Financial Times: The great ‘national interest’ fallacy

[From 14 Feb 2006 – maybe I will comment later on] 

Thaksin Shinawatra, Thailand’s billionaire prime minister, and Thierry Breton, France’s finance minister, might seem to have little in common, other than previous careers as successful corporate executives. But they share one conviction: that the interests of companies and countries are basically identical. Both are seriously mistaken. 

The main difference between them is that they start from opposite ends of the argument. Mr Thaksin took office vowing to run his country like a company, leading voters to hope he would enrich them as well. Mr Breton thinks countries – or rather their governments – should decide who runs large companies. 

Mr Thaksin’s beliefs have already been exposed as shaky. Not only has he been an indifferent economic manager; he faces accusations that the recent $1.9bn (£1.1bn) sale of his family’s stake in Thailand’s biggest mobile telephone company was made in murky circumstances that put personal gain before national interest. 

Mr Thaksin denies the allegations, saying the sale allowed him to focus on running the country undistracted by criticism that he was using his influence to benefit the family business. But his defence betrays a curious concept of national interest. Witness his lawyer’s protestations that pure “patriotism” led his children to buy 11 per cent of the company at Bt1 (1.5 pence) a share, only to sell it days later at a 4,900 per cent profit to Temasek, a Singaporean state group. If that is patriotism, I am a Thai noodle. 

Nobody accuses Mr Breton of using high office to feather his own nest. But his attempts to repel the hostile bid by Mittal Steel, the world industry leader, for Arcelor, its largest European rival, by proclaiming himself a “stakeholder” in Arcelor are rooted in the same fundamental misconception as Mr Thaksin’s political philosophy. 

There are many differences between government and business. But the most crucial is that government alone has the power to coerce. Prime ministers are uniquely placed to get the rules changed to suit their own purposes, as Silvio Berlusconi – another tycoon-politician, with uncanny similarities to Mr Thaksin – has demonstrated repeatedly in Italy. 

By the same token, Mr Breton’s novel re-definition of corporate governance principles would not make him a “stakeholder” in any accepted business sense. It would, instead, give him the right to override all other parties, not least Arcelor’s legal owners. The logic of his argument would entitle him to impose on the company, in the name of national interest, whatever he and his fellow ministers chose. 

Arbitrary and opportunistic official intervention in defence of vested interests of any kind distorts markets. It is also bad for the state. By aligning politicians selectively in support of producers, it blurs the vital distinction between players and referee. Governments cannot effectively discharge their duty to set and enforce the rules of the game if they are also taking part in it. 

There are, nonetheless, rare circumstances when intervention can be justified. One is a genuine threat to national security. A takeover by Gazprom, the Russian energy group, of Centrica, a leading UK gas company, would be such a case. Gazprom is a thinly veiled arm of the Kremlin and its readiness to put an abrupt stop to gas supplies to Russia’s less pliant neighbours raises serious questions about its commercial independence and reliability. 

No such caveat applies to Mittal or Arcelor. Nor did the US Congress’s decision last year to pre-empt national security vetting procedures and block the bid by China’s CNOOC for Unocal pass the test. CNOOC is state-owned and has a mandate to promote China’s energy security. But ownership of Unocal would have given it control over a tiny fraction of US oil supplies, which could have been easily replaced from elsewhere. 

That display of chauvinism was, like France’s – and other European countries’ – opposition to the Mittal bid, a response to fear of foreigners and to special pleading by the target company. But they lack even the figleaf of an excuse that a Mittal takeover of Arcelor could lead to domination of strategic national interests by a foreign power. 

Indeed, Mittal is as close to being stateless as a company can be. With a worldwide spread of assets, stock exchange listings in three countries, an Indian-born chairman based in London and a multinational staff, it symbolises global competition in its purest form. That – and anxiety that Mittal’s ruthless dedication to raising operating efficiency would lead to short-term job losses that an unpopular government can ill afford – is what really has the French establishment up in arms. 

No such scruples, of course, deterred Mr Thaksin’s family from selling out to a foreign bidder, and a state-owned one at that. The French government lays claim to loftier motives in its defence. But its real agenda, and its attempts to dress up self-interest as high-flown principle, are no less self-serving.

One response to “Financial Times: The great ‘national interest’ fallacy

  1. Welcome to blogging, Naphat.

    I don’t think you want to get me started on FT and their coverage of Thailand. It does at least remind me that I should critique one of their articles sometime.

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