The advance of economic patriotism
The last few days in Europe’s business community have been turbulent. For once it was not about the impact of the new American administration on the European economy, but about acquisitions. Big ones. Where many of us were worried about “America First”, it now seems that in Europe something similar is happening. Not Europe first or Brussels first, but the UK first, the Netherlands first, and Germany first. The developments of last week might prove to be characteristic for the future of Europe’s economy.
The most important news of last week was the failed attempt by American food giant Kraft Heinz to buy its Anglo-Dutch rival Unilever for the price of 143 Billion USD, which would have been the second largest deal in history. A dazzling price you might say, but Unilever’s management judged that the offer “fundamentally undervalued” the company. The subsequent discussion in media and society would normally evolve around typical worries that American food standards are forced upon European consumers. Or how a powerful Brazilian-American hedge fund coalition behind Kraft Heinz, called 3G Capital, was not just trying to buy itself in the European food market but force an aggressive cost cutting business model on the careful approach and management style (even taken environmental issues and sustainability into consideration) of Unilever. And these themes were discussed, extensively.
But this time it was also different. Food standards and aggressive American business models were certainly mentioned but more as an argument for a bigger European worry. What is happening to our traditional economic dominance? This was the main theme in Dutch and British media. Analysts and journalists concluded that the deal should be prevented at all costs. British Politicians sounded the alarms. Unilever is not just considered to be the second largest consumer product company in the world after Nestle, but also a flagship company of both the British and Dutch economies. Without a company as Unilever, the Netherlands and the United Kingdom would have far less to say then they do now. They would lose a bit of their national pride. The public outcry was intense. It convinced both Warren Buffett and Jorge Paulo Lemann, two of the 3G investors behind the bid of Kraft Heins, to cancel their pursuit of Unilever.
Brexit has put pressure on the GBP and made British companies relatively cheap. The British establishment has become increasingly aware of this. The Financial Times referred to a speech that Theresa May gave right before she became prime minister last July and wherein she named two big deals: the 2010 takeover of Cadby by Kraft Food, and the failed bid in 2014 by US drugmaker Pfizer to buy its British rival AstraZeneca. ‘Never again’, seemed to be the message. Now, with the Unilever bid on the table, Downing street is looking for ways how it can prevent ‘hostile’ takeovers that might prove to be damaging for the British economy. Unheard of for years and completely against British political culture as laid down by Thatcher and her successors.
The Brexit challenges make these outcries certainly more intense in the United Kingdom. But they are not unheard of on the European continent. On the contrary. When the British media lost its calmness during the last few days, one might conclude that the Dutch government remained remarkably silent (while its stakes in Unilever might be even more prominent). Prime Minister Mark Rutte said in Dutch financial newspaper ‘het Financieele Dagblad’ that the cabinet was closely following the developments around Unilever but it remained in principal a matter between two companies. Only when a deal would negatively impact Dutch society, the government would discuss how to react. A traditional response you could say. But this is the same government who announced just a few days before the bid that they were preparing a law making it possible to prevent a foreign takeover of a Dutch company if deemed to counter vital Dutch interests. Both Dutch and British media were already putting their Hopes on this law. A public outcry was not necessary in the Netherlands, but the weapons were certainly put in place.
Some might say that intensive European cooperation and integration is the answer when European countries are threatened by foreign takeovers. True or not, that doesn’t seem to be happening in Europe. This became clear last week when General Motors announced it was planning to sell its German subsidiary Opel to the iconic French car manufacturer Peugeot. German leader Angela Merkel quickly expressed her worries regarding the economic consequences and the German jobs at risk. But it seemed more was at stake. Something emotional. Analysts stated that Berlin was actually in shock. Merkel’s government was unexpectedly confronted by the prospects of losing again a big and very German company to a foreign competitor. Even (or especially) when French. It didn’t help that Bernard Cazeneuve, the new French prime minister, ‘forgot’ to mention Peugeot’s interest in Opel during his visit to Germany just a few days earlier. Berlin was far from pleased. Carlos Tavares, the Portuguese CEO of Peugeot, will now need to travel to both Berlin and London (because British company Vauxhall is also at stake) to represent not just his company but also the whole of the French nation.
Three news fragments in one week which all underline the advance of economic patriotism. The era of limitless capitalism and globalization seems to be over. Acquisitions like these, how painful they might be, were considered quite normal practice just a few years ago. People would certainly demonstrate against foreign standards forced upon them or the prospect of losing their job, but the risks was interpreted as manageable by our governments. Times have changed and not only in the United Kingdom. This time it is about symbolic companies such as Unilever and Opel. But do we have the guarantee that it will stop here? Vince Cable, the former UK business secretary, already warned that “the problem remains that large numbers of less famous names than Unilever are in play simply as a consequence of the heavy devaluation of the currency”.
Economic patriotism is on the rise. Companies represent countries, are just as vital to our economies as the flagships of our trading companies once were, and most of all, foreign players, wherever they come from, cannot just march in our countries and buy whatever they want. Only we can do that.
Tjeerd S. Ritmeester, Economic Researcher and proud 2015 Graduate of democracy
