We should be glad that foreign firms want to buy British companies
THE ABSURDLY nationalist argument over whether foreigners should be allowed to own companies in Britain is raising its ugly head again. Vacuum technology firm Edwards has just been sold to Sweden’s Atlas Copco for £1bn, last month UK engineering giant Invensys was the subject of a £3.4bn takeover by France’s Schneider Electric, and Kentz has just rejected an offer from Germany’s M+W. As with Kraft’s £11.5bn 2010 takeover of Cadbury, fears of overseas predators asset stripping UK firms are growing.
But as is usual with most folk beliefs about economics, there’s a firm grasping of the wrong end of the stick here. It’s not just that there’s no problem with Johnny Foreigner owning a factory or three in Britain, it’s that it is positively beneficial that this happens.
Most obviously, if a foreigner desires to own a business in the UK, he or she must send capital into Britain: either to buy the firm or start it up. The average wage in the UK is determined by the average productivity of labour, and the productivity of labour rises the more capital is added to that available labour. So non-Brits sending their money to work in our economy should raise all wages in the UK. This would seem to be a desirable outcome.
We might also consider Adam Smith’s point: “consumption is the sole end and purpose of all production.” It doesn’t particularly matter who makes something, how, or where. What does matter is that something desired is produced and then made available to be consumed. If those dastardly foreigners want to send their cash over here to make things that we can sate our desires upon, this also seems like a desirable outcome.
There are sometimes minor quibbles: one complaint that has always puzzled me is that foreign-owned companies tend to do their R&D abroad, not in plucky little Britain. I don’t understand why having the brightest minds of Silicon Valley attempting to solve problems for people in Bath or Bristol is undesirable. Or that the best PhDs of Korea spend their lives to improve the quality of televisions for those in Birmingham or Bradford. Isn’t it a desirable outcome that we get to pick the brains of the planet’s brightest?
And then, of course, there’s the screaming that foreign companies play dirty tricks with taxes. As Margaret Hodge continually says, they take our money but leave nothing behind. This is ludicrous, of course. If we got nothing of value from foreign firms, we wouldn’t give them our money, time or attention. The value we gain is in the goods and services that foreigners provide that we can then consume. This is true whether it is a British company supplying us, a British-based but foreign-owned one, or imports from foreigners. We the consumer gain the consumption opportunity: everything else is merely a footnote to that value.
The value to us in the UK of Google is that we get to Google: just as the value of Stemcor is that people get steel when and where they want it. Who owns the firm, where they come from, where profits get shipped to, and what tax is paid on them, is an irrelevance in the grander scheme of things.
Tim Worstall is a senior fellow of the Adam Smith Institute, and author of Chasing Rainbows: Economic Myths, Environmental Facts.