One of the most important contributions which Britain made to the prosperity of the world in the 19th century was the repeal of the Corn Laws in 1846.
One of the most important contributions which Britain made to the prosperity of the world in the 19th century was the repeal of the Corn Laws in 1846. By removing tariffs and other barriers to imports — and without demanding reciprocal concessions from other countries — the British government led the way in promoting the virtues of the free market, and helped to set in train the first wave of globalisation.
So much is familiar to students of British economic history. What is less widely appreciated is that Britain today is setting an example to the rest of the world on an issue closely connected with free trade: whether or not countries should let foreigners buy up their national companies.
While other countries are becoming increasingly protective, the British are quite happy to see a stream of leading industrial firms pass into foreign control. Examples include ICI, Courtaulds, Pilkington, British Steel, British Oxygen, Land Rover and Jaguar.
The contrast with France is particularly striking. The French president, Nicolas Sarkozy, prides himself on what he calls economic patriotism. In the recent presidential election campaign he made great play of his success in preserving Alstom, a large engineering company, as a French-owned national champion; if market forces had been allowed free rein, Alstom would either have gone bust or, worse still, been taken over by its German rival Siemens. While France cannot always prevent foreign takeovers, as when Arcelor, the steel company, was bought by Lakshmi Mittal, the London-based Indian entrepreneur (a transaction to which Sarkozy was strongly opposed), the government has made it clear that certain sectors are for all practical purposes off limits to foreign acquirers.
For France, these attitudes are not new. But other countries are moving in the same direction. There has long been a protectionist strand in the US (airlines, for example, cannot be controlled by foreign shareholders), and hostility to foreign investment appears to be increasing. To judge from what the presidential candidates are saying, a victory for the Democrats in November will make things worse. Other countries, notably Germany and Japan, are uneasy about the activities of foreign investors.
In Britain, the last occasion when nationalism of this sort prevented a foreign takeover came in the Thatcher era. The prime minister was determined to privatise British Leyland, the state-owned vehicle manufacturer, and a wonderful opportunity to do so emerged at the end of 1986. Two proposals were put to the government, one from Ford to buy British Leyland’s car business and the other from General Motors to buy Land Rover and trucks. When news of these proposals leaked out, there was an outburst of what Mrs Thatcher called “pseudo-patriotic hysteria” on the Tory back benches and in the Cabinet; both deals had to be abandoned. The prime minister was greatly irritated. As she wrote in her autobiography, “the idea that Ford was foreign and therefore bad was plainly absurd”.
A few years later what was left of British Leyland was sold to the German company BMW, and everyone heaved a big sigh of relief. By that time Thatcherite ideas on free markets had won the day, and the concept of national champions was largely dead. The British economy is stronger as a result.
Yet the protectionist tide is running strongly around the world, and there is a faint risk that, if other governments put up obstacles to takeovers by foreign companies, the British government will feel obliged to do the same. That temptation should be resisted.
There may be rare cases where a government needs to intervene for reasons of national security, but Britain gains far more than it loses from being an open economy. Foreign investment brings capital and management into the country, and puts competitive pressure on domestic firms.
The classical liberals argued in the 19th century that unilateral free trade was in Britain’s best interests, irrespective of what other countries did. The same is true of foreign investment.