How to Fix a Broken Procurement System

If there is a better example of a procurement system run amok than that of the United States military, I would love to see it. The U.S. armed forces seem incapable of acquiring even the simplest items without turning the process into a money-waster, overpaying, or not buying the right thing in the first place.

But the Pentagon has no monopoly on complex and seriously messed-up procurement systems. Businesses around the world have these issues, and so do government organizations. That is why this book, Toward Affordable Systems II, is of interest well beyond the narrow confines of the military. In it, a group of analysts led by Brian Chow has developed a model for managing long-range procurement in the face of an uncertain environment.

Granted, this is not light summer beach pleasure reading, but if you deal with the issues involved in buying capital goods for large government organizations or complex, global businesses, this represents your state of the art.

How Good is the US Foreign Investment Review Process

The United States has a long-established system for reviewing foreign investments in the United States, a process that is understandably highly political given both self-interested protectionism and legitimate national defense concerns that grapple with the interests of entrepreneurs and shareholders seeking greater opportunity or a simple cash-out.

China’s growing hunger for offshore investments has already begun testing that process, in particular with Huawei‘s recent attempt to snap up the leftover assets of a bankrupt technology startup in California. Huawei’s application – filed after the fact – was rejected, and it seems likely that more Chinese companies will face challenges as they attempt to use acquisitions as a pathway to globalization.

At some point China is likely to want to cast a global spotlight on the U.S. foreign investment review process (and would have done so sooner but for the attention it would have brought to its own), and when it does, the Committee on Foreign Investment in the United States (CFIUS) will find itself under global scrutiny.

Following the 2006 controversy around Dubai Ports World and its attempt to acquire the U.S. port operations of P&O Steam Navigation Company, Alan Larson and David Marchick at the Council on Foreign Relations conducted a study on the U.S. foreign investment review process and the CFIUS in particular. The recommendations made in Foreign Investment and National Security: Getting the Balance Right suggest that the U.S. needs to ensure that the process remains sheltered from political and commercial interests, remaining a purely national security issue.

At its heart, though, the short book is a reasoned defense of what the authors clearly believe to be a fair process, if not quite a model for similar processes overseas. Their greatest concern is in the matter of transparency, and it is worth dwelling on that for a bit.

China is in the habit of rejecting foreign investments with greater frequency, an expression of an all-but-explicit national industrial policy that implicitly questions the value of foreign ownership of Chinese companies. That foreign firms continue to pursue acquisitions of healthy Chinese corporations in blithe ignorance of this policy implies either willful ignorance on the part of executives, legal counsel, and investment banks, or that it is time for China to be more transparent in the criteria it uses to evaluate foreign investments.

A fair case could be made that the CFIUS is less interested in transparency than it is in national security, and this is fair. But if the cross-border flow of investments and ownership are to continue between the world’s two largest economies and the ties that bind them to a common interest are not to be severed, the CFIUS must ensure that it offers the greatest transparency possible consistent with national security.

For this reason alone, Larson and Marchick’s work deserves detailed review.

An Economic Analysis of the Financial Records of al-Qa’ida in Iraq

In a short, somewhat technical, but incredibly fascinating book, a team from the RAND Corporation dissects the way al-Qa’ida gets and handles funds. This is the first detailed public look at how money flows through a modern terrorist organization. Whether any of this should have been declassified is up for debate, but the value to law enforcement agencies and military intelligence of this kind of information could be immense.

Global Imbalances and the Financial Crisis

This pdf book from Steven Dunaway at the CFR suggests that it is well past time to deal with the core problems that caused the crisis. Dunaway puts the onus in part on the G20 to ensure something like this does not happen again, but he is also realistic about the ability of trans-national bodies to attack the core issues. In the end, the matter lies in the hands of national governments.

Not a terribly comforting thought, particularly when one considers the institutionalize profligacy of countries like Greece. Nonetheless, Dunaway has done his homework, and his reasoning makes it mandatory reading.

The Gulf as a Global Financial Centre: Growing Opportunities and International Influence

Downtown Burj Dubai and Business Bay, seen fro...

Image via Wikipedia

Two short years ago, we were saying that if you still wanted a job in finance, it was going to be either Shanghai, Mumbai, Dubai, or bye-bye. Is that still true? is the Gulf as a financial center as viable as its founders want it to be, or is it a Burj of Cards?

This pdf report from Chatham House was completed before Dubai ran into a little liquidity problem, and recovery will be slow as the Emirates rethink their path into the future. Nonetheless, the authors stray from boosterism and drive into the fundamentals underpinning the region’s future.

Those unfamiliar with the nature and size of the market for Islamic finance will find this a particularly enlightening read. For me, I’m betting Islamic finance becomes more common in Asia over time, even in the parts of Asia that have only small muslim populations.

Which, of course, begs one to ask the question: where do the People’s Bank of China, the Bank of Japan, and the Fed stand on the conduct of Islamic finance in their countries?