« Timmy Elsewhere | Main | The Cry of the Left »
July 22, 2007
Nationalization and Foreign Purchases
The Observer gets a little het up about who is buying UK companies:
If Labour's last manifesto had included a pledge to nationalise large
parts of British industry it would have been derided as an electoral
suicide note. But the government's refusal to question anything that
happens in the City for fear of being portrayed as 'anti-business' is
leading to just that.
Last week Sainsbury's looked ready to succumb to takeover by the investment arm of the Qatar government. Last year, ferry operator P&O was taken over by the government of Dubai. Gazprom, the Russian state gas monopoly and a tool of Kremlin foreign policy, is reportedly planning to bid for Centrica, owners of British Gas. That would follow its purchase of Pennine Natural Gas last year.
They go on to equate the two: nationalization by the home government is so similar to purchases by foreign ones that we should limit the latter, just as we have done (thankfully) the former.
But the two are not in fact the same. One of the major problems with purchases by the home govt is that the companies are then run for reasons other than profit: unions have the ear of ministers, so wages and jobs are determined politically, not in markets. Purchases by foreign govts are free of this problem. It's not just on the union side, of course: managers influence the body politic too.
Foreign govts are going to be running things for a profit: thus not facing such problems.
July 22, 2007 in Economics | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/t/trackback/23056/20243600
Listed below are links to weblogs that reference Nationalization and Foreign Purchases:
Comments
I've asked this before - so you don't think there are any problems in foreign governments buying companies? Surely the reason takeovers are thought good is that it is the market in action - decisions taken by commercial businesses using money derived from market activities - whereas these, even if they don't interfere, have the money from non-market activities, ie monopoly provision of energy.
Tim adds: Source of funds doesn't really bother me, no. Monopolies do bother me, yes: the nationalization of a company would bother me much less than that of an industry (we tended to go for the latter which was one of the reasons it failed so dismally).
If the Qatari Govt owns Sainsbury's, or the family, or private equity or the public markets, doesn't bother me in the slightest, no. As long as Sainsbury's is operating in a competetive market why should I give a damn?
Posted by: Matthew | Jul 22, 2007 10:25:51 AM
Tim,
"But the two are not in fact the same. One of the major problems with purchases by the home govt is that the companies are then run for reasons other than profit: unions have the ear of ministers, so wages and jobs are determined politically, not in markets. Purchases by foreign govts are free of this problem. It's not just on the union side, of course: managers influence the body politic too.
Foreign govts are going to be running things for a profit: thus not facing such problems."
Your second paragraph, unsupported as it is by any form of evidence, dislays a blind faith in foreign buyers' bona fides which I'm afraid I do not share.
This is a very British thing - Arab sheikh good, Welsh shop steward bad. Russian oligarch good, Brummie union boss bad.
Because the absence of government intervention has been one the most consistent threads in British economic history since the Industrial Revolution (and don't let anyone tell you otherwise), we have absolutely no collective appreciation of how other cultures use commerce for the achievement of political goals. We so lack a sense of national 'Schwerpunkt' that we actively assume that all foreigners think like us and share the same aspirations.
They don't.
Posted by: Martin | Jul 22, 2007 11:04:08 AM
"This is a very British thing - Arab sheikh good, Welsh shop steward bad. Russian oligarch good, Brummie union boss bad."
Quite so. What if the Russia state decided to use its ownership of gas distribution in Britain as pressure to resolve an inter-governmental dispute over the extradition of a Russian dissident resident in Britain who had been granted asylum status?
Posted by: Bob B | Jul 22, 2007 12:10:32 PM
"What if the Russia state decided to use its ownership of gas distribution in Britain as pressure to resolve an inter-governmental dispute over the extradition of a Russian dissident resident in Britain who had been granted asylum status?"
Edward Lucas would froth at the mouth for a decade.
The Daily Telegraph would publish endless editorials slavering as to how thoroughly beastly Vladimir Putin really is.
Anthony Brenton, the British Ambassador in Moscow, would doubtless engage in his usual undiplomatic pastime of interfering in Russian domestic politics.
Unfortunately, Alex Goldfarb, one of the shadiest men alive and a grossly unwholesome presence in the British media, would crawl out from under his rock.
Tim Bell would make a packet.
Oleg Gordievsky CMG, Yesterday's Man (I keep picturing him in the wig and false beard) and the old Anti-Statist arm of Berezovsky's Flying Circus, would be wheeled out to proclaim that Putin is the new Stalin.
David Miliband would make himself look even less threatening than usual - jeez, Putin against Miliband is not my idea of a fair fight. It's like Bismarck against Chamberlain, or The Terminator against Elmer Fudd.
