Saturday, March 11, 2006

If This Isn’t Racism, What is It?

The following paragraphs contrast the excellent Wall Street Journal reporting on the recent Dubai Ports World’s aborted effort to acquire certain U.S. ports with the also-recent acquisition of a toll road in Chicago by the Australian investment bank, Macquarie Bank.

I have not added, changed, or modified a single word.

Dubai Ports World's offer to delay exerting corporate control over operations at five U.S. ports did little to calm the political firestorm in Congress as several key lawmakers dismissed the step and continued to demand that President Bush reopen a federal review of the deal.

—Wall Street Journal, 2/25/06

Last year, the city of Chicago was in a bind. It faced a $220 million budget deficit and its credit rating was under review for a possible downgrade. Voters feared a jump in property taxes.

Then help came from a surprising place: Australia. Macquarie Bank, Australia's biggest homegrown investment bank, organized a deal to take over Chicago's historic Skyway toll road under a 99-year lease for $1.8 billion -- hundreds of millions of dollars more than some Chicago officials thought it would fetch.

—Wall Street Journal, 12/6/05

Officials at the government-owned Dubai management company said they plan to complete the $6.8 billion purchase next week of London-based Peninsular $ Oriental Steam Navigation Co, but to freeze all operations as they are at the five U.S. ports where P&O now manages terminals -- New York/New Jersey, Baltimore, New Orleans, Miami and Philadelphia.

Australia's emergence as Chicago's white knight illustrates a surprising development in the world economy.

On a given day, Macquarie Bank has a dozen bankers roaming the U.S. in search of deals.

But Sen. Charles Schumer (D., N.Y.), who has led the charge against the transaction, shot back that "the cooling off period isn't going to work." He and other Senate critics insisted that Congress needed more than just additional briefings by the White House and DP World officials, and should begin a full 45-day investigation of the security implications of the deal.

In San Diego, one of its funds is building a 12-mile-long toll road. In Virginia, a Macquarie fund invested more than $600 million to take control of the Dulles Greenway, a 14-mile toll road outside of Washington. Macquarie operates the tunnel that connects Detroit to Windsor, Ontario, and just bought, with other investors, Icon Parking Systems, one of the biggest parking-lot operators in New York City.

In another sign that the uproar hasn't subsided, Sen. Hillary Rodham Clinton, (D., N.Y.) plans to introduce legislation barring all foreigners from managing U.S. ports, despite the fact that the vast majority are now run by foreign companies and that U.S. companies are minor players in the industry. "We cannot cede sovereignty over critical infrastructure like our ports. This is a job that America has to do," Ms. Clinton told a gathering in Miami.

Macquarie funds also hold stakes in the airports of Brussels, Copenhagen and Kilimanjaro, Tanzania. Macquarie funds own stakes in a major port in China, a Japanese turnpike and one of England's biggest toll roads. This year, Macquarie said it was weighing a bid to buy the London Stock Exchange, though it is unclear whether that deal will be completed.

Mr. Chertoff [Homeland Security Secretary] denied that DP World was being held to different standards than other prospective foreign investors, but said that because the company was the first foreign terminal operator to be vetted by the secret Committee for Foreign Investment in the United States, the safeguards could serve as a template for future deals. "I would certainly anticipate that if another country had a company taking over a port [terminal] we would do the same thing," he said.

Chicago is certainly glad the firm came knocking. Opened amid great fanfare in the late 1950s, the Skyway was supposed to be a critical leg in a stretch of toll roads extending to New York City. The Skyway turned into an epic white elephant. The toll road failed to generate enough traffic. In the 1970s, Chicago defaulted on its Skyway debt.

[DP World] said they played by long-established rules that control the government's review of foreign investments. "We just complied with what was required," said Ted Bilkey, DP World's chief operating officer. Mr. Bilkey said the company began working last October to get the administration comfortable with the deal, and he personally met with senior officials in early December. "We felt we've done everything correctly, and all of a sudden there's this furor," he said.

Executives at Macquarie say U.S. drivers can expect to see more of them in the future. Says Nicholas Moore, the head of Macquarie's investment-banking division: "It's a firm bet that all of the roads that are being talked about in America, we'll be looking at."

