French economic patriotism is unpatriotic

By Alex Singleton | 30 August 2005

The Wall Street Journal reports that France is wanting to stop foreign investors buying "strategic" companies:

The French government, facing talk of a Brazilian takeover bid for French metals and mining company Eramet SA and interest from foreigners in a privatization of its large toll-road companies, plans new measures to keep important industries in French hands.

In the next few weeks, the government will publish a list of strategic sectors that it wants to protect from foreign takeovers, French Industry Minister François Loos said in an interview with French newspaper Les Echos. France also will implement a European takeover directive, he added. A spokeswoman for the minister confirmed his remarks.

Mr. Loos didn't specify which sectors the government wants to protect, but he said Eramet is more strategically important for France than food group Danone SA. Speculation last month that U.S.-based PepsiCo Inc. wanted to buy Danone sparked a flurry of warnings aimed at Pepsi by the French political establishment, including Prime Minister Dominique de Villepin, who said he would "defend the interests of France."

It may sound like an economically good idea for countries to protect strategic companies. After all, isn't it a good idea for France to have some major players? Well, let's think about what happens when French shareholders want to sell a company. The company in question has probably increased significantly in value. So the French citizen who invested in the company makes a good return on the shareholding by selling. They might think that the company has reached its peak in value, and by selling shares they can invest in a company they think will bring them a greater return. Shareholders (on the whole) attempt to profit-maximise. Government attempts to hinder the sale of shares to the highest bidder reduces the ability of French people to maximise profits. Thus, French economic patriotism will only reduce the wealth of the French people.