Washington Post business columnist Steven Pearlstein was online Wednesday, July 25 at 11 a.m. ET to discuss foreign governments that are using their foreign reserves to buy private companies outside of their borders.

Read today's column: As Governments Invest, Motives Blur (Post, July 25).

A transcript follows.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

His column archive is online here.

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Laurel: Steven, what does the issue raised in today's column say about the size of role the U.S. government should play in our own economy? There are many who believe that, at least when it comes to economics, "the best government is the least."

But their proposals won't reduce the scope of the Chinese, Russian, Mexican, Abu Dabaian or Saudi governments in our economy, only ours.

How big does our government have to be to bring our businesses to par?

Steven Pearlstein: We don't have to have the same economic or economic policy model as other countries, particularly those at a different stage in their development, of a different size, or with an economy more focused on natural resource extraction or even heavy industry. Countries have their own traditions, history, politics, values and these lead to different system. We shouldn't presume to be telling these other countries how much or little government should be involved in their economies.

That said, I think the US, largely under the influence of the Republican party and big business, have perpetrated this myth that any kind of industrial policy is bad, any involvement of government in the economy is bad (except tax breaks and more spending on basic research and education). This is pure ideology that has no basis in empirical data. Some of our forays into industrial policy have been miserable failures. Others have been successful.

But we have to understand that this is a dynamic situation, and in a competitive global economy, we need to adjust our model to the changes in other people's models, and their successes. So the idea that there is a static right answer is absurd on its face -- just as it is absurd to say that once a company has a strategy, that should be fixed no matter what competitors do.

So my point this morning was to say that we need a mechanism, beyond the current one we have to screen foreign acquisitions for national security problems, to also screen them for situations in which countries are trying to extend their models into our economy. That's where we can legitimately draw the line.

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Chicago, Ill.: Steven, can I go back to Friday's column about affordable housing.

You framed the issue in local terms about how our jurisdictions should be merged to work on the issue of creating affordable housing. But I see the problem as being that just about everywhere, zoning and other housing regulations are handled at localized levels.

One of the best ways to improve the quality of one's neighborhood is to limit who can be your neighbors. So when Joe and Jane Homeowner buy a house in Anytown, they also become voters in Anytown, and use the political process to limit how much and how expensive housing can be built there. They use the political system to enforce their economic priorities.

Since existing housing is the principle source of houses for sale, it's like the Big 3 car companies got together and voted that no one else could sell cars here.

High housing prices have become a political value, as 70 percent of Americans are now homeowners (and more than that of voters). It's another tool to steal from our children.

washingtonpost.com: The (Unaffordable) House We All Live In

Steven Pearlstein: You've put it rather crisply and well, I think. For reasons having to do with aesthetics and lifestyle, as well as economic (increasing the value of their new asset), homeowners tend to be reflexively anti-growth. In the old days, that instinct was offset by the desire to have better retail and services (which comes with growth) or more jobs to chose from, or more tax revenue to pay for local services. But people have come to understand that in a metropolitan regional economy, the best selfish strategy is for all the other jurisdictions to provide the jobs and retail amenities, giving you access to them at no cost to you. The old formula is also changed because new houses generally don't provide enough tax revenue to offset the added demand for school and other services, except if is housing for seniors or young singles.

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Freising, Germany: What exactly does it imply if the International Monetary Fund crafts a "best practices" policy for government-controlled investment? Would this be in any way legally binding or just serve as a guideline for governments wanting to impose their own legal safeguards on government-controlled financing?

Steven Pearlstein: The idea would be that there would be a global set of rules that would level the playing field, since everyone would abide by them. Obviously, the IMF has no enforcement mechanism. So countries would have to pass rules saying that they will only allow acquisitions by sovereign wealth funds that adopt these practices, and, say, are certified as having followed them by the IMF or some other body.

This is the Bush administration's answer to calls for any form of financial regulation -- voluntary best practice codes. They went with that with hedge funds and private equity funds. Now they are doing it with sovereign wealth funds. They are desperate to do whatever necessary to show they are "doing something" about these issues without actually imposing or toughening old fashioned regulations.

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Boston, Mass.: Did you turn into a protectionist over the last two weeks? I asked you on the last discussion which country you felt was the greatest strategic threat economically to the U.S. (Russia, China, etc.) and you responded that you didn't view countries as a threat economically in those terms. Now you say these countries can't be allowed to have their monopolistic companies use these profits to buy companies in other countries. Are these countries threats to U.S. interests or the global capitalist system in your view (or both)?

Steven Pearlstein: Well, to the degree that they use sovereign wealth funds as instruments of industrial policy, that is not good for American business and competitiveness and needs to be addressed. I think that's a different question as to which country is the biggest strategic threat economically, which seems to me to be a pretty mercantilist way of looking at the world. Both Russia and China, for example, are not fully market economies, and yet they keep demanding to be treated as they were when it suits their purposes, while being allowed to act as government-led economists when that suits their purposes. In other words, they want it both ways. Up to a point, we probably can live with that. But recently they have begun to push things too far, in my opinion, as they use their enormous new wealth in ways that could hurt our longterm competitiveness.

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Arlington, Va.: What happens when countries receiving investments are run by questionable governments, like what is happening with China in some African countries?