If the political outcry against unfamiliar and dark-skinned foreigners from one side of the world owning ports in the United States, when contrasted with the red-carpet treatment given a more familiar brand of white-skinned foreigners from another side of the world, isn’t ignorance at best and racism at worst—then what is it?

Jeff Matthews
I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.


Kenny said...

Welcome to the U.S. of A.

simpleton said...

Macquarie isnt owned *by* the Australian govt. A better analogy here would be the CNOOC for Unocal dispute which in the end went the same way as the port issue.

But nice try to frame the issue around race when it isnt.

DH921 said...

There is a huge difference between ceding control of our ports to a state owned entity and allowing a foreign corporation to collect tolls an maintain a portion of a local roadway. If you call that racism, you are missing the point. There would be NO public outcry over Dubai collecting tolls or building a bridge in San Diego.

Idaho_Spud said...

I don't know what the WH expected as far as public outcry over this. They've used the 'terrorist' excuse to win elections, and to bizarre Nixonian stuff like illegal wiretapping, and even torture "dark-skinned foreigners" - not to mention ignoring the Geneva convention and their constitutional rights (Moussoui).

Now suddenly after all this fear-mongering and bypassing of the Constitution, we're being told, "No, it's OK, don't worry about it". Money talks.

Aaron Koral said...

Kudos Jeff, once again, on an excellent post.

I get the sense that a creeping "protectionist" sentiment, led by a Republican-controlled Congress, is leading the U.S. to become "neo-mercantilists", where capital investment from specific countries such as China and the UAE are perceived, incorrectly IMHO, as threatening to our supply of capital (examples could be oil, labor/intellectual, and/or land).

Your post also made me think of Mittal Steel and its takeover attempt of Arcelor, causing furor in the business circles of Luxembourg. One has to wonder what the "tipping point" was (is) to cause such a shift in sentiment and, more importantly, can it be changed?

sausagewrap said...

Jeff,the Dubai deal is more complicated than simple racism. As several other posters noted, there is a substantial difference between a government-owned enterprise based in the Middle East and a non government-owned corporation based in Australia.

Lots of my fellow libertarian-minded free marketers in the press have followed your line of thinking, but it is a cloudy way of conceptualizing this deal. Nobody likes a xenophobic racist, so framing the DPW deal in racist terms is an enticing way for proponents to slam the opposition. It may be enticing, but its dead wrong.

First of all, there's not much about government-owned enterprises, no matter where they are based, that screams "free market." Second of all, if we are going to do business with foreign governmental-owned enterprises, it is silly not to consider the political and security positions of the owner entity.

If we are going to consider such things, we have to be willing to think about troubling little facts like UAE's lack of diplomatic relations with Israel, as well as their boycott of Israeli products. Given the fact that the Western world is in a full-blown hot war with radical Islam, and the fact that UAE's relations with Israel are disturbingly anti-Semetic (i.e. racist), it hardly seems a stretch that we might consider not handing over control of our ports to them.

This non-deal has lots less to do with racism than it does the long-overdue realization on the US's part that appeasement is not a viable foreign trade policy.

BelowTheCrowd said...

Strange that suddenly people are worried about foreigners owning our ports.

LA Times the morning notes that all but the smallest terminal at the ports of LA and Long Beach are operated by foreign shipping firms.

The map of the port area isn't included in the online edition, but the facts are still there. Three of the largest terminal areas are operated by foreign companies that are directly or indirectly controlled by foreign governments: Two are run by China and one by Singapore.

In fact, the Chinese operated terminals are considered to be model tenants.

An interesting point made was that most of the large shippers want to operate the major terminals the operate in/out of. Which is why the large ports rarely have a single operator. The associated point being that if we want to trade with developing nations (aka China) where state ownership and control are the rule, then we're going to have to deal with the fact that they're going to own some assets over here.

Alternately, I guess, we could go back to Smoot-Hawley.,0,5445234.story?page=1&coll=la-home-business


Sidney Falco said...

COSCO, a state-owned enterprise of the Chinese government already operates two American ports: Long Beach and port of Boston. Nothing novel about Dubai Ports World being owned by the UAE.

Congress is substantially screwing American relations with Middle Eastern allies to win votes.

