When Governments Buy Companies

The UK is one of the least protectionist countries in the world, when it comes

to foreign companies buying domestic assets. A French utility wants to buy a

UK water company or railroad? No problem. A Mexican cement company wants to

buy a UK competitor? Come right in. But now, the foreign investors with their

eye on the UK are not private, but public. And that’s making people nervous.

The

Observer wrote, in a leader yesterday:

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.

The Chinese government has set up a $300 billion fund to buy Western companies,

with British assets top of the list. There are sound reasons to keep Britain’s

economy attractive to foreign investment, but embracing liberal global markets

should not be a cover for nationalisation under foreign flags.

The editorial set off an interesting debate chez Tim

Worstall, who reckons, basically, that money is fungible and that it therefore

doesn’t matter who’s doing the buying. But clearly a line has to be drawn somewhere.

Matthew

Turner notes:

Tim himself draws the line at defence contracters (presumably not the US

or other allies though) and North Korea (for anything). Issues of national

security led some commenters to say they wouldn’t want Russia to be in charge

of our energy generation. Hands-off governments could become hands-on ones

if it comes to a decision between shutting a factory in the UK and one in

their home country.

My view is that national security matters, and that Russian ownership of UK

gas assets comes very close to posing a national-security problem, given Russia’s

demonstrated willingness to use its gas assets to political ends. On the other

hand, a lot of foreign takeovers do not pose any kind of national-security problem

at all. “How on earth can it be in Britain’s interest to allow Sainsbury’s

to become the nationalized property of a Gulf state?’’ asks

Unite’s Brian Revell – to which the answer is that if Qatar pays more

money than anybody else is willing to offer for the UK supermarket, then Sainsbury’s

present shareholders can use that money to generate better domestic returns

elsewhere.

Similarly, in the US, the proposed acquisition of foreign-owned ports by Dubai

was not a major security threat, overheated

Senatorial rhetoric notwithstanding, and the same thing can be said of the

proposed acquisition of Unocal by China’s CNOOC, especially considering the

fact that the overwhelming majority of Unocal’s assets are overseas to begin

with.

Which brings us to the news

that Barclays is getting a major cash injection from the governments of China

and Singapore. This is only natural, and nothing to be concerned about. Singapore

has been investing its enormous foreign reserves globally for decades, and China

can’t be expected to invest its own trillion dollars of reserves in nothing

but Treasury bonds. China and Singapore are part of the global financial system,

and it makes perfect sense that they’d like a minority stake in a global bank.

In fact, it makes much more sense than China’s stake in Blackstone.

Generally, then, I have little sympathy with those who complain of "nationalisation

under foreign flags". If finance can knit the world together more tightly,

then so much the better. There will always be exceptions, of course. But they

are fewer than most people might think.

Update: Chris

Dillow weighs in, forcefully.

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