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The death of the golden share

‘A triumph for the European Commission’ (as USA Today chose to describe it) is not something usually to be celebrated here. But yesterday’s finding by the European Court of Justice against Germany’s ‘VW law’ – protecting Volkswagen against takeover via a blocking minority vote held by the state – really does look like a blow for greater dynamism, industrial synergy, and efficient use of capital throughout Europe.

24 October 2007

4:03 PM

24 October 2007

4:03 PM

‘A triumph for the European Commission’ (as USA Today chose to describe it) is not something usually to be celebrated here. But yesterday’s finding by the European Court of Justice against Germany’s ‘VW law’ – protecting Volkswagen against takeover via a blocking minority vote held by the state – really does look like a blow for greater dynamism, industrial synergy, and efficient use of capital throughout Europe.

In Britain, the golden share was used to allow the government a continuing hand in the destiny of privatized businesses  – but this ruling seems to mean that the device has finally had its day. Similar mechanisms protecting German and Portuguese energy companies, Telecom Italia and a variety of businesses in Hungary and Poland are now in competition commissioner Charlie McCreevy’s sights. Rulings have already been made against the Dutch government blocking powers in relation to postal and telecoms services. The French will now have to watch their step with EADS, the aerospace group, and Thales in the defence sector. Some 23 British entities, including Royal Mail, British Energy, which runs our nuclear power stations, and the Rosyth and Devonport naval dockyards, still have golden share arrangements, but can now expect to forfeit them if challenged.

But – we should ask – is this a wholly good thing? Is the principle of one-share-one-vote really so much more important than the principle of national interest? And what does national interest mean anyway, when it coincides with business? In a British context, it was well understood during the era of privatizations in the 1980s and ‘90s as a need for a degree of residual control over vital infrastructure such as reservoirs, power stations and airports and over vital supplies such as defence equipment: very few people argued against golden shares when the businesses concerned were floated or sold off. In the VW context, national interest has long been associated with protecting jobs which, it is feared, would migrate eastwards even quicker if VW passed into full private sector ownership (Porsche being the current stalker) or foreign ownership – which is much less likely, given Porsche already has a 31 per cent stake. VW is also a powerful icon of German industrial development, so there are emotional reasons why German politicians have sought to protect it from economic tides.


Of these three strands of golden-share logic – security, protectionism, patriotic sentiment – the last two really have to be set aside in a globalised economy.

Job protectionism is not only unfair to consumers, who pay higher prices as a result, and to lower-cost producers and workers elsewhere, who are shut out; it also stores up long-term trouble for the domestic economy, holding back growth, reform and progress – as it has done so egregiously in France.

Patriotic sentiment may still be a jolly good thing in the right place (when watching the rugby World Cup final, for example) but it really has no place in modern business. British Airways is just an airline, and its Britishness is not in any real sense special enough to make it worth preserving if ever a more efficient foreign airline comes along and wants to buy it. Royal Mail is still a national icon of sorts, but it might finally move into the 21st century if it was taken over by TNT of Holland or Deutsche Post. In the case of BAA, which carefully chose not to call itself British Airports, it would have been absurd to say ‘Heathrow is ours, no foreigner shall ever own it’ – and under its present Spanish owners it has proved  neither better not worse as an experience for travellers than it was under notionally British shareholder ownership.

In regulated industries in particular – power and water supply, telecoms, broadcasting, railways – the state has reserved to itself sufficient powers to interfere in pricing and quality standards, and to require minimum levels of capital investment, that it is wholly un-necessary for ministers to have a say in ownership as well.

That leaves only the issue of ‘security’, principally in the defence field and also in nuclear power generation. But as Matthew Lynn wrote in the Spectator recently, we gain little except occasional political embarrassment from maintaining a large, state-supported arms industry. As for our nuclear power stations, several of which have been temporarily closed down this week, maybe the French would actually run them better.

In the end, if you think hard about it, the number of things so vital and sensitive to the national interest that they cannot be exposed to the free play of international capital and the possibility of foreign ownership, and are therefore in need of golden-share protection, is very small indeed. You wouldn’t privatize GCHQ and sell it to the Chinese – but that’s about it. In essence, if an activity is suitable to be run as a profit-making business (which GCHQ clearly isn’t, but power stations by general consensus are) then by definition it does not need the state as a controlling owner. So good riddance to golden shares – and hats off, just this once, to Brussels for hastening their departure.


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