RDS said...

with or without the UAE port deal, UAE citizens will continue to enjoy extreme oil wealth. maybe they could share the wealth with their indain and bangladeshi servants.

anyway, labeling the UAE port deal racism diminishes true racism, real suffering.

who cares if the emirs aren't allowed to get even richer.

the management said...

I think it's crazy to pretend that what people don't like about DPW is that it's "government owned". The government of Dubai are the safest people there. The government of Dubai hates al-Qaeda more than we do, for the excellent reason that they would be first up against the wall in an Islamist revolution. This is not just my theory either; the UAE governments have regularly and repeatedly given important help to us (by which I mean the US and UK and Australia) in the war against terror, at substantial cost to their own standing in the Arab world.

Surely, btw, this whole thing could have been solved by setting up a US company to act as a shell for the port operations of DPW, clearing up any legal ambiguity about who was responsible for the regulation of US ports. Owning the lease on the operating contract is not the same as "controlling a port", by the way.

SiamTwin said...

for better or worse, we are involved in an epochal, cultural/religious struggle with the muslim world. this will inevitably spill over into the investment world. things will really get nasty when the muslim countries start using oil as a political weapon. just wait...

jucojames said...

I have to agree with other commentors that you are at least partially off base here. The US politicians have certainly played up the Arab angle, but one can make a very principaled argument against the deal because of the state ownership issue. Personally, I believe that the US should restrict ANY private asset from being purchased by ANY government - including our own. Allowing so opens up the dangerous option of printing money by governments to fund empire building. We are already seeing signs of this type of distortion in the asset backed and corporate bond markets, as foreign central banks are now reaching for yield with their currency manipulation-induced currency reserves.

El Macho Grande said...

I agree with you Jeff. The reflexive anti-Arab reaction by Schumer and Clinton was is a depressing reminder of the old Know-Nothing strain in US politics. The Republicans in congress unaminously joined in the fun--so as not to be out done. Many of the same folks are busily mining the anti immigrant vein (people like JD Hayward).

Now that they tast blood who knows where they will stop?

stealthelephant said...

I'm not sure race is the central issue concerning this kerfuffle Jeff, but I believe you have the right mix of indignation and outrage over this matter. You draw the correct analogy with Macquarie. The reason this issue has become a political football is the need for the Democrats to get to the right of the Republicans in order to help them win interim elections and take back the White House. The President's own party has abandoned the Administration on this deal because it is indefensible in the press. It just looks bad. As you imply, the reaction to the Ports deal smacks of hypocrisy, irresponsibility, and political opportunism. It ought to go through. And the opportunists that have jumped up to shout down the Ports deal will need more credible bona fides if they want to be seen as tough on terror.

stealthelephant said...

The Ports deal was scuttled by sheer political opportunism. The Democrats need to burnish their anti-terrorist bona fides in order to win elections and take back the White House. The President's own party abandoned him because it plays so badly in the press. Although I don't agree that racism played a part in sandbagging the agreement, it does appear that a double standard is being applied.

BDG123 said...

I have to agree a little bit with the spud man. Now, I do believe there is a possible debate to be had that foreign government purchases of American assets should be reviewed if they are restricting our investments in their countries. But, this had nothing to do with that logic. It was purely an emotional and political play.

Both Dubai and China most definitely restrict our ability to buy assets in their economies. Frankly most economies do restrict those rights to some degree. Ain't gonna buy the oil assets in Russia. Ain't gonna buy Toyota in Japan. Ain't gonna buy Boeing in the US. All for diffeent reasons.

I'm not saying that legitimizes this fiasco but it could be an argument that has merit if you believe in reciprocity. I do believe in reciprocity. But I also believe in being pragmatic. I supported the CNOOC and Dubai Ports approval with a caveaut. That caveaut being that in private, if possible to save face, our trade negotiators tell those countries they are on borrowed time and that we expect full or partial reciprocity with written outlines of when and how that will happen. The WTO nomination by China was littered with garbage and we sort of made our own bed by supporting it and now we don't like what we agreed to. These countries, even if they want to open markets, need to be concerned about so many issues including unrest that they cannot change at the drop of a hat. But they are changing at a reasonable pace and both should be rewarded for that. We should continue to foster such actions with positive reinforcement. It is pure racism, jingoism, protectionism and fear mongering that is sort of ironic given that was Bush's agenda.

dkman said...

