The Real Significance of the Dubai Ports Controversy

There’s been a lot of controversy in the past week over the Dubai Ports World acquisition of terminal facilities in US ports.  With all the coverage, though, no one has zeroed in on one of the key issues that is a real red flag for the direction of US policy.

I posted about the original acquisition deal (Dubai Ports World acquired P&O) in "Dubai as Router for the World" well over two months ago.  At the time, I focused on this deal to highlight the growth of highly specialized infrastructure management businesses on a global scale. I also discussed the role of containerized shipping in reshaping global commerce. In a separate post on "Dubai - Global Talent Magnet", I discussed Dubai’s strategy to attract talent from around the world to help build global leadership in key business sectors, starting with ports management and tourism.

The current controversy allows me to focus on implications for the US.  Let’s leave aside the obvious points that have been well-discussed, starting with the fact that Dubai Ports World would not be managing US ports, but only selected terminal facilities within ports managed by US entities, and that there are profound issues with security management at US ports that have nothing to do with who operates terminal facilities.

Let me propose a different lens for viewing this controversy, one that has largely escaped MSM attention. In the Epilogue to The Only Sustainable Edge, JSB and I outlined a different way to view public policy.  We suggested that public policy in many different domains should be reassessed in terms of implications for accelerating talent development.  So, what does the acquisition of US ports facilities by DP World have to do with talent development?

Well, US ports have been falling behind many other ports around the world in terms of productivity improvement for years. Here’s what a New York Times article (registration required) this week said:

American ports are considered somewhat backward by shipping experts outside of the country.  For example, most major ports overseas operate 24 hours a day, seven days a week.  But in the United States, ports were shut down at night until very recently. And transmitting shipping orders electronically to some American ports does not necessarily save time because the orders need to be rekeyed into the ports’ computer systems, a concession to unions trying to preserve jobs.

In contrast, DP World got its start by developing highly productive management techniques in Dubai’s own port at Jebel Ali, which has emerged as a major global transshipment center.  DP World built its business by applying this talent to manage terminal facilities at ports around the world. In seeking to block the acquisition of US ports facilities by DP World, policy makers in Congress are helping to insulate these facilities from the talent that this company has developed in managing similar facilities around the world.

Of course, there is a need to balance other public policy considerations like security, but who is speaking out forcefully for the compelling need to access global talent to improve the productivity of key infrastructure operations?  To the extent that this acquisition is defended, it seems to be in terms of the need to support a key ally in the war on terror or the much more diffuse value of free trade. Who is speaking out for the need to freely access global talent as a way to accelerate talent development domestically?

Now, here’s one irony. Many of the key executives of DP World, including its Chief Operating Officer, Ted Bilkey, are American executives.  They are refugees from American companies who could not offer comparable opportunities to accelerate talent development.  If you look through the management ranks of DP World, you will find many executives from other countries in Europe and Asia, similarly lured by the opportunity to get better faster by working for an aggressive global competitor.

There’s an even deeper irony. In my earlier posting on the rise of containerized shipping, I noted that an American entrepreneur, Malcolm McLean, came up with the innovation of containerized shipping back in 1955. McLean founded SeaLand, the company that used to employ Ted Bilkey.  The background story is that a host of non-US companies, including DP World and Hutchison Whampoa, a Hong Kong company, have been far more aggressive in developing the management talent required to exploit this innovation. They have built leadership positions on a global scale in contrast to American companies that have either been acquired or marginalized by these global competitors. SeaLand itself was eventually acquired by another global competitor, APM Terminals in Denmark.

So, a US based innovation leads to an explosion of global shipping activity.  US companies are slower to exploit this innovation than global rivals.  American management talent gets lured away to join these global rivals. When one of these global rivals seeks to acquire US terminal facilities and apply their leading edge management techniques back in the US, policy makers in Congress seek to block this from happening.

The saddest part of the story is that DP World didn’t buy P&O to get access to these US terminal facilities.  The real reason they acquired P&O was to gain access to P&O’s port operations in China, a much more rapidly growing market than the US.

Of course, this would be alarming enough if we were only dealing with talent development in port operations.  But choices we make in this arena ripple through a much broader swath of the economy.

Ports represent a significant edge in any economy.  In a world where “90 percent of the world’s goods are transported by ship, and 90 percent of these goods travel in standardized shipping containers” (from the New York Times article), the productivity of port operations can make a significant difference in global competitiveness for a broad range of other products.

If we don’t accelerate talent development in these key infrastructure operations, we will make it more difficult to build talent in other business sectors as well. Hampered by inefficient port operations, it becomes more difficult for companies in these other sectors to build domestic manufacturing operations and compete on the global stage.

To see an extreme version of this playing out, we need only look to India. It faces a severe competitive disadvantage in building global manufacturing operations relative to China at least in part because of the relative inefficiency of its port operations.  In a world where bits become more and more important, we need to remember that atoms still matter. Ports, as grimy and unglamorous as they might be, represent a key gateway into the global economy.

So why is it so important to reassess public policy in terms of accelerating talent development? There’s a simple formula: talent development drives productivity improvement and productivity improvement drives economic growth.  If played right, this becomes a virtuous cycle: economic growth creates more opportunities for talent development and the process spirals forward.  On the other hand, as the saga of American shipping ports illustrates over the past 50 years, a vicious cycle can also take hold. In the face of lower growth, motivated talent will seek out opportunities to get better faster, even if it is in the deserts of Dubai, and the talent drain will erode productivity and growth opportunities.

Who is making these points in Washington? To use George Lakoff’s terminology (but not his substantive views) in Moral Politics, we desperately need a new frame for public policy. Alas, neither the Democrats nor Republicans appear willing to break the existing frames and focus attention on talent development.

Comments

[Ski Dubai]

Hello All,

Do you know where i can find more info on jobs in Dubai (available for non UAE nationals)

Thanks,

Amela

[Will]

John, Have you seen this BusinessWeek article about CK Prahalad's thoughts on the development of entrepreneurial models in the developing world. Interesting in the context of your comments on the Asian management models. http://www.businessweek.com/@@gJbKY4YQuA2s6BMA/magazine/content/06_04/b3968089.htm

[Ross Swanes]

Looks like the Dubai company got what the wanted (Chinese ports) and got rid of what the didn't (US ports).

-- Dubai-owned company has decided to transfer fully the U.S. operation of P&O ports in North America to a U.S. entity, according to Sen. John Warner.

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[Paul]

Brilliant and well said as usual.

I face a similar situation in the oil and gas industry. With high oil and gas prices and shrinking reserves, the oil and gas companies seem quite content.

But it is the ingrained energy not to change that will lead to far more serious problems if we are not careful.