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Tuesday, June 06, 2006

Ramblings on Globalisation

Being neither a "send them all back" nor a "let them all in" type I try and avoid getting involved in debates on the Net and elsewhere about immigration. The former would castigate me as a "traitor", the latter a "racist", and I don't think myself as either! I believe, for what it's worth, that I'm a supporter of controlled immigration, as I think most people here are.

However, I do find it funny people who want everything foreign (cars, clothes, food, music, tv, films etc) here except foreign people themselves. Furthermore, there seems to a lot of people who object to living next door to someone from abroad, yet have no objections to an overseas company setting up in their area, a company that might pull out not that long afterwards and cause more disruption to the local social fabric than a new next door neighbour ever could.

At the moment it seems that Britain has the "up for sale" sign for the whole world. Nowhere outside the political fringe does anyone seem to care that the UK economy is being increasingly "globalised". This might be just the bleatings of someone who is a "protectionist" (although why is "protection" seen as "a good thing" in everything but economics?), but I think it will ultimately not do us a lot of economic good at all.

This takeover free-for-all just isn't delivering the goods: There is scant evidence that selling off British companies has given our economy the edge over its European competitor
Larry Elliott, The Guardian, Thursday March 30, 2006

Twenty years ago there were demonstrations in St Helens when the glassmaker Pilkington was threatened with a takeover bid. At the zenith of Thatcherism, the town was mobilised to fend off a hostile approach from BTR. Pilkington's own history describes how employees, the local community and parliamentary opinion defended the company's "long-termist approach to running its business".

Early this year Pilkington was sold off to a Japanese glassmaker, Nippon Sheet Glass, with barely a whisper. Pilks was in a strong position to defend itself. It was a world leader in glass technology and was also two-thirds of its way through a restructuring plan under which it had hit every target for cost reduction. Nevertheless, the board at Pilkington - a very different board from that of 1986 - had little hesitation in cashing in its chips.

The culture change in the past two decades is stark. If a Spanish company wants to bid for BAA, let it do so. If a couple of investment trusts from Canada and Singapore can raise £2bn to make an offer for Associated British Ports, let's see the colour of their money. If Gazprom fancies Centrica, what's wrong with one of Britain's gas-distribution companies being in the hands of the Russians, provided the price is right? Today's orthodoxy is that Britain is open for business - and a good thing too.

According to the government, free-market UK is leaving the rest of Europe for dead. Not for us the narrow nationalism of the French or the Germans. The argument in favour of putting companies "in play" is that it forces management to pull its socks up. Greater efficiency means lower prices for consumers, and a blast of competition does wonders for those sleepy old boards that have failed to maximise returns for their shareholders. And since more than half of us, by virtue of our pensions, are arms-length shareholders, we all benefit from an environment in which takeovers are not just permitted but welcomed.

Although the crisis in pensions would appear to undermine this argument, there have been studies showing that, when it comes to management, Britain has plenty to learn - particularly from the US. The financial problems of the NHS are the result of a failure of management in certain trusts. No question, management could be improved in both the public and private sectors. Takeovers can sometimes be beneficial, though there are ways of improving performance short of a full-blown takeover.

There are three reasons, however, for being sceptical about the free-for-all in the UK. The first is the lack of reciprocity. French firms can buy up UK electricity companies, but UK firms can't buy French companies. This is the least compelling economic argument. If a liberal approach is the way ahead, it shouldn't matter to Britain if it acts unilaterally. Politically, though, it does matter - because the climate in which business operates is profoundly influenced by the message it gets from government.

The second reason is one of economic security. Within 10 or 20 years, western Europe - including Britain - will become increasingly dependent on natural gas from Russia, which has the world's largest reserves. It is in the interests of the Russians to buy up distribution companies in Europe so that it controls the supply chain. Governments in the rest of Europe clearly have concerns that this will make them vulnerable. Every government has no-go areas: bits of the economy it considers so strategically important that they are not for sale. The US - witness the row over control of its ports - is closer to mainland Europe in this respect than to Britain.

Finally, there is the matter of whether the liberal approach actually works. It definitely works for the movers and shakers of the financial sector, though it is harder to find evidence of benefits to the economy as a whole. Take the question of research and development, a subject close to Gordon Brown's heart. One of the arguments against foreign takeovers in the 1980s was that they would turn Britain into a screwdriver economy, with R&D taking place back at company HQ in Detroit or Osaka. The government's latest data seems to bear out these fears. More than 50% of the UK's R&D is accounted for by just two sectors - pharmaceuticals and aerospace - and they just happen to be the two in which the government retains some control through the NHS and the Ministry of Defence. In other sectors, Britain is nowhere.

Work by Karel Williams and his colleagues at Manchester University has shown that big mergers and takeovers have had no impact on company performance. Over the past 25 years sales and profits of FTSE 100 companies have risen by about 3% a year - broadly in line with the growth rate of the economy - but salaries in the boardroom have gone up by 25% a year. Where share prices have gone up, it is not usually the result of a new broom sweeping clean but more often of lower interest rates and irrational exuberance.

Williams's point is that the liberal attitude to takeovers is indicative of an environment where "national success is no longer indicated by production, employment and trade balance but by consumption, labour-market flexibility and financial-market priorities, so that it is the latter group of indicators that generally get most attention".

There are precious few institutions left in which shareholder return is subservient to other concerns. The NHS is one. The BBC is another. This newspaper is run by the Scott Trust (on which I sit), and that prevents a tycoon moving in with a plan to sweat the Guardian's assets. Our stakeholders like it that way. There's not much demand from the readers for a takeover from Bertelsmann or News International. Nor would the staff fancy it much.