Apart from that it would be "Do svidanya, Boris Abramovich". And about time too.
On a lighter note - is it just me who thinks that Andrei Lugovoi is the spitting image of Lee Dixon?
Posted by: Martin | Jul 22, 2007 3:31:10 PM
As a firm believer in free markets - well before it became fashionable with Reagan/Thatcher - I have always been in favour of privatisation and competitive markets. However, I do have a problem with the British attitude that ownership does not matter, and thereby has no problem with foreign governments owning strategic assets here.
This is going to be a growing problem with the inexorable growth of Sovereign Wealth Funds owned by the Chinese, Russian and OPEC governments.
It is clearly undesirable to allow a nondemocratic governments such as Russia's to control parts of our energy industry. You know they will find a time to use their leverage to blackmail us sometime in the future. Do we want Russia to buy BP or Shell? They could.
We don't want the Chinese buying BAE Systems either. (Or the French EDF buying our utilities for that matter!)
There is no reciprocity in these cases -we cannot invest in these industries in their countries - and the justification is partly political gain for the investor not purely economic gain.
Of course the problem is our (and US) unwillingness to put our house in order and run enormous current account deficits that allows foreigners to pile up claims against us. At least the US is bloody minded -- you take our worthless dollars and buy our crummy Government paper but don't even think about investing in our oil companies or ports - whilst the poor old British mug alone plays by imaginary Queensbury rules. Wake up Blighty!
Posted by: oldasiahand | Jul 22, 2007 4:32:59 PM
The British government could nationalise any industry controlled by Russia if the Russian's were threatening to use it for political ends, but it's not of course a policy that Tim would advocate. It's an interesting question though for Tim - are their industries, and any foreign governments, at which he would draw the line?
Tim adds: Sure. Major defense contractors....N Korea (not together necessarily, separately).
Posted by: Matthew | Jul 22, 2007 6:46:04 PM
Phew!
What say, though, if UK and other companies start lobbying (and more) the Chinese government to help them fund takeovers of other UK companies. Still no problems?
Tim adds: Subject to the above constraints (mono and oligopoly, defense) still no.
Posted by: Matthew | Jul 23, 2007 8:06:14 AM
Tim:
I disagree with your take. For whatever reason, some of the left-leaners here seem to have a better appreciation of potential dangers.
In the market, there is an overriding assumption that participants are motivated entirely or nearly so by market incentives and that the indulgence of other incentives is neatly compensated by the fact that, if uneconomic, they're "paid for" by foregone profit.
Entities owned by governmments may operate entirely legitimately as market participants. They, too, will be "punished" for their mistakes
Posted by: gene berman | Jul 23, 2007 5:52:12 PM
Note that in quite a few financial industries, regulation follows ownership, which could be quite annoying if a bank that was economically important to us became owned and regulated overseas.
Posted by: dsquared | Jul 23, 2007 5:53:12 PM
but they are not the same for a number of reasons that are cautionary.
In the first place, they're only partially responsive to market forces--in the very same way as is one's own government. By partially, I mean to describe two departures from the functional description "market participan.t" In the first place, governments are not in a position to evaluate their "capital investment" in their "enterprise"; this applies even to those who have assigned nominal figures to such productive complexes or who have set up separate entities with such-and-such "capitalization" to lend legitimacy to their bookkeeping and auditing. No loss is felt other than in a bureaucratic budget
and is likely to cause no other adjustment than a change of bureaucratic manager.
Secondly, there's a never-dispellable potential connected with such companies--that the reason for their existence involves other motives than profit, that their function is more closely connected with execution of particular foreign policy objectives than with producing revenue. And, lastly, I'll throw in another reason for suspicion. And that is that the value of an enterprise in a free market depends ultimately on the price for which its assets may be sold--on what voluntary buyers would attach as values to its bits and pieces. This fact not only determines the prices for which the underlying assets may be sold but also the entitlement and magnitude of the remuneration of all those involved in that enterprise, whether workers or managers; such are most obviously not the case in the enterprises in question (and, moreover, where the enterprise itself may, for distinctly non-economic reasons, be kept "afloat" in some circumstances, by repeated iterations of taxation-support on an otherwise unwilling populace.)
Posted by: gene berman | Jul 23, 2007 6:24:23 PM
In a free market, the fact that a particular enterprise devotes the entirety of its profits to the support of political candidates or programs disqualifies it not even an iota as a free-market entity; quite the opposite is the case with governmental entities--they're always political, regardless of the degree to which they try to pursue profit and avoid loss.
Posted by: gene berman | Jul 23, 2007 6:32:38 PM
