Tim Worstall

Will Hutton on Dem Dang Furriners

Will Hutton’s getting all upset because Johnny Foreigner is buying up all these large British businesses:

Over the past few years there has been an extraordinary loss of
British sovereignty. One in five of our leading companies has become
foreign-owned in a buying spree unprecedented in our or any comparable
western country.

Nearly all our investment banks are
foreign-owned, as are many of our utilities and strategic sectors,
including steel production. Centrica, owner of British Gas, is widely
expected soon to receive a bid from the Russian GazProm; and the
Chinese government has just set up a $200bn fund to buy foreign
companies, with Britain among its top targets.

About this
Britain’s newly minted nationalists – nearly all the right-of-centre
press, the Conservative party and the UK Independence party – are mute.
Manchester United supporters had a short-lived protest against the
American takeover of their club, but apart from that the British seem
remarkably relaxed about so much foreign ownership. No political party
seems to think it matters.

Could be that we don’t get upset about it because they aren’t our property? Whether it’s some bloke in Rotherham, one in Rostock or one in Ryazan (or any mix and match selection) that owns Corus makes bugger all difference to me. It’s still someone else’s property to do with as they wish and I trust in their enlightened self-interest for a supply of steel at the market price.

Or it could be that we pay attention to research coming out of the LSE:

Productivity is a key indicator of economic health and increasing productivity has been a key objective of the Labour government since 1997.
…
UK productivity benefits from a high degree of competition and openness to trade and foreign investment.

So Johnny Foreigner investing here increases productivity….which then makes us all richer. So if I can pay attention to what one of the leading economics universities in the country is telling us, why can’t Will Hutton?

Note. Will Hutton is on the Court of Governors of the London School of Economics.

In

11 responses

  1. ChrisM Avatar
    ChrisM

    “Over the past few years there has been an extraordinary loss of British sovereignty. One in five of our leading companies has become foreign-owned in a buying spree unprecedented in our or any comparable western country.”
    Isn’t this the same guy with a total hard-on for the EU?!?! So he thinks that the loss of “sovereignty” of British companies is a bad thing, but the loss of sovereignty of Britain is to be applauded and accelerated.

    Reply
  2. Mark Wadsworth Avatar
    Mark Wadsworth

    a) Johnny Foreigner buys UK company = outcry.
    b) UK company opens factory abroad = outcry.
    Surely a) is the equal and opposite of b)?
    I am not bothered about either, but the people who complain about a) tend also to complain about b). Why? Can’t they at least be consistent?

    Reply
  3. ChrisM Avatar
    ChrisM

    “a) Johnny Foreigner buys UK company = outcry.
    b) UK company opens factory abroad = outcry.”
    Well, to play devil’s advocate, the opposite of a) is British company buys a Johny Foreigner Company, whereas the oppoiste of b) is Foreign Campany opens a branch factory here. Still, your wider point I think is spot on. Some people will complain no matter what businesses do. And Will Hutton is certainly one of those people.

    Reply
  4. Mark Wadsworth Avatar
    Mark Wadsworth

    True, these are not exactly equal and opposite, but close enough.

