A V Rajwade: Economic patriotism

WORLD MONEY

It is clearly alive and kicking even in the borderless Europe.

The most innocent definition of patriotism is "my country "" right or wrong". Cynics have defined patriotism in much more scathing terms: "The last refuge of scoundrels" (Samuel Johnson), and something like "Patriotism means my country is great "" because I was born there!" (George Bernard Shaw). One man's cynic is, of course, another man's realist "" and the frequency and issues over which our political masters from both the Left and the right invoke the holy "national interest" in blocking economic liberalisation, biases one in the direction of cynics. One other manifestation of this "national interest" syndrome is the complete absence of debate in the passing of defence budgetary demands by Parliament "" despite numerous scandals, from Bofors to Tehelka to more recent ones.

The provocation to spark these thoughts has come from two major cross-border takeovers currently attracting headlines in the financial press "" Lakshmi Mittal's bid to take over Arcelor, the largest European steel maker; and the Dubai Ports World's takeover of P&O, a British company, which, inter alia, manages some ports in the US. (Incidentally, DPW and P&O together manage Indian port facilities catering to more than 50 per cent of the nation's container traffic).

In Mittal's case, the opposition is being led by the French and Luxembourg governments, apart from the Arcelor management. In the latter case, while US President George Bush supported the DPW takeover, the US Senate was opposing the deal on "security considerations". Incidentally, political opposition in the US also forced CNOOC, a Chinese company, to withdraw its takeover bid for Unocal, an American oil company. (However, the takeover of IBMs PC business by another Chinese company, Lenovo, went through relatively smoothly "" an indication of how "commoditised" the PC business has become?) The DPW bid has now become infructuous since the UAE has now ordered the state-owned Dubai Ports to divest five US port facilities that it has acquired as part of its takeover of P&O. This despite the UAE, of which Dubai is a constituent, being one of the US' closest ally in the war on Islamic terrorists. In any case, port security is in the hands of the government. Incidentally, most of DPW's top executives from the COO downwards, are American.

Another test of Dubai's acceptability to the Americans would come soon as another company, Dubai International Capital, is in the process of taking over UK's Lancaster Group, which has manufacturing facilities in the US supplying precision parts to defence contractors.

As for Mittal's bid, there clearly are racial overtones to the French opposition. The Arcelor chairman has questioned Mittal's "values" and "culture", describing Mittal Steel as "a company of Indians". The comments do smack of an anti-Indian bias, but I still have reservations about whether our ministers should have gone to bat for Mittal. He holds an Indian passport, but, so far, has taken little interest in the country. (Recently, a greenfield steel plant has been announced.) Our own record about FDI is hardly unblemished. We continue to limit or ban foreign investors from many segments like media, civil aviation and retail.

To be sure, there are limitations to the race argument, if one looks at what is happening in other intra-Europe takeovers. Britain is most relaxed about foreign takeovers "" as it happens, it has lost the ownership of two icons from the days of its imperial glory in just one week: P&O to DPW, and Pilkington (established 1826) to Nippon Sheet Glass, both Asian companies, with little opposition. But, the UK is an exception. Currently, the French government is brokering the merger of two major French utilities to thwart an Italian company's bid for one of them. (It has also taken other steps to prevent takeovers of French companies by foreigners, even when some of the French companies sought to be protected from evil foreigners are themselves global.)

The Italians are angry and have complained to the European Commission. (Ironically, the Italian central bank itself actively torpedoed the takeover of an Italian bank by a Dutch one). Poland is opposing the takeover of a German bank by an Italian one: both have Polish subsidiaries and the merger would create Poland's largest commercial bank. While Spanish companies have taken over huge banking and telecom groups in the UK, Spain is worrying over a German company's bid for Endesa, the country's largest electricity producer. The EU Parliament recently passed a law restricting free transfer of services across the EU, particularly aimed at the new, relatively low wage east European members. Economic patriotism is clearly alive and kicking even in the borderless Europe!

Tailpiece: The world over, far more murders are committed by those known to, if not related to, the victim "" and yet we are more afraid of strangers than those known to us. Is this same psychology at play in the fear of the foreigner, quite apart from the definitions of patriotism quoted at the beginning of this article?

Email: avrco@vsnl.com