July 14, 2006

You are on the invidual archive page of You don't own me. Click Simon World weblog for the main page.
You don't own me

Today's SCMP reprints an op-ed piece by ex-French PM Michel Rocard on the Mittal takeover of Arcelor. Let's take a look:

The story takes place in France, Belgium and Luxemburg. But it is really a pan-European story, and in economic terms, it encompasses the entire globe. Mittal, the biggest steelmaker in the world, has gained control of Arcelor, the second-biggest, through what initially was a hostile takeover bid.

This is no mere corporate takeover; it is a conflict between business and social models. Arcelor, originally French and Luxembourgian but now predominantly Belgian, has a strong base in Brazil and operates throughout much of the world. It specialises in high-quality, special steel products designed for the most complicated uses. These products are purchased on middle- and long-term contracts, mainly by long-time customers. It depends very little on the highly speculative world market for raw steel, and its workforce is highly qualified and stable.

Mittal, by contrast, is a conglomerate that has come out of nowhere to become the world's leading steel company in a mere two decades. It did so by brilliantly consolidating and rationalising steel plants throughout the world. Its president is Indian, but it has no factory in India.

Like all good stories, we've got a setting and we've introduced both the goodie and the baddie. That mean upstart Mittal, which is lead by an Indian but isn't really Indian (what that has to do with anything is hard to fathom), is grabbing at that grand dame Arcelor, a company that was created through (gasp) a merger only 5 years ago.
Mittal is a strong but fragile company, for it is highly subject to the speculative waves of the global market for raw steel. It tightens costs and outsources work as much as possible, so its workforce is paid less than Arcelor's employees, and is less stable. Moreover, Arcelor represented a perfect takeover target: most of its capital belongs to diverse shareholders. The opposite is true of Mittal, where owner Lakshmi Mittal and his family hold over 60 per cent of the shares.
Can something be "strong but fragile"? Mittal got where it is by making more for less. This is a "bad thing". And poor, defenceless Arcelor was at the mercy of the predatory Mittal because it has lots of money-grubbing capitalists as shareholders. The horror.
The stakes are clear. Mittal has an obvious interest in gaining control of Arcelor to improve its global geographic balance, boost its market share in high-end steel products, and reduce its vulnerability to the speculative jolts that occur in the raw steel market.

Conversely, Arcelor has absolutely no interest in the success of this takeover. If it is led into a more adventurous strategy, its sustained policy of research and heavy investment in upmarket steel products may be weakened. Its workforce faces erosion of its advantages in wages and job security. This explains why the management, most of the workers and the unions of Arcelor refused Mittal's offer.

Actually, Arcelor's management accepted the offer. Why would Mittal's control lead to a decline in research and investment? Steel jobs and wages were under pressure already - the takeover will probably help protect many workers by bringing them into a more diversified, stronger company. Arcelor has every interest in the success of this takeover, just as Mittal does.
But Arcelor's shareholders have made their choice: the immediate profit offered by Mittal was enough. So the shareholders chose to cash in on a temporary bonus, taking a risk on the progressive erosion of the firm, and perhaps the end of its policy of focusing on high quality while treating its workers with respect.

This choice directly concerns more than 150,000 employees. Indirectly, it concerns all of us, for the choice made by Arcelor's shareholders is far from being an exception; on the contrary, it reveals the deep economic and social significance of corporate takeovers of this type.

The Arcelor shareholders made their choice in a legal, legitimate takeover, where Mittal offered them enough money to make them sell their shares. It's not a "temporary bonus" - it is a transaction just like the share trades that happen on every exchange in the world everyday, including in Paris. It is the fundamental right in a market economy that the owner of something has complete control over it. In the same way, each citizen has a right to vote for whomever they choose, temporary bonus or not. I'm not sure how Mr. Rocard has had access to the thoughts of every shareholder when they made their decision, but he was a Prime Minister, so maybe they have ways?
Where are our societies heading if company owners consider that quality is too expensive and that workers must be made insecure in order to make them less demanding? A system governed by such rules is prone to give rise to various social conflicts, and perhaps to violence. Above all, such a system is neither viable nor sustainable in the long run.

For this reason, it is dangerous to maintain the outdated legal concept according to which a company belongs only to its owners or shareholders. Indeed, in reality, the company is a community of men and women who draw their incomes from the same economic and technical venture. It would be prudent to adapt the law to this state of facts, and to give employees, too, a say in their destiny.

In the wake of this takeover, governments must address this gap in the law, as no society can afford to permit the economic system to continue its march towards indifference to the welfare and security of workers.

My emphasis. This "gap in the law" has been the foundation of modern capitalism, the world's most successful economic system. The idea that a company belongs to a shareholder is not just some legal nicety, it's the fundamental building block of the system. If everyone looks after their own self-interest, Adam Smith's "invisible hand" guides us to a place where we're all better off. There is another system where "stakeholders" are all considered owners of the factors of production - Karl Marx wrote about it. It doesn't have a good track record.

Above setting certain basic rights the less a government or economic system is involved in workers' welfare, the better. Ironically France is excellent proof of that.

posted by Simon on 07.14.06 at 09:02 AM in the Economics/Finance category.


TrackBack URL for this entry:

Send a manual trackback ping to this post.


Post a Comment:


Email Address:



Remember your info?