The Eurocrat

Who did Rupert Murdoch, Bill Gates and Jack Welch have in common? Mario Monti, writes RICHARD GILLIS

JUST BEFORE the publication of his autobiography, former GE president and American business icon Jack Welch sent Mario Monti a copy of the book, with a note tucked in to the dust jacket, and a polite invitation to read Chapter 23. It is here that Welch offers a detailed account of his biggest disappointment, one in which Monti played the defining role, as the “Eurocrat” who blocked Welch’s dream merger with Honeywell in 2001, a $44 billion deal that would have been the largest of its kind in American industrial history.

“He was keen to know what I thought,” says Monti, who served as the EC’s Competition Commissioner between 1999 and 2005. “It was a very nice note asking whether I thought it was interesting and accurate.”

So, was Welch’s account – the chapter is titled “Go home Mr Welch” – accurate?

“To a fairly high degree,” says the Italian, now president of Bocconi University in Milan, “I wouldn’t say totally accurate.” Understatement is Monti’s default mode, as when he talks about his time with Welch – “we spent many hours discussing his proposed GE Honeywell merger” – it is as if it were Welch’s homework project or an interesting business case study.

It would be more accurate to say that by refusing the merger Monti helped shape the rule book on globalisation: here were two American conglomerates, whose coming together had the blessing of their country’s Department of Justice, being told by Europe that they couldn’t.

“It said that those who benefit from a global market could now be governed by any of the countries or regions in which they do business,” wrote Time magazine. “There’s no settled code of rules in the global marketplace, just a haphazard collection of local practices and habits . . . for any company that seeks to profit from globalisation, there are abundant lessons in the story of how Jack fell down.”

The point, says Monti, was that in 2000, the year before the proposed merger, GE alone employed 85,000 people in Europe and collected $25 billion in revenue; in other words, this was Europe’s business. But this was Welch’s dream, his one final act before retirement and he wasn’t going down without a fight. What’s more he said, “this is the cleanest deal you ever saw”, saying that rarely can two big companies have so much to gain and so little overlap between them. The focus of the attention was their dealings in the airline business, which Monti observed, would link Honeywell’s capability in making cockpit controls with GE’s engines and powerful aircraft financing division, a combination that he felt would stifle competition.

Monti said he would approve the merger only if Welch made a series of concessions. For his part, Welch said that if he caved, it would undermine the point of doing the deal in the first place and issued a statement to that effect.

To Jack Welch, Monti can add Bill Gates and Rupert Murdoch to the list of business giants he took on and beat up. Microsoft’s monopoly of the operating system market via Windows gave it the platform from which it competed, unfairly according to Monti, in a series of markets, most notably in the internet browser and media player segments.

By demanding Windows Media Player be “untied” from Windows, Monti suggested his remedies “would be indispensable for Microsoft’s competitors”. After the company failed to persuade the regulator that its practices benefited consumers, the European Commission fined Microsoft $600 million, and imposed a series of restrictions that went far beyond those ordered by the US three years previously.

Murdoch’s Sky Sports monopoly of live Premier League football fared little better, as Monti demanded the league’s inventory be sold in smaller packages. This action led directly to the rise of Setanta Sports, the Dublinbased company, which won the subsequent tender in 2008 only for its British arm to go in to administration and see the rights pass earlier this year to ESPN.

“In my years as competition commissioner in Brussels I never bumped into an industry like football, which is really above the law of democracy and prevails over politics in such a systematic manner. In my opinion, football would render a great social service if it disappeared altogether,” he says.

Ironically, as we step gingerly through the rubble created by the financial crisis, government intervention into free markets is fashionable again among political leaders of every hue. And while Monti is no longer a policy maker, his opinion on the relationship between the state and business is still much sought after and to this end he is on the judging panel for the FT/Goldman Sachs Business Book of the Year awards. This year’s shortlist is dominated by financial crises, both current and previous. “The rapid response of the book authors, turning current events into books, is very impressive,” he says, weighing up whether we are still close to the events to allow useful perspective. “We are at an intermediate stage,” he says. “Many of the books I’ve read over the past year have reflected on the crisis and they do so at a length and in the sort of detail denied journalists on a daily basis. But neither are they history books, at least not on this crisis,” referring to

Liaquat Ahamed’s Lords of Finance: 1929, The Great Depression, and the Bankers who Broke the World

.

To someone whose background is as an economist, business books, defined to include economics are not really a relaxation – I grew up from the age of 19 reading economic books, they have been my life. So I don’t go to this genre for the pleasure of savouring something different.”

A book he returns to regularly is

Capitalism, Socialism and Democracy

by Joseph Schumpeter, which popularised the notion of Creative Destruction, whereby innovation and entrepreneurship ensured long-term economic growth by undermining, or destroying, existing monopolies. Schumpeter’s book he says, is an “excellent primer for the current crisis”. “Many of the rescue interventions by various governments could be called not creative destruction, but destructive conservation, safeguarding what exists already.”

The other great influence on Monti’s professional career was Luigi Einaudi, an eminent Italian journalist, economist and politician who was elected head of the Italian Republic in 1944, and like Monti, became a professor of economics, in the 1960s. “Einaudi wrote an almost magical book, which consisted of a series of essays and lectures in social and economic policy,” says Monti. “It’s full of valuable and relevant messages about the appropriate division of roles between markets and public policies.”

It’s this terrain that Monti also mined and which made him famous, by turns Super Mario, slayer of giants and, to his opponents, an inscrutable and obstinate foe. One of his most famous battles has fostered a typically modest anecdote. After the Microsoft decision, Monti says he was at a conference attended by Melinda Gates, Bill’s wife. The Italian took the opportunity to introduce himself, and his name was met with a smile of recognition: “Yes, yes,” said Mrs Gates, “we talked about you a lot at home.”