Protectionism in Europe

Two European countries. Country A is the recipient of tens of billions of dollars

in foreign direct investment – $90 billion in 2005, to be precise. Country

B, well, isn’t. Every time someone wants to throw money at the country, the

government finds a way of preventing the deal from happening. Which country

is likely to be in the stronger competitive position? If you lived in Country

A, would you complain about Country B’s behaviour, or would you secretly relish


Of course, this being Europe, everything is topsy-turvey, and in fact Country

A is putting

up an enormous stink about how Country B’s policies are unfair. A, to make

things clear, is the UK; B is France. Or Spain. Or Germany. It’s not entirely

clear. But it’s not just the leftists in the trades unions who are coming out

with protectionist nonsense:

The head of the Confederation of British Industry also expressed concern.

"I don’t want to live in a Britain where we ban overseas companies but

you can’t expect Britain to go on and watch other countries change the rules

when they want to," said Sir Digby Jones.

The problem, insofar as there is a problem, is that it’s easier for French

companies to buy UK companies than it is for UK companies to buy French companies.

Yes, this is the sort of thing which the EU exists to resolve, and yes, the

European commission has already promised to take legal action against France

for its protectionist moves. But really, which country is more harmed here?

I’m not an expert on industry, but I know a little bit about Cemex, which is

the best-run cement company in the world. It recently bought Britain’s RMC.

That’s great news for Britain, because not only did RMC go for $6 billion in

cash, but it’s now got a significantly improved management which will make Britain’s

cement industry increasingly competitive vis-a-vis Lafarge, of France. Meanwhile,

Lafarge, protected from takeover, is losing ground to Cemex-RMC.

Yes, UK companies should be able to expand in Europe through large-scale M&A

transactions. But it’s idiotic to point enviously at France and talk about how

they "support the principle of national champions" over there. I can

tell you that here in the US, Americans love the wonderfully British Mini Cooper.

Do they know it’s made by BMW? Quite possibly. But do they think that makes

it less British? I don’t think so. The nationality of one’s owners really shouldn’t

be relevant these days. Neither in British industry nor in US ports.

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2 Responses to Protectionism in Europe

  1. Matthew says:

    A few points:

    1. France is one of the world’s leading recipients of foreign direct investment, often more than the US. According to the OECD in 2003 it was the world’s second most important destination, after China.

    2. I don’t know how particularly ‘European’ this kind of protectionism is. The UK is a much more open market to FDI, particularly in company takeovers, than the US. So are quite a few other European countries.

  2. Lance Knobel says:

    Matthew makes a couple of important points. A few more.

    FDI statistics have to be read very carefully. All it takes is a couple of large m&a transactions to distort the picture. The FDI in China, for the most part, is real investment in manufacturing, not the shuffling of equity assets.

    Britain’s success in FDI is a mixture of the two. The years when France does well (it’s a volatile dataset) are largely because of market transactions (including things like the creation of Arcelor, which has essentially remained French although its HQ is now in Luxembourg).

    In general I agree with your assertion that country of ownership shouldn’t matter. But there is a significant amount of research showing it does matter. Over time, high value-added activity tends to concentrate in country of ownership.

    So r&d and senior management functions gravitate around the headquarter office. For advanced economies, that matters. Will the next generation Mini be engineered in the Midlands or in Munich?

    Cemex is a special case in many ways. Cement is one of the few industries that cannot be mobile in the way of most others. Because its product is so heavy, facilities need to be close to the customer. You can’t make cement in Monterrey and ship it to Mobile, Alabama, much less Manchester.

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