Wednesday 7 May 2014 9:33 pm

An open letter to protectionists in all the political parties

Dear protectionists

I fear that you haven’t fully thought through your opposition to Pfizer’s bid for Astrazeneca.

So here are a few questions for you;  sorry in advance for being blunt. Why do you think you have a special, superior knowledge about which companies should be protected and encouraged, and which shouldn’t be? Do you think that entrusting such powers to politicians will lead to a sensible outcome, rather than mad vote-chasing? If you support giving them to an “independent” quango, how would it surmount the knowledge problem inherent in picking winners and losers? Why would it not take risk-averse decisions? Who would have guessed that Tata could make Jaguar Land Rover into a roaring success, but that Ford couldn’t?

Nobody can possibly predict which business models, strategies, innovators and companies will be the best stewards of assets over the next 5-10 years. That is why we have markets: they create and aggregate information and on average and over time make decisions that are less imperfect than those of planners and bureaucrats.

Many protectionists believe that foreign firms would be more likely to cut jobs in the UK than UK-based firms. But what rigorous evidence is there that this is true? In reality, none at all. There are huge numbers of job cuts every year across the economy, and an even greater number of jobs created, mostly by UK-owned firms. You seem to think that it would be a scandal were a Pfizer-owned Astrazeneca to make UK job cuts, but where were you when Astrazeneca announced its own job cuts – thousands, including many in R&D – earlier this year?

I’m not taking sides between the two firms here, by the way; that is for the shareholders to decide. Incidentally, have you noticed that lots of Pfizer shareholders are actually British, and many Astrazeneca investors are foreign? And that countries that ignore property rights, including the right of owners to sell an asset to who they want, tend to underperform? In any case, Pfizer has also cut lots of jobs, as has the troubled Big Pharma industry as a whole. Both it and Astrazeneca are commercial businesses fighting in a fast-changing, highly competitive pharmaceutical market. Both would have to take tough decisions and both could easily make terrible mistakes.

Here is another point: are you sure large multinationals are the right place to conduct R&D these days, rather than university offshoots or start-ups? I don’t know either, but this highlights the conservatism of protectionism.

Some believe that British jobs ought to be the “sole consideration” of whether the bid should be allowed to happen or not. Really? The sole consideration? Over what time period? So should jobs be kept going even when they are not viable? Should taxpayers subsidise them? What about the new jobs that won’t be created in other industries as a result of the extra taxes paid? Should there be a stop to productivity, innovation or mechanisation?

Others worry about intellectual asset-stripping. But how often does that really happen? There are lots of cases of UK firms destroying themselves through bad decisions, intellectually stripping themselves. That’s not the preserve of foreign buyers. In fact, there is lots of evidence that multinationals bring new techniques and knowledge to their overseas subsidiaries – in other words, that they build assets, rather than strip them. Again, this is about picking “good” versus “bad” firms – an impossible endeavour. Britain’s science base could do well under foreign ownership, or it could do badly under UK ownership – or vice-versa. The key determinant here is the economic framework, the quality of schools and universities, the availability of venture capital financing and the entrepreneurial culture. Answers on an email, please.

Best wishes,

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