Thursday, 8 May 2014

Cable sits carefully on the fence.

On Monday the Guardian headlined its article on the attempted take-over of AstraZeneca by Pfizer as: "Coalition rift over £69bn offer fro UK drugs company."

I find it sad that even the so-called responsible press describe  reasonable differences between the coalition partners  in the language of strife. Even single parties are, in the classic phrase, "coalitions of opinion" so it is reasonable to expect that when two or more parties form the government the differences of opinions will be wider. 

Grow up, Guardian, and report our democracy as working as R A Butler correctly described it: "Government by discussion."  There is every expectation that any differences of opinion can and should be resolved by "quiet calm deliberation"  as Gilbert and Sullivan put it in the Gondoliers.

Whilst both David Cameron and George Osborne  seem keen on the deal Vince Cable has expressed caution, trying to keep an "open mind" but not ruling out the possibility of using his statutory veto, though acknowledging this would be serious step.

Cable's  is a sensible approach because:

  •  it would be unwise tactics to be too openly opposed to both the prime minister and the chancellor of the exchequer
  • overseas investment in our motor industry is seen as a great success
  • Britain itself has not in the past been all that shy of establishing or taking over enterprises in other economies, and may wish to continue doing so.
Osborne in particular may be tempted by the idea of an influx of £69 billion worth* of foreign currency into our balance of payments accounts, which are in a parlous state.  However, if he looks at any standard A-level text book he will see that  the downside is a future negative flow of profits interest and dividends to the foreign owners.

In addition it is a commonplace in the textbooks that foreign ownership generally means that high grade management functions, and high grade research, tend to be concentrated  the foreign economy, and any downsizing in the event of a recession tends to take place first in operations in the non-host economies.

I am no expert on the pharmaceutical industry, but it doesn't not seem to me that there are any scientific advantages to the proposed take-over, or synergy from a joint operation.  Rather this will result in an increase in monopoly power in an already oligopolistic industry, and a reduction in the competition that is supposed to be such a stimulus to enterprise in a capitalist system.

It is hard to avoid the conclusion  that the main motive in the take-over is to take advantage of the UK's disgracefully low profits taxes  (21%, soon to be 20%, compared to 35 to 40% in the US),  and, given Pfizer's recent closure of its factory in Kent, and the experience of  Kraft's broken promises after their take-over of Cad bury, any promises regarding the maintenance of research , development and employment, particularly high-grade employment, in the UK, are probably not worth tuppence.

So the argument for rejecting the offer seems to be overwhelming.  We desperately need a major "plus" from Liberal Democrat participation in government.  Let's hope this is it.

I have long believed that the pharmacy industry takes the rest of us for a ride, claiming  that it needs high profit margins in order to finance research, and then spending most time and money on research on minor "Western" problems such as erectile dysfunction and fripperies such as creams to remove the hairs on ladies' legs,  with not much on world killers such as malaria,  typhoid, cholera and diarrhoea. I believe there is a strong case for nationalising the lot of them, or at least setting up a government owned and funded rival which will become the preferred provider for the NHS.  That could be something for our next manifesto.

* If the deal goes through some of the purchase will be in shares rather than money, so the whole £69bn may not show up in the accounts.


  1. Stuart Archer9 May 2014 at 08:08

    What exactly can Cable and Cameron, Osborne and Alexander do? They surely cannot veto the takeover?

    1. Clever QCs would probably charge you several thousands of pounds for answering that one, Stuart. Both UK and EU laws are relevant. There is a UK Enterprise Act which allows the Secretary of State to intervene to protect the national interest. This mainly relates to the arms industry but also certain other areas. An EU law gives our government permission to "protect legitimate interests." This latter could be interpreted to cover our scientific research base and possibly employment.

      However, with a government dominated by Tories ( 305MPs to Liberal Democrat's 57) who see it as beneficial for Britain to be "open for business" (beneficial for whom is arguable) Cable probably has a tough fight on his hands.

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