American Pfizer wants to buy British AstraZeneca so it can shut down research and development operations in Britain to increase the combined entity's profits, which will then be sent to America. Moreover, their plan to domicile the firm in the UK is only for tax reasons
, which could evaporate when another big economy offers a more attractive tax environment. Therefore the Government should step in to protect Britain's pharmaceutical industry and all the highly paid and prestigious jobs it generates here. That's the argument being made by Labour's Shadow Business Secretary Chuka Umunna
, among others.
But would we be better off if politicians took a more active role in deciding mergers? There are good general reasons to oppose greater political involvement in business decisions like this. Free economies tend to perform better than ones where politicians and bureaucrats try to influence or control business. Why are politicians better placed to decide whether the owners of two companies should pool their assets into a single company? If a merger would create value for shareholders by eliminating duplicated spending, is it the proper role of government to block the merger to ensure that the shareholders must carry on duplicating their spending in separate firms? Would changing the law to add research and development to the list of national interests which governments can rely on to block takeovers discourage future investment in Britain, if investors know that they might not be able to sell their investments to non-UK buyers, or if they worry that still other restrictions might be imposed in future, after they've handed over their money?
There are also reasons specific to the Pfizer bid for AstraZeneca, too. People are right to be suspicious of Pfizer's promises on carrying out research in the UK. They will only keep to their promises if they make commercial sense, otherwise they will find a way to get out of them. But that is actually why we should be relaxed about it. The reason companies carry out research and development in Britain isn't because they want to waste shareholders' funds to prop up some idea of British national interest. They do it because Britain is home to a large number of scientists able to do the work and because our favourable legal, tax, regulatory and academic environments make Britain a great, and profitable, place to do R&D. Part of the attractiveness of investing in Britain is precisely the ability to sell your investment later on without too much fear of politicians scuppering things.
Even if Pfizer does at some point close some or all of the research and development operations it takes over, it will have done so because it will have decided that they are not commercially viable, either because the units become less viable on their own merits or because of duplication due to the merger. If it happens because circumstances change, we shouldn't expect AstraZeneca to be any more sentimental about the units than Pfizer would be. But if it happens because of duplication, then those scientists will be freed up to research something else with other employers. Some of them we won't have heard of now, some of them might even create their own businesses.
It's this messy, real-life process of stripping out duplication and waste to increase profits that means, over the long term, products become better and cheaper while wages rise. It might not look neat and tidy to politicians who think in terms of national identity with one eye on votes instead of efficiency with an eye on profit, but we'd be mad to let them interfere.
Instead of worrying that Britain has such a poor environment in which to carry out research and development that we should stop shareholders merging with foreign companies in case they close down operations here, politicians should be thinking about how to ensure our legal, education and regulatory systems are as effective as possible while cutting tax to make sure companies want to do business here. That doesn't mean meddling in business on spurious 'national interest' grounds. It means reforming education, keeping regulation light and minimising the tax burden.