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How the new global economy flips, reverses, scrambles, and perverts long-accepted notions and arguments.
Globalization scrambles everything -- not least long-held beliefs about how our economy should work. Let's look for a moment at the argument made by people in our pharmaceutical industry and their chums at the Food and Drug Administration: that imported drugs from Canada imperil Americans' health. Then let's review the venerable conservative argument that the government should keep its mitts off, and surely never buy into, American business.Problem is, the realities of globalization have gummed up these arguments.
Drugs first: According to a report by Marc Kaufman in the June 17 Washington Post, about 20 percent of generic and over-the-counter drugs and 40 percent of the active ingredients for pills sold here by the major pharmaceutical companies -- all proclaimed safe by the FDA, all sold at usual American prices -- come from factories in India and China that are more likely to be struck by lightning than inspected by the FDA. Yet the FDA's record shows concern over the safety of drugs not from India and China but from our underdeveloped neighbor to the north.
Consider, for instance, the agency's April 2006 statement opposing Nevada's efforts to import Canadian drugs: "There are weaknesses in the oversight of the drug distribution system by foreign governments for drugs that are imported into the U.S." Which doubtless is true. The question is: Are they any worse than the weaknesses in the FDA's oversight of the drugs it permits to be sold at inflated prices to American consumers? Despite the flood of Indian and Chinese drug ingredients, FDA records show that the agency conducted just 32 factory inspections in India last year and 15 in China, even as it conducted 1,222 in the United States. The U.S. inspections were surprise visits; in China and India, the FDA phoned ahead in every case.
So what's the concern about Canada? If Canadians had no oversight of the drugs they import and resell, their system would be no worse than ours. Since the threats these two systems pose to public safety are either equivalent or balanced slightly in Canada's favor, could it be that the real cause of the FDA ban on cheaper Canadian imports is -- I blush to think it -- sustaining the immense profits of pharmaceutical companies that are such faithful mega-donors to the Republican Party?
Now let's consider the suddenly hot issue of government ownership of private American companies. Nobody on the left has seriously proposed nationalizing private concerns for the past 60 or so years. During the 1980s, we did debate what was called "industrial policy" -- whether the government should invest in certain strategic industries -- but the idea was defeated by free-marketeers who argued that our government should not be in the position of "picking winners" in the U.S. economy, and that it probably couldn't pick winners anyway.
But, improbably, industrial policy is back. Only, it's not our government that is buying up our companies and picking the winners. It's China's, and will surely soon be those of Russia and other oil-rich states. As my colleague Sebastian Mallaby has pointed out, foreign governments control a cool $5.4 trillion in foreign currency reserves and have begun to invest a chunk of that in American companies. China just bought itself a $3 billion share in Blackstone, the U.S. private equity firm.
To be sure, the Committee on Foreign Investment in the United States has the power to nix such purchases if they compromise national security. But what is the proper response of laissez-faire advocates to this sudden wave of foreign government investment in non-security-related companies? It's okay if the Chinese government owns a slice of our economy but not okay if our own government does? We trust every other government more than we trust our own?
I posed this question to William Niskanen, chairman of the libertarian Cato Institute and among the most principled ideologues on our political landscape. Foreign government ownership, he argued, shouldn't pose a problem unless that government obtains a controlling interest. When I then asked whether it would be a problem for the U.S. government to buy into such a company, he answered immediately, "I don't think I would want to be a shareholder in a company in which the U.S. government owned a good bit of the shares," and then, pausing, continued, "I haven't thought about this" -- "this" being the distinction between U.S. ownership and, say, Chinese.
Niskanen is hardly alone. None of us have thought sufficiently about how the belief in untrammeled capitalism could lead to foreign governments, whatever their agendas, controlling more and more of the American economy.
Upset that Rupert Murdoch, who kowtows to China, will buy the Wall Street Journal? What if China itself buys the Journal? Would the Journal's hypercapitalist editorial board oppose that free-market transaction? Globalization, as I said, scrambles everything.
Harold Meyerson is executive editor of The American Prospect and a columnist for the Washington Post.
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