Why does our PM think it is important who makes your chocolate bar?

It seems the UK’s new government has little faith in markets. Prime Minister Theresa May’s speech to the Conservative Conference last week marked the move of the party to the centre-left, and on the government agenda is increasing the role of the state across most aspect of our lives. One thing Mrs May is cooking up is a plan to make it more difficult for foreign investors to takeover British companies. She has expressed concern about Kraft’s 2010 takeover of Cadbury, and Pfizer’s – ultimately unsuccessful – bid for AstraZeneca in 2014, and is using her new position to call for an industrial strategy which will include a much larger role for the state in business, including the ability to intervene when foreign investors look to acquire domestic companies.

This is not an irrelevant subject. Britain is the number one recipient of foreign direct investment in Europe, just ahead of Germany and behind only the US and Hong Kong. Foreign investors have bought up more than 2,000 British firms over the last decade, at a cost of more than £500 billion.

The current legislation in the area is contained in the Enterprise Act, which dates from the New Labour years and is quite light-touch, with the government only able to intervene in order to preserve the nation’s defence, financial stability and media plurality. That’s bad enough, but Mrs May wants to go much further. “A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones but it should be capable of stepping in to defend a sector as important as pharmaceuticals is to Britain,” she said in July, before becoming prime minister, referring to the failed Astra-Zeneca deal. But what does a statement like that mean? What is it that is important to Britain about pharmaceuticals? And, more specifically, how are those interest dependent on whether the owners of pharmaceutical companies hold British passports or not? And who exactly in Britain is it important to? All of us?

There can be many reasons why one company may look to acquire another. The target company may be short of capital, the acquirer may see synergies between the two companies, either from a product angle or a cost perspective (including lowing the tax bill, a perfectly legitimate aim) or any number of other reasons why the combined entity may be more efficient. In general, well-run companies are not the typical target for a takeover, whether by an overseas investor or not: a study by US academics Nicholas Bloom, Raffaella Sadun and John Van Reenen suggests that when US companies take over British firms they increase productivity by up to 10%. Of course, the real aim of any takeover is to be able to better serve the needs and wants of consumers, who ultimately decide the fate of any business. So when Mrs May wants to be able to stop takeovers it is certainly not consumer interest she has in mind. While there was much public debate over Kraft’s takeover of British household icon Cadbury, the majority of takeovers by overseas investors have been of companies where the general public either didn’t know or didn’t care.

No, one suspects that the people who our Prime Minister is trying to protect are the workers at the target companies. It is indeed true that foreign takeovers generally lead to job losses, but Mrs May is wrong to assume it is the nationality of the new owners which is the cause, rather, efficiency gains are one of the key objectives of any merger or takeover. Our PM is trying to placate an electorate who increasingly see foreign workers and foreign companies as a threat. This is how the Brexit vote is being interpreted in Westminster, and the government is acting to protect domestic workers from competition. There is undoubtedly also a “strategic” objective, politicians are genuinely concerned about national capabilities, and see foreign ownership of industry as a threat to our collective knowledge base and independence – by which of course they mean their own ability to regulate and control, something they tend to lose when ownership moves abroad. But it doesn’t matter who makes your chocolate bar or your medicine. As a consumer, all you want is a good product at a low price. Consumer protection is generally high on the political agenda, but when it comes to industrial policy our government is prepared to let special interests trump basic consumer choice.

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