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|The folly of economic nationalism|
Ushio - May 2007
In democracies, it is said, politicians running for election try to bribe us with our own money. In other words, they make promises that will cost taxpayers a lot of money, and the voters are the people who end up providing the taxes to pay for the promises. Now, though, there is a new game that politicians are playing. It is called economic nationalism. It consists of promises by politicians that they will block foreigners from making takeovers of national companies. Such nationalism appeals to national pride and to fear or suspicion of foreigners, all at the same time.
This political game is more cunning than the old one. It has become popular among politicians thanks to two things: first, the fact that in today’s world, government budget deficits make it hard to increase public spending, especially as voters do not like taxes to rise; second, the fact that globalisation has led to more companies trying to buy companies in other countries, so they offer easy and frequent targets for political attack. Foreigners are an attractive target for politicians for a simple reason: they don’t vote, so there is no danger in offending them.
In one respect, economic nationalism is better than the old sort of political bribery. It is cheaper. Blocking foreign takeovers costs nothing for either the politicians or the taxpayer, at least there are no direct costs involved. If foreign takeovers are prevented from happening, all the costs will be born by two groups of people: by the companies’ shareholders and by their customers.
One recent example has been in
Then, it was
These European examples followed two major cases of economic nationalism in the
And of course economic nationalism can frequently be heard in the Japanese Diet. Measures to permit foreign companies to make takeover bids in
What is wrong with trying to keep Japanese companies in Japanese ownership, you might ask? It may be nationalistic, but it sounds a good idea, in principle. But does it, really? Think about it a bit more deeply. Did Mitsubishi Estate cause damage to
The answer to all those questions is no. In all those three cases, if anyone was hurt it was the Japanese buyer, as they learned later that they had all paid too much for their acquisitions. But in no sense was
It would be the same for a foreign company buying a Japanese firm, or indeed a French or Italian firm. It would not take the national asset away. It would still be subject to Japanese labour laws and other government regulations. It would bring in new capital, new management, new ideas and perhaps new technology. It might not succeed, of course. But that is true of any manager or owner, whether they are local or foreign. If the foreign buyer were to fail, then an opportunity would probably emerge for a Japanese firm to buy the company again, more cheaply.
So, although economic nationalism appeals to politicians because it is cheap, it does in fact cost something. It is costly to shareholders in companies that might be bought by foreigners, because they lose an opportunity to sell their shares. With fewer potential buyers, their shares become less valuable. It is also costly to local consumers, because by restricting competition and the arrival of new capital and technology, firms are made less efficient and innovative than they might have been.
Since I live in the country,