KZBlog

After the buyout of AIG, giving the government an 80% share in this major insurance company, there has been a great deal of debate. There is outrage over the way the deal went down, without any warning and apparently without a coherent plan. Senate Majority Leader Harry Reid expressed dismay, saying, “We are in new territory here…You could ask [Federal Reserve Chairman Ben] Bernanke, you could ask [Treasury Secretary Henry] Paulson. They don’t know what to do, but they are trying to come up with ideas.”

People are further worried that the buyouts will never end–as Representative Michelle Bachman said, “What’s next? Starbucks? Too big to fail?” Will the government end up having to bail out half the private sector if more and more companies fail? And of course there is worry that taxpayer money is being put at risk by investing in companies that have failed and may fail again.

Furthermore just yesterday Bernanke and Paulson appeared before Congress to announce their new plan for the government to buy private company assets, proposing a tender system. Questions of who will manage these purchases, who will manage the assets in the name of the government, what benefit the taxpayer may reap, how to price the assets, and how to avoid private companies benefiting unfairly from taxpayer dollars all came up in debate. It’s not a small matter because the Fed is proposing to put up $700 billion for buyouts and investments!

What is not being discussed in great detail here is that these bailouts are not just handouts or grants. When the US invested $85 billion in AIG, it became an 80% shareholder. That’s a controlling interest! And Congress has no idea what to do with the idea of government-owned companies or the government as a share-holder. What branch of the government should run these companies? Can the government make a profit on private businesses? What happens in January when a new President with a new Secretary of the Treasury steps in?

Kazakhstan and other former Soviet countries may hold the answer. Various Kazakhstani government leaders have said at various times that while Kazakhstan looks for advice from the West, the day will come when the West will come to Kazakhstan for help. That day has arrived. Perhaps the US should send some Congressmen to Kazakhstan to tour Samruk, Kazyna, and other state-owned financial entities here. Kazakhstan has had long experience with these models of state involvement in private companies. So why shouldn’t the US draw from that experience?

Furthermore, a lot of the complicated questions that the US is now facing while looking at Paulson and Bernanke’s plan are questions that have never been fully addressed in Kazakhstan. Because of its experience as a former Soviet country with a government controlled economy, issues like accountability or responsibility to the taxpayer have never come up. Old trends and mechanisms are rarely examined in detail. So this is a perfect opportunity for the US and Kazakhstan to work together to develop a model for government as shareholder in a globalized free-market system.

Some may think I’m being a bit glib here, and my tongue is not too far from my cheek. It is interesting to note the difference between Kazakhstan and the US. When the US buys out a company, taxpayers and financial advisers and politicians get nervous and even angry. Here in Kazakhstan, the government already controls 5 holding companies and many citizens don’t know these companies exist, or have a vague idea of what they do.

But I think there is a valid proposal here. How does Kazakhstan solve problems of using federal funds, taxpayer money for private enterprise? What regulations are on the books? How can Kazakhstan and the US work together to solve problems of conflict of interest, corruption and lack of regulation? Perhaps this is a perfect chance for Kazakhstan to be treated as an equal by the US and to be taken seriously as a source of knowledge in the West.