The other day Will Hutton wrote a piece for The Guardian (as he does) entitled "Selling off Britain is not a sign of strength, but profound weakness". In the main the purpose of the article was to plug Hutton's latest book and a spin off TV programme he has wangled from Channel 4 but the gist of our man's argument was that:
The average Briton will now work, drink, travel, eat, drive, and use energy from assets and services supplied by foreign owners more than ever before – and in a growing and escalating deficit. Globalisation obviously means increased inflows and outflows of capital. But overseas investors are buying a great many more British companies than we are buying abroad – a ratio of more than two to one. It is not just that the control of our economic destiny moves abroad with nobody turning a hair; the associated flows of income abroad are beginning to be alarming.
Now it's clear from this that, just as we see from the new left parties in Greece and Spain, the argument is essentially one of economic nationalism. The problem isn't capitalism or even the market economy but rather that these things result in foreigners coming over here and buying up our stuff - or in Hutton's terms those wicked neoliberals are 'selling off Britain'. On one level Hutton's argument encapsulates the problem with nationalism (we'll come to this later) but it is also a misrepresentation of those capital inflows.
Hutton portrays the foreign purchase of UK 'assets' as a loss arguing that the resulting loss of income is matched by a loss of economic control. Yet in another respect the excess of capital inflow over capital outflow represents a vote of confidence in the UK and a net increase in the capital available for the UK economy. Hutton also makes no reference to what is done with the receipts from those sales to foreigners - are the resulting wealthy Britons simply, in the manner of Scrooge McDuck, piling up their gold in a big vault so they can look at it? Some how I doubt this - the money from those sales will either be reinvested or consumed.
We can also deal with Hutton's argument about the loss of income - it's true that the increased foreign ownership results in more dividends and other income flowing out of the UK. Right now total corporate profits represent about 12% of UK GDP and we know that not all of this profit is paid in dividends to owners - some goes in tax, some is retained for reinvestment. So perhaps 6-7% of UK GDP is paid out in dividends. And, even with Hutton's scary (if anecdotally reported) argument about foreigners buying up our stuff, most of the UK is still owed by British folk. Relative to the whole economy outflows of income resultant on dividends from foreign ownership is a piffling amount.
Hutton is on better ground when he talks about the innate bias towards the home country or local neighbourhood for that matter in business decisions. After all, Adam Smith had something to say about this:
As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value, every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
Now aside from this being the only occasion when Adam Smith uses the term 'invisible hand' in Wealth of Nations', it does rather support Hutton's contention about ownership. Except that, as we know, those foreign owners buying up Britain have not endeavoured as much as they can to employ their capital domestically - they've chosen instead to invest it in Britain. And one assumes that this investment decision isn't on a whim but is a rational business decision that, the investor hopes, will lead to an acceptable return. Indeed Hutton shoots down his own argument when he explains away the success of BMW- and Tata-owned UK businesses by referring to their ownership model and business structure (he describes BMW as a family-owned business though which it manifestly isn't - an I'd note that 10% of it is British-owned too).
All this brings me back to the problem with nationalism - even a bien pensant socialism-light nationalism such as Will Hutton's. Firstly nationalism is pretty hard (as the Greeks are finding out) so long as you're a member of the European Union. Indeed ownership of British assets by French, German or Dutch firms would, one assumes, be expected in a successful union and vice versa (there's an issue here because to a degree French and German businesses don't always play to the same rules especially the state-owned ones).
Secondly economic nationalism isn't a great economic strategy - it's good news for the businesses who are protected and for the owners of those businesses (or so it seems at the time) but the real effect of protectionism is sclerotic industry and poorly served consumers. By constraining investment, Will Hutton would limit the ability of British firms to compete by making it more difficult and almost certainly more expensive for them to get the capital they need to grow.
Finally - whatever we think of Hutton's analysis - there is the matter of the message his argument sends out. He may be able to wrap his nationalism up in fine words, to say "oh no it's not protectionism" and to talk about how the "system is organised to favour transient, short-term shareholders who incentivise management teams to extract value from their companies" but the core of his message is that the government should act to prevent foreigners buying UK assets. A sort of capitalist version of "British Jobs for British Workers".
In the end we should be asking why it is that foreign cash is flooding into the UK. I doubt (however much my patriotic instinct tells me to believe) that it's because our economy is all tickety-boo. Rather it's because we're not doing so badly as a lot of other places which means the rich from places like Spain, Greece, Italy and assorted Middle East tragedies are piling their money into London - buying property, businesses, shares and sticking their money safely away in places where the great sucking sound of economic or social collapse can't be heard.
I take the view that patriotism - that preference for domestic industry Adam Smith described - is just fine but nationalism, by which I mean the structuring of policy to exclude foreign involvement, is always and everywhere a bad thing. At least Mussolini was honest with Italians over his economic nationalism - promising them that their sacrifice would mean their sons were rich (he was right about the sacrifice but probably wrong about the rich sons) - whereas Will Hutton pretends that his Guardianista national preference represents a better economic approach that will save us from doom and make us richer. Hutton is wrong.