We should close the revolving door between government service and our rivals’ companies

A group of British MPs wants to
restrict the opportunities for former politicians and senior officials to work
for foreign companies. The idea sounds terribly protectionist, but it is
necessary if liberal democracies including the UK are to be successful in
defending themselves against certain countries’ subversive business practices.

It is unacceptable for individuals who have made their careers and reputations through long careers in British politics “to go on to leverage that knowledge to the advantage of our rivals and not our citizens,” the Conservative MP Tom Tugendhat, who chairs the UK House of Commons’ Foreign Affairs Committee, told the Financial Times earlier this week. Tugendhat is also chairman of the China Research Group, a group of British parliamentarians who advocate for more caution in the UK’s relationship with China. The group has just released a report by a former UK diplomat that suggests the UK should “diverge” — though not fully decouple — from China. Given the extremely strong integration between Western markets and the Chinese one, decoupling would at any rate not be possible.

Among his suggestions for how
this divergence can be done, the report’s author — Charles Parton — includes
closer scrutiny of the revolving door between former officials and foreign
companies. “The danger is that, in anticipation of large earnings, some may
promote policies or take positions which better serve the interests of
potential employers rather than the UK,” Parton notes, and proposes a
cooling-off period of as much as five years if the corporate work in question
could “benefit hostile powers.”

Via REUTERS

Corporate appointments of ex-politicians and senior officials present an enormous dilemma to liberal democracies and are one of the examples of subversive economic practices I discuss in an upcoming book. Consider this example: Huawei, the Chinese telecom-manufacturing giant, has in recent years made enormous gains on the global market. In the first quarter of 2013, for example, it shipped 9.3 million handsets to other countries; by the third quarter of 2019 the figure had skyrocketed to 66.6 million. And it established itself as a major contender for 5G contracts as countries began to upgrade to the new technology. In the UK, Huawei established a Huawei UK, with a board that earlier this year included no fewer than four notable figures from UK business and politics — three with knighthoods and one member of the House of Lords. One of them, former BP CEO Lord (John) Browne, served as chairman and is credited with having improved Huawei’s image in the UK. Earlier this year, Huawei’s strategy appeared to have borne fruit when the UK government decided to include Huawei kit in the country’s 5G network. When the government subsequently reversed its decision, Browne resigned.

It’s perfectly legal for foreign companies to hire local notables as a way of making inroads in new countries; Western companies do that too. But today, Chinese companies in many cases engage in unfair business practices and receive competitive advantages through Chinese government support. Thanks to Chinese government funding, Huawei has been able to price its 5G equipment below that of its competitors Ericsson and Nokia. Corporate appointments as a further way of getting ahead in the West creates unsustainable market distortions. Chinese firms are, of course, not the only ones using corporate appointments to gain influence. When Germany’s Chancellor Gerhard Schröder lost the 2005 election and had to step down, the primarily Russian-owned gas company NordStream swiftly appointed him chairman of its board. Schröder has held the position ever since — and been roundly criticized for it — but the appointment is not illegal.

Apart from filing complaints with the World Trade Organization, Western governments can’t do a great deal about Beijing’s habit of unfairly subsidizing Chinese firms that are then able to undercut Western competitors. They also can’t simply assume ex-officials will act ethically in accepting corporate offers: Many will, but many others won’t. Western governments can, however, revise the rules concerning former senior figures’ appointments to foreign-owned companies. Instead of today’s extremely open appointment market, governments could create a two-tier system: one tier for companies based in NATO, EU, and allied countries and majority-owned there, where businesses would be able to offer appointments under the current conditions; and one tier for companies based in other countries, whose appointees-to-be would need to receive approval from a government regulator.

Nobody wants to unfairly disadvantage, say, Chinese companies that play by the rules. Unfortunately, though, subversion of the global economy as practiced especially by China leaves Western governments no choice but to guard their markets a bit more closely. The private sector is now firmly at the forefront of great-power competition.

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