The British have traditionally not worried about selling off national assets. The car industry has been carved up between different global manufacturers. So have the airports, the electricity and water companies, and a big chunk of the media. Even our football clubs are mostly owned overseas these days.
If it moves, we’re usually happy to flog it off to any passing Russian oligarch, American conglomerate, or rising Chinese industrialist. Arguments about national champions and industrial strategy we leave to the French.
And yet the possible sale of the drugs giant AstraZeneca has prompted lots of hand-wringing about the scale at which industrial jewels are sold off.
The opposition is questioning the deal, and the coalition looks to be on the back foot over its support for the £60bn offer from Pfizer. The takeover of central London properties by Russian oligarchs and investors fleeing the eurozone has prompted a similar level of angst.
There is, however, a factor in this debate that no one is mentioning: the trade deficit. The UK buys vastly more from abroad than it manages to sell, and we no longer make up the difference from investment income earned by the City. The only way we can fund that is by selling off assets.
Whether AstraZeneca falls into Pfizer’s hands remains to be seen. It is up to the board, of course, but it is hard not to sympathise with the critics of the deal.
Pharmaceuticals are one of the few technology-based industries in which this country is still a world leader. Takeovers rarely leave much of the acquired company intact – little by little, it gets dissolved into the larger organisation.
The takeover could easily be the first step towards pharmaceuticals going the same way as aerospace or cars – with the UK becoming little more than a manufacturing outpost
for foreign players.
AstraZeneca is hardly alone. We have been selling off industrial giants for years. Cadbury was swallowed up by Kraft in 2010. Jaguar Land Rover was sold first to Ford, then to India’s Tata, which had also bought British Steel. Channel 5 is about to be sold to America’s Viacom. No one would be surprised if other giants of the FTSE went the same way over the next few years.
BP hardly looks safe from a takeover after its troubles of the past few years. Vodafone looks ripe for an acquisition after selling its US interests. No one would be amazed if an American or Asian retailer decided to swoop on Tesco – at is current share price, they would be getting a bargain.
There are a host of reasons for that. The UK has some attractive firms, and it is open for takeovers. Buying firms in France or Japan is virtually impossible (look at the problems GE is having with Alstom right now). Germany is suspicious, and even the US can make it hard for foreign firms to acquire businesses if they are of any strategic significance.
The UK is one of the few places in the world, where, in the past at least, you could make a big takeover without running into a lot of opposition.
But there is another, more important reason. We need the money. The UK runs a chronic and growing trade deficit. In January alone, the deficit was £9.7bn. Last month, it narrowed slightly to £9.1bn, but on an annual basis is rising fast. It is more than 5% of GDP, as high as it has been at any point in the last 30 years.
For a long time, that was balanced by a surplus on investment income – the City earned more on what it invested abroad than foreigners did from buying up assets here. But in the last quarter, there was a deficit on investment income of more than £10bn.
The result? We have to sell assets abroad to fund ourselves. Just as an individual who spends more than they earn has to dip in to savings, or else sell something out of their portfolio every year to stay afloat, so does the UK.
The most extravagant spender in Britain is the government, which even with the economy growing robustly again still spends substantially more than it rakes in from taxes every year, making up the gap by borrowing and printing money. Consumers are no slouches when it comes to borrowing either, especially to buy houses.
That could, of course, be fixed. A massive devaluation of the pound would reduce the deficit eventually. Sterling dropped after the financial crash of 2008 but has since been rising again.
At some level – parity with the dollar perhaps – imports would become prohibitively expensive and might finally start to slow down, and the UK would become such a cheap place to manufacture that factories might start expanding.
But that would involve everyone getting poorer. Prices of all the stuff we import would rise sharply, while real wages and living standards would start to fall. Borrowing would have to be slashed at a stroke.
Yet, as long as the country wants to live beyond its means, there is no point in complaining that assets have to be sold to make up the shortfall. And there is certainly no point in the Labour Party complaining – because it is also the party that wants the UK to spend even more extravagantly on things it can’t really afford.