Does it matter who drives?

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What constitutes ownership now, in a world of multinational corporations with shareholders in many different countries?

The BMW purchase of Rover has a resonance that goes far beyond the immediate industrial issue because it represents the end of a dream: that this country should own a large car firm and, accordingly, that Britons should be able to buy a 'British' car. In purely economic terms this need not matter - the richest country in the world, Switzerland, does not have a car industry - but in emotive terms it clearly does.

What the takeover should perhaps do is focus people's minds on the nature of ownership. Despite the large current account deficits of the past few years, Britain remains a net owner of foreign assets - dollars 41bn at the end of 1992 and about dollars 80bn by the middle of last year. This is a lot less than the dollars 514bn of Japan and dollars 300bn of Germany at the end of 1992. But the figure is positive in contrast to the US, which had the world's largest asset deficit at dollars 521bn at the end of 1992, perhaps dollars 600bn today. So in aggregate terms Britain should not be concerned: if foreigners are buying British assets such as Rover, Britons are building up corresponding assets abroad.

But should there be concern over the quality of our assets? Are we in some way buying poor-value assets and selling good ones?

It is very difficult to give anything other than an impressionistic answer to that. One can see by looking at the inflows and outflows of interest, profits and dividends that we receive a rather low return on foreign assets, lower than the return on assets that foreigners own here. But far from being a sign of poor investment strategy, this may actually show that we have invested more wisely, for we receive the return in the form of capital gains. That is how, in recent years, we have managed to increase our net stock of overseas assets despite running a current account deficit. So in purely financial terms we are doing rather well.

Naturally, there should be other considerations. Passing ownership of a firm such as Rover to Germany means that the strategic management decisions will be taken abroad. It is no good trying to duck that: we now have very little control over the management of the motor industry - where new investment is made, what employment and production targets will be set, which new models are to be built here, and so on.

We might invest the same amount of money that BMW has put into buying Rover in a package of German shares and get a better return for our money than BMW will ever achieve. But we will have no management control over the enterprises in which our money is invested. The judgement that has therefore to be made is: does this matter?

Well, it matters to some extent. No country can feel wholly comfortable if decisions that are important to its commercial future are made by foreign nationals located several hundred miles away - however professional and disinterested these people might be.

It could be argued, however, that the freedom given to managers of multinationals is more apparant than real. Commercial pressures will dictate most decisions, and the top managers of large companies are a pretty international bunch. There is a Briton at the top of Ford in the US and a Basque was brought in to rescue Volkswagen in Germany.

Besides, what greater freedom is there than the freedom to sell the investment? It will be very difficult for BMW to walk away from its investment in Rover, even if things go wrong, just as Ford has found it very difficult to walk away from the problems at Jaguar. But if British investors feel that they should shift part of their portfolio from, say, medium-sized German industrial companies and put it in electronics companies in Malaysia, the transactions can be done in a matter of hours.

As corporate ownership becomes increasingly international, portfolio management skills may become more important relative to actual management skills - or at least rarer, for one of the most fascinating lessons of the revival of the UK car industry has been its ability to learn production management skills from the Japanese. Japan, by contrast, has found it very difficult to learn portfolio management skills from Britain and the US and, accordingly, gets relatively poor value from its stock of international assets.

At the end of the day, what matters is the generation of wealth. From that will come jobs, not the other way round. If Britain happens to be a good place for making cars, which it is now, foreign companies will seek to buy car businesses here. If it were not, they would not bother. If, in five or 10 years' time, BMW has handled its investment well, it will be worth more money than it paid for it. But if the equivalent amount of money has been well invested abroad by British investors, part perhaps by investment in the equity of BMW, then the funds may well be worth still more.

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