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Written Remarks by Brian T. Kennedy
Vice President of the Claremont Institute
Hearing of the Joint Legislative Audit Committee
California State Legislature
Sacramento, California
January 5, 2000
Mr. Chairman, thank you for having us here today.
My name is Brian Kennedy, I am Vice President of the Claremont Institute and Director of our Golden State Center for Policy Studies. We are a non-profit, non-partisan public policy research institute. The Institute was founded 20 years ago and we have had an office here in Sacramento for the past ten. For the past three years we have been focusing on National Security Issues especially with regards to the proliferation of nuclear missiles by rogue nations and the growing threat to the United States.
For the past four years a long-time friend of the Institute, Roger Robinson, has been busy with some groundbreaking research on the role national security considerations should play in the investments made in U.S. capital markets.
This is a very new policy consideration. During the cold war we did not face the prospect of the Soviet Union or Soviet companies looking for capital in the United States. To be sure the Soviet Union was given loans by international institutions. But never were there initial public stock offerings by Soviet companies--companies that may be in the business of building Soviet ICBMs aimed at the United States.
Today, however, we have a new world with new strategic considerations. The People's Republic of China, a nation which does build ICBMs aimed at the United States, does in fact come to the United States and seek capital in the U.S equity and bond markets. The People's Republic of China is not today our enemy. But they are rapidly building a modern military and strategic nuclear force capable of challenging the United States. And we know that political repression in Communist China continues. They do not enjoy freedom of speech, freedom of the press, freedom of religion, or freedom of assembly. These are the basic human rights we Americans take for granted. All of us hope that someday this will change.
So we are clear all of us here believe that trade and investment is good. It has certainly been good for Californians and the California economy. But until the people of China enjoy the political freedom that is the right of all humans, we must evaluate the role that American investors are playing in financing the current repressive government in Beijing or repressive governments elsewhere. This is especially true in the case of the investments made by CALPERS.
Today CALPERS invests in Chinese corporations that are in fact arms of the most militaristic, repressive parts of the Chinese government. This fact has been attested to by bi-partisan commissions convened by the United States Congress and by President Clinton's intelligence community, most recently the Deutch Commission, headed by President Clinton's former director of Central Intelligence, John Deutch. But because it is such a new issue in national security affairs it is not one that citizens or policymakers have focused on.
The seriousness of this issue is apparent when we consider the amount of money involved in CALPERS foreign investments. The Market value of all of CALPERS international holdings in fixed income and equities as of September 30, 1999 was $36.6 billion out of a total fund of $155.7 billion. That is 23% of the fund.
Fortunately this committee, and especially Senator Haynes, has had the foresight to look into CALPERS investments. We look forward in working with the committee to assist in uncovering the facts in this matter.
