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    Monday, 30 April 2007

    'National champions' ride again?

    Its reported in a number of newspapers this morning that Telecom Italia is to be taken over by a consortium of Italian and Spanish companies with the result that it will stay under 'Italian' control (1,2). The company had been subject to interest from US firms AT&T and America Movil, and its future has been at the centre of a political storm in Italy.

    So far, so what? Well the point of interest is that the move seems to have come on the back of ministerial intervention, and provides another example of European politicians' interference in corporate ownership in the attempt to defend perceived strategic interests. The Guardian article cites the chairman of Generali - an Italian insurer involved in the consortium - as saying that he had joined the consortium after a call from the finance minister (Tommaso Padoa-Schioppa): "I told him we do insurance, not telephones, but that if it was necessary to defend the Italian-ness of Telecom, we were ready... I hope that the government would behave in the same way if - God forbid - it was necessary to defend the Italian-ness of Generali".

    The creation of 'national champions' is sometimes seen as the only way for firms based in a particular country to compete in a global market populated by giant competitors. It is considered particularly important in respect of industry sectors that are deemed strategically important. Notably, the approach tends to benefit firms that are already large with well-established political connections. The social welfare implications of the decline or failure of such firms can leave it difficult for politicians to resist supportive intervention. Commissioner Kroes - the Competition Commissioner - has acknowledged that “in difficult times, it is sometimes appealing to launch ideas about champions and sectoral initiatives”.

    The problem is that this approach runs counter to the premises of European integration (albeit that here the perceived shark was non-EU). Its something I've written on previously in the context of energy industry mergers (see [2006] Journal of Business Law, 619-630). The countervailing view is that firms that operate in competitive national markets are more likely to be efficient and thus able to flourish on more competitive global markets than contemporaries that are insulated from competition on home markets.

    Given this belief, the grant of support to national champions is perceived as pathological. For Professor Geroski (the late Chairman of the UK Competition Commission) “it is competitive markets that produce such champions, not national governments… national champions are more likely to become national basket cases than national breadwinners”. Ms Kroes concurs that “vigorous competition at home represents the best industrial policy... when industrial policy turns inwards, when protectionism leads to economic isolation, the consequence is diminished growth, stagnation and lost prosperity”. The consensus among other commentators confirms this attitude: “no industrial policy has been more comprehensively discredited than the notion that the best way to achieve competitiveness abroad is to suppress it at home”; “in the end, a possibly well meaning policy designed to nurture the sunrise sectors of the future ends up propping up the sunset sectors of the past, littering the industrial landscape with dinosaurs whose ability to compete for political patronage turns out to be far superior to their ability to compete in their own markets” (John Kay - Financial Times, 11 January 2005).

    We may hear more on this...

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