold in large quantities in order to cause disruptions in the U.S. economy, then why can’t UNOCAL sell its stake to the same Chinese central government?
As far as a pro sale argument goes, if the shareholders of UNOCAL believe the sale to the Chinese best satisfies their needs, then so be it.
If you don’t like it, put in your own bid for UNOCAL, or join with the social democrats and the 3rd world dictators who argue that oil is too important a commodity to be traded privately, therefore it must be nationalized.
Movie Guy- pro-sale arguments have been presented. “China should be rewarded for embracing capitalism. The more Chinese companies profit by engaging in the global market, the less dependent they will be on state support and the more they will focus on pleasing customers instead of the state.”
FYI, it is not illogical, uniformed or factually inaccurate to support inaction by the CFIUS. Your justification for infringing property rights – the laws to do so exist – is circular reasoning.
Movie guy- you declined to state your qualifications to declare people “amateurish and uninformed.” Are you a government employee or a lobbyist?
Paul Edwards:
Your statement that “The private property argument being used on this matter is filled with misinformation and illogical assumptions in my view.” is a great starting point for you to elaborate if you are so inclined. I would be interested in hearing your perspectives.
I will confess up front that like Vince, i would be a hard one to convince that US securities laws are in “the best interests of investors”, however, it sounds like you have other points that would be interesting to hear as well.
Fair enough. I am happy to share a few personal perspectives.
Before I do let me repeat my position for the sake of clarity of the next post:
“To act as though U.S. securities laws are not in the best interests of investors is to ignore what can occur without them. Simply, if you disagree with the securities laws, work to have them changed. But when you purchase publicly traded corporate stock or bonds, you have agreed to the terms of the trade, including all facets of securities laws overview. Such legal overview includes the review process of Committee on Foreign Investment in the United States (“CFIUS”) and the two principal laws under which the presidential committee fulfills actions as delegated.”
“If, on the other hand, one does not like the terms and conditions of stock and bond trade/acquisition, no one is forcing another person to purchase such instruments. Alternative methods of privately held company, corporate, partnership, and limited exposure ownership and investment are readily available.”
“I, too, value private ownership greatly. But I always review the terms of trade related to such ownership prior to entering into any agreements or making purchases. If I don’t like the potential liabilities as stated, I take a pass. If I accept the liabilities of my ownership stake, and make the acquisition, I certainly do not complain later on if such liabilities and restrictions come into play. Why should I? I understood the contract terms going in”
“And that’s my point on the false presentation of the private property argument as relates to ownership of Unocal stock shares. The argument is not factually presented.”
Paul,
I’ll offer a couple of examples. Not complex, but they serve the purposes of illustration.
Stock ownership and securities regulations
Here are situations that provide some appreciation for basic securities laws.
First example: Investing in a company. No stock securities laws exist. None.
Let’s say that you and I had a lot of money. We were both interested in a new company and intended to invest in its operations. At the time of our initial interest, the company did not offer any publicly traded stock.
I decided to negotiate an ownership share contract with the company. I loaned the company’s officers (representing the company) $800,000.00 for a 10% stake in its current and future assets value. That was the condition of my loan offer. The company accepted. I also accepted a seat on its board of directors as a hedge to insure some protection of my investment.
You waited for the stock offering announced in the local newspaper which was tendered three months later. You purchased stock for $800,000, representing 10% of the company’s present day assets value. Your verbal understanding at the time of the stock purchase was that the overall stock offering represented the remaining 90% of the company’s assets values and you purchased accordingly, staking a stock position equal to 10% of company value. Satisfied, you purchased the stock, paying $800,000, and received stock certificates as proof of stock ownership. You also accepted a seat on its board of directors.
A year later, we learn quietly that the company is in some difficulty which we had not been advised of previously. Concerned, we discuss the matter as friends and investors, and decide to remove ourselves from the board of directors to avoid any potential liability regarding future situations that may arise. We attend a board meeting and negotiate redemption of our financial positions in the company. I am able to secure return of my principal, the $800,000, that I loaned the company. You are able to sell your stock directly back to the company. On the same day, we visit the treasurer of the company. He writes me a check for $800,000, which represents a loss as compared to my expected investment opportunity, but I am willing to accept the check as final payment, terminating all claims of my original loan. You are expecting the same check value, but learn that your check will only be $400,000. The treasurer explains that such amount is the worth of the stock that you possess. After some discussion, we learn that the company sold a second offering of stock which reduced your stock share ownership from 10% to 5% of original company value at the time of your initial stock purchase. Twice as many shares had been sold. But you didn’t know that until we were standing in front of the treasurer. Outraged, you explain that you will sue the company. Sue the company for what? Based on what law? Your stock certificates were redeemed legally based on the value represented by the percentage ownership you held. Now 5%, not 10%. Now $400,000 in value, not $800,000.
