European industrial policy
Backing the wrong horse in the wrong race: why picking winners is a bad strategy.
Robert E Lee once said that you should never do a wrong thing to make a friend or keep one. This advice was probably top of mind as the European Commission rejected the merger of rail companies Siemens and Alstom on antitrust grounds. Despite political pressure, it was right to do so.
This proposed mega-merger between the French and German giants has brought the topic of creating European champions to the fore once again. The voices for an EU industrial policy are bolstered by a progressively isolationist and tariff-wielding US, as well as a more commercially aggressive China.
The folly of picking winners
Picking winners and creating super companies has often been the whim of politicians and some industry leaders. This tendency has been particularly strong in countries like France for many decades. It is a trend that must be resisted. Creating European (or national) champions wastes resources and ensures that consumers and other businesses lose out. The lack of competition often leads to higher prices, less choice and poorer products due to a lack of innovation.
Merely copying the short-sighted strategy of the US and China in this field is no excuse. There is never a right way to do a wrong thing. This applies in business as it does in life. Very often the threat from other countries and their champions is overplayed to scare politicians and decision-makers to adopt a strategy that creates local champions. All too often cries that companies will be smashed underfoot by giant foreign behemoths have come to nothing.
The need to stand firm
In short, big mergers which create monopolies should be given a red light, regardless of the political pressures. The European Commission is right to fully test the dominance that new companies will have, as well as their likely impact on markets and therefore consumers. The European Commission is admirably holding a firm line in the face of criticism and political meddling.