Written by Philipp Eng, Jungfreisinnige Schweiz International Officer

Nowadays, more and more companies operating in the free market are getting nationalised by governments or acquired by state-owned or controlled enterprises - within states or crossing borders. As a result, states are constantly increasing their power. To limit a State’s power is a liberal’s highest interest, though.

We see some governments directly investing in free market sectors. This can have geostrategic purposes (e.g., protecting an industry because of security reasons). Other governments, pressured by international actors, try to protect local jobs. Some others are also directly pushing to influence economies.

We also see state-owned/controlled companies actively pursuing acquisitions. Those companies have a different understanding of economies as well as different answers to governments (e.g., acquisitions from Chinese state-controlled companies in Europe). Other companies are also leaving their original fields (e.g., train companies acquiring real estates, post services acquiring healthcare companies) to compete against privately-owned companies or to control the legislation or the legal and economic situation in a specific state.

As our world is more and more complex, it also gets more challenging to determine the ultimate beneficial owner of a company. That tends to happen more in authoritarian countries, where a business person might be heavily controlled or influenced by the government.

As illustrated, corporate takeovers¹ significantly impact the free market if a state legally/economically controls the buying company. In other words, governmental actors who acquire private companies undermine the free market. Consequently, this leads to privately-organised companies not assuming a competitive market position, and state economies driving other national economies into complete dependency. This results in the states jeopardising the liberal market and adopting an imperialism-like attitudes.

Legal/economic control can be assumed if the state or a community unit holds over 50% of the shares/voting rights in the company in question. Actual power, on the other hand, is to be assumed if state officials exercise a majority influence on the corporate strategy, including any corporate takeover (e.g., party officials as members of a one-party autocracy).

In the case of corporate takeovers by a company directly or indirectly controlled by the state, we can witness a market restriction leading to antitrust laws. Establishing measures against certain market players or states would not be a liberal measure. Therefore, a liberal solution to maintain the free market could be the following: today, antitrust authorities reactively examine corporate takeovers. When the takeovers are performed by companies directly or indirectly controlled by a state, the competition authorities should be asked in advance whether a takeover by a company in which the state directly or indirectly holds a majority stake can be approved. In other words, it should be up to the national authorities to determine whether a takeover would restrict the free market. In the first case, the competition authority would have the right to prevent such a takeover.

Thus, a takeover would be contrary to the principles of the free market and a liberal economic order if it primarily or exclusively serves power-political interests, is aimed at significantly reducing or eliminating market competition, or is intended to strengthen the market position of the state's economy in technological and scientific terms to the detriment of the target company's country of origin. The procedure, as shown, can re-establish the principles of a free market, observing the liberal values: the state's primary duty is to guarantee freedoms and protect free markets from measures or actors (such as some governments) that undermine those principles.

¹A takeover occurs when one company makes a successful bid to assume control of or acquire another. Takeovers can be done by purchasing a majority stake in the target firm. Takeovers are also commonly done through the merger and acquisition process. In a takeover, the company making the bid is the acquirer and the company it wishes to take control of is called the target.