Your potential course of action would be to file a legal suit for fraud. To support that claim it would be beneficial to have written documentary evidence that you purchased 10% of the company assets value in exchange for stock certificates representing such value. The absence of such verifiable proof would make your case difficult. Why? No securities laws exist governing the issuance of stock.
——
Second example: Investing in a company. Stock securities laws exist. They are enforced.
Same situation. I loan the company $800,000 for 10% ownership of company assets, present and future. You buy stock representing 10% of the company value for $800,000, the full stock offering of which represents 90% of the company assets, present value. No further stock can be issued based on the value of the corporation, though a stock split would be legal. If the stock were to be split, your percentage stock ownership would remain the same. And the company could attempt to repurchase some of the stock holdings from investors. And so on.
A year later the company abruptly files bankruptcy. At a company dissolution meeting arranged by a court of law it is agreed that I, as a principal creditor, will be paid 80% of my initial investment without consideration for additional value. The treasurer writes me a check for $640,000. You are hoping for some return on your stock value, but learn that the creditors have first legal claim against company assets which is the basic rule in bankruptcy proceedings. At the end of the day, almost all of the principal creditors have been paid. But none of the stockholders. The next morning you learn that some residual assets sales money is available, as all creditors have been paid off according to reduced creditor value settlements. Only you and one other stockholder possess stock certificates. The other stockholders purchased their stock electronically through brokers. The company pays you and the one other stockholder in possession of stock certificates the remainder of the cash resulting from the sale of company assets. You receive a check for $50,000. The stockholders without certificates receive nothing.
While many might dispute the claim that possession of stock certificates makes no difference in such a case, it is apparently true that possession of stock certificates does matter in such legal cases. Without certificates, one is unlikely to receive any value for prior claim. This is my understanding from a few associates who have gone through the experience.
—–
There is no question in my mind that basic securities laws are an essential part of stock ownership as traded on the open market. Sure, some of the rules are a pain, but on the whole the laws work very well.
At present, hedge funds are being reeled in to some extent via SEC identity reporting requirements. Part of that initiative has to do with ongoing extensive investigations of some hedge funds which were mining mutual funds, draining them of millions of dollars in value. One list has over 400 hedge funds identified thus far as being subjected to the SEC investigations. Similar fraud lawsuits against other hedge funds are based on evidence of fraud and securities laws violations.
Paul,
Example three: Hedge funds Stock securities laws exist. Some are enforced, though hedge funds and hedge fund fraud are difficult to track due to limited federal reporting requirements.
I could offer considerable detail, but the following references are quite well presented. The individual who maintains this blog does an excellent job of presenting some of the cases involving hedge funds.
The Hedge Fund News and Fraud Blog
Hedge Fund Fraud Case Studies
Hedge Funds Market Timing Mutual Funds
Hedge Fund Operational Due Diligence
Paul,
More specific information.
Growth in Hedge Fund Fraud
SEC Statements, December 2004:
“The growth in hedge funds has been accompanied by a substantial and troubling growth in the number of our hedge fund fraud enforcement cases. In the last five years, the Commission has brought 51 cases in which we have asserted that hedge fund advisers have defrauded hedge fund investors or used the fund to defraud others in amounts our staff estimates to exceed $1.1 billion.”
“Although most of our hedge fund fraud cases have involved hedge fund advisers that defrauded their investors, we now too frequently see instances in which hedge funds have been used to defraud other market participants. Most disturbing is that hedge fund advisers have been key participants in the recent scandals involving late trading and inappropriate market timing of mutual fund shares.”
“Many of our enforcement cases involved hedge fund advisers that sought to exploit mutual fund investors for their funds’ and their own gain. Some hedge fund advisers entered into arrangements with mutual fund advisers under which the mutual fund advisers waived restrictions on market timing in return for receipt of the hedge fund advisers’ “sticky assets,” i.e., placement of other assets in other funds managed by the mutual fund adviser.”
“Other hedge fund advisers sought ways to avoid detection by mutual fund personnel by conspiring with intermediaries to conceal the identity of their hedge funds. While our investigation is ongoing, the frequency with which hedge funds and their advisers appear in these cases and continue to turn up in the investigations is alarming. Our staff counts almost 400 hedge funds (and at least 87 hedge fund advisers) involved in these cases and others under investigation.”