But elsewhere the neoliberal revolution is complete. Modern Britain is a Shangri-la for speculators in which firms are there to be bundled up and bought and sold. Keynes warned us many years ago: "Speculators may do no harm as bubbles on a steady stream of enterprise ... But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done."

So how well is the job being done? Here's a test. Which country out of Germany, France and the UK has seen manufacturing output stagnate since 1997 and is now running a trade deficit of 6% of GDP? Clue: it's not Germany. Or France.

Larry Elliott is the Guardian's economics editor

It seems that our ruling elite are the only one of a major economic power not to give a damn about who buys them up. Even the USA, often seen as the main force behind globalisation, is wary of being too dominated by overseas companies. Hence it's not just "Old Europe" (any term popularised by Don Rumsfeld has got to be fundamentally cobblers) who have qualms about the unintended consequences of making the planet one big playpen for transnational corporations...

Americans, having trumpeted globalisation, are suddenly bleating about what it means for jobs and sovereignty
Lindsey Hilsum, New Statesman, Monday 10th April 2006

The French understanding of history is in jeopardy. I know this because an earnest young man pulled my arm during one of the many protests in Paris over the past couple of weeks to tell me that the archaeologists were on strike.

"Please report that," he said. "The archaeology departments in the universities are closed."

"No archaeology!" I exclaimed. "Zut alors!" That got me thinking - are les manifs, as the French call these demonstrations, ahistorical? That's what les Anglo-Saxons tend to think. We hated Margaret Thatcher, but even some New Statesman types are secretly grateful because her loathed-at-the-time economic strictures dragged us into the 21st century. Now we have only 5 per cent unemployment, while it is 9 per cent for the French, rising to 23 per cent among the under-25s.

About five years ago, I asked Daniel Cohn-Bendit to describe the legacy of the 1968 rebellion in Paris, which he had led. "Socially, we won," he said. "But economically, we lost." Now a German Green MEP - he had dual citizenship and the French didn't want him - he said that history would see 1968 as the beginning of profound social change across Europe. It paved the way for feminism, the gay movement, a breakdown in rigid family structures and a wider tolerance of sex before marriage, ideas now widely accepted. Yet the socialist economic model of the '68 revolutionaries was exposed as a failure even before the Berlin Wall fell, when we finally understood that the Marxist idea of "from each according to his abilities, to each according to his needs" was a utopian vision, not an economic policy.

This theory explains British politics of recent years. The Tory party was ahistorical when it rejected the socially libertarian, economically liberal Michael Portillo in favour of "family values" candidates. Labour rode the historical post-'68 tide by embracing social change at the same time as accepting capitalist realism. David Cameron may yet be too late.

Cohn-Bendit describes the actions of French protesters as "defensive, based on fear of insecurity and change". I think he's right. It is hard to sympathise with the students when a majority declared in a recent poll that their highest ambition was to become a civil servant. The slogan "Non à la précarité" ("No to insecurity") is scarcely compelling as it shouts for cradle-to-grave benefits rather than revolution.

We like to mock the French, who are delightfully easy targets. Where else would les intermittents - intermittently employed actors - go on strike? In a wonderfully headlined article, "Les intermittents contre l'hyperflexibilité", Libération revealed that they were late for the strike, presumably because they couldn't get up in time.

None the less, I suspect that les Anglo-Saxons may also be late and ahistorical. The Americans, having trumpeted globalisation and free trade, are suddenly bleating when they find out what it means for jobs and sovereignty. They don't like outsourcing when companies sack expensive US-based workers in favour of cheaper labour offshore. Congressmen blocked a deal whereby a Dubai-based firm would run US ports, even though it was clearly capable. It was racism pure and simple - this company is Arab, so, politicians concluded, there must be a risk of terrorism. Similarly, a bid by the China National Offshore Oil Corporation, a state-owned company, to buy the US firm Unocal was withdrawn in the face of opposition. Free trade and the open market are fine until perceived as bad for American interests.

What no one predicted in '68 was global economic integration and the coming issues of immigration and race. In the joyless suburb of Clichy-sous-Bois, centre of November's anti-establishment riots by black and Arab youths, I found little interest in this year's demonstrations. Sitting in a smoke-filled Turkish café, Youssef Bouzide, a thoughtful, sad-eyed man of Moroccan origin who founded the "Collective Association of Liberty, Equality and Fraternity United Together", was more concerned about improving education for deprived children, and an anti-racism exhibit he is organising. Young men hanging around the bleak shopping centre were not heading for Paris to demonstrate - although they were vaguely against anything the government proposed - because they did not feel part of French society, with its ritual manifs and sense of historical vindication.

In the end, France, Britain and America are living the same historical moment. What the establishment fears is the Other - L'étranger, as Camus put it - whether it be the black and Arab youths of Clichy-sous-Bois, Dubai Ports World, or Britain's post-colonial, alienated Muslim youth. Yet those issues are already nearly history. The US and Europe are about to be hit by the economic power of China and India, and the pressure of well-educated Chinese and Indians pulling economic levers across the world. This is their century, not ours. The French may be behind the times, but we may all soon be swept away by the tide. Smugly, we might feel that the French demonstrators are bogged down by an old social model while we slip ahead. But the pace of economic change is now so fast that even keeping still makes no difference. We are all marching backwards from the Place de la République to la Bastille, and who knows where after that.


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