Are national champions an endangered species? That seems to be the implication of this week’s statement from Unilever. Having just rebuffed an unwanted takeover bid from a foreign predator, the Anglo-Dutch group is suggesting that controls over foreign acquisitions should be tightened, especially when the target is a large company which plays an important role in the economy.
These remarks echo the sentiments expressed by Theresa May soon after becoming prime minister. She deplored the fact that, when AstraZeneca, the pharmaceutical company, faced a takeover bid from Pfizer of the US, the government had no power to intervene.
Protecting the crown jewels of British industry sounds an attractive policy, but it raises some difficult questions: how to decide what counts as a national champion or a strategic industry, and how to work out what would be lost (or gained) if it passed into foreign control. Such decisions are inevitably influenced as much by politics — and by lobbying — as by economics. Raising the national flag is one way of fighting off a foreign bidder, as in the famous case when, in the mid-1980s, Margaret Thatcher’s government tried to sell the two parts of state-owned British Leyland, cars and trucks, to Ford and General Motors. When news of these negotiations leaked out, Mrs Thatcher wrote in her memoirs, “a kind of pseudo-patriotic hysteria swept politics and the media”, and she was forced to break off the talks. It was a sorry episode. “The idea that Ford was foreign and therefore bad was plainly absurd.”
As it turned out, the good parts of British Leyland were later bought by foreign acquirers, and they have done well. In cars, as in other industries, an open policy towards inward investment has brought capital, technology and management into the economy, with consequent gains in productivity.
It is true that some foreign takeovers have worked out badly, but that can also be said of mergers between British companies. If there is to be a new public interest test for judging takeovers, it is not obvious why it should apply only to bids from overseas.
The introduction of such a test would involve asking regulators to make predictions about what will happen to the two businesses after the takeover — whether efficiency will improve, exports increase and so on. These are not judgments that regulators are well equipped to make. The result would be to inject an undesirable element of arbitrariness into merger control, a return to the bad old days of competition policy when criteria for assessing the suitability of an acquirer were vague and decisions unpredictable.
Is there, nevertheless, an argument for treating science-based or high-technology industries as a special case? This was implicit in Mrs May’s AstraZeneca reference. Along with GlaxoSmithKline, the company is one of only two world-leading British-owned pharmaceutical businesses and its “loss” to a foreign acquirer was seen as a threat to the health of one of the UK’s few internationally competitive industries.
How much damage a Pfizer acquisition would have caused is open to question. Mrs May spoke of the American company’s “record of asset stripping”, but it is reasonable to think that if the UK is a good place in which to discover and develop new medicines the new owners would continue to invest in AstraZeneca’s British laboratories.
In any case, whether AstraZeneca stays independent or not is less important than the strength of the life sciences industry as a whole. That depends on creating an environment which encourages companies of all shapes and sizes, and all nationalities, to undertake research, development and production in the UK — not on national champions.
Policymakers often look enviously at the US and wonder why Britain has failed to produce world leaders comparable to Google in information technology or Amgen and Biogen in biotechnology. But the rise of Google was not due to government direction or planning. It emerged from a competitive process that pitted its founders, Sergey Brin and Larry Page, against other scientist-entrepreneurs who were pursing different approaches to search engines.
Intense competition is a key ingredient in the US innovation system. It is reinforced by other features of the business environment that help new entrants to get started, grow, and challenge the dominant players. These include publicly funded research on a very large scale, effective arrangements for financing each stage of development — from start-up to public flotation — and entrepreneurial universities, which encourage scientists to move from academia into business, and back again.
On these fronts the UK has made progress. The number of promising science-based companies coming out of universities has increased, and they are generally better financed. But there is still some anxiety that the best of them — potential national champions — are bought up, often by non-British acquirers, before reaching their full potential.
How much should we worry about this? In the case of biotechnology, several early-stage UK businesses have recently been bought by Japanese companies. Yet there is every reason to suppose that the new owners will continue to invest, to the benefit of the British biotechnology sector.
Inward investment is not a panacea, and if there are obstacles that make it difficult for homegrown business to get bigger the government should seek to remove them. But it should stop worrying about protecting national champions. Perhaps the phrase “national champions”, like “picking winners”, should be consigned to history.
This piece first appeared in the FT