Will US Allow Lenovo to Buy Parts of IBM & Google?

Does it come with PRC minders listening in as a standard feature, NSA style?

Call it Reds Under the Beds, Cyber Edition. The supposed land of free trade has customarily thrown significant roadblocks in the way of Chinese firms signaling their intent to purchase US tech-related firms on "national security" grounds. The reasoning usually goes like this: Chinese firms trace part of their ownership to the PRC itself, hence there is a threat that their political overlords will ask them to incorporate spying apparatus in the electronics they sell Stateside. It's a lot of "could bes" and "what ifs" when, in reality, we know that the Yankees are no slouches on surreptitiously gathering information on everyone else. There are no hypotheticals there since US spying happens all the time on friend and foe alike.

At any rate, Lenovo--which famously purchased IBM's personal computer business sometime ago--is now looking to buy Big Blue's server business. What's more, it is also looking to purchase Google's Motorola (remember them?) cell phone unit. IBM is looking to concentrate on services. By divesting the server business it will have a negligible interest in selling the "International Business Machines" it stands for. Meanwhile, Google has not exactly revived the moribund Motorola name to compete with the likes of Apple and Samsung. So, on the shopping block both go.

Following earlier,  harrowing experiences of fellow Chinese companies Huawei and ZTE dealing with the multi-agency Committee on Foreign Investment in the US (CFIUS) that looks into foreign investment with "national security" implications, Lenovo is hiring high-priced talent to avoid such entrapment for both prospective deals.

Lenovo Group Ltd. has turned to national security insiders to win U.S. approval to buy Google Inc.’s Motorola Mobility phone unit and International Business Machines Corp.’s low-end server business, people familiar with the two deals said. 

The world’s largest personal-computer maker hired attorneys at Steptoe & Johnson LLP who held positions at the Central Intelligence Agency and the Homeland Security Department to guide its Motorola review through a key interagency panel, one of the people said. Covington & Burling LLP partners David Fagan and Mark Plotkin are representing Lenovo in the IBM server deal, according to another person familiar with the matter...

Steptoe will guide the Motorola review through the Committee on Foreign Investment in the U.S., or CFIUS, one of the people said. Partners Stewart Baker, a former senior official at Homeland Security, and Stephen Heifetz, who served in the Justice Department, Homeland Security and the CIA, are advising China’s Lenovo on its purchase of Motorola Mobility.

Covington’s Plotkin represented IBM in the $1.25 billion sale of its personal-computer division to Lenovo. He leads the firm’s national security and defense industry group, according to his biography on the law firm’s website.

In other words, Lenovo has added to the payroll those who would likely have been on the CFIUS at an earlier time to see its acquisitions push through. Lenovo has the advantage of having gone through the CFIUS process before. What's more, the businesses it intends to buy are supposedly not "mission critical" in undergirding the US telecoms infrastructure:

Lenovo’s purchase of IBM’s PC business has already been vetted by U.S. officials, and the company was cooperative and open during that investigation, Lewis said. In addition, they’re buying low-end, consumer-oriented businesses.

“If you had to pick a Chinese company that wasn’t going to run into trouble, it would be them,” Lewis said. “This is a pretty vanilla deal, as opposed to the backbone telecom products, which have always been considered a strategic industry. No one considers servers or handsets strategic.” 

I do hope so, but I somehow think that US lawmakers will make a big stink of both either way to score political points. Remember, too, that Lenovo tried to purchase Canada's BlackBerry late last year--a seemingly innocuous purchase along the same lines as Motorola--but was thwarted by the Canadian government:

Beijing-based computer manufacturer Lenovo Group Ltd. actively considered a bid for BlackBerry Ltd., but the Canadian government told the smartphone company it would not accept a Chinese takeover because of national security concerns, according to sources familiar with the situation.

Ottawa made it clear in high-level discussions with BlackBerry that it would not approve a Chinese company buying a company deeply tied into Canada’s telecom infrastructure, sources said. The government made its position known over the last one to two months. Because Ottawa made it clear such a transaction would not fly, it never formally received a proposal from BlackBerry that envisioned Lenovo acquiring a stake, sources said.

No matter how hypocritical or far-fetched, racist-protectionism persists among North Americans.

Rebuilding the USSR, Retaking the Commanding Heights

The stuff of Putin's fondest dreams

With the 2014 Winter Olympic Games kicking off in Sochi, Russia, the world's attention has naturally focused on that country. The story of Boris Yeltsin handing over large swathes of Soviet-era industry to so-called "oligarchs" who purchased these interests at fire sales prices is well-known.  Pressured to privatize state-owned firms by the West, Russian authorities unloaded energy and raw material concerns quickly and irrationally.

