In recent remarks at the Center for Strategic and International Studies, Attorney General William Barr proposed in Ericsson and Nokia as a means of promoting greater security in next generation 5G wireless networks. Shares in those companies rose in response to the suggestion.
Attorney General Barr is usually a font of extraordinarily good ideas. This one falls short of the standard for several reasons.
First, free capital markets allocate capital investments not by government officials but by economic competition. Businesses with the best prospects will attract the most capital.
Ericsson and Nokia have competitive prospects and attrract capital investment. Both companies have securities traded on public exchanges, including in the United States.
These are not small startup companies desperate for capital infusions. Both companies were founded in the 19th century. Nokia has an enterprise value in excess of $21 billion and EBITDA in excess of $2.7 billion on revenue of $26 billion. Ericsson has an enterprise value in excess of $25 billion and EBITDA in excess of $1.1 billion on revenue of $24 billion.
Neither company has reported that it suffers from a lack of access to capital. Investors that want to invest in these companies may do so. Favorable comments by a government official, even by one of America’s greatest statesmen, cannot lead to greater capital market access. Government officials in countries with open capital markets cannot create greater market access through speeches.
Second, Mr. Barr’s comments suggest that the national identity of investment matters. Yet most large, publicly traded, widely held, corporations do not have easily defined national identities. Financial capital flows freely among many countries, and the company with the most financial capital is the United States. Consequently, publicly traded companies tend to have investors from many countries, usually with a heavy concentration of ownership from Americans.
Is a corporation with a headquarters in one country but with a plurality or even a majority of ownership by Americans an American company or not? Perhaps more importantly, does it or should it matter? Apparently, the extent of American ownership does matter in Attorney General Barr’s comments.
Yet in an economic sense, businesses succeed or fail based on the quality of and price of their products and services, not the national identity of the corporation. A world in which corporate national identity matters is not a good world for companies trying to sell products and services to other countries. Many companies based in the United States try to sell to other countries, efforts not helped by national corporate labels.
Third, even if corporations have meaningful national identities, a company with almost any national identity can comply or not with national laws. Nations reasonably have a wide range of laws affecting corporations: securities laws to protect investors, intellectual property laws to protect authors of intellectual property, contract laws to protect parties to contracts, privacy laws to protect privacy, and so on. Practically all of these laws can and should apply with equal force to all corporations regardless of national identity.
Fourth, American foreign policy is most effective when Americans are perceived abroad as being honest brokers, unbiased in their views. I had the honor last summer of speaking in India about 5G wireless technologies on a tour sponsored by the State Department. I noted in each speech that America has no major 5G equipment manufacturing company and thus no national champion to support. American foreign policy in 5G would be far less effective if there were a national champion, particularly a national champion acquired by government design.
Some have misconstrued Attorney General Barr’s to mean that he supports direct governmental purchases of Ericsson or Nokia securities. I don’t believe that is the proper interpretation of his remarks. The history of governmental ownership of businesses is one of repeated failure. There is no reason to believe that it would work today any better than it has in the past.
Lesser countries intervene in markets to promote one business and punish another, all to the detriment of consumers. America is at its best when we allow law-abiding companies to compete without trying to pick winners and losers. Competition, not government control, leads to better products and services at lower prices, all to the benefit of consumers.
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