Tim Worstall

Those Dastardly Foreigners

Tom Bower gets all nationalist on us. How dare those bloody foreigners come in and buy up all our companies?

He rather misses a few things, the growth comes only partially from those mature businesses being sold off and much more from the new companies, those innovating. But still, here’s the number he uses to set us all shivering, quaking in our boots:

Last year foreign corporations spent £75.5bn on British enterprises.

It’s a lot, isn’t it? Well, depends upon how you define "a lot". According to National Statistics

Hey, maybe he’s right! in 50 years we’ll have nothing left: well, except for that pile of cash we’ll have been paid.

Well, umm, no. You see, marketable wealth is rising faster than the rate we’re selling it off at (and yes, these figures do include housing so this isn’t a perfect example but, hey, it’s a blog post), like in the 2002/2003 timescale, 6% or so.

So, what happens is that those bloody foreigners come in, buy up 2% of our assets, but our assets are growing at 6% a year and: hey, this can go on forever. Terrible situation, isn’t it? (admittedly, a 2003 figure) total marketable wealth in the UK was £3,783,000,000. Yes, just under £4 trillion. So, each year we’re flogging off 2% of the family silver.

In

9 responses

  1. john b Avatar
    john b

    He’s an idiot for two more specific reasons:
    1) he’s simply wrong about the water business. RWE (the German firm that owned Thames Water) grouped all its water interests under Thames Water and managed it from the UK – the people working on RWE’s water contracts in China were British engineers.
    2) he doesn’t distinguish between corporate and private equity takeovers. When a firm is bought out by private equity (as with Thames Water, Sainsbury’s, etc), top management is generally left in place – either that or a new management team with relevant sector expertise is brought in. In either case, the people left running the firm are just as likely to be British as when it was quoted.

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  2. dave heasman Avatar
    dave heasman

    3) he has no concept of size –
    “Corus, Britain’s steel industry, was sold to a small Indian company,”
    I thought it was Britain’s and Holland’s for one thing, and the idea of Tata being a “small” Indian company is just ludicrous.
    Sadly his Guardian rant won’t take comments.
    Bower used to be good, thorough and rational but this is just an ignorant rant.

    Reply
  3. Glenn Athey Avatar
    Glenn Athey

    How much do british companies spend on foreign acquisitions? i.e. what is the net effect, rather than just looking at one side of the balance?

    Reply
  4. Serf Avatar
    Serf

    The fact that anyone wanted to by Corus, was an act of mercy from on high. We should sing praises to the Sub Continent and its ambitious businessmen.

    Reply
  5. john b Avatar
    john b

    Glenn: Britain has historically been highly acquisitive abroad, which is why we still receive net annual dividend income from foreign investments. However, last year showed strong positive net FDI (ie foreign spending in UK minus UK spending abroad).
    Serf: that’s simply not true – Corus is one of the most efficient producers of high-margin processed steel, which is why Tata and Brazil’s CSN had a prolonged bidding war for it (they’ve got the cheap labour and the ore, but don’t have Corus’s technical skills).
    Tim adds: Tsk John. Last year saw the Shell restructuring which hugely skewed the figures.

    Reply
  6. john b Avatar
    john b

    The Shell deal was 2005 rather than 2006. According to UNCTAD, UK FDI in 2006 was US$169.8bn (compared to US$164.5bn in 2005, or US$90bn-ish for 2005 net of Shell).

    Reply
  7. William Norton Avatar
    William Norton

    Isn’t the point more basic still? When Johnny Foreigner buys a UK asset it is usual to pay something for it. That will either be cash (so cash is coming into the country) or securities, and the securities will be either UK securities (ditto as for cash) or foreign securities (i.e we’re acquiring something overseas). Now, unless the sellers all go and bury their payments in an iron box in the garden, all UK plc is doing is moving some of its assets from one form into another and we’ll get growth from the reinvestment. Even if the sellers “invested” their reward in a week-long piss-up in a brewery it still spreads the cash to the brewers, who employ workers, buy materials etc. etc.

    Reply
  8. Matthew Avatar
    Matthew

    Not taking Bower’s side, but there is another option to William’s point, which is that the proceeds from capital asset sales are spent on consumer goods abroad (or holidays abroad, if you prefer).

    Reply
  9. Peter Pryor Avatar
    Peter Pryor

    It could also be argued that in a period of asset inflation/over-pricing of assets, vendors are acting very shrewdly in disposing of assets at the top of the market.
    Are assets currently overpriced? Well, the fact that private equity is now reported as looking at film investment and such cyclical businesses as the estate agents, Countrywide would seem to indicate that the more traditional debt financiable assets prices are over-inflated.
    (I have of course been predicting a recession for ten years or so – I’ll be right one day.)

    Reply

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