National Security and the Global Economy

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The planned take over of BAE Systems by the French and German Governments raises a number of questions about how a nation can adequately protect its national security interests in a global economy and protect jobs.

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The BAE Systems incident does raise a number of specific commercial questions. These would apply in any take over. It would appear that the major stock holders are against the sell out and that is entirely understandable as the price that the Franco German Governments have offered through their EADS company seriously under values the BAE Systems assets. As the new company would see the BAE Systems component as a 40% holding, the decisions taken in France and Germany would override any BAE Systems interests. That potentially threatens BAE Systems jobs. The majority shareholders would be free to asset strip as they wished and move work and intellectual property where ever they wanted when ever they wanted. It would be entirely possible to transfer all of the assets and dump all of the liabilities, making the acquisition even more beneficial to the acquiring company and even more dangerous for the locations of the BAE Systems factories.

As an international acquisition, there are the added risks that BAE Systems assets could be moved out of Britain and America to a country that is potentially hostile to the interests of the US and Britain. This risks are increased because any movement of BAE Systems elements outside the current locations would reduce the benefit of BAE Systems contributions to British export trade and to the job opportunities for the future. These job opportunities are not confined to BAE Systems direct employment, but affect a large number of companies and academic organizations in the area of current research and development and the supply of components.

In the BAE Systems situation, the major threat to Britain is that the company has been built by merging most of the rest of the British Defence development and manufacturing capabilities and most of the remaining civil aviation capabilities. By selling the company to foreign governments that have previously proved to be very hostile to British interests, the national security interests of Britain would be seriously damaged. The sale to a foreign commercial enterprise would also present some similar threats, but not at the same level as the threat posed through nationalization by a foreign power.

In the British situation there are some special threats. Whatever the full nature of the Anglo American relationship to either country, the national interests of both countries have generally benefited from a special and close cooperation in defence and intelligence matters. The US may have gained the greater benefit, but it has also be beneficial to Britain, particularly in developing military capabilities unique to the relationship where VSTOL/STOVL fast jet development initiated by Britain has been nurtured and further developed through close Anglo American cooperation. Britain is still a major international player beyond the population, natural resources and land mass because it retains a credible nuclear weapons capability and a highly effective submarine capability. That has only been possible through close Anglo American military cooperation. The sale of BAE Systems to the Franco German Governments would effectively end that cooperation very rapidly and this may be the major Franco German motivation where their mutual hatred of the United States has always placed a high priority on driving a wedge between Britain and the US. It also matches the Franco German desire for world domination which is what the European Union project has been all about. The world doesn’t need a new (E)USSR with its anti-democratic ethos, the dehumanization and enslavement of its people and a desire to expand like a plague across the planet.

Part of the challenge is that the British have long desired global free trade and often make the mistake of thinking that every other country has the same desire. France and Germany have consistently demonstrated that they value a Statist and protectionist environment for themselves, while exploiting the free trade attempts of other nations. The recent decision against the two countries in respect of their massive and illegal subsidies of Airbus demonstrate this clearly. The difficulty presented to Britain is that British enthusiasm for free trade and fair trade makes it very difficult to reject the related principles that every company should be open to investment from any other country, even where the other country at government level is anti-free trade and determined to force very unequal advantage to themselves. It is a long held British weakness to continue playing the game and observing the rules even when it is obvious that other countries are keen to cheat and act in a criminal manner.

BAE Systems itself has prospered by acquiring other companies in other countries. Expansion into the US defence market is a good example and this presents a special risk to the US that was not presented when BAE Systems made its acquisitions and fairly won contracts. Unless BAE Systems is stripped of its US military contracts and forced to sell its US subsidiaries to US investors, the US could find itself held to ransom by the Franco German Governments. With the current EuroZone disaster, this could rapidly become a case of Germany absorbing the other EuroZone members as new German Landes and making EADS an organ of a new Greater Germany. Every time that a Greater Germany has been formed, it has led to war, as German Governments have attempted European and World domination. A nuclear Germany would present a huge threat to world peace and stability. What has established peace in Europe since 1945 has been the close co-operation of Britain and the US with the formation of NATO and the division of Germany.

So the real difference between BAE Systems buying companies in other countries and the current Franco German attempt to buy BAE Systems is not an example of the global economy taking commercial enterprises beyond the exclusive control of governments, but the acquisition of BAE Systems by foreign governments, against the global economy. Had EADS not been an organ of the Franco German Governments, there would have been a significantly lower threat to Anglo American interests. There would have been commercial issues and the major BAE Systems investors might still have fought against the deal, but they might have been prepared to negotiate further. The managements of BAE Systems and EADS might have been prepared to negotiate further and the final deal might have been very different. It might have stopped short of merger or acquisition and ended as a collaborative agreement and a series of joint ventures as an expansion of some of the joint ventures already run between the two companies and their predecessors.

If the sale of BAE Systems goes ahead, it may eventually prove a disaster for BAE Systems and for EADS because it would justify protectionist moves by the US Government and its aerospace defence contractors. The end result could be to destroy European defence capabilities made worse by a collapse of the Euro. The final beneficiary may well be US industry and national interest with serious damage being done to the global economy in terms of free trade. If the US responded by cutting the new company out of US defence contracts and the transfer of work to US companies, the US economy would be strengthened considerably, at least in the short to medium term. All that would be required is an immediate re-implementation of Munitions Control regulations that have been relaxed, but not abandoned, to prevent intellectual rights being moved out of the US. It would take little time for a new law to be enacted to allow existing US Federal contracts to be terminated and re-bid, and there are a number of active or dormant laws that could be used to force changes in contracts between commercial enterprises.

What the BAE Systems incident demonstrates is not so much the power of global markets beyond government control as the power of governments to take over commercial operations. It also demonstrates that Britain is long overdue for a major political revolution to replace the three old failed political Parties that have become a ruling elite where a change of Government is really only a change of management, continuing the policies of the previous regime against the wishes of the voters.

BSD Editor

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