I think "racism" is too strong of a term for the Dubai Debacle. Institutionalized biggotry fits better perhaps, although I am not sure what the difference between these two would be.

I think the root cause here is simply the timing of this event vis-a-vis the US electoral process. With the mid-term elections approaching, the Dems are very hungry for anything that can be used to discredit the current administration. On the other hand, the Republicans, especially the ones who are campaigning for a re-election are reluctant to openly support a lame-duck and unpopular president.

timothyb said...

Interesting, US Navy ships and US Airforce planes use facilities owned by the UAE, in the UAE, and nobody seems worried about the security risk there.

If the UAE had some secret desire to use control of a port to hurt the US, why not just use their own port (the only deep water port in that part of the world) instead of going through all of this trouble.

Kaleberg said...

There are a few more differences between the Macquarie deal and the Dubai port deal aside from race.

1) Macquarie is a private organization, not a state owned corporation. If the Macquarie deal proves unsuitable for security or monetary reasons, there is adequate resource to the court system, without foreign policy implications.

2) Australia is an open democracy with a long history of cooperation and sympathy with the United States and its democratic goals. The UAE is a monarchy, and not a constitutional monarchy. The UAE recognized the Taliban which sheltered Al Qaeda in Afghanistan, the UAE is a center for laundering terrorism money, and at least two of the 9/11 terrorists were UAE citizens.

3) Control of port operations provides many more opportunities for terrorism than control of public highways. For example, many ships enter US ports from foreign countries, and port operations are not transparent. The Chicago area highways are entirely within the US, and most of the skyway is open to the public.

Despite what many people think, there is a global war on terror, except that right now, we are stil in the Munich stage. We are still hearing about the plight of German minorities in nasty foreign parts. Our current administration's policy, including the invasion of Iraq, has been appeasement. The issue is not race, but ideology.

Jeff D said...

Y'all are aware that most of our major ports are operated by foreign companies, right?

And that Long Beach is run by the a Hong Kong firm that is controlled by the Chinese government?

I have to agree with JM. This would not have been an issue if a French government firm had been buying the British one.

It is only an issue because an Arab government owns DP, even if the UAE is one of our strongest allies.

Romanesco said...

First of all, I doubt most people ever knew there was foreign investment in our ports.

Secondly, while complaining about the Dubious Dubai Deal may be racism for some, for many others like me, it's all about national security. Dubai is dangerous, as reported by USA Today in 2004 in an article that should be required reading for everyone mouthing the Bush party line, wittingly or otherwise. Australia is not a threat to us, Dubai most definitely is:

Bin Laden's operatives still using freewheeling Dubai
DUBAI, United Arab Emirates (AP) — Osama bin Laden's operatives still use this freewheeling city as a logistical hub three years after more than half the Sept. 11 hijackers flew directly from Dubai to the United States in the final preparatory stages for the attack.

The recent arrest of an alleged top al-Qaeda combat coach is the latest sign that suspected members of the terrorist organization are among those who take advantage of travel rules that allow easy entry. Citizens of neighboring Gulf states such as Saudi Arabia can come to Dubai without visas, which other nationalities can get at the country's ports of entry.

Once here, it's easy to blend in to what has become a cosmopolitan crowd.

The Emirates is home to an estimated 4 million people, and nearly 75% of them are foreigners. In Dubai, expatriates of all nationalities are catered to, from concerts by top Western musicians to cricket and rugby matches to a German-styled Oktoberfest.

The expatriates, mostly from the Indian subcontinent and the Arab world, are employed in the real estate, insurance, tourism and banking sectors. Westerners, numbering in the tens of thousands, are employed as military advisers and oil specialists.

While the Emirates has taken concrete steps to fight terrorism since Sept. 11, 2001 — including making high-profile arrests, passing an anti-money laundering law, and imposing close monitoring procedures on charity organizations — the characteristics that make it an ideal place for legitimate business also attract militants and others with suspect motives.