Also see footnotes 27-30 of the first list of 383 footnotes.
Source: SEC Final Rule, Registration Under the Advisers Act of Certain Hedge Fund Advisers – 12/07/2004
However poorly debated this thread may be, it does point out an interesting question. When faced in the real world with less than ideal choices, how should one make the decision? Generally speaking, the best to hope for is decide which principle or principles deserve priority, and save the secondary battles for another time.
In this case, the principle of free trade seems stronger. Unocal should be free to accept or reject the CNOOC bid on its merits, and the U.S. government should only intervene if obvious fraud or coercion is involved in the transaction. Like any government, the Chinese government can act like a business or otherwise intervene in the economy, but they are no more free from economic consequences than any other agent, even if they forcefully intervene.
If the Chinese government uses corporate ownership to control the world’s oil, they may try to restrict the flow of oil to the United States, but not all the consequences of such an act would be harmful to the U.S. It would encourage domestic production and more energy research. If anything, the Chinese would be doing us a favor by forcing us to deal with oil shortages before the natural supply reaches critical, which would result in the U.S. being more energy independent, not less.
In any case, such a scenario is still an “if”. The Chinese have been trying to liberalize their economy in the last decade or so. Perhaps they realize the U.S. would be less harmful politically or militarily if we’re actively trading with the Chinese and thus more dependent on them. Either way, economics still holds true.
Hi Movie Guy: Before we delve into the question of the utility of US securities laws, i’d like to check if you have other objections to the argument presented by Featherstone. I got the impression you did based on your comment “The private property argument being used on this matter is filled with misinformation and illogical assumptions”. If not, then we can get cracking on the securities laws. If there are, I was thinking of summarizing your points something as follows:
Private property argument being used on this matter is filled with misinformation and illogical assumptions because…
1.US securities laws are in best interests of investors.
2. …
3. …
This will give me a better feeling that we are discussing the most substantial issues from your perspective.
Paul,
Yes, there are other statements by Featherstone with which I disagree, among which are the following:
“Yes, CNOOC is a state-owned company. So what?”
“nothing in China any smart US-based major would want to buy.”
“And as China’s firms become more international, they will most certainly do what American oil firms have done – become less parochial and eventually figure out there’s money to be made supplying products to anyone able and willing to pay, and not just the home market.”
“Eventually, these bad banks will fail.”
“When did the right of a Unocal shareholder (American or not) to sell his or her shares to whoever he or she wants become completely dependent on whether some other potential shareholder can buy stock in PetroChina, Sinopec or CNOOC?”
“I personally don’t give a fig for government policy. I do not care about the welfare of national governments.”
“But I’m not going to waste my time trying to steer the ship of state when I believe it ought simply to be scuttled.”
“Regardless, the only people with any right to make this decision are the people who own Unocal. And nobody else. Not Congress, not some alphabet soup regulatory agency, not the Pentagon, not the president of the United States. Nobody.” Simply incorrect according to existing securities laws. Period.
“However, if the Chinese want their world empire, their day in the sun running the planet, I say – let em have it.”
“Besides, if China supplants the United States of America as the owner and operator of Planet Earth, how exactly would things change? … The truth is, very little would change.”
“As it stands, Hunter and all the other paranoid China-haters, Democrats and Republicans, are leading us all to war, a war as avoidable as the costly and pointless carnage that swept Europe between 1914–1918.”
But we can certainly move on and skip these remarks.
Paul,
Here is my private property position on the Unocal-CNOOC issue.
“Private property argument being used on this matter [Unocal - CNOOC] is filled with misinformation and illogical assumptions because…”
1. Purchase and sales of existing publicly traded stock requires full compliance with existing securities laws, and laws upon which the delegated authority of Committee on Foreign Investment in the United States (“CFIUS”) operates, specifically the Exon-Florio provision.
2. Individuals purchasing or selling publicly traded stock should become familiar with the provisions of securities laws and CFIUS authority, as a legal precondition for all such transactions. Such legal requirements govern purchase and sales of publicly held stock.
3. There is nothing preventing individuals sellers of Unocal stock from selling such minority interest stock to CNOOC as long as such CNOOC stock purchases do not represent majority voting share or full share ownership of Unocal, at which point such majority stock share purchases by CNOOC become subject to SEC review whereas full stock ownership becomes subject to SEC and CFIUS Exon-Florio provision review. Unocal stock owners could still sell their stock to CNOOC beyond the majority ownership limit though CNOOC might be directed to resell such stock or its majority ownership position. Same situation for full ownership by CNOOC.
