Protect U.S. Competitiveness in Screening Foreign Suitors
The recent sale of three American companies to foreign firms highlights the need for a comprehensive national policy to review the impact on our competitiveness before such sales are allowed in the future. These sales, which saw the General Electric Corp. sell its RCA and GE television subsidiaries to a French firm, CBS sell its record division to Japan’s Sony Corp. and Monsanto sell its subsidiary that manufactures silicon wafers used by the semiconductor industry to a German firm, may have been in the best interests of the firms involved, but they will have a negative impact on our national competitiveness.
Take the General Electric sale of RCA and its own television manufacturing subsidiary, for example. RCA controls the largest share of the television market in this country--the largest market in the world. It was not losing money for its parent corporation. However, GE decided that the return of this division was inadequate and that it could make a larger profit in other areas.
While this sale may make sense for GE, it was not in our national interest. The United States now has only one American-owned television manufacturer--the Zenith Corp. It has been widely reported that Zenith has actively looked for a buyer for its television division. It prefers to make computers and other high-technology products.
This comes at a time when we may be on the verge of introducing a new television technology, high definition television (HDTV), which promises not only to revolutionize the television industry, but also to affect such related industries as semiconductors, personal computers and medical equipment. Even the Pentagon has climbed on the HDTV bandwagon and targeted funds for research and development.
The sale of CBS Records, the largest record company in the world, to Sony will provide Sony with a huge advantage over its competitors in both the video and audio markets. Not only will Sony control a significant portion of the hardware used to play records, compact discs, video discs and videotapes, but it also will control the software. This will give Sony the ability to dictate formats and use its software subsidiary to drive development of hardware. This gives it a significant advantage over any potential American competitor.
The most recent sale, which would transfer ownership of Monsanto’s silicon division to the German firm Heuls AG , is potentially the most damaging to the United States. The reason for Monsanto’s decision to sell its subsidiary is not hard to understand.
While its silicon-manufacturing division turned a small profit last year, it had lost money in previous years. Further, Heuls’ offer was significantly better than any offer Monsanto received from American interests. Also, as a condition of the sale Heuls agreed to keep this division in the United States for at least five years.
However, this sale means that independent American semiconductor firms must rely almost exclusively on foreign suppliers for the wafers necessary for the manufacture of semiconductors. This comes at a time when American firms are locked in a battle for their very existence with Asian competitors.
The devaluation of the dollar has made American companies even more attractive investments for foreign suitors. As the dollar declines in value, so does the purchase price of American companies. American assets are now on the world market at bargain-basement prices.
Congress needs to develop a more effective mechanism to anticipate the effect of proposed sales of American companies on our ability to compete in key markets. What is in the best interests of individual firms may not be in the best interests of the United States. We recognized this when a proposed sale of Fairchild’s semiconductor division to Fujitsu was stopped because of national security concerns.
A worthwhile first step in regulating the sale of American firms to foreign interests would be to subject such sales to a “Competitiveness Impact Report.” Such a study would look at a proposed sale in the larger context of the U.S. economy. These studies would give both Congress and the Administration the information necessary to determine whether a proposed saleis in the best interests of the United States.
A mechanism already exists to stop sales of U.S. firms to foreign interests on national security grounds. However, policy-makers in this country need to understand that there may be economic or competitiveness reasons to stop a sale that are not directly related to national security concerns.
We cannot continue to allow the sale of key American businesses to foreign interests without careful and critical analysis. We must understand that we are involved in a war for economic dominance, which will determine whether our children grow up in an America that is the envy of the rest of the world or an America that has become a second-class economic power. Regulating the sale of key strategic American firms to foreign companies is an important first step in seizing control of our economic destiny.