In August, Pakistani Qari Saifullah Akhtar, suspected of training thousands of al-Qaeda fighters for combat, was arrested in the Emirates and turned over to officials in his homeland, authorities in Pakistan announced.

Emirates authorities have refused to comment on Akhtar's arrest. They were similarly tightlipped in 2002, when the United States announced the arrest of Abd al-Rahim al-Nashiri, the suspected mastermind of the 2000 bombing of the USS Cole, which killed 17 U.S. sailors.

It was a month before Emirates officials confirmed al-Nashiri had been arrested here. Then they said he had been planning to attack "vital economic targets" in the Emirates that were likely to inflict "the highest possible casualties among nationals and foreigners."

The Saudi-born al-Nashiri, one of six Cole defendants in an ongoing trial in Yemen, is in U.S. custody at an undisclosed location. Besides the Cole attack, he is suspected of helping direct the 1998 bombings of U.S. embassies in Kenya and Tanzania, U.S. officials say.

With open borders, multiethnic society and freewheeling business rules, the Emirates remains vital to al-Qaeda operations, said Evan F. Kohlmann, a Washington-based terrorism researcher.

Dubai still "plays a key role for al-Qaeda as a through-point and a money transfer location," Kohlmann said, although he also noted the country could be working to combat such activity with "an aggressive but low-profile intelligence strategy."

al-Qaeda isn't the only organization that has found Dubai useful. The father of Pakistan's nuclear program, Abdul Qadeer Khan, has acknowledged heading a clandestine group that, with the help of a Dubai company, supplied Pakistani nuclear technology to Iran, Libya and North Korea.

Emirates officials refused to discuss the country's latest steps to combat terror.

Dia'a Rashwan, an Egyptian expert on militant groups, said trumpeting developments such as the arrest of al-Qaeda suspects could be misread as serving the United States when the Emirates, led by its President Sheik Zayed bin Sultan Al Nahyan, cultivates an image as a champion of Arab causes. The Emirates nonetheless has a close relationship with Washington.

Rashwan said the reticence also could stem from fear that saying too much could cause "panic among the huge expatriate community, which is proportionally the largest in the Gulf."

Kohlmann said if more al-Qaeda suspects are arrested in the Emirates, the network might retaliate with a strike here, perhaps on a U.S. mission or military target.

While the country has not been singled out as a target by al-Qaeda, the United States issued a warning in June that it had "information that extremists may be planning to carry out attacks against Westerners and oil workers in the Persian Gulf region, beyond Saudi Arabia."

Security is tight in the Emirates, but not visible, and violent crimes are uncommon.

"The United Arab Emirates is considered a safe haven for everybody," said Emirates analyst Abdulkhaleq Abdulla. "It has not yet got entangled in any of the violence that other countries around it have experienced and it wants to keep that image."

Shortly after the Sept. 11, attacks, U.S. authorities said the United Arab Emirates, especially the commercial hub Dubai, was a major transit and money transfer center for al-Qaeda.

A new report dated Aug. 21 by the U.S. commission investigating the Sept. 11 attacks provided the most detail yet on the extent to which the hijackers used Dubai as a travel hub.

According to the U.S. government, 13 of the 19 hijackers entered the United States between April 23 and June 29, 2001. And 11 of those late-arrivers — who were Saudi citizens and primarily the "muscle" for the hijackings — went through Dubai, according to the report.

The hijackers traveled in groups of two or three, taking off from Dubai and arriving at airports in Miami, Orlando, or New York City, the report said.

As for the money trail, Bin Laden's alleged financial manager, Mustafa Ahmed al-Hisawi, received at a Dubai bank a transfer of $15,000 two days before the Sept. 11 attacks and then left the Emirates for Pakistan, where he was arrested last year.

Marwan Al-Shehhi, an Emirates citizen and one of the hijackers, received $100,000 via the United Arab Emirates. Another hijacker, Fayez Banihammad, also was from the Emirates.

About half of the $250,000 spent on the attacks was wired to al-Qaeda terrorists in the United States from Dubai banks, authorities said. al-Qaeda money in Dubai banks also has been linked to the 1998 U.S. Embassy bombings in Kenya and Tanzania.

Daniel Preece said...

