The Great American Yard Sale

Beer to buildings, airports to biotech: foreigners are buying U.S. assets on the cheap. It matters more than you think

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Jeff Roberson / AP

Belgian-Brazilian InBev will soon own the all-American brewer of Budweiser.

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The U.K.-based utility has been on a shopping spree that--while hardly anyone was looking--has transformed the company into a force in power and gas in the U.S., serving 4.4 million electricity customers and 3.4 million gas customers. In 2000 it bought New England Electric System and the Eastern Utilities Association. Two years later it grabbed Niagara Mohawk. Then in 2006 it scooped up Rhode Island Gas, and last year it completed its acquisition of KeySpan. That deal put National Grid among the top five distributors of electricity and natural gas in the U.S.

Shopping for Innovation

It's not just about accumulating buildings or businesses. The U.S. is also a technology supermarket. Talk to Peer Michael Schatz, CEO of Qiagen, a German biotech firm that is a leader in technologies to isolate and prepare DNA and RNA for medical testing. Last year Qiagen merged with Digene, a U.S. biotech group that has developed groundbreaking diagnostic technology for the early detection of cervical cancer. Schatz says constant shopping for innovation in the U.S. is a key to his business plan, scouring technology-auction sites of American universities, searching for the right technology in the early phases of development. "The difference between the U.S. and Europe is that the U.S. has stellar science and a rapid rate of innovation and transferring that technology to the market for commercial purposes," he says. "No other country comes close."

There's even an upside to the relative cheapness of the U.S. dollar. Volkswagen CEO Martin Winterkorn wants to boost the number of VWs the company sells in the U.S. to 800,000 over the next decade. But he has to cut costs to get the price down, which means building the cars on American soil with more U.S.-made components. So in July, Volkswagen announced plans to build two new sedan models in a $1 billion plant in Tennessee. VW hopes to export cars to Europe. "They could save $8,000 a car by building in the U.S.," says Sean McAlinden, chief economist with the research group Center for Automotive Research, based in Ann Arbor, Mich. "The market has changed. It will be a much bigger market for the kind of small car with advanced technology that the Europeans are so good at making."

And it's not just Volkswagen. GM's European-manufactured Opel Astra is expected to be built in the U.S. in the future. Volvo, writhing under the burden of the weak dollar, has reportedly asked Ford to find facilities for it to produce Volvos in the U.S. instead of Sweden.

Viewed from ground level, rising investment in the U.S. looks like a great thing. Without the inflow of foreign capital, the dollar would probably be even weaker and interest rates and inflation could be higher. But Joseph Stiglitz, a Nobel Prize winner and former chief economist of the World Bank, says there may not be a happy ending. For years, Stiglitz has warned that Americans are living beyond their means. The U.S. trade deficit exceeded $712 billion last year, or 5.1% of GDP. That's nothing more than America's borrowing money from abroad to support a lifestyle that is unsustainable. But whether foreigners are now buying hotels, pharmaceutical companies or utilities, the numbers tell us that the rest of the world is no longer willing to foot the bill to feed America's consumption habit. "It's not just that American assets are cheaper. The untold story here is that foreign investors are no longer willing to finance American debt," says Stiglitz. "They now want equity."

We used to measure the economy in terms of GNP, which is the amount of income produced by U.S. citizens. But now we measure it by GDP, the income that is actually produced in America. The distinction becomes important, says Stiglitz, when an increasing proportion of the country is owned abroad. "If you were to look at America Inc. as a company, it's like owning a company and you own a smaller and smaller fraction of it. So the fraction of America Inc. owned by Americans is diminishing," says Stiglitz.

That means that when the economy recovers, there will be less wealth left in the country to reinvest in it. But then returning to the original question--Why is the American yard sale not setting off alarms?--Stiglitz explains that the alternative is even worse. "There isn't an outcry," he says, "because the focus right now is the weakness of the American economy, and anything to keep our economy going is welcome." That's why no one really objected to Citibank's becoming a Middle Eastern--financed bank, because it's better than Citi's becoming a dead bank. "But clearly we're worse off as a country," he says.

When the dust settles on the current downturn, the U.S. economy will probably regain its dealmaking swagger. But unlike the Japanese experience in the 1980s, the current trend of foreign buyouts won't be unwound. Yet the only way for the U.S. to avoid becoming a second-rate economy is to make the investments necessary to stay ahead in knowledge and innovation. Will we do it? There are a whole bunch of rich foreigners who have just bet their future on it.

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