Private Equity Is A Threat To R&D

So said the Committee on Foreign Investment in the United States, when it put the kibosh on Chinese-owned Broadcom buying U.S.-owned Qualcomm (boldface mine):

Tuesday’s ruling was groundbreaking in that the issue wasn’t whether Singapore’s Broadcom itself posed a security risk by favoring the Chinese—nothing in the CFIUS letter even hinted at that—but rather, that the purchase might simply reduce Qualcomm’s capacity to conduct high-end research, thereby enabling Huawei and the Chinese to develop advanced technology before we do, which could give them a military advantage.

But why would Qualcomm’s purchase by Broadcom diminish Qualcomm’s commitment to research? This is the gobsmacking part of the CFIUS letter.

Because, in the words of the letter, “Broadcom’s statements indicate that it is looking to take a ‘private-equity’-style direction if it acquires Qualcomm, which means reducing long-term investment, such as R&D, and focusing on short-term profitability.”

Let that sink in for a moment. The staffers of CFIUS—probably the most business- and security-savvy civil servants in the government, headed by those at Treasury—are saying that the private-equity control of companies, which is a dominant feature of current American capitalism, reduces investment and results in profit extraction. CFIUS does not go on to say that the purchase of U.S. companies not only by foreign companies but by U.S. private equity firms, too, also leads to reduced investments and the kind of profit extraction that has enriched the 1 percent at the expense of other Americans; that’s not CFIUS’s mission. But having baldly stated that private equity leads to profit extraction, that’s the inescapable conclusion that any reader of CFIUS’s letter must reach.

First, military Lernerism, now military socialism? (or at least, a very different kind of capitalism). Things are so FUBAR that we’ve radicalized the Treasury Department…and nobody even notices.

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