Joe Hockey has just announced he is blocking the foreign takeover of Graincorp by Illinois-based Archer Daniels Midland. It’s a lousy decision. But it at least has the virtue of being an illuminating lousy decision.
People often underestimate the damage done by barring foreign takeovers. They focus on the idea that foreigners are getting something. So they miss the fact that those same foreigners are giving up something too – money. And that money doesn’t disappear. Like all money, it gets invested or it gets spent. Either way, foreign takeovers put new money in the hands of existing Australian investors. Many of the people invested in Graincorp are presumably people who know about investment in the farming sector (and if they’re not, Graincorp is in even greater need of takeover). If Graincorp’s foreign buyer had handed those people a pile of money, some of it would have ended up invested in new rural ventures. That won’t happen now. That money has to stay where it is, courtesy of Hockey.
Foreign takeovers also bring new management practices, and new links to global supply chains, and frequently a greater willingness to invest in people and equipment. That plus the money that goes to local investors usually makes a compelling case to approve foreign investment.
And it was compelling as ever in the Graincorp case.
If you think I’m just ignoring Hockey’s well-considered arguments in favour of blocking this particular takeover, can I plead with you to read read the announcement yourself.
OK. So you’ve read it now. Welcome back. Did you notice that Hockey’s justification for the decision seemed very thin? Much thinner than, say Peter Costello’s arguments for blocking the Shell takeover of Woodside or (particularly) Wayne Swan’s arguments against the Singapore Exchange’s takeover of the ASX?
Hockey claimed that the Graincorp case was among the most complex ever presented to FIRB. But his statement leaves exactly the opposite impression. By the very absence of even half-decent reasoning, it suggests that at a policy level, the case was open-and-shut: there was never any national-interest reason to block the bid. There was just the opposition of what might be called the Barnaby Joyce faction, with the agreement of at least one FIRB member. To make the inevitable pun, Joe Hockey acted not in the national interest but in the Nationals’ interest.
Maybe a FIRB member found a terrific reason not to wave the Graincorp bid through. If so, though, you’d think they’d have let the treasurer’s office know what that great reason was, so it could at least be reflected in the official announcement. Apparently not. The announcement was bad reasons from top to bottom. Let’s see what we got.
We got prattle about ill-judged opposition from people who did not have responsibility for the decision:
Many industry participants, particularly growers in eastern Australia, have expressed concern that the proposed acquisition could reduce competition and impede growers’ ability to access the grain storage, logistics and distribution network …
“Many industry participants” expressed concern. At least he was smart enough to avoid claiming he actually agreed with them.
We also heard that the mere absence of strong competition was a reason to keep foreigners away:
Given that the transition towards more robust competition continues and a more competitive network is still emerging, I consider that now is not the right time for a 100 per cent foreign acquisition.
The ACCC, of course, found evidence of monopoly elements within the Graincorp assets. But as it correctly noted, that has already happened. The business doesn’t get more monopolistic by being transferred to overseas ownership. Indeed, I would have thought that a foreign owner for Graincorp would make it easier to impose tough pro-competition conditions in the future.
(You might think, in fact, that tougher competition rules might now be on the cards for Graincorp. Don’t bet your house on it. The monopoly characteristics of today’s Graincorp were built up over two decades by federal and state governments of both persuasions, with help from the growers themselves. A government which notices these competition issues only at the moment that some Coalition voters get upset about foreigners is certainly capable of forgetting about all these same competition issues by, say, next Tuesday lunchtime.)
The highlight of the statement, though, was Hockey’s claim that if you make a tough decision, you may undermine support for the policy you’re pursuing:
I therefore judged that allowing it to proceed could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally.
If there’s a blessing in this mess, it will be that we no longer hear anything about this new government being above politics. The sentence above, the ultimate reason for this decision, is pure politics, 100 per cent, uncut – and it’s stated right there on the page.
If this is brazen, it’s also nuts. Does anyone think that the government will be using this line of reasoning on, say, Budget night? Will we see Joe Hockey at the despatch box arguing that he can’t risk cutting 2014-15 spending because it might undermine support for tight fiscal policy more generally?
Actually, on today’s effort, that’s possible. Let’s hope this is Joe Hockey’s low point.
Update: Kudos to the Business Council of Australia for being willing to publicly question the Graincorp decision. Its carefully-worded statement asks the right questions and shows the BCA – perceived as very close to this government – has not given up its traditional support for foreign investment or its interest in good government processes.