Economic Nationalism

Why do governments feel they have to protect their economies? Wahyd Vannoni provides the answer.

During a recent take over attempt of European steel company Arcelor by its global competitor Mittal Steel, French politician Dominique Strauss-Khan declared that the French economy must be defended.

This kind of takeover attempt often generates a knee-jerk reaction from the part of the government and citizens. In general, the foreign company taking-over a local one is viewed with suspicion, anger, or at best, contempt.

Fab Four Reasons

Such a hostile response is rooted in four main reasons.

The first is social and anthropological. By its very nature, any group of human beings tends to distrust other groups of humans. The universal term for this is "barbarian" behavior. Any group will always see itself as the center of everything, and all other groups as just barbarians. The "others" these people beyond the river, or across the street in the other building, they just don't understand. From continent down to country, region, city, district and household, you can alway define "the others". They do not behave like us and they don't even speak like us.

Obviously "the others" can have the same feelings about us but it seems to go unnoticed. What remains though, is that any one group, is always someon else's barbarian.

Barbarians at the gates

In today's economy, experiencing a take-over is akin to watching the barbarians invite themselves into your own house, take your food from the fridge and eat it. A famous book titled "The Barbarian at the Gates" illustrates this feeling. In it, RJR Nabisco is the target for a corporate takeover. The others, the barbarians, are fighting each other for the spoils of RJR. Note that in this case the "barbarians" are just other Americans. They just happen to work for "other" organizations.

The second reason for economic nationalism has to do with embeded interests. A foreign company may be able to bring local benefits such as better customer service, lower prices and better products. However, while many local customers stand to gain something in the medium term, local business competitors are going to lose a lot, very quickly through competition. Therefore, from their point of view, a foreign company coming to take-over a local one is not in their interest.

The third reason for economic nationalism has to do with "strategic" sectors of the economy. A sector can be "strategic" because of military reasons. For instance, a government might consider defense and health to be so vital to its existence, and sensitive to national security, that these areas cannot be controled by foreigners. An industry can also be "strategic" because of the number of people it employs (such as the car industry and agriculture) and therefore its affect on the greater good of the economy. Whether viewing certain economic sectors as strategic is justified, is another matter.

Zero-sum game?

The last, but for me most interesting reason, has to do with a fundamental misunderstanding most people have about economics. Many Western Europeans and North Americans now fear China because they perceive that every 10 euros or dollars that a Chinese worker gains, will come out of the pockets of a European or American worker. This view, is "zero-sum". It assumes that there is a stable, finite amount of wealth worldwide. Consequently, if China gains x-amount, someonelse in the world will lose exactly this x-amount. If economics really did work this way, we would still be stuck in the stoneage. Thankfully, our ancestors engaged in trade and in the long run, improved their lot. We are the beneficiaries of this process. It is true however, that while trade patterns shift, some people do get hurt. A few might find it extremelly difficult, even with their best intention, to find another job.

How to keep a workers, employable has been a challenge since at least the industrial revolution. Another challenge, perhaps more ackward for western governments, will be their willingness to allow an increasing number of take-overs from developping countries. The trio Lenovo, Tata Steel, Mittal Steel (Chinese, Indian and Indian-run respectively) are the precursers of what can be safely expected to be tidal wave.

Wahyd Vannoni is a consultant in Corporate Commnucations for www.mediacodex.com and is Second Vice-president of the American Chamber of Commerce in Croatia.