Tim Worstall

Foreign Takeovers

Really?

Foreign buyers snapped up more British companies in 2006 than in any
previous year as volumes of European mergers soared to a record high
boosted by strong markets and an ample supply of cheap debt, data
released today show.

From BAA and ScottishPower to BOC Group and the London Stock
Exchange, foreign companies have raided the UK this year, pulling off
$339 billion (£170 billion) of deals.

Terrible don’t you think?

To the extent that these companies were in fact owned by Brits then what’s happened is that some very successful venture capitalists (ie, all shareholders are in fact such) have sold off mature businesses and raised $339 billion to invest in the next wave of new and potentially faster growing ones.

Pretty good, eh? Roll on capitalism’s creative destruction!
 

In

58 responses

  1. Johnathan Pearce Avatar
    Johnathan Pearce

    Martin, I actually commend you to read the great works of two great Scotsmen, Adam Smith and David Hume. They were both globalisation fans, although that was not the word they would have used.

    Reply
  2. Johnathan Pearce Avatar
    Johnathan Pearce

    “And India might not be the best example to use of how wages are going up in the Third World”.
    I am not denying that there are still horrendous examples of poverty, but that wages are rising among much of the population cannot be denied, Martin. There is a large and expanding Indian middle class. They are now active buyers of British firms. Recently, Tata Steel made an multi-billion dollar bid for Corus, formerly British Steel. Other Indian software firms are major players.
    I don’t think that providing examples like this will persuade you, though. I think you are what I would call an economic nationalist. Your arguments, if I can dignify them with such a word, are based on the idea that wealth is essentially fixed, and if X is better off, then they must do so by making Y poorer. It is the oldest fallacy in economics; it is the cause of wars, tariffs (which are a form of economic warfare, by the way), and other beggar-thy-neighbour practices.
    You appear to be a Scotsman. I thought that nation was famed for its cool rationality, for its great Enlightenment. Start living up to your heritage, laddie!

    Reply
  3. Peter Spence Avatar
    Peter Spence

    I’m off down South Parade to kick the fuck out of the first porridge-gobbling bastard I come across.

    Reply
  4. Martin Avatar
    Martin

    Johnathan,
    Re Adam Smith –
    The problem with Smith is that he never read an economics textbook…
    Besides, as Bob will tell you we’re all too busy up here plotting world domination to read Smith and Hume.
    We use ‘The Prime of Miss Jean Brodie’ as our manual.
    “There is a large and expanding Indian middle class”
    They’re expanding so fast they’re becoming obese…
    “They are now active buyers of British firms.”
    Whoop Dee Doo, all our jobs just became that little bit safer, didn’t they?
    “Your arguments, if I can dignify them with such a word, are based on the idea that wealth is essentially fixed, and if X is better off, then they must do so by making Y poorer.”
    Not so. Obviously wealth expands – my beef is with its distribution here.
    Dirty little fact No.1, Johnathan –
    “In the third quarter of 2006 whole economy productivity growth (measured by output per worker) was 2.3 per cent compared with the same quarter a year ago, up from growth of 1.9 per cent in the previous quarter. ”
    http://www.statistics.gov.uk/cci/nugget.asp?id=133
    Dirty little fact No. 2 –
    “Compensation of employees, measured at current prices, rose by 1.1 per cent, compared with 0.3 per cent in the previous quarter. Within this, wages and salaries grew by 1.0 per cent reflecting higher levels of employment and continued growth in average earnings”
    http://www.statistics.gov.uk/cci/nugget.asp?id=192
    These figures mean that productivity is rising faster than wages.
    Maybe (gasp!) – Krugman was right!
    http://timworstall.typepad.com/timworstall/2005/12/paul_krugman_bi.html
    Or else the global labour arbitrage is stealing the eyes out of our heads.
    Peter,
    Fie thee behind me, O Jellied Eel Muncher with a Scottish name!
    Fie, fie thee to a Pearly Queens convention!

    Reply
  5. Bob B Avatar
    Bob B

    Peter – If I were you, I think it’s better to wait until the Haggis Hunting season comes round again when they gather in kilted hordes with whiskey baited breath for the slaughter.
    All that hypocritical stuff about the abominable cruelty of fox hunting when the rural economy of Scotland relies on the mass killing of the grouse – after the grouse have been carefully bred and nurtured for the slaughter, of course.
    As for who am I, let’s just say that I’ve a fond memory of meeting the late John Smith in the early 1980s when he was MP for the notorious Monklands East constituency – of inquiry fame – and shadow Chancellor. He got a tad embarrassed when I mentioned that I was living and working in Glasgow while he was a student at the university there. Ah! those debates in the students’ union.

