The final curtain

While there is no shortage of cheerleaders for individual freedoms, economic freedoms have too few champions. In the wake of anti-globalization protests in cities as far-flung as Seattle, Melbourne and Prague, even some developed countries are becoming ambivalent about liberalizing their economies. The derailment of several mega-mergers and the imposition of new trade barriers suggest that international economic integration may be slowed in the years ahead. Yet the price tag for this retreat will be steep and, as usual, borne by the world’s poor.

Take the case of South Africa, which recently derailed a proposed merger between Toronto’s Franco-Nevada Mining and Gold Fields, a South African mining giant. Both companies wanted the merger, which was to have created one of the largest mining companies in the world. Gold Fields Chairman Chris Thompson described it as “a leap into the international arena that could not be achieved through organic growth alone.”

The South African government saw things differently. It nixed the multi-billion-dollar deal on the grounds that it might potentially erode the mining tax base, which has been declining since the 1980s. Furthermore, the government said “no strong case” was made that the merger would have present or future benefits for the South African economy.

But a case can be made that without new investment, South Africa’s gold-mining industry will be poorly positioned to thrive and grow in this low-price environment. Many of South Africa’s gold mines are old, deep and dangerous. Were it not for a devalued rand, some would be uneconomic. The economic mines must compete with a new generation of low-cost mines being developed in other parts of the world.

While keeping jobs is important, South African producers, like their counterparts in other parts of the world, have had to reduce their huge work forces and improve productivities in order to remain competitive. No company can produce something above the selling cost for long. No government can either, as the communist world discovered in the late 1980s.

South Africa cannot isolate itself from changes taking place in the gold mining sector through protectionist policies. New investment will at least help it compete and face the challenges associated with an industry in transition. This is true of other industries as well.

The problem for South Africa is that many of the country’s cabinet ministers are former Marxists and revolutionaries. The brightest and the best, including President Thabo Mbeki, have come to realize that sustained economic growth is the only solution to the country’s widespread poverty. Yet far too many politicians remain hostile to capitalism and, as a result, the country has been slow to privatize inefficient state-owned assets, reduce the civil service, improve onerous labour legislation and generally liberalize the economy. This, in turn, has frightened away investors and even prompted some domestic companies to set up shop in more favourable jurisdictions.

Elsewhere in the world, other companies are finding that their plans to grow through mergers are being thwarted by governments. Alcan Presdient Jacques Bougie recently told European leaders that “regulatory complexities” have made the merger process difficult, time-consuming and expensive. “These inefficiencies unfairly and significantly penalize shareholders, employees, customers and consumers at large. There is enormous economic leakage.”

Bougie was speaking from experience. Alcan and a Swiss-based company are in the final stages of a merger that will create a global industry leader in aluminum and specialty packaging. It was supposed to have been a three-way merger that included Pechiny of France, but that was withdrawn earlier this year after a review by the European Union Merger Task Force.

Bougie appealed to leading corporations and institutions to persuade governments and antitrust agencies in key jurisdictions to work toward adopting a voluntary “common process” system. He wants a more streamlined process that includes common filing requirements and perhaps even a “lead agency” protocol. However, he conceded that the business community must take a leadership role to make this a reality.

Pared down to its bare bones, Bougie’s message goes beyond the call for a global review process. Companies need to stand up and be counted in the debate over globalization or risk having their growth plans thwarted by government and restrictive trade policies.

He’s right. The case needs to be made that economic opportunities in this world would be far greater — thereby helping more of the world’s poor and disadvantaged — if barriers to investment and trade were reduced. The Iron Curtain may have fallen, but the Protectionist Curtain still needs a mighty tug or two.