Ports Furor Is Just Protectionism, With a French Accent

By Steven Pearlstein
Wednesday, March 1, 2006

There are so many things that are troubling about the political firestorm over "port security."

The racist hypocrisy on the part of Democrats who are morally outraged by racial profiling of airline passengers but not of port investors.

The political hypocrisy of the Bush administration, which stoked irrational fear of terrorism and then complains when it boomerangs against them.

The rank hypocrisy of commercially blackballing a country that allowed terrorists to pass through its borders -- by a country that not only harbored terrorists for years but even taught them to fly.

But what's really embarrassing about Cargogate is that it shows Americans acting just like the French.

I'm talking, of course about "economic patriotism," the charming phrase coined by France's poetic prime minister, Dominique de Villepin, for what is nothing more than pig-headed protectionism.

Under the banner of economic patriotism, de Villepin rescued Danone, maker of healthy yogurt and bottler of pure waters of Evian, from the clutches of PepsiCo, a purveyor of American junk food.

He recently designated 11 sectors of the French economy, including casinos, that are so sensitive that, heretofore, they will never be allowed to fall into the hands of the Dutch, the Germans or, heaven forbid, the Brits.

His government has made clear that it will never allow Mittal Steel -- a "non-European" company registered in Rotterdam and run out of London by an Indian native, with operations spread across four continents -- to go forward with its hostile takeover of its Paris-based rival, Arcelor.

And last weekend, de Villepin personally arranged the shotgun wedding of Gaz de France, the state-controlled gas supplier, and Suez, the French water and power supplier, to thwart a bid for Suez by Enel, a rich and attractive Italian suitor. So obvious was the patriotic intent that the boards of the two companies approved the deal on Saturday even before the price had been worked out.

What's so galling about all this is that, when it comes to cross-border mergers and acquisitions, French firms have been among the most aggressive, reflecting the widespread view among their executives that they can make better return on their investment in countries with lower taxes, more flexible labor laws and less government involvement in the economy. As the Economist magazine points out this week, only 43 percent of the jobs at companies on France's CAC -- the nation's index of publicly traded blue chips -- are actually in France.

But when viewed through the prism of French exceptionalism, what's good for the poule is not necessarily good for the coq. The view within both the French left and right now is that full European integration must await the development of "national champions" that can then carve up the rest of the world in ways that don't threaten workers at home or the cozy relationship between the political and economic elites.

To be fair, France is hardly the only country that is having serious second thoughts about European integration and cross-border investment.

Although the Italian government immediately protested Villepin's gambit to the European Commission, it won't exactly be arriving in Brussels with clean hands. This is the same government, after all, that for years worked behind the scenes to protect its banks from foreign takeovers. It finally ended last year, following the release of secret tapes revealing the collaboration between the Bank of Italy and the country's tight financial oligarchy to block a bid by a Spanish bank.

At the time, Spain expressed righteous indignation when the tapes were released. But last month, when a German group bid for one of Spain's biggest utilities, Prime Minister Jose Luis Rodriguez Zapatero apparently saw no contradiction in pushing through legislation to give government energy regulators new powers to block such mergers.

It is unclear whether the European Union has the power, or the will, to challenge the resurgence of economic nationalism that now threatens economic integration. But, in any case, it is hardly a model for the United States to follow -- whether under the guise of protecting the country against terrorists or protecting American companies and American jobs.

Instead, the future of the U.S. economy lies with tapping into rapidly growing economies of Asia and parts of Latin America, where there is acceptance, if not excitement, around the process of globalization, and deeper relationships with Britain, Canada, Australia and South Africa, which already embrace market capitalism. President Bush's trip to India this week is a milestone in that shift of economic focus and opportunity. Getting past Cargogate would certainly be another.

Steven Pearlstein can be reached at pearlsteins@washpost.com.


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