4. For Unocal stock owners to say that their legal private property rights have been violated if CNOOC is not allowed to purchase majority ownership (subject to SEC review) or full ownership (subject to SEC and CFIUS review) of Unocal is a misstatement of legal fact based on the existing provisions of securities and national security laws presently in force under which Unocal stock owners accepted the terms of their Unocal stock ownership.
5. For non-owners of Unocal stock to state that Unocal shareholders legal property rights have been violated as stated in number 4 above is a misstatement of legal fact for the same reasons as previously explained. Moreover, such statements should not be construed to represent legal advice unless such remarks are intended as such. If so intended to represent legal advice, then the communicators of such information should be prepared to defend their legal advice and opinion. Otherwise, such remarks as may be rendered are opinions not necessarily based on fact, or U.S. securities laws and laws pertaining to U.S. national security interests.
That’s my private property stock ownership position based on existing laws as pertain to Unocal stock shareholders.
That certainly makes i plain where you stand. Sounds like you’ve given it lots of thought. Thanks!
While the securities laws certainly have legal force, like the vast majority of our laws, they have no moral authority in that they are blatant violations of property rights, personal freedom, and generally have little to do with promoting economic efficiency. The securities laws and their enforcement are basically instruments of various interest groups to obtain results that can not be obtained on the market. Sometimes these non-market results are economic, sometimes they are political, and many times they have elements of both. I would have respect for these laws if their purpose was to prevent and punish fraud.
Dennis Sperduto:
I don’t have general disagreement with some of what you have said. But I question the following statement.
“The securities laws and their enforcement are basically instruments of various interest groups to obtain results that can not be obtained on the market.”
While you may be correct, can you actually name a securities law or element thereof that does what your are saying?
And do you know of no securities law or element thereof that does not attempt to prevent fraud, and subsequently prosecute those who commit fraud against other investers? None?
Serious questions.
“Regardless, the only people with any right to make this decision are the people who own Unocal. And nobody else. Not Congress, not some alphabet soup regulatory agency, not the Pentagon, not the president of the United States. Nobody.” Simply incorrect according to existing securities laws. Period.
Movie Guy is so blinded by his statism that he cannot imagine any alternative to “existing laws.” It is clear from the context that Featherstone is stating an opinion based on his free market philosophy. Opinions are not rendered incorrect by the existence of laws to the contrary. Movie Guy again commits the begging the question fallacy.
Movie Guy, you should expand your horizons a bit and spend some time reading about alternatives to the failed and decaying status quo. You lack the ability to communicate effectively with people on this blog until you take the time to learn about Austrian economics. Repeatedly declaring a libertarian proposal “illegal” is not going to convince its adherents to abandon it. We know we are going to create a free society some day. The future is ours.
A law that “obtains results that can not be obtained on the market?” Try the Williams Act.
The “law” prohibits investors from anonymously buying up a controlling stake in a company’s stock. The affect of the provision is to alert management to takeover efforts in advance, allowing the targeted management to take defensive manuevers.
Henderson,
I explained my comments on opinion in number 4 above.
I am not a statist.
MG,
You are clearly advocating state intervention to prevent shareholders of a private company from exercising freedom of choice. I am sorry if you feel offended by the term, but advocating State intervention is by definition statism. It is nothing to be ashamed of. You are in good company there inside the Beltway.
What you are not grasping is that for an Austrian, laws that are not grounded in praxeology are illegitimate. See Mr. Sperduto’s comment where he describes such “laws” as lacking moral authority. They contradict what we know to be scientifically true about human action. They require coercion, violence and perhaps murder in order to be enforced. Hence they are barbaric and wrong. Murray Rothbard described them as totalitarian.
Mr. Featherstone claimed that Congress has no right to use coercive, violent force against the shareholders of Unocal. This is a statement of fact for an Austrian, knowing what he does about self-evident truths in the economic sphere. That the State stubbornly refuses to accede to these realities is regrettable, but does not, as you claim, render Mr. Featherstone’s statement erroneous. As a lawyer accustomed to respecting State dictates (“statism”), you naturally interpret Mr. Featherstone’s opinion as being at variance with reality, when it is the illegitimate State law that conflicts with economic law.
Compare Mr. Featherstone’s statement with a claim in 1860 that no man has a right to enslave another. Though laws existed at the time to facilitate slavery, we would not acknowledge those laws to have any authority.
While we are into denials, I am not as you labeled me in your first post, a communist sympathizer.
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