    Reply
  5. Bob B Avatar
    Bob B

    To my recollection, the association between profitability and foreign ownership of companies in Britain has been a recurring subject of research interest because of concerns, going back 30 years and more, into the relative quality of British management.
    I can recall studies from decades back showing that, generally speaking, British managers and company directors were less well professionally qualified than their counterparts in peer-group countries.
    Such findings were all an outcome of frequent diagnostic exercises seeking to account for the relatively poor performance of the British economy during the post-WW2 period through to end 1970s. The diagnostics partly or even mainly accounts for much of the strong emphasis put on welcoming inward foreign direct investment by Conservative governments of the 1980s and 1990s.
    And even by the late 1990s, we have this key finding in a paper by Nick Oulton: Labour Productivity and Foreign Ownership in the UK (1998):
    “Foreign-owned firms in manufacturing have substantially higher labour productivity than domestically owned ones. Furthermore, the productivity gap is at least partly explained by the fact that foreign-owned firms have higher capital intensity and use more skilled labour than their domestic counterparts. These findings apply to the UK (Davies and Lyons 1991; Oulton 1998b), the US (Doms and Jensen 1998) and Canada (Globerman et al. 1994). For the UK, this internal productivity gap between foreignand domestically-owned companies is comparable in size to the gap between UK manufacturing and e.g. German or French manufacturing as a whole.”
    http://www.niesr.ac.uk/pubs/dps/dp143.pdf
    However, the latest DTI report on Innovation: Company Ownership and Profitability (2007), reports this:
    “The UK listed companies are the largest by average size and show higher growth, wealth creation efficiency and profitability than the other two groups. The foreign-owned companies fall between the listed and private UK companies in all parameters except profitability where they are lower than the private group by 5%. There is clearly a sector mix effect here with, for example, the foreign-owned group much more strongly represented in sectors such as oil & gas and general financial than the privately-owned UK group.”
    http://www.innovation.gov.uk/value_added/default.asp?page=46
    Given that foreign ownership of companies in Britain is not (reportedly) evenly spread across all sectors, delicate issues such as transfer pricing presumably introduce an imponderable factor. I was surprised, I must admit, by the current extent of foreign ownership of companuies in Britain:
    “Foreign ownership of British companies has risen from 30 per cent to 50 per cent over the last 10 years, according to new analysis from the UK’s Treasury.
    “The surge in foreign ownership reflects the recent wave of takeovers by overseas companies and the increasingly international outlook of institutional investors, which partly stems from the controversial tax changes affecting pension funds introduced by Gordon Brown, the chancellor, in 1997.”
    http://www.ft.com/cms/s/c87d8d92-2267-11dc-ac53-000b5df10621.html
    Famously, Singapore and Ireland have done very well acting as welcoming hosts to foreign-owned companies but issues do arise as to the impact on GNP, compared with GDP, when the repatriation of profits is taken into account and there are also natural and valid apprehensions about which branch plants and offices are most likely to have to bear the brunt of closures in the event of significant international recessions.
    International comparisons of company profitability are notoriously fraught but this study, published by the ONS in 2000, shows the rate of profitability of British companies compares favourably with many peer group countries for which data are available
    http://www.statistics.gov.uk/articles/economic_trends/International_comparisons_of_Company_Profitability.pdf
    That could help to explain why companies in Britain have appeared so attractive to investors in other countries.

    Reply
  6. ChrisM Avatar
    ChrisM

    True, I was being a pedant ;-). It is similar as well to the “brain drain”. Apparently it is both a problem when we lose our talented people overseas AND also a problem when we attract talanted people from overseas (I am thinking of the NHS in particular). People who fret over such things seem to be totally oblivious to the notion of trade-offs and everything is either all good, or all bad.

    Reply
  7. dearieme Avatar
    dearieme

    Could be that British companies are wildly over-valued and that foolish foreigners are buying them before the chickens come home to roost. Reminds me of Daimler buying Chrysler or BMW Rover. Or the many failed attempts of British compoanies to make a go of companies they’ve bought in the States.

    Reply
  8. Bob B Avatar
    Bob B

    The senior execs of a long succession of British companies have fallen flat and made huge losses for their companies trying to make it in the US market. Believe me, it’s a route to perdition well-recognised by some regular observers of industrial markets – I can recall several personal conversations about this going back into the 1980s – think: Whatever happened to Acorn Computers/Midland Bank/M&S etc in America?
    Despite that, British companies still keep trying:
    http://www.economist.com/displaystory.cfm?story_id=9358986
    And we continue to cheer them on.
    About 20 years back, some genuinely successful pioneering entrepreneurs took it upon themselves to take me aside and give me some personal advice which included, among among things: Never, ever get involved in a market you don’t understand. I remember that.
    Even taking the good years with the bad, many motor manufacturers aren’t adding value. There’s too much production capacity in Europe and North America overall so the players are all looking for some wheeze to create hope.

    Reply
  9. Glenn Athey Avatar
    Glenn Athey

    All the HM Treasury and LSE research on productivity shows that FOCs have higher productivity.
    Other evidence such as London Annual Business Survey shows that FOCs are more likely to invest in innovation and staff training.
    Big companies – they are like countries in themselves. They sure don’t give a hoot about the British National Interest. They are in it for themselves. Why pretend otherwise?
    And then who are the shareholders etc – spread across the world probably.

    Reply
  10. Jeremy Jacobs Avatar
    Jeremy Jacobs

    “Over the past few years there has been an extraordinary loss of British sovereignty. One in five of our leading companies has become foreign-owned in a buying spree unprecedented in our or any comparable western country”
    What nonsense from the statist/federalist/protectionist/socialist Hutton. The only loss of real sovereignty has been the selling down the river to the EUssr of this country by traitors like Blair and Heath.

    Reply
  11. Tim Newman Avatar
    Tim Newman

    One in five of our leading companies has become foreign-owned in a buying spree unprecedented in our or any comparable western country.
    And those of our leading companies which haven’t been bought out, such as Tesco, we are campaigning to have their profits capped.

    Reply

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