I think Mr. Matthews is significantly off the mark here.

Any racial issues here are incidental. The fuss is over:

1. Dubai's connections to terrorism. They've only become staunch "allies" against terrorism since 9/11. A few months before that, they happily gave medical treatment to Osama bin Laden. Dubai's connections are clear, but we're supposed to overlook it. (If Iraq's dubious-at-best connections were justification to invade, then Bush should be bombing--not giving ports to--Dubai. To many Americans, this port deal makes no sense at all.)

2. Dubai being in control of security. In 2003, Dubai failed to stop the shipment of WMD material (trigger devices or somesuch) to Iran through one of their ports. What was DPW's defense? On CNN, their representative blamed--I kid you not--"the intelligence community." He as much as admitted they cannot be counted on, and that they will gladly blame others for their failures.

3. America had no idea that ANY of our ports were controlled by foreigners. Americans have little idea of just how much of America (especially American security) has been sold off to foreign countries/companies. That Bush is wanting (trying to force) the sale of our ports to an Arab country with known ties to terrorism is very upsetting.

4. Bush can't have it both ways. You can't fear-monger about Muslim terrorism 24/7/365 and then expect everyone to immediately forget it all. If people are overreacting (and I don't necessarily think they are), it's Bush's own fault. Bush's whole governance has been based on fear and simple-thinking. Well, now he's getting it in spades.

5. The state-run nature of DPW is an irritant, not the major complaint. We hear everyday from our capitalists just how evil socialism is when it's in our own country, but now we're going to actually support it elsewhere? Explain again why the WH is upset with Chavez...?

The whole "racism" argument smacks of intimidation, to get people to back off because they're afraid to be called a racist. Racism is incidental at best. A stronger argument (for obfuscating the issue) would be religious intolerance.

Regarding Democrat involvement in this scandal, I personally have seen or heard virtually NOTHING from that party to fuel this. This scandal blew up (from my POV) totally on its own merits. If anything, the Dems jumped on a bandwagon already speeding downhill of its own momentum. Sure, they're trying to cash in on it, but it's not hurting the Bush admin because of anything THEY did. The Dems just don't have that kind of clout anymore. Not that I can see anyway.

Bryan said...

I cannot believe that a rational human would think that Dubai would spend billions to attack or allow an attack on the US. They know that if they did, the US would take control of the ports and they would be out billions of dollars. Furthermore, no other country would trust the company either and likely take back those ports as well. Not to mention that the US would likely see this as an act of war and invade the UAE.

This whole debate really frightens me, not from a security aspect, but more importantly from a protectionist aspect. Sadly, too many of our decision makers and other political foke have not taken and economics course, asked for an economist's consult, or even thought about how important a free economy is to everyone's standard of living.

Will we really be safer? No!

Are we fostering a protectionist attitude that could be much more damaging to Americans in the long run? Yes!

I know that this is not a political bog and I like that, but as a democrat I count on the republicans to do the smart thing when it comes to economic decisions but they are both guilty here and I am starting to think that a Dem. might be better for the US's continued economic growth. (Okay, Schumer, D-NY, would be really bad)
Both sides need to step away and not make silly political decisions, that likely have huge standard of living reprecussions.

Watching JihadWatch said...

Fantastic post Jeff.

It is strange that Singapore and China, to give two examples, can operate ports in the US without anyone raising an eyelash; that we rely on help from Dubai and the other Gulf Emirates (including Qatar and Bahrain, not part of the UAE, where the US has significant military bases) without worrying about a security threat; that we count on overseas ports, many in places like Dubai, to screen containers before shipment and consider that reliable. And yet someone cries "Arab" and "Homeland Security" and all heck breaks loose.

This is all about bigotry and political opportunism. Well done, Jeff, for pointing it out.

Honest Abe said...

Forgive me if I'm wrong, but it wasn't Australian government officials hunting and hanging out with Bin Laden in 1999; it was the UAE Royal family (owners of DPW). This was AFTER the first WTC bombing, AFTER Bin Laden declared war on US, AFTER the African embassy bombings.

The Aussies are America's proven allies. The UAE is a center for terrorist money laundering and nuclear proliferation. It's not racism to question the deal; it's realism.