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07 May 2014

"Imagine There's No Countries...."



The leader of Her Majesty’s Opposition, Ed Miliband, is probably the most opportunistic, bandwagon jumping politician of all the current sorry set. His latest wheeze is to jump up and down over the attempts of Pfizer to buy its rival drug company AstraZeneca. The particular irony of his stance on this, for those who are not attuned to UK politics, is that he was a key member of the previous government, which was the one that waved through - could one even say encouraged? - the purchase in 2010 of Cadbury Schweppes by the US conglomerate Kraft; that was a takeover clearly detrimental to UK manufacturing and employment. So where was the oh-so-concerned Miliband then?

It Used to be Simple...

Anyway, that’s got the political gripe out of the way. Actually, although the way he approaches it is slanted, there is nevertheless an interesting question posed here, regarding what, if anything, defines the “nationality” of corporations. In the early 1950s, when the Anglo-Iranian Oil Corporation was renamed British Petroleum, things were relatively simple; BP was the British challenger (with a Government shareholding), the UK’s name amongst the Seven Sisters (alongside the Anglo-Dutch Shell). By the time of the Gulf of Mexico blow-out, though, probably the two most important parts of that company were its US interests and its Russian joint venture. There were then, I believe, more US than British names on the share register, partly due to the Amoco and Arco mergers. Sure, it was (and is, of course) quoted primarily in London, but was it at that point a British company? I would suggest that’s difficult to argue, although the US Government was anxious to present it as such in the aftermath of the disaster - but that was for domestic political reasons. 

So what about Rio Tinto? It began life as a consortium of international investors buying the Rio Tinto mining concession in Spain. But pretty soon, with its London listing and its spreading wings into the British Empire, it became clearly a British champion; now though? Jointly quoted in London and Sydney, headquarters split between London and Melbourne, operations spanning the globe and with a cosmopolitan share register, it would be difficult to maintain the idea that it was a “British” company. Likewise Glencore; mines and participations in myriad different locations, corporate headquarters in Switzerland and share listing in London: Swiss? British?

...Now it's a Fool's Game

There are lots more examples from almost all industrial sectors; the point though is the same. Attempting to define the “nationality” of global corporations is a fool’s game. Using the nominal address of incorporation would almost certainly result in the BVIs having a bigger resource sector than Russia, and that’s clearly nonsense. Different environments attract different aspects of global businesses. 

The site of primary listing doesn’t give much of a clue, either; the stock exchanges in London and New York, for example, because they offer the holy grail of liquidity, continue to attract listings from a raft of origins - look at the international nature of the corporations quoted on those two exchanges. But that’s private enterprise doing what its been doing for years. What concerns governments is primarily two things: tax receipts and employment. Focus on those, and the debate becomes far more sensible than just talking about the swallowing up of national treasures. That’s a concept that has little genuine meaning. 

Seek the Positive

When governments (or oppositions) get agitated and start talking about things like ‘the national interest’, with the suggestion of specific restrictions, they are effectively looking down the wrong end of the telescope. Their function is to establish an environment which is attractive, which makes corporations want to base themselves in the country in question, not to try and put up protective barriers. That environment comprises many things; an attractive tax regime is part of it, but at least as important is, for example, an educated and skilled workforce, or effective and sufficient transport links. The aim is not to build walls but to create an environment that attracts - to seek the positive not the negative. To enable, not to prevent. The universally sought-after 'employment' requires attention to all these other policy areas.

Shareholders' Decision

I started with Pfizer/AstraZeneca, so a couple of observations, with the proviso that I am no more than an interested observer. First, on the tax issue, a slice of Pfizer’s corporate taxes would be a welcome boost for the Exchequer. But on the other side, they have a chequered history when it comes to maintaining jobs, and particularly highly-valued research jobs, in companies that they have absorbed. So, with those two points seemingly in conflict, it would seem perfectly logical and correct for a government in such circumstances to delve a little more deeply into the proposal. But not on the basis of some sort of nationalist, “it’s our company” approach. Set the parameters correctly to attract investment, but with an understanding that in cases where what seems to be investment actually threatens in the long run to be something very different, then some greater scrutiny is necessary; those are the tests to apply. So by all means let governments investigate, but the decision in these issues is not theirs; it is for the shareholders - after all, the owners of the business - to decide which of the prospects is the more attractive. One other thought, though; AstraZeneca is itself the product of a ‘transnational’ merger, between Swedish Astra and British Zeneca. What debate would we be having had it chosen at that point to go with a Swedish rather than British base? It didn’t, but it was a freely made decision.

Finally, a word - perhaps an apology - about the title. After last week’s (Sympathy for the Devil), a reader challenged me to use another old song lyric. For those born after 1980, this one is from John Lennon’s 1971 hymn of hippy existentialism, ‘Imagine’. 

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