Economic nationalism and Telecom Italia

04.04.07 Publication:

A famous English saying, by our 18th century literary genius and curmudgeon, Samuel Johnson, states that “patriotism is the last refuge of a scoundrel”. Today’s European equivalent is economic nationalism, the urge to block (or to talk about blocking) foreigners from buying so-called national assets. Last week Nicolas Sarkozy resorted to it in France, when he complained about last year’s sale of the Franco-Luxembourg steel company, Arcelor, to Mittal Steel, which is based in Europe but controlled by an Indian. This week it is Italy’s turn, with the government’s threat to block a bid by Americans and Mexicans for control of Telecom Italia. The scoundrels are truly at play.

            For that is what they are: political scoundrels. They oppose foreign takeovers not because it is right to do so but  because it is cheap to do so: it costs them, as politicians or as the government, nothing. If they succeed, all the costs will be born by others. In these cases, they are born by the companies’ shareholders and their customers.

Superficially, it may seem right to try to keep these famous companies in national hands. But once you think about it more deeply, it makes no sense at all. Why is Telecom Italia available for sale at all? Because it has got into trouble under its present, Italian, ownership. The share price is worth only half what Pirelli paid for its controlling stake in July 2001. The company has been beset by scandals, too, such as over wire-tapping. Now, AT&T from America and America Movil from Mexico want to buy a controlling stake, handing large sums of money to its main Italian owner, Pirelli.

That would be good for Pirelli—which is why its share price soared on the news of the offer—but could also be good for Telecom Italia and for all its customers. New capital, new management and new ideas would give it a new chance. And if the new owners don’t do a good job? The company will still be controlled by Italian regulators and will be subject to stringent Italian labour laws. It is, as the communications minister, Paolo Gentiloni, says, an Italian asset. But that does not mean what he thinks it does. It means that its business will stay in Italy, under Italian regulatory control. Whether or not Mexicans, or Americans or even Martians own the shares will make no difference to that. The “national asset” is not going to be packed up and taken away.

If the Pirelli board wants to sell its shares to AT&T and America Movil, and if the government blocks the sale or forces a sale to alternative Italian buyers, it will be making the same kind of mistake as did Antonio Fazio when as governor of the Bank of Italy in 2005 he blocked the bid for Antonveneta by the Dutch bank ABN-Amro and favoured a bid by Banca Popolare Italiana instead. In that case, personal favouritism was also involved, as revealed by interceptions of mobile telephone calls. Apart from that personal element, the principle with Telecom Italia is the same: the rights of owners would be denied by blocking a sale, and a government led by a former president of the European Commission would also be violating the idea of the European single market, even if these particular bidders are not themselves European.

At least Nicolas Sarkozy is just a candidate for the French presidency, and not a responsible government minister (at present). But if he succeeds in winning the presidency in May and then tries to block foreign takeovers and mergers, the result will be bad for France. A steel company might, even in this high-tech age, be thought of as a national asset by some. But Arcelor was not owned by the government, thank goodness. It was owned by its shareholders. What Mr Sarkozy was saying was that they should not have been allowed to sell it. But why would that be in France’s national interest? Surely the French national interest is best served by having an efficient, successful, steel company on its lands, supplying steel to French manufacturers at low prices and high quality. The ownership of its shares is unimportant.

It should be the same with Telecom Italia. Italy’s national interest lies in having a well-run, innovative, efficient telecoms company offering low prices and top-class services to its Italian customers. That interest will not be served by playing politics with its ownership.