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The Times: Britain's multinationals will be missed when they are lost

By Graham Serjeant, Financial Editor
POOR countries and their champions perennially complain that globalisation undermines democracy; they cannot control their own countries because the businesses that matter are controlled by foreign multinationals.
Aside from a secretly patronising feeling that this might be a good thing, we counter that the benefits of investment by multinationals swamp any drawbacks. They can bring world-class technical, managerial and employment standards; they invest and aid local industry by linking it with a network of customers, services and markets. Multinationals can be more accountable, via the power of Western consumers, than many local firms in corrupt countries. And at the most basic level, democratic control is less of a prize if there is not much business to control.
The ideal, though, is to have your own multinationals. The UK has enjoyed this blessing in abundance. We have been open to inward investment and gained inestimable benefit from such foreign multinationals as Ford, IBM, Toyota, McDonald’s and even H&M. France, which was traditionally hostile to American or Asian investment, has only recently realised what it has been missing.
We have also been blessed with a wide array of British multinationals but, unlike France, we have taken them for granted. We tend to despise our own. BP and Shell are pilloried for making record profits when oil prices are painfully high but there is little public criticism of Opec, the Saudi national oil company or Exxon Mobil. Governments of different parties have wilfully destroyed or undermined potential British winners, such as the former British Gas and British Telecom.
From café to Cabinet, most of us do not even realise how important and far-reaching most of these groups’ international operations are. BOC, once British Oxygen, seems an obscure company if you do not know that it is a world leader earning only a small fraction of its profits in Britain.
A string of takeover bids has suddenly made people aware that most of these British multinationals are disappearing or, more accurately, being taken over by foreign groups that realise their value better than we do. This process has been going on for many years. Most of the UK power and building materials industries, for instance, have quietly gone. But it is hard not to notice when the guts are being ripped out of the top UK companies that make up the FTSE 100 share index.
These takeovers have little to do with relative efficiency or quality of management. In the dash for European consolidation, UK companies are uniquely available and unprotected. The City and big business have engineered it that way. They set up corporate governance systems that have set boards and institutional investors at arm’s length, often making their relationship adversarial.
Cross-holding and joint ventures are discouraged. Groups such as P&O were encouraged to split into bite-sized chunks, a process that may soon reach Vodafone and Lloyds TSB. Cash-hungry governments sold stakes in privatised groups such as BAA, relying on golden shares that were ruled illegal by the European Court. Practices are different in France, Germany, Italy and Spain, in spite of pressure from fund managers and the European Union.
As a result, there is nothing to bridge the gap that may exist between the value of a company’s equity shares as financial instruments and the value of the company as a business asset. This gap, though unmeasurable, appears to have widened.
UK share ratings are modest by historical standards, even though long-term interest rates are unusually low. Pension funds have been moving out of shares into bonds for prudential reasons, so fund managers are therefore keen on bids that create price premiums and reduce the supply of shares.
The value of multinationals as business assets is rising strongly as the world economy expands and growth shifts from Europe to Asia and America. If a company is earning good profits, its business value is generally the cost of replicating its physical and intangible assets, plus the value of risk avoided by buying them ready-made. BPB, the unique plasterboard multinational, P&O’s network of ports and BOC’s global market positions are virtually irreplaceable and would cost many times their stock market value. BAA, which owns Heathrow, Gatwick and Stansted, recently paid £1.3 billion for majority control of the relatively small Budapest airport, but the whole company was valued at £7 billion before a bid was mooted.
Government attitudes vary too. In France, an approach for the Luxembourg-based Arcelor steel company was immediately opposed by the French Government, swiftly followed by Spain and Luxembourg itself. Neither UK government ministers nor the Opposition reacted to the news about BAA. In the UK lexicon of correctness, it is laughable to be concerned with ownership. While secretly jealous of French robustness, we publicly lambast their attempts to interfere in free markets.
Emotional nationalism does not make for good economic and industrial policy. But domestic companies are national assets: ask Australians. And losing company headquarters and all the professional functions that go with them is bad for jobs and wealth: ask Scots or Liverpudlians.
You do not have to be nationalistic, for instance, to realise that losing so many UK multinationals is making it hard to construct a balanced savings fund in sterling and makes the euro the natural currency of more UK business. Joining the euro is years closer.
There should be a two-way relationship between domestic multinationals and democratic institutions, in which each can ask the other for help when it matters. Whatever the British public or the UK elite want, we can no longer promote development of eco-friendly building materials, quieter jet aircraft, low-pollution cars, clean coal or, in many sectors, high-quality pensions. If the Government opts to replace UK nuclear power plant, there will probably not be a UK company capable of doing so.
Critics of airport expansion say it would serve BAA right to be taken over because it cooperated with government policy. They have a point. If democracy is not to be trusted, then the fewer UK multinationals we have the better.
graham.se[email protected]

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