While communism gave way to capitalism in the 80s and the People’s Republic of China too embraced market economy, West was taken over by euphoria — market forces would now fuel growth all around. Reagonomics as it was known then, became the order of the day. The role of Bretton institutions in directing the global economies became all too apparent. Private sector, without the intervention of state, was destined to lead the world toward an efficient and more productive system, many confessed.
Those who in some ways were seen not following the global trend of privatization and were not in favor of foreign investment in all sectors of trade and industry were told they would lag behind and miss the global train. Every country needed to be on board the globalization bandwagon, everyone in the free world stressed, specially before a third world audience. Oil producers were hinted that it was time now they opened up their oil fields to foreign direct investment — and hence control.
Even in the last G-8 summit, the oil producers, especially in the OPEC, were the target for some hard and plain talk. In their communiqué the G-8 leaders, which indeed included US President George Bush, went on to urge crude producing nations such as those in the OPEC to boost the appeal of their oil sectors to foreign investors. “We encourage oil-producing countries to take all the necessary steps to foster a favorable investment climate sufficient to support strong global economic growth. In particular, oil-producing countries should ensure open markets with transparent business practices and stable regulatory frameworks for investment in the oil sector, including increased opportunity for foreign investment,’ the joint communiqué added.
This was apparently to ensure an overall development of these assets for the betterment of the mankind and enhance energy security of the crude-thirsty world. However, it now seems all this hullabaloo about free market economics was only one way! The fee market rhetoric seems to be failing in its first real test. Until this day the traffic has mostly been one way. Money from the first world has been acquiring assets — at time even sensitive ones from a security point of view - in the name of free market dynamics. All the road blocks in the process were brushed aside one after the other.
The global economic rules set by the victors of World War II have generally encouraged investors, typically from rich nations, to bid for companies in other industrialized countries or in poor nations in the name of open market and economic growth. US acquisitions of assets abroad were a record $855.5 billion in 2004, up from $328.4 billion in 2003. US-owned assets abroad totaled $9 trillion at the end of 2004, according to the US Bureau of Economic Analysis.
However, an unsolicited bid by the Chinese National Offshore Oil Co. (CNOOC) to buy Unocal, a US oil company, has raised real questions about the rhetoric of giving free hand to economics — without frontier barriers — for the mutual benefit of both the parties.
As soon as the CNOOOC submitted its $18.5 billion bid — 2 billion higher than the closest bid from another US giant Chevron — dozens of members of Congress sent a letter to the US Treasury Department requesting a review by its Committee on Foreign Investment of CNOOC’s bid. The congressional group, spearheaded by representatives from Texas and Louisiana, major oil-producing states, had warned that China’s “aggressive strategy” to increase its energy sources could hurt the US because CNOOC was 70% owned by the Chinese government.
Had some representative of an underdeveloped country tried to block any foreign investment bid on pretext of national security, it would have been termed as something out of fashion. China responded by warning the US Congress to stop “politicizing economic and trade issues.” CNOOC Chairman Fu Chengyu pointed out that Unocal accounts for just 1 percent of the total US oil and gas production, an amount that could not possibly pose a threat to US national security. The Chinese company also pledged to sell oil produced by Unocal inside the United States. On July 14, news reports indicated that CNOOC planned to raise its bid by paying an additional $2.5 billion into an escrow account, to further address the concerns of the Unocal board that any deal could be delayed or blocked on national security grounds.
Assuming the rhetoric of a Wall Street investment banker, the chairman of CNOOC, says that the bid will be good for the shareholders on both sides of the Pacific. It certainly offers Unocal shareholders more cash than rival American oil company Chevron was offering.
But the CNOOC uproar demonstrates what happens on the rare occasion when a company from the developing world bids for one in the North. Even though the Chinese company has appeared to play by the rules set by Wall Street, the US Congress quickly recoiled into a defensive posture, calling the bid a threat to national security and urging the Bush administration to quash CNOOC’s bid.
If the oil producers are urged to follow a certain set of rules and principles by G-8, the same set of principles should also apply to the leader of the free world, the United States.
Contradictions ultimately lead to decay — be it societies or principles. To some this signifies that the era of free market economics — that to some is a new form of imperialism - has finally started to crumble — entangled in the cobweb of energy politics? Only the future has answer to this million-dollar question.