Beware the protectionist iceberg: The damage is below the surface

Graeme Leach

THE PFIZER bid for AstraZeneca raises, yet again, the spectre of economic nationalism in Britain, albeit in a subtler form. Crude protectionism has been replaced by calls for a new public interest test to govern such takeovers.

But to oppose such calls is not slavish, blind adherence to market dogma. It is merely recognition that actions have consequences, and that the impact of economic nationalism doesn’t stop with the first move. The knock-on effect changes the way overseas investors view a country. They put on a new set of glasses, with a less attractive outlook. And what we don’t see is the takeovers and mergers that would have enhanced economic performance, but now won’t occur. Economic nationalism is an iceberg, with most of the damage done beneath the surface.

There are widespread views on the Pfizer bid, depending on which end of the telescope you look down. Looked at the right way, the issue is simply one of economic freedom. Shareholders should be free to decide who they sell to. End of story. Looked at the wrong way, the issue isn’t one of freedom but of intervention. The government wants to have the right to intervene in the public interest. Why is this wrong? Quite simply because the government isn’t in a position to define what the public interest is. The whole process would become unavoidably political.

Of course, if there were clear evidence of market failure, the case for government intervention would be stronger. But where is the evidence? You can’t make the case for intervention based on second guessing commercial intentions of multinationals. What’s more, the tax attractions of the patent box should make the UK a priority location for the R&D that many fear the deal would jeopardise. Free markets and tax incentives are a potent mix.

We have to trust the market to do its job. Yes, there are scare stories about the consequences for the UK’s science base, but we’ve been here before.

Thirty years ago, economic nationalism centred on the car industry, when we were told foreign players would wreck it. That was a great forecast. The UK is now home to seven volume car manufacturers, seven commercial vehicle manufacturers, nine bus and coach manufacturers, eight premium and sports car manufacturers and eight Formula One teams. An industry once associated with “Red Robbo” and the Austin Allegro is now a shining example to the world. Free trade and capital has been the driving force for a productivity revolution.

Further, government intervention in “strategic” companies is riddled with difficulties. How do you decide what is strategic at the national level? Moreover, looked at objectively, AstraZeneca hardly qualifies as British. It’s the result of a multi-national merger, has major overseas shareholders, and its chairman, chief executive and chief financial officer don’t hold British passports. Hardly the corporate land of hope and glory!

The UK has gross overseas assets in excess of £10 trillion. Isn’t it a little hypocritical to say that it’s fine for UK companies to invest overseas, but the rules are different for foreigners? We need to recognise that nationality is an increasingly meaningless concept in the corporate world. Flying the nationalist flag risks waving goodbye to the firms we want to stay, and those who will never arrive in the first place.

Graeme Leach is director of economics and prosperity studies at the Legatum Institute in London.