Leading Article: Is big best for British business?

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The Independent Online
THIS week saw the creation of the biggest bank in the world. When the American concerns Citicorp and Travelers complete their merger to form Citigroup, the combine will be worth pounds 100bn. This is also the biggest corporate merger in history, "dwarfing" the recent MCI and WorldCom telecommunications deal. The value of the companies quoted on the London Stock Exchange has now passed pounds 1 trillion (pounds 1,000,000,000,000). The 25 per cent or so increase in the FTSE in 1997 was largely due to speculation about bids and mergers, chiefly in the banking and pharmaceuticals sectors. If, say, you were one of those lucky people who held shares in Lloyds TSB this time last year then you would have doubled your money by now. Anyone with a pension fund should regard it all as good news. But as the numbers boggle the mind and seem to recall the boom of the late 1980s, we might ask are the markets just a wee bit overbought?

Well, this is certainly not the time or the place to predict a stock market crash. The last time commentators started speculating on this, last autumn, around the 10th anniversary of the 1987 crash, the markets did indeed see a nasty "correction".

But it is worth looking at some important differences from the 1980s. Then the massive inflation that gripped the world economy was a truly global phenomenon. Every stock market boomed. Today it is confined to London, New York and some of the European bourses. Tokyo is actually still at only about half the level it was in the late 1980s. And the "Asian tiger" economies have not wholly recovered from their setbacks last autumn. A decade ago property prices boomed everywhere from Clapham to Osaka. And in the late 1980s asset price inflation was accompanied by a sharp jump in prices in the shops. There is still a danger of this but it seems much more subdued and the Japanese have seen the general level of prices actually fall. A barrel of oil or an ounce of gold will cost you less now, in real terms, than for decades. So today's "boom" has passed some markets by. Nonetheless it's not just Marxists who would tell you that there has been a big shove to the capitalist tendency to the concentration of capital. It's called "globalisation" and it certainly favours the large. Big, it seems, is beautiful.

Is this something that Britain might do well out of? We have, certainly, succeeded in creating some truly excellent "world class" companies, like BP. The weakness has always lain in the middle sector. Could we not strengthen this by encouraging mergers that push these players together and create - dare we say it? - "national champions"? There was more than a hint of this in some of the talk about the Glaxo-SmithKline Beecham merger (although each of those is perfectly capable of holding its own and the deal fell through). We also wonder about the emphasis some place on looking at the "European picture" when assessing the prospects for a combination of, say, NatWest and Barclays. Should we not, the argument runs, be looking at the position of these companies in the European context now that we have a single market and the prospect of a single currency?

Such mergers may be magnificent but they are not globalisation. Too many managers, we suspect, use the trendy language to disguise a powerful disposition towards domestic monopoly. Even if it were driven by corporate or national patriotism some of the precedents are not that happy. In the late 1960s, there were government-sponsored mergers that were not unalloyed successes as revealed by the long-run weaknesses of GEC and British Leyland. Far better to encourage diversity and innovation with competitive and deregulated markets. The progress of BT since privatisation would be one model. We should worry far more about the creation of local monopolies than the encouragement of "national champions". That is the best way to exploit "globalisation".