In Russian President Vladimir Putin's second term beginning in 2012, earlier nostalgia for Soviet strength from Yeltsin's handpicked successor has turned into a redoubled effort to reconsolidate state control over the aforesaid industries. In particular, the efforts of Igor Sechin, one of Putin's leading operatives, is intriguing in terms of reconstructing the "commanding heights" of state-controlled industry in the 21st century:

When Igor Sechin was working as President Vladimir Putin’s deputy chief of staff a decade ago, visitors to his Kremlin office noticed an unusual collection on the bookshelves: row after row of bound volumes containing minutes of Communist Party congresses. The record stretched across the history of the party and its socialist predecessor -- from the first meeting in March 1898 to the last one in July 1990, a year and a half before the Soviet Union collapsed...

Sechin regularly perused the documents and took notes, says Dmitry Skarga, who at the time was chief executive officer of Russia’s largest shipping company, OAO Sovcomflot. “He was drinking from this fountain of sacred knowledge so that Russia could restore its superpower status and take its rightful place in the world,” Skarga says.

Sechin’s back-to-the-future fascination with his country’s communist past is something he shares with Putin, who, soon after coming to power in 1999, restored the music (though not the lyrics) of the Soviet-era national anthem and later described the collapse of the USSR as the greatest geopolitical catastrophe of the 20th century. 

Economic efficiency? Bah! Competition serving the consumer interest? Getouttahere! Enough Western nonsense; it's back to the "golden age" of Uncle Joe:

Sechin is the leading exponent of Putin’s stated determination to restore the state’s role in the Russian economy. Putin used Rosneft, through its acquisitions, to return Russian oil to state control. The company, 69.5 percent government owned, controls about 40 percent of Russia’s crude output. In a similar vein, Putin re-established majority state control of natural gas-exporting behemoth OAO Gazprom. The company had been privatized in the mid-1990s under his predecessor, Boris Yeltsin, cutting the government’s stake to 41 percent.

To develop high-technology industries such as armaments and pharmaceuticals, Putin created Rostec, a state corporation that encompasses 663 companies employing 900,000 people, or 1.2 percent of the entire Russian workforce. He expanded state-run banks OAO Sberbank and VTB Group, whose dominance in retail banking has edged out foreign rivals such as HSBC Holdings Plc and Barclays Plc.

Sechin declined requests to be interviewed or to answer written questions. In a telephone interview on Jan. 20, Putin spokesman Dmitry Peskov said of Sechin: “Sechin is a believer in the role of the state in his economic philosophy while at the same time not excluding a free-market approach. And he is firm in pursuing his viewpoint.”

Putin and Sechin see themselves as being in the, ahem, vanguard of rolling back admittedly rigged experiments in free market economics post-Soviet Union. While the West looks on with no small measure of dusgust and horror, you do have to wonder whether the era of oligarchs--coinciding with liberalization, deregulation, and privatization--did Russia any favors. By botching the former Soviet Union's transition to modern-day Russia, Westerners probably sowed the seeds of doubt which have reached their fullest expression in today's Putinism.

As the saying goes, you reap what you sow.

UPDATE: Dig the gulag-standard digs for Sochi visitors.

Solow vs Mankiw on the One Percent

Readers of this blog will be familiar with my recent article Defending the One Percent.  In the new released issue of JEP, you can read a letter by Bob Solow commenting on the article as well as my response.

Sentence of the Day

From the Congressional Budget Office:

CBO estimates that the ACA [Affordable Care Act] will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.

Implicit in this estimate are elasticities that measure how much people respond to incentives.  My sense is that CBO is typically conservative when it come to gauging these incentives effects.  So I would take their estimate of the impact on hours worked as a lower bound. The actual figure may be higher.


Addendum: Here is a column I wrote about these incentive effects five years ago.

Repopulating Doomsville: Detroit & US Migration

Followers of international migration know that there is a movement among traditional migrant-receiving nations, usually Anglophone countries Australia, Canada, New Zealand, and the United States, to steer migrants away from overcrowded gateways into less-populated areas short on labor. In other words, your chances of successfully petitioning for permanent residency are greater in, say, Toowoomba instead of Brisbane.

