Putative protection

The world, as every politician deemed worthy enough of a spot on television is seemingly contractually obliged to tell us, is under threat. This threat is new, it’s scary, and it comes from shifty foreigners with shady motives.

Thus when these politicians aren’t telling us about the threat, they’re busy working to protect us against it.

In recent months, important figures in the hearts of governments from America to France and from Spain to South Korea have been battling to save large national companies from foreign takeovers and thus their people from the oft-articulated onslaught of globalisation.

The clearest expression of this protectionist sentiment comes from France’s Prime Minister, Dominique de Villepin, and his championing of “economic nationalism”. M. de Villepin’s proposals appear to be a homage to Louis XIV’s finance minister, Jean-Baptiste Colbert, who believed, somewhat oddly, that international trade was a zero-sum game, and that the state should control the main pillars of an economy, thus predating the “commanding heights” clause of Lenin’s New Economic Policy by a good two hundred years.

Last year, M. de Villepin passed legislation to protect French business from foreign takeovers in 11 security-related sectors. He also has a public list of ten French companies that he is determined to keep under French ownership. Similar lists are known to exist in both Italy and Luxembourg.

The bluster about “economic nationalism” is more than just political posturing, however. Earlier this year, M. de Villepin announced the merger of the state-owned Gaz de France with Suez, a giant Franco-Belgian utility, a move motivated by the prospect of a hostile Italian-led bid for Suez.

Aficionados of French foreign and economic policy might not be particularly shocked by such an event. This is France, after all. But one does not need to look far for further examples. The Spanish government recently stepped in to block a German bid for its utility, Endesa. The ownership of South Korea’s former state-owned tobacco and ginseng monopoly, KT&G was on the brink of a transfer into American hands, until the South Korean state got involved. Even America has been at it. Last year, CNOOC, a Chinese state-owned oil company backtracked from plans to buy American corporation Unocal, after Congress had something of a fit over the deal.

The global economy hasn’t seen so many cross-border mergers (or attempts at mergers) since the dotcom craze that greeted the new millennium. It is unsurprising that national governments are acting cautiously in the face of this unprecedented era of expansion that threatens to neuter control of their domestic economies. Or at least it would be, were this era actually unprecedented or posed a genuine threat to national economic interests.

The global economy is no more open now than it was in the few decades before the first world war. It took until the turn of the 21^st century for international capital flows, relative to the size of the world economy, to recover to their level at the turn of the 20^th.

More importantly, government spending as a proportion of GDP has continually risen over the last century, regardless of countries’ openness to trade and capital flows. If globalisation had really affected national economic interests, the ability of governments to tax and spend would have diminished, not increased. The starkest expression of this comes from Scandinavia. Both Denmark and Sweden have small, open economies, with nary a whiff of protectionism in place. They also both collect more in tax as a proportion of GDP than just about every other country on the planet. In theory, therefore, they shouldn’t really exist. Theory aside, however, there is more chance of Denmark and Sweden being wiped off the map by a melting of the polar ice caps than by an overwhelming tide of international economic migration.

Fears over the dangers of globalisation are, of course, not completely ungrounded. Governments do, in some respects, have less control over their economies than they once enjoyed. In many cases this is because the governments have deliberately given the power away, in a (usually successful) attempt to raise living standards.

For starters, the debacles of Europe’s Exchange Rate Mechanism and the Asian Financial Crisis demonstrated that governments can no longer peg currencies, at least not in the medium to long term. The crisis in South East Asia also highlighted the risks of ‘contagion’, where events in one country can have an unwarrantedly large effect on events in another, as speculators head out on a (sometimes self-fulfilling) hunt for patterns and potential new victims.

The composition of tax returns has also changed. Taxes on companies have fallen, with the burden shifting to taxes on people. The amount of money the British government has received from Rupert Murdoch’s various commerical endeavours over the years is not enough to buy John Prescott another Mars Bar, let alone another Jaguar. But as the ever-rising amounts of government expenditure show, where governments get their taxes from doesn’t really matter; all tax trails lead to households eventually.

Financial capital is now all but uncontrollable. Too much of it moves to too many places and at too great a pace for it to be adequately monitored. However, once established, physical capital remains as immobile as ever; intra- (as opposed to inter-) country business is thus of far greater import.

People are even more immobile. The ties of language, family, culture and simple old inertia mean that people don’t tend to migrate in their millions in response to the latest tax rise. And even if they wanted to, immigration controls are an awful lot stricter than they once were. And despite the resources at his disposal, Bill Gates can’t tax me or send me to war. He can’t do that to anyone, anywhere.

National economic interests are bound by democracy (the need to win votes) long before they are bound by the international economy (multi-national money machines chasing the next buck).

The power of globalisation, in spreading knowledge and generating wealth, is impossible to miss, even if relatively few people understand what it’s actually all about. It is because it is both so apparent and so vague that it has become such a useful political excuse. “We’re very sorry, but our hands were tired” is something of a staple soundbite, ready to accompany any failed policy or unkept promise. If a government wants to be under threat, then under threat it shall be, and flock to its shelter we must. However, we must also remember, that just as the government built the shelter, it built the threat too.