Editorial: Protectionism is not the answer, Lord Heseltine

Britain’s open-door policy on foreign takeovers is a net gain for the economy

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Lord Heseltine's inclination towards restrictions on foreign takeovers of British companies should, perhaps, not come as a surprise. After all, the former Deputy Prime Minister came a cropper back in 1986 over his desire to dabble in the future of the Westland helicopter company.

Now, recruited by the Coalition to review economic growth, Lord Heseltine has returned to the theme. After six months of research, tomorrow's report will be a wide-ranging one. Many of its proposals deserve consideration. Efforts to boost companies' research activities, for example, should be supported; and there is much to be said for extra funds for regional expansion. On the subject of takeovers, however, Lord Heseltine is wide of the mark.

The topic is always a tricky one, prompting laments about the "loss" of cherished brands alongside more hard-headed concerns that jobs and factories are easier to cut from overseas. For many, Kraft's takeover of Cadbury in 2010 was a case in point. Although the US food and drink group had promised to keep Somerdale – a chocolate factory near Bristol – open, the ink on the deal was barely dry before it reneged, sparking calls for a "Cadbury law" to protect British companies from hostile foreign bids.

For all the hoo-ha, the reality is rather more nuanced. For a start, globalisation works both ways. Cadbury's status as the world's second-largest confectionary group, for example, was partly due to extensive overseas shopping of its own. Similarly, the assumption that all would otherwise be well is a misleading one. Cadbury was in the doldrums, unable to attract investment and planning to close Somerdale itself, with the loss of all 400 jobs. The choice, then, is rarely between a foreign owner and a rosy status quo, but rather between a foreign owner and decline.

Indeed, all the evidence suggests Britain's open-door policy to be a net gain for the economy as a whole. For all the individual controversies, in most cases productivity and profitability improve under new, non-British owners, as does the performance of local competitors rising to the newly invigorated challenge. Take Jaguar Land Rover. The near-basket case left over from the collapse of Rover is now at the vanguard of British industry, thanks to investment from its Indian parent company, Tata. The foreign money that has poured into everything from bus fleets to electricity networks – and is soon to bankroll much-needed but otherwise-unaffordable nuclear power – is equally welcome.

Lord Heseltine's reflections will strike a particular chord now, as naysayers bemoan the tie-up of Penguin and Random House (owned by Germany's Bertelsmann) as a sad day for the company whose cheap paperbacks brought reading to the masses. But there is little ground to view the merger as an ending – Bertelsmann already owns a slew of once-independent British publishing imprints with no deleterious impact on their characters.

Britain's best interests must not be trumped by the siren call of protectionism, even from a Tory grandee. The current set-up is not perfect, of course. That many US and European companies have structures that militate against foreign takeover is a strong argument for measures placing similar limitations on their activities here. There are also legitimate questions about the role of short-term investors such as hedge funds in takeover bids. These are mere tweaks, though. The general approach, with restrictions based on national security and media ownership alone, is sufficient. A more interventionist style, protecting priority industries, say, is both impractical in itself and set to fall foul of EU law. Lord Heseltine's case is certainly an emotive one. But it is wrong.

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