    Reply
  6. Bob B Avatar
    Bob B

    John Stewart Mill was a committed advocate of free trade but neverthless recognised two valid exceptions – the optimum tariff argument, where a country with buying or selling power in world markets could influence its terms of trade in its own favour, and the infant industry argument for promoting new industries under trade protection until the particular industries became capable of benefiting from the scale economies available to the more mature instances of those industries already established in other countries.
    See, for example, the section on JS Mill here:
    http://en.wikipedia.org/wiki/American_trade
    The essentials of the principle of comparative advantage are simple enough to explain. Transmuted to a modern setting, consider two countries, A and B. In A, in the absence of trading links, say a car exchanges for 20,000 TV sets, while in B, a car exchanges for 25,000 TV sets.
    Ricardo’s insight was that a trader in A could export a car to B and sell it there to buy 25,000 TV sets which could be imported back to country A where 20,000 of the sets could be used to buy another car for export while earning a “gross profit” equivalent to 5,000 TV sets.
    The crucial point about this scenario is that the profit opportunity arises from trade because of the difference in relative prices between the two countries, not to differences in absolute prices (at the current exchange rates between their respective currencies). Country A is said to have a comparative advantage in producing cars, and country B in making TV sets.
    Of course, if the trade builds up, other things equal, there will be an inducement to increase car production in country A while reducing the production of TV sets there. In B, the opposite will happen – car production will be cut back and production of TV sets will increase. And that is the rub. Those engaged in making TV sets in country A will complain at the trade while car makers in B will complain. For all that, both countries potentially gain from the trade because the losers could be compensated in principle.
    Notice, that in Britain, total employment is running at near record levels and the last time I checked the official figures, the London region had a higher rate of unemployment than any of the other standard UK regions. Also note this:
    “London is a major net contributor to the Exchequer: Our estimates suggest that London continues to be a substantial net contributor to UK public finances, by between £6 and £18 billion in 2003-04, despite the deterioration in public finances at a national level, with the mid-point of the range of estimates implying a net contribution of £12.1 billion.”
    London’s Place in the UK Economy 2005-6
    http://www.oef.com/On-Line%20Services/ClientsTriallists/LPUK05FULL.pdf

    Reply
  7. Martin Avatar
    Martin

    BobB
    I suppose it goes without saying that you cocked up the password.
    No such material as ‘whiskey’ is produced in Scotland, which means your name has gone on the list for the day we make our move…
    And you are wrong in respect of the rural Scottish economy’s foundations – that remains picking the tourists’ pockets; the Scottish Tourist Board’s unofficial motto is ‘You will only take my money from me out of my cold dead hands!’
    Re London – the higher unemployment rate probably relates as much to unassimilated ethnic minorities eg the female Bangladeshis in Tower Hamlets who still can’t speak English after being here for 30 years, as anything else. If they got out the house and learned English that alone might impact on the figures.
    Your exegesis on comparative advantage does not explain away the global labour arbitrage. At the moment, A pulls prawns out the sea off the coast of Dumfries and processes them there. In the future, they will still fish off Dumfries, but will ship them to China instead for processing –
    http://martinkelly.blogspot.com/2006/11/scampi-panky_16.html
    In that situation, nothing is being ‘traded’ – a Dumfies prawn remains a Dumfries prawn at all times and under all circumstances.
    All that is happening is that producers are arbitraging their otherwise valid costs downwards.
    If eg Motorola used to make mobiles in the USA and offshores to China, the balance moves away from comparative advantage in trade between nations to one of absolute corporate advantage.

    Reply
  8. Bob B Avatar
    Bob B

    International trade isn’t motivated only by comparative advantage.
    Trade is also motivated by absolute price differences at prevailing exchange rates and by what has been dubbed “reciprocal dumping”. That is where companies producing similar, potentially competing products, which have market power in their respective home markets in the absence of trade, each start to export to compete in their competitor’s home market by price competition.
    London’s persisting unemployment problems are aggravated by several factors besides the huge annual net contribution that London resident taxpayers make to the national exchequer.
    Inner London boroughs include some of the most affluent localities in Europe as well as some of most deprived districts in Britain. There is a mismatch in the inner boroughs between jobs and skills available, hence the daily commuting round in which skilled workers travel in from outer boroughs and beyond to work in the offices and stores located in inner London. While there’s no doubt that the financial markets in London are hugely successful, even as compared with other, rival international centres, there are significant imbalances between the demand for and supply of skills.
    A sign of the times – a store in one bustling outer London borough’s flourishing shopping centre selling clothes for ethnic Indians has recently closed down and reopened as a store specialising in Bulgarian foods. I’m hearing a lot of east European languages spoken in the stores and on the buses these days.
    By reports in today’s news:
    “A growing tide of migrants is heading across the world – from Britain to India”
    http://www.timesonline.co.uk/article/0,,2-2516317,00.html

    Reply

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