Balance Sheet of Power: Globalization Hasn't Rewritten the Laws of Economics. State-on-State Competition Still Rules

Article excerpt

LAST NOVEMBER, Citigroup announced the sale of a 4.9 percent stake for $7.5 billion to Abu Dhabi Investment Authority. It's now seeking a $1-billion infusion from Kuwait and $9 billion from China. Soon after, Beijing bought 9.9 percent of Morgan Stanley for $5 billion, and Bear Stearns swapped $1-billion stakes with China's CITIC Securities Co. Ltd, a state-owned investment company. Also in December, Singapore's Temasek Holdings took a $4.4 billion stake in Merrill Lynch, with an option to invest an additional $600 million. The bleeding investment giant is seeking another $4 billion from the Arabs.

Americans would surely protest if their own government started buying up domestic banks and companies, but they offer no objection when foreign governments do just that. They have been conditioned by the reigning ideology of globalization to reject any form of economic nationalism as isolationist. Dogma has overtaken good sense.

But globalization is not delivering on its bright promise of "complex interdependence." Traditional state-on-state competition is fast re-emerging from its post-Cold War lull and with it, historically proven ideas about what constitutes economic power: a strong industrial base producing competitive goods, a high savings rate and ample foreign exchange reserves, innovative domestic industries, and a highly skilled and educated labor force steeped in the country's technological culture. As in the past, rising economic power generates confident nationalism and produces a strategic assertiveness, first regionally, then globally.

The United States, formerly the premier industrial power and creditor to the world, is ripe for a corporate takeover from abroad. As the aftershocks of the mortgage crisis continue to reverberate through the markets, America is awaking to the reality of its shrinking industrial base. Only 12.6 percent of GDP came from manufacturing in 2006. We face exploding trade and fiscal deficits, a $9-trillion national debt, and a flagging currency. Decades of deindustrialization and outsourcing for the sake of short-term profit have even begun to cut into the mainstay of our national security: our defense sector. The prospect of foreign control in critical areas of the economy is shaping up to be the greatest security challenge this country has ever encountered.

Last year, the dollar lost 7.5 percent of its value according to the Federal Reserve's trade-weighted dollar index. It declined 9.5 percent against the euro in 2007, following a 10.2 percent drop in 2006, and reached parity with the Canadian dollar. With our low savings rate and continued deficit spending, the U.S. must import capital at an average rate of $3 billion per day. Without that daily injection from abroad, our government and businesses would lack the money to operate.

America funds its economy, runs its government, and conducts its wars on a giant foreign-owned credit card. And contrary to received globalist wisdom, the issue of who happens to have the largest dollar holdings is vital to national security. We owe trillions of dollars to China, Japan, and the oil-producing countries in the Middle East. According to China's central bank, in the past year China added $461.9 billion to its foreign exchange reserves, which stand at over $1.5 trillion above all other nations--a net increase of over 43 percent from its 2006 record. In contrast, U.S. foreign exchange reserves hover at around $90 billion, below Brazil, Malaysia, and Mexico.

Despite skyrocketing energy prices, persistent trade deficits, and federal borrowing out of control, the U.S. continues to incur obligations with its creditors at a breathtaking pace. Now all of those states, armed with cheap dollars, can go shopping at the discounter's deal of the century: the "Wal-Mart" of American corporations.

Over the past decade, foreign governments have been converting their dollar holdings into investment funds to acquire banks, companies, and real estate in the United States and elsewhere in the West. …