Published in the Financial Post, August 2, 2005, p. FP-17.

 

Tyranny in China Doesn't Justify Tyranny Here
by
Pierre Lemieux

 

A few of my free-market friends, Terry Corcoran among them, argue against purchases of Western companies by Chinese state corporations, including the attempted takeover of Unocal Corp by CNOOC Ltd. CNOOC is listed on the New York and Hong Kong exchanges, but 72% of its shares are owned by the Chinese government. I certainly agree that the Chinese state represents one of the worst tyrannies on earth, even if it may be improving. The way things have been going, perhaps our own states will soon meet their Chinese counterpart midway between traditional Western liberty and Eastern totalitarianism -­ but this is another topic. Or is it? The main issue is free trade. Just as Chinese individuals or groups of individuals are (or should be) free to buy PCs or oil in the West, they should be free to purchase the assets that produce these things. Each exchange has two sides, buyer and seller, and forbidding the former to buy is equivalent to prohibiting the latter to sell. Why shouldn’t Unocal shareholders be free to sell to whom they want, whether it be to Chevron or to an entity controlled by the Chinese state or subsidized by any other state? Why this focus on the purchaser’s identity at the expense of the seller’s liberty? Prohibiting the shareholders to sell because the ultimate buyer (the Chinese taxpayer) is forced by its own state to buy does not make the deal freer. Otherwise, it should also be forbidden to sell shares to the Caisse de dépôt et placement du Québec. Shouldn’t the interests of the citizen trump the interests of the individual? A positive answer opens the gates of state dirigisme. Citizens may then prohibit individuals to purchase the health care or the books they want, or to import cigars from Cuba, or whatever. Economics and history strongly suggest that individual choices are more efficient than collective choices, that liberty is more efficient than coercion. Moreover, “the interests of the citizens” does not have a clear meaning (except under restrictive hypotheses, like unanimity). Who is “the citizen”? What is called “the interests of the citizen” is usually the interests of some individuals against other individuals. For example, why protect the interests of the Chevron shareholders and not those of the American shareholders of CNOOC (the market capitalization of CNOOC on the NYSE is US$26-billion)? What harm, anyway, can Chinese state companies do on the world market? If they play by market rules, they will behave no differently than if they were owned by Unocal or IBM. If they don’t learn the rules of the marketplace, they will soon be bankrupted by their competitors (like Chevron and HP), unless they force Chinese citizens to subsidize their customers ­- which may not last for long. Mismanaged firms may soon be available for repurchase at great bargain prices! The basic issue is the role of the state. If one agrees that this role should be minimal, one must favour freedom of contract ­- except perhaps in extreme cases, like somebody who bids on your gun because, he says, he needs to kill his neighbour immediately. Ideally, foreign states should become minimal, too, but you and I have little control over this, and we must be content to fight our own. State corporations and subsidized companies should not exist. But when they do, forbidding individuals and freemarket companies to trade with them would only do additional harm. This is even truer of foreign companies like CNOOC, which we are not forced to subsidize. (We would advise the Chinese taxpayer to revolt, though.) Arguing otherwise would be like saying that, since the Chinese are not free, our own state should oppress us equally ­- an equal playing field, as it were. Some of us may try and persuade Unocal’s shareholders not to sell to CNOOC but this must be a matter of persuasion, not coercion. What about national security? Indeed, the only valid case for coercing one’s neighbours (say, into not selling a widget or a share of stock) is if their actions would otherwise help some thug abolish one’s liberty to ever sell widgets. This is a question of degree and probability, and there must be a good chance that the harm caused will be no larger than the harm prevented. This argument does not apply to cases like Unocal, or else it applies to an awful lot of market transactions. First, everybody has much to lose from interference with commerce, including (as Montesquieu suggested more than 250 years ago) in terms of war and peace. Secondly, corporations are now under such detailed and heavy surveillance, especially if they are listed on U.S. stock exchanges, that a national security threat from any of them is highly unlikely. Finally, history shows that the civilizations that have prevailed, including on battlefields, are not the ones that have hidden behind Chinese walls.