When Governments Buy Companies

The UK is one of the least protectionist countries in the world, when it comes to foreign companies buying domestic assets. A French utility wants to buy a UK water company or railroad? No problem. A Mexican cement company wants to buy a UK competitor? Come right in. But now, the foreign investors with their eye on the UK are not private, but public. And that's making people nervous. The Observer wrote, in a leader yesterday:

Last week Sainsbury's looked ready to succumb to takeover by the investment arm of the Qatar government. Last year, ferry operator P&O was taken over by the government of Dubai. Gazprom, the Russian state gas monopoly and a tool of Kremlin foreign policy, is reportedly planning to bid for Centrica, owners of British Gas. That would follow its purchase of Pennine Natural Gas last year.
The Chinese government has set up a $300 billion fund to buy Western companies, with British assets top of the list. There are sound reasons to keep Britain's economy attractive to foreign investment, but embracing liberal global markets should not be a cover for nationalisation under foreign flags.

The editorial set off an interesting debate chez Tim Worstall, who reckons, basically, that money is fungible and that it therefore doesn't matter who's doing the buying. But clearly a line has to be drawn somewhere. Matthew Turner notes:

Tim himself draws the line at defence contracters (presumably not the US or other allies though) and North Korea (for anything). Issues of national security led some commenters to say they wouldn't want Russia to be in charge of our energy generation. Hands-off governments could become hands-on ones if it comes to a decision between shutting a factory in the UK and one in their home country.

My view is that national security matters, and that Russian ownership of UK gas assets comes very close to posing a national-security problem, given Russia's demonstrated willingness to use its gas assets to political ends. On the other hand, a lot of foreign takeovers do not pose any kind of national-security problem at all. “How on earth can it be in Britain’s interest to allow Sainsbury’s to become the nationalized property of a Gulf state?'’ asks Unite's Brian Revell – to which the answer is that if Qatar pays more money than anybody else is willing to offer for the UK supermarket, then Sainsbury's present shareholders can use that money to generate better domestic returns elsewhere.

Similarly, in the US, the proposed acquisition of foreign-owned ports by Dubai was not a major security threat, overheated Senatorial rhetoric notwithstanding, and the same thing can be said of the proposed acquisition of Unocal by China's CNOOC, especially considering the fact that the overwhelming majority of Unocal's assets are overseas to begin with.

Which brings us to the news that Barclays is getting a major cash injection from the governments of China and Singapore. This is only natural, and nothing to be concerned about. Singapore has been investing its enormous foreign reserves globally for decades, and China can't be expected to invest its own trillion dollars of reserves in nothing but Treasury bonds. China and Singapore are part of the global financial system, and it makes perfect sense that they'd like a minority stake in a global bank. In fact, it makes much more sense than China's stake in Blackstone.

Generally, then, I have little sympathy with those who complain of "nationalisation under foreign flags". If finance can knit the world together more tightly, then so much the better. There will always be exceptions, of course. But they are fewer than most people might think.

Update: Chris Dillow weighs in, forcefully.