Will 2006 come to be seen as a watershed for the global economy? For over a decade, since the collapse of the Soviet Union and Francis Fukuyama’s infamous book, The End of History, the world has been gripped by a kind of liberal triumphalism, promulgated chiefly by the US and UK, that held out a vision of a universal brotherhood of man, bound together by democracy, free trade and open markets. In many ways, this vision was similar to that held by Marxists, which is perhaps why many ardent advocates in the West are ex-Trotskyists. They thought wherever people were given the chance to join the liberal revolution, perhaps following the invasion of their country, as in Iraq, they would do so enthusiastically.
The failure of the Iraq adventure – a war launched explicitly in the name of this liberal creed – produced the first cracks in this ideological façade. This year, the doubts have come thick and fast: rising protectionism in Europe and the US, the bizarre murder of a Russian dissident in London, foiled Islamic terrorist plots. No longer is it self-evident democracy and free markets will triumph. Even in the City and among industrialists, people are starting to question – albeit gently – Britain’s unique commitment to open markets, fearing the current takeover boom that has seen so many UK firms fall into foreign hands could damage our vital interests. Tough political choices lie ahead. Politicians, long relegated to the fringes of economic debate, matter again.
Will the City suffer if Nasdaq buys the London Stock Exchange? Privately, some top City figures believe it will. What should the government do if Gazprom, the Russian state-owned gas company, tries to buy Centrica, which owns British Gas? Plenty of City people think it should be blocked. What if Asian bidders tried to buy technology groups such as BAE Systems or Rolls-Royce? Again, many top industrialists would oppose it. Indeed, a recent CBI survey found that 71% of UK chiefs felt the UK was too open to foreign bidders.
Rethinking open markets: foreign takeover boom
Why this growing ambivalence? There are three reasons. The first concerns the lack of a level playing field. No other country in the world has Britain’s open markets. Until recently, many believed this was a price worth paying because history was on our side. Look at how Mittal managed to buy rival steel-maker Arcelor in the teeth of French opposition. But other recent deals point the opposite direction. This week the Italian motorway group Autostrade caved in to political pressure and called off its merger with Spain’s Albertis. Meanwhile, US politicians are trying to block Evraz, a Russian steel firm, from buying a small US rival. Why should British companies alone be left so vulnerable to attack?
Rethinking open markets: are UK jobs under threat?
The second argument concerns jobs. The conventional view is that ownership doesn’t matter. Foreign bidders bring new jobs to the UK, either by investing in companies they buy, or by allowing investors to redeploy capital elsewhere. But while that may be true in theory, is it true in practice? Not all companies are as scrupulous as British firms in allowing strict commercial criteria to govern their investment decisions. How long will skilled steel-industry jobs remain in the UK once ownership of Corus passes to the Brazilians or Indians? And how long will the UK continue make wings for Airbus now we are no longer represented on the company’s shareholder register?
Rethinking open markets: security of UK assets
The final argument concerns security. Again, the conventional wisdom is it doesn’t matter who provides the capital. Governments can exert influence via regulation. That is why the Government is rushing through a law to shield the Stock Exchange from the long arm of US regulation if it falls to Nasdaq. And it is why the Treasury does not think it would need to block Gazprom from buying Centrica. But can regulation prevent Nasdaq from allowing London to become less competitive, and so depriving the City of business, if it chooses to raise prices in London? And while regulation may give the Government control of Centrica’s assets in an emergency, how can it prevent Gazprom running it in a way that reduces our diversity of supply?
Rethinking open markets: losses outstripped by gains
The curious thing is that while these doubts have been raised by senior figures in the City and industry, one place you won’t hear them is from the UK government. Labour may tax and spend like old-fashioned socialists when it comes to the public sector, but when it comes to industrial policy, they have got religion. As things stand, that is to the Government’s credit. It is surely right to stand firm. Britain may lose out as a result of its open markets, but these losses are far outstripped by the gains. Besides, who would you prefer to decide the outcome of takeover bids: shareholders or Gordon Brown? And any weakening of Britain’s commitment to open markets would send a disastrous signal to the rest of the world, which is already flirting with protectionism. But the fact that people are having this debate at all shows how much the world has changed during 2006 – and what is at stake in 2007.
Simon Nixon is executive editor of Breakingviews.com