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Open for business?

July 22,2016 12:23

This week's announcement that ARM would be bought by SoftBank, a Japanese tech giant, was hailed by Britain's new government as evidence that the country is still “open for business” following last month's decision to leave the European Union.and more »



THE “Silicon Fen” of tech firms on the outskirts of Cambridge is less glamorous than the California cluster after which it is nicknamed, but it has nonetheless produced some stars. The brightest of them is ARM Holdings, whose microchips power cars, drones and most of the world’s smartphones. This week’s announcement that ARM would be bought by SoftBank, a Japanese tech giant, was hailed by Britain’s new government as evidence that the country is still “open for business” following last month’s decision to leave the European Union.
ARM’s sudden appeal to its Japanese suitor may owe something to the post-referendum slide of the pound, but the deal is welcome nonetheless. Foreign companies play a pivotal role in Britain’s unusually open economy, carrying out half of all research-and-development spending as well as raising productivity and wages in the firms they snap up (see article). Yet, despite the good news about ARM, two clouds hang over Britain’s ability to attract foreign direct investment. The new government appears to have a more interventionist approach to the economy, one that may put the brakes on similar deals in the future. And Brexit may eventually mean that there are fewer British firms worth bidding for in the first place.
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In her pitch to be prime minister, Theresa May sounded decidedly sceptical of foreign takeovers, citing past bids by food and pharmaceuticals companies that she might have blocked. In office, she has set up a ministry of “industrial strategy”, a banned phrase during the Thatcher years (see article), and floated the idea of expanding the list of sectors in which foreign takeover bids can be subjected to a “public-interest test”. (At present this is possible only for defence, financial services and media companies.) Mrs May seems keen to decide on a case-by-case basis whether a deal is in Britain’s national interest. That degree of meddling is not good. Foreign suitors will be less inclined to pursue British firms if they have to win over the prime minister, too.
The bigger worry is that the government’s main aim—withdrawal from the EU—will dry up the supply of firms in outward-facing industries such as technology. Britain’s hitherto borderless approach to capital and labour has helped to make it a European tech centre. By one count London has birthed three times as many startups as Paris in the past decade.
Brexit threatens this position. The loss of “passporting” rights, enabling firms based in Britain to provide financial services across the EU, would hamper fintech firms. Stricter migration rules would deprive startups of valuable foreign geeks (university dropouts such as a young Steve Jobs or Bill Gates wouldn’t make it through the points-based migration criteria that the government is proposing). And British universities, the route through which many techies first end up in Britain, are preparing to take fewer students from continental Europe.
The best “industrial strategy” would be to leave well alone. Though the country is committed to Brexit in some form, it should go for a variety that preserves the broadest-possible access to European markets and puts the lightest-possible controls on migration. In all but the most sensitive industries it should let foreign companies make whatever offers they like for British firms. At the moment the government is edging in the opposite direction: tightening the tap for labour, backing out of Europe’s single market and developing a taste for tinkering with takeover deals. Britons may one day look back and think that worrying about foreign firms wanting to buy their successful companies was a nice problem to have.

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