Bill Emmott - International Author & Adviser


Necessary State Intervention - Who Decides?
Corriere della Sera - April 21st 2008

Commentators and scholars of Japan have for many years been attracted by strange parallels between the politics of that country on the far edge of Asia and of a country in the middle of Europe—yes, Italy. Culturally, the two are entirely different. And yet the decades of weak governments in both places, with constantly changing prime ministers and with, until recent years, economies that seemed to shrug off the dysfunctional workings of politics, made the comparison irresistible. Now, with Silvio Berlusconi’s governing coalition enjoying a clear majority in both houses of parliament the two seem to have diverged, since Japan is stuck with paralysed politics and a divided parliament. Or have they? Giulio Tremonti has just reminded us that a connection remains.

            The returning finance minister succeeded, before the election campaign, in reviving the debate about state intervention in the economy, in his book “Fear and Hope”. His boss made his own views clear when he declared himself opposed to the sale of the government’s 49% holding in Alitalia to Air France/KLM. Nevertheless, Mr Tremonti is sensitive to foreign criticism that he may be protectionist or an old-fashioned believer in state meddling. In response to an article in the Financial Times, he sent that British paper a letter on April 16th in which he pleaded “not guilty”: he says that all he favours is “rule-based trade versus unregulated free trade”, and a philosophy of “market if possible, state if necessary”. Why should anyone object to that?

            In Japan, at least, someone agrees with him. A British-based hedge fund, The Children’s Investment Fund (TCI), has just been blocked by the government from increasing its 10% shareholding in one of Japan’s big electric-power generators, J-Power. The chief cabinet secretary, Nobutaka Machimura, who in Japan’s government is the second most important politician after the prime minister, says that this is justified “in order to protect national security” and to “preserve the public order”. It is a case of necessary state intervention, Mr Machimura thinks, and there is no reason why such an action should discourage foreign investors from putting their money in Japan.

            Italy is, in fact, more open to foreign investment and to foreign businesses than Japan. But the two countries do share an underlying suspicion of foreign ownership and nationalist feelings about supposedly “strategic” sectors such as aviation, telecommunications and electric power. What neither Mr Tremonti nor Mr Machimura show is any real interest in using logical arguments to justify their positions.

            Mr Tremonti’s claim that all he wants is “rule-based trade” is meaningless. There is no such thing as trade that is not based on rules, except for smuggling and the commerce in illegal drugs. All legal trade is subject to rules agreed to in the World Trade Organisation. Any disputes over whether countries are obeying those rules are supposed to be adjudicated by the WTO’s tribunals. So the “unregulated free trade” that Mr Tremonti claims to oppose simply does not exist. The real question is whether Mr Tremonti accepts the rules that do exist, or whether he would like to change them. If so, he should say so and his proposals can be debated.

            Similarly, to say “market if possible, state if necessary” tells us nothing. Who decides whether the state is necessary? What defines that necessity? Is it really necessary in the case of Alitalia, in a world in which other European countries have been giving up the idea of national flag-carriers? That is what an honest debate should be about.

            Japan’s Mr Machimura is equally disingenuous. He claims that foreign investors will obviously be able to understand why they must be barred from owning too much of an electric utility. But why should they? What possible threat to either “public order” or national security could TCI (or any other fund) have posed, by asking the management to raise dividends and to stop wasting capital by buying shares in other companies. In plenty of countries, including Britain, electric power generation companies are owned by foreigners. There has been no documented case of any threat to public order.

            The real question that both Italians and Japanese should ask is: in whose interests are such interventions in Alitalia and J-Power being conducted? Is it in the true interest of citizens, of passengers and customers? Or is it in the interest of a smaller, special lobby group? If it could be justified as being genuinely in the national public interest then the state might well be “necessary”, to use Mr Tremonti’s word. But this needs to be justified, clearly, every time the government claims the right to interfere.


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