Jim,
The issues you discuss are indeed critical in choosing between a hybrid firm with some government and mainly public (shareholder) ownership. I don't claim to be an expert in this area, but I have enough direct experience to understand where the pitfalls are in the two alternatives you've discussed.
When I was assigned to the USAID mission in Indonesia in the early 1960's, I had a conversation with an Exxon executive who was in the process of disposing of Exxon oil and gas facilities in the country and withdrawing further investment. I asked him why would he do this at a time when Indonesia, which gained its independence from the Netherlands only 13 years earlier, appeared to be a real winner in economic growth, owing to its vast oil and mineral resources and the passion of its people to modernize the country, based on the experience of the American revolution, overthrowing one of the biggest world powers.
The Exxon executive explained that Exxon refused to provide bribes to Indonesian officials that would be required to expand their business. And this was confirmed to me later on, when one of the Indonesian instructors I was supervising asked me if there was anything I could do to help him get paid for his latest month of teaching, in order to avoid the loss of value in the usual waiting period amounting to more than 10% a month because of inflation. I said, "Let's give it a try." It was about 10 a.m., and I first had to get his teaching report approved by my immediate boss, then get another approval from our comptroller, then take a vehicle to the American Embassy, about a mile away. By the time we got to the Embassy, it was almost 2 p.m., and the disbursing officer, a career Foreign Service Staff employee, said "Sorry, our office closes at 2 and there isn't enough time to issue the check." Being somewhat younger and brash, I said, "Listen! We're trying to help one of our instructors who needs the money now, not a month from now." She was so flabbergasted that she issued the check. After leaving the Embassy, the instructor told me, "This could never happen in Indonesia," meaning that after having to bribe a lot of people, he might be in worse shape than simply waiting for his payment.
Either imposing constraints on a chips grant under threat of loss of the grant, or simply taking a stake in a company, with probably less bureaucratic red tape, creates problems. It's easy to see why Intel would prefer selling a stake in the form of common stock shares. No guarantee of success, no protection against loss. It's just more common stock. As I noted earlier, even Warren Buffett would demand some type of protection against downside risk, such as a special issue of convertible preferred stock or convertible bonds. Sure enough, Intel got the best of the deal – with no performance obligations – approved by a guy with a record of six bankruptcies.
Having worked at federal, state, and local levels, I tend to prefer controls on performance. The costs associated with those controls are less disagreeable than losses to taxpayers from poor quality work.
Art |
