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| by Rainer Heufers |
There are numerous practical examples which have proven the futility of policies to create national champions. The former monopoly on fixed-line telecommunication services in Germany wasted money trying to prevent the eventual success of data exchange networks based on the US American TCP/IP protocols. The French government spent billions of Francs in the sixties and seventies on the development of the unsuccessful ultrasonic Concorde planes. Billions more were spent in vain to establish a French computer industry. Last but not least, European governments established the costly European Airbus Industries because they were troubled by a pre-existing duopoly of Boeing and McDonnell-Douglas in the United States.
So, why do politicians still favour national champions?
Politicians favour the idea of national champions because it has the potential of benefiting them twice. Firstly, they will get positive publicity by opening the headquarters of a national champion in their own jurisdiction. Secondly, when champions have finally absorbed all government support and become terminally ill, politicians might appear as guardian angels. The former German Chancellor Schroeder set the example by rushing to his home constituency in support of the ailing construction company Holzmann, of course shortly before elections, only to let it die straight after the votes were cast.
When the Spanish electricity giant Endesa was weak enough for a hostile takeover in September 2005, the Spanish Prime Minister Zapatero welcomed the takeover bid by the Spanish-Catalonian gas company Gas Natural. The offered payment of 21.3 Euro per Endesa share was largely seen as a “political price”, because the German E.ON company later offered 40 Euros. It appeared that by favouring Gas Natural, Zapatero was about to agree to a loss of about 20 billion Euros for political reasons.
In the end, the Spanish construction company Acciona bought 21% of Endesa shares and the Italian state-owned electricity giant Enel acquired another 25%. Endesa remains a national Spanish champion because the Spanish company controls 50.01% of votes in the joint holding company. The Spanish government prevented effective market competition, for which it will be taken to court by the European Commission. National takeover laws and shareholding regulations have been stressed to such an extent that the national stock exchange supervisor resigned.
European governments are under political pressure to defend their champions
Once national champions have received government support, then any European government is under considerable political pressure to make sure the company remains under national control. The Italian government has established rules to control foreign investment in strategic business sectors. A cabinet decision by the French government requires mandatory government approval for international investment in sectors, ranging from defence industries and private security firms to casinos. Last but not least, the Committee on Foreign Investment in the United States made international news when it rejected a Chinese takeover bid for the American oil company Unocal and a bid by Dubai Ports World for the management of six American seaports.
Meanwhile, England has for some years been experiencing a tremendous surge in takeovers. Its liberal regulations have allowed international investors to buy controlling stakes in major British corporations, including their traditionally renowned banks and the automobile industry. The national economy has done extremely well under its liberal takeover regulations and a generally favourable business environment keeps investment and company headquarters in the United Kingdom. This is generally known as the “Wimbledon effect”: There are no more British champions, but the tournament is still held in England.
The encouraging example of Britain cannot hide the fact that there is still much emphasis in Europe and the United States to defend their national champions. The growth and welfare effects of such corporations can at best be doubted; considering the opportunity costs and the impact on taxpayers, however, it can be assumed they create an actual loss for society.
Shouldn’t Asians government also try to create and protect their own champions?
In Asia, the People’s Republic of China also follows a policy of national champions. China may have the financial resources for this policy. More importantly, however, in the absence of democracy, China does not need to declare its gains and losses or to justify its expenditures to the Chinese taxpayers.
Other Asian governments, which subscribe to the rules of representative democracy, are to account for the money spent. However, there is often a close proximity between politics and big business, which breeds the infamous trio of “corruption, collusion and nepotism”. Also, many Asian democracies are still rather immature, resulting in a general weakness of checks and balances, including ineffective legislatures, unsound auditing institutions, and lack of press freedom.
Under these circumstances, a policy to build and protect national champions will not only repeat European and American mistakes; it will probably come at a much higher price than in Europe and the US. It might ultimately destabilize Asian societies and discredit democracy and market economy in Asia.
Rainer Heufers, FNF Malaysia Representative
(This article has been adapted from the longer essay “The European Union and its large corporate champions” at www.fnfmalaysia.org)
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