Steven Pearlstein: Not sure what you mean by that. Sorry,

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Cary, N.C.: Sounds like the answer to the regional problems facing the District is the same as the answer to getting Congressional representation for the District - lop Northern Virginia and PG and Montgomery Counties off their respective states to merge with the District and create a new state. What do you think?

Steven Pearlstein: That's a nice fantasy but its not gonna happen. But there is no reason the major jurisdictions, under the prodding of the governors, can't come up with rational REGIONAL growth plan that provides for growth where it most makes sense while using other mechanisms to insure that the benefits and cost of growth are shared regionally.

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Washington, D.C.: I not sure this is a question of discussion in your forum, but I'll let you decide if you want to answer it.

I went to Best Buy (U.S. Retailer) and noticed on the back of Panasonic (Japanese manufacturer) had the Plasma and LCD TVs assembled in Mexico.

Do you feel that other countries figured out a way to utilize the NAFTA agreement to have them shipped here in the U.S. with less tariffs/taxes?

Steven Pearlstein: This is a very old story, I have to say, Asian companies using Mexico as a final assembly platform to sell into the U.S. market on a trade favorable basis. Its not done as much any more, since a lot of the NAFTA benefits are now extended to other countries as well.

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Bridgewater, Mass.: After getting shafted on Kovytka, British Petroleum is offering GazProm a deal allowing it access to its worldwide holdings, including apparently those in the US. We've seen how GP plays - do we really want them in the US? They talk openly in Russia about the company being a useful tool in international relations - this seems a lot less desirable than that Dubai port project.

Steven Pearlstein: Gazprom is a perfect example of a company that we should not allow to buy up U.S. assets. It is a government sanctioned monopoly in its home market. The Russian government has used its regulatory power to take assets from international companies and forcibly transfer it to Gazprom. Gazprom plays by Russian rules, not global rules, and there is no way to insulate anything they buy or invest in from that reality. At some point, that may change. But for now, they ought to be off limits.

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Boston:"as they use their enormous new wealth in ways that could hurt our longterm competitiveness"

that was my point in asking the initial question; these countries don't need to threaten other countries militarily as they have raw material and capital reserve resources to influence economics and politics

does this turn the phrase "war is politics by another means" on its head "economics is war/politics by another means"?

Steven Pearlstein: No, because trade and commerce and economics is not necessarily a zero sum game, where if you win, I lose. Sometimes we can all win (or all lose).

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Downtown DC: Should the Democrats, like the Labour Party of the 40s, have the government take over the "commanding heights" of the economy if they win control of the government in 2008?

Steven Pearlstein: No, I don't think that is necessary. Our economy and our businesses are doing pretty well in the global economy. Our investors are doing well. Our consumers are doing very well in terms of the goods and services they have available to them. It is some of our workers who could use a little help, who aren't enjoying the full benefit of global competition. But that doesn't require government taking over the commanding heights.

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Los Angeles: How would you characterize the investment potential for countries like Korea or Kuwait to invest in the United States? Do you think investors in those countries are looking for equity investments or real estate driven ventures?

Steven Pearlstein: They are looking for good returns, which is understandable and not very threatening. That is why if they invest through an intermediary like Blackstone,and have no control of U.S. companies, it is a positive development. Any economy always benefits if foreign investors want to invest here long term.

The problem comes if they want to use the acquisition to benefit their home economies, or home businesses, in other ways. Reducing competition. Transferring technology. Gaining advantages of scale at the expense of our industries. Outbidding our companies for scarce resources. That sort of thing.

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Ottawa, Canada: I really don't understand what you are trying to say. Is it that companies that are viewed as state monopolies should not be allowed to invest in the U.S.? If that's true, a large number of energy and airline companies in Europe, for example, would be frozen out of the U.S. market. Do you want to screen only some state owned companies out of the market? If so, what type of retaliation do you expect will occur to U.S. companies wishing to invest in these foreign markets?

Steven Pearlstein: I want to have the government review these acquisitions because they are made by non-market participants and decide if the investment is benign or not. Will other countries bristle. You betcha. China and Russia in particular. But I don't have much sympathy with that, considering that these are countries that in no way, shape or manner would allow our companies to make similar investments. So if they retaliate, they retaliate. It doesn't mean you don't protect your interests because somebody might get upset and retaliate.

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Long Island, N.Y.: I'm not sure I agree with you that governments investing in foreign private companies is very dangerous. Private companies can certainly influence their home country's foreign policy (see United Fruit Company). So I'm not sure there is going to be a huge difference if the government is now the main player, rather then a private company instigating action in the background. I'm also curious to know what you think of the oil companies and their dealings with Venezuela, do you think the US government should have been more involved?

Steven Pearlstein: I don't have any problem with the oil companies doing business with Venezuela, and if their assets are expropriated, our government should consider taking retaliatory action on behalf of our companies. This is well established in international law. On the other hand, when Citgo is bought by the Venezuelan, state-owned oil company, that should have been reviewed. And the fact that Venezuela is a member in good standard of a notorious international price fixing cartel should exclude it from buying into a U.S. downstream company. It is just that simple. And, by the way, this would apply to any OPEC member country, including our good good friends in Kuwait and Dubai.

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Steven Pearlstein: That's it for today, folks. Hope to "see" some of you next week.

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