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OPINION

Protect and destroy

Protect and destroy
March 9, 2018
Protect and destroy

First some context. Melrose Industries, as Ian says, has a fantastic track record of buying underperforming engineering businesses, turning them into high-performing ones, and setting them free. GKN, meanwhile, is one such underperforming asset, a bloated and unmanageable conglomerate of engineering businesses desperately in need of pruning.

So heightened calls by MPs this week that Melrose’s proposed takeover of GKN should be blocked make little sense except as politically-motivated posturing. Some have recently described Melrose’s model as “asset stripping”, deliberately invoking images of the swashbuckling conglomerate builders of the 1970s and 1980s. This is lazy stereotyping that fails to reflect the investment Melrose makes to turn its companies into saleable assets, or that if GKN is to remain independent it will certainly have to make these tough decisions itself. While it’s sad that jobs are sometimes lost – initially – as part of this process, when a workforce has outgrown its business the economic reality can’t be ignored.

The uproar makes even less sense in the context of the widespread condemnation of President Trump’s threat to impose tariffs on steel and aluminium imports – I entirely agree that protectionism by tariff is a damaging fool’s errand, but intervening in takeovers is just another form of it. UK industrial history is littered with the bones of once great businesses the government tried to protect.

Indeed, British businesses aren’t protected by shielding them from the reality of capitalism; coddled by the backstop of the state, businesses tend to underinvest – or invest in the wrong places – and stagnate. Instead, governments should focus on making sure that businesses are provided with a broader economic and political environment in which, managed effectively, they can flourish, and leave the day-to-day business to people that know how it works – like the management at Melrose, for example, who have demonstrated the skills needed to improve the quality of the UK’s industrial base.

Where politicians do have a role is to protect customers from the greed that can sometimes accompany such a laissez-faire approach to business, which is where regulation comes in. And in recent years policymakers have not been shy about introducing more and more of these protections, many of which – as we explore in this week’s cover feature – come into effect this year. But we should be careful what we wish for here, too, because excessive regulation can prove stifling, and again put a brake on trade that helps no one.