ONE question prompted by Kraft Heinz’s failed $160bn bid for Unilever is whether Britain still wants to be the world’s entrepot for buying and selling companies. For decades it has been more open to mergers and acquisitions than any other big economy. Britain accounts for 3% of global GDP and its firms make up just 5% of global market capitalisation, but the latter have been involved in a quarter of cross-border M&A activity since 1997, either as buyers or as targets, according to Dealogic, a data firm.

Now Blighty is getting cold feet. The government frowned on the Kraft bid, aware, probably, of the dwindling number of large British firms that are left. Another proposed deal, the $11bn takeover of the London Stock Exchange by Deutsche Börse, its German rival, is on the rocks, partly because of the British firm’s insistence that the headquarters be in London, not Frankfurt.

Brexiteers promise that Britain is on the verge of a new, golden age of global commerce. But many of its captains of industry fret that its past wide-open policy on takeovers means that it now has too few big firms to hold its own. To understand the country’s predicament, go back to the early 1980s. The legacy of empire left Britain as the world’s second-most-powerful force in multinational business, with 14% of the global stock of foreign direct investment. But that figure masked deep weakness. Many supposedly global firms were crusty colonial relics; at home British industry was decaying. Margaret Thatcher’s medicine was a strong dose of competition, by means of privatisation, takeovers, an influx of foreign capital and managers, and plenty of deregulation. These policies have been in place ever since.

The market for corporate control was a concern secondary to Mrs Thatcher’s main goals of helping consumers and boosting productivity, but the general plan was for it to work like free trade. So UK PLC would get bigger where it had a comparative advantage and retreat where it was weak. A wave of foreign takeovers followed: since 1997, over 50 firms that would today qualify for the FTSE-100 index of big firms have been snapped up by foreign rivals. Until a decade ago, comparative advantage seemed to work. In the spirits business, for example, a puny firm, Allied Domecq, was bought, and a strong one, Diageo, expanded abroad. Britain’s inefficient carmakers were shut down or bought, but two pharma firms, GSK and AstraZeneca, became global players.

After 2007, however, things became lopsided. Britain’s share of the stock of multinational investment fell (it is 6% today). In eight of the past ten years, there has been an M&A deficit, with foreigners laying out more on buying British firms than British firms spent on M&A abroad. By Schumpeter’s estimate, a quarter of Britain’s biggest firms are viewed as potential takeover candidates, including AstraZeneca and BP, an oil major. The earnings of British firms abroad have dropped by two-fifths, according to the Office for National Statistics. In the past 12 months, for the first time on record, they were less than the profits made by foreign-owned firms in Britain. In 1997, Britain had 11 firms big enