Hamish McRae: UK speaks in a foreign accent

The "does it matter if foreigners own our media?" question came to a head last week with the Government's plan to create an almost free market for media in the UK. The scene now seems set for Rupert Murdoch to be able to take over Channel 5.

The Government's position seems to have been broadly welcomed. Why, it is reasonable to ask, should the media be different from any other industry? For any misdemeanours by either the press or the TV industry should surely be tackled directly. In any case, there are certainly plenty of examples of poor stewardship by British media groups, as well as many examples of good stewardship by foreign-owned ones. What matters is how companies behave, not who owns them.

But the Government's policy, however rational, is quite unusual. Most countries impose restrictions on foreign ownership of corporations they deem especially significant. Even the US, which is pretty open, restricts foreign ownership of airlines – not, mind you, a business with which any wise foreign firm would want to get involved.

Here in Britain we are remarkably open. We are the land where everything is for sale, from this newspaper group, now owned by the Irish Independent group, to Bentley cars – from the sublime to the ridiculous, ahem. And as a country, our assets have been up for sale for many years.

The most significant opening of an important UK market to foreign companies in the last 20 years was the City's "big bang" in 1986. At the time the Bank of England expected there to be at least two or three British-owned investment banking groups that would play in the top league, with UBS Warburg being the favourite to challenge the incomers. As it turned out there is not one front-ranking UK merchant bank still under British ownership. Nevertheless, the City has increased its dominance of international financial business. The intriguing possibility is that something similar may occur in media: we gain global clout in the industry (and our citizens gain larger salaries) at the cost of losing ownership control.

Does this matter? If we are not very good at managing certain industries then maybe it is better to cede management control to foreign companies, but buy the shares of the companies instead. That way we gain as investors and employees, even if we don't have the satisfaction of knowing that, say, Jaguar, is still British-owned.

Before jumping to judgement, first look at the figures for the flow of funds, then the stock of UK assets and liabilities. For the picture is rather different from this perception that British assets are being bought up by foreigners.

International investment splits into two broad groups: portfolio investment – buying shares and bonds in other countries; and direct investment – building plants abroad. Both are huge, but portfolio invest-ment is the larger. Last year the US was an enormous net recipient of foreign portfolio funds (top of left-hand graph above), the eurozone was roughly in balance, and Japan and the UK were net payers. So, in portfolio terms, we were net investors abroad.

In foreign direct investment the picture was different. The US was roughly square; the eurozone was in substantial deficit, as was Japan – there was only $5bn of inward investment there last year; and we were sub- stantial net recipients of such investment.

So as far as a flow of money coming into the country to build plants and invest in equipment is concerned, the UK was the only net recipient of the four main economic areas in the developed world. (The biggest net recipient of FDI was China.)

So that was the flow; what of the stock? I have shown what is happening in the UK in the two right-hand graphs and we don't yet have figures for 2001. But at the top you can see how, on portfolio investment, we had a deficit at the end of 2000, which may have been cut back a bit by the outflow during 2001. Below, however, you can see we have built up a sizeable net surplus in FDI. Put crudely, in terms of the value of securities, shares and bonds, we have a deficit; but in terms of the plants and equipment our companies abroad own, we have a surplus that more than offsets this deficit.

If you add up every asset owned by Britons round the world and subtract every asset owned by foreigners here, it is true the overall position is a modest net deficit – hardly surprising given that we have been running current account deficits for much of the last decade. But while we sometimes feel that foreign firms come here and buy everything, actually the flows are pretty even. And in FDI it turns out that we own a lot more abroad than is owned by foreigners here.

So what is the conclusion? Three points.

First, in media, the balance of probability seems to me to be that we will benefit greatly from creating a much freer market, just as we have in financial services. If foreign-owned media groups, or indeed UK-owned ones, commit anti-competitive practices then that is for the competition authorities to sort out.

Second, if our indigenous company managements cannot deliver a return that persuades shareholders not to sell out to foreigners, we are better off taking the money and investing in the new owners – or in other UK companies with a better management record. I don't actually believe British management is unusually incompetent; we do some things well and some less so. What matters is the overall performance of the British economy and that is quite good by European standards.

Third, our large foreign investments and the very openness of our own economy ought to give us considerable advantages in an ever-more global world economy. It is an interesting hand of cards, perhaps the most interesting of any country, that we have to try and play as cleverly as we can. If we play it badly, it will not be because we let too many foreign companies in.