Would America have actually been economically safer by allowing the United Arab Emirates state-owned company Dubai Ports World to take over the operation of American port complexes? The Wall Street Journal (wsj) says yes (March 10). And it might be right—but not for the reasons it suggests.

The wsj says Dubai Ports should have been allowed to purchase the major shipping operations in New York, New Jersey, Baltimore, New Orleans, Miami and Philadelphia because by blocking the sale, America has shown itself “protectionist”—and protectionism is inherently bad.

The wsj related how the last time protectionist issues were a big deal was “in the late 1980s, when Japan in particular was the target of political foreign-investment panic. The Japanese were buying Pebble Beach and Rockefeller Center, and so America was soon going to be a colony of Tokyo.”

There are problems with this comparison. The situations involving Japan in the 1980s and the United Arab Emirates today are very different. First, the Japanese companies were private and public corporations that were buying golf courses and hotels—not state-owned companies purchasing port operations that oversee the importation of thousands of tons of goods per day. Second, today the United States is involved in a war on terror that primarily involves Islamic radicals, and the United Arab Emirates is known for having an anti-American populace. Obviously, allowing port operations to be owned by such a nation should invoke national security concerns. Had the United Arab Emirates wanted to purchase a hotel chain or golf course, the national security concern would have been far lower.

The wsj went on to criticize Congress for suggesting that “critical infrastructure” should be protected from foreign takeovers, saying that this development would lead to both corruption within the U.S. government and economic problems.

As to the first point, the wsj is probably correct: Corruption is certainly extant in many areas of government and society, and another layer of government regulation would be one more opportunity for corruption. But that doesn’t mean that, for national safety reasons, certain industries should not be protected. The wsj listed telecommunications, water facilities, broadcasting, technology firms, and U.S. Treasury securities, among others, that it thought would be laughable for Congress to propose to protect.

Ask yourself, would you feel safe knowing that a country in which large percentages of its people chant “death to America” on a regular basis owned and operated your water supply? How about the media? Should state-owned companies from Syria or Saudi Arabia be allowed to purchase a major American broadcasting corporation? Do you think that would skew the information you received on the Middle East, or regarding human rights issues?

What about the economic problems that the wsj is concerned will crop up if the U.S. continues to block the sale of strategic companies? The wsj worries that America could lose foreign investment; it says foreign investment is a “sign of economic strength, not weakness” and that allowing foreign companies to invest in the U.S. has helped America’s economy grow.

The wsj is right when it says that foreigners who purchase American businesses have done so because America has been a prosperous place to do business; they invest in America and American businesses to make a profit. But how much does foreign investment help the American economy grow? A foreign company that comes to America, starts a business, builds infrastructure, hires American employees to work, and pays taxes—that form of foreign investment would help the U.S. economy.

However, that is not what many foreign corporations do. As would have been the case with Dubai Ports, many foreign companies purchase existing operations. When this happens, it is hard to determine the economic benefits the wsj is touting. When an American company gets taken over, new infrastructure does not necessarily get built, new tax revenues are not necessarily created and new employees are often not hired.

In fact, sometimes the opposite is true. Often foreign takeovers and mergers result in the new company slashing jobs in an effort to eliminate employee overlap and to increase profitability to recoup their investment. Additionally, when a company becomes foreign-owned, it has less motivation to work for the welfare of the U.S.

The wsj says Americans employed by foreign-owned firms have wages “averaging $63,000 a year, or about 50 percent more than the average U.S. wage,” and that “Foreigners are not buying up America’s stock of wealth; they are investing in ways that add to it.”

But the wsj is missing the obvious reason behind why foreign-owned American businesses pay their employees higher wages. It is not because they love Americans so much that they want to pay them 50 percent more than American-owned companies do. It is because foreigners have been purchasing some of America’s most technologically advanced companies. Foreign companies are not taking over the Burger Kings of America or the Joe’s Janitor Services—they are after quality companies that use advanced technology and that produce essential products or provide essential services. Consequently, many of the people employed by these types of companies have advanced degrees and skills that command higher salaries.

The most recent example of this was just last month, when American-based nuclear technology giant Westinghouse Electric Co. was purchased by Japanese company Toshiba Corp. for $5.4 billion. Another example was the $1.75 billion sale in late 2004 of ibm’s personal computer division to Chinese company Lenovo Group. The list goes on.

The selling of America’s strategic and most technologically advanced companies certainly doesn’t add to America’s stock of wealth—if anything, in the long-term, it erodes it.

Perhaps the most prominent indicator of the long-term erosion of America’s wealth is its ballooning trade deficit—the amount of goods and services imported to the U.S. beyond those exported.

Erroneously, the wsj actually says that America’s trade deficit, which hit an all-time record of $725.8 billion in 2005, was actually good for the U.S. because it reflects more “capital inflows” into America, and because it has “coincided” with a “rising standard of living.”

The fact that the trade deficit has coincided with a rising standard of living doesn’t mean it caused it. In fact, a rising standard of living doesn’t even necessarily mean Americans have more money.

In essence, the trade deficit means that Americans spent more money importing goods than was gained from exporting them. That certainly isn’t conductive to real rising standards of living. The wsj could have just as easily said (and should have) that America’s record trade deficit has coincided with rising personal debt levels (also at or near record levels), which have given Americans a temporary—even illusory—rising standard of living.

Economic analyst Marc Faber, writing for the Daily Reckoning, agrees saying that “temporary standards of living can be maintained or even boosted if such an economy goes deeper into debt, as is clearly the case for the United States” (January 4).

Finally, the wsj says that by blocking the Dubai Ports deal, America seems to be “sneering at the very foreign investment that has been crucial to its prosperity.” What a condemning statement by one of America’s most prestigious papers. In other words, the wsj admits that America has become dependant on foreigners for its prosperity and standard of living.

Unfortunately for the U.S., the wsj might be right when it says that America would have been economically safer to have allowed Dubai Ports to purchase the U.S. port operations. Here is why.

America has become a debt-bloated economy and a nation of debtors. In this sense, the U.S. is dependent on foreign investment, in the form of increased lending—to maintain the standard of living America has become used to.

However, contrary to what the wsj is portraying, America did not become great because of foreign investment or especially because of foreign takeovers of American companies. Rather, foreign investment was attracted to the U.S. because it was a great place to invest in.

Now, America has become dependent on the kindness of foreign investors for its economic health. Contrary to what the wsj says, America’s reliance on foreign nations is not economic safety.