In the United States, something similar is happening as authorities are interested in managing demography. Instead of packing people off to [zzzzz] New York, Los Angeles or Chicago, why not send them where they are needed like, say, Detroit? To you and me it may be a terrible instance of urban decay that is in its death throes via depopulation and bankruptcy. For others, however, it is a prime example of the Land of Opportunity. The Arab American News has an interesting article along these lines as a Polish immigration lawyer says there is no better time than now to attain permanent residence in, er, Detroit:

Every year, millions of immigrants celebrate the New Year with their own traditions. For our family, it is a ham, kielbasa, horseradish, stuffed cabbage, sauerkraut and pierogis, which are a traditional Polish dishes. And each year, like billions of people around the world, we look forward to the new year with a list of hopes, dreams and resolutions.

If you are a legal permanent resident eligible for American citizenship, there is no better time than 2014 to resolve to become a citizen. As someone who has spent years working with Arab-American immigrants here in Detroit, my own resolution is to help as many of them as possible here in Detroit to take the necessary steps toward citizenship with the New Americans Campaign.

Your community is larger than you might think. Michigan is home to 130,000 lawful permanent residents who could become citizens.

The New Americas Foundation provides advice to those wishing to become naturalized US citizens. As a person championing the free flow of persons around the world in addition to goods, services and investment, I wish them well. However, they of course encounter strong political headwinds via assorted racist-protectionist forces that are unfortunately still prominent in this so-called melting pot. 

Still, I do not necessarily find the idea of steering immigrants towards certain communities objectionable. If you want to live the American Dream, you have to start somewhere--even if somewhere may be Detroit. Moreover, who am I to say that Arab Americans and others do not have what it takes to revive this once-great American town? Others have given up on Detroit, but some still persist since they do see something of value you and I cannot. There is no real downside to giving them an opportunity.

Econ Summer Camp

Grad students with an interest in the history of economic thought should click here.

Buying Thai Rice: PRC Now Cares About Corruption?

Yinglucks legacy is a colossal waste of food and money

China is famous for espousing a policy of non-interference in the internal affairs of other countries. This, of course, is in contrast to Western powers who usually demand "good governance" for aid or investment in terms of lessening corruption, promoting democracy and so on. Critics say that in doing so China undermines others' efforts to instill better governance. On the other hand, China says it does not meddle with others' business--especially other developing countries that have grown tired of Western paternalism.

It is thus interesting how China seems to be bowing to pressures regarding the purportedly corrupt practices of the Thai leadership. In previous posts, I have detailed the extravagant waste of money [1, 2] that is the rice-pledging scheme which subsidizes rice producers to the tune of 40-50% over market value. To reduce mountains of rice purchased at above-market rates which now go unused, the current leadership hit on the brilliant idea of selling part of its stockpile to China.

But surprise, surprise--even the Chinese are not honoring previous commitments due to the current investigations into corruption allegations stemming from the so-called rice-pledging scheme:

China has canceled a deal to buy 1.2 million tonnes of Thai rice after Thailand's anti-corruption agency launched investigations into a state rice-buying scheme, the Thai commerce minister said on Tuesday. The cancellation will add to the pressure on Thailand's government, which is struggling to secure funds for the rice scheme at a time when farmers who have not been paid are protesting in the provinces.

"China lacks confidence to do business with us after the National Anti-Corruption Commission started investigations into the transparency of rice deals between Thailand and China," Niwatthamrong Bunsongphaisan told reporters.

The deal between Thailand and Chinese state enterprise Beidahuang was signed on November 20, for delivery starting in December. The shipment was delayed, however, after Prime Minister Yingluck Shinawatra dissolved parliament in December.

If anything else, the Chinese snub is going to put further financial pressure on this money-losing vote-buying scheme to win the support of rural populations in the North who've voted for the Shinawatras:

The government is desperate to get funds for the scheme because some farmers who have sold grain to the state have been waiting for months for their money. The World Bank has estimated annual losses of 200 billion baht ($6 billion) since it was introduced in 2011. The government has struggled to sell the rice because of its high price at a time when global demand is thin. 

Opponents of the government are angry that taxpayers are footing the bill for a program they call tantamount to vote-buying.

The endgame for Yingluck Shinawatra is drawing even closer, with troubles being added by a most unexpected source--China of all parties suddenly becoming concerned with corruption. Weird. Meaningless elections aside, what will likely happen is court persecution of Yingluck Shinawatra over the rice-pledging scheme (tacitly supported by the military and royalty) leading to her ouster. Farmers complaining about not being paid will only undermine her support further, making her easy prey for her opponents. 

All the same, Thaksinite politics are hardly finished--especially if his sister is ousted through extra-electoral means. The real question is why big brother Thaksin did not dissuade her from embarking on this ruinous rice subsidizing path given his vastly broader political experience. In the ultimate hardball of Thai politics, amateurs like little sister Yingluck get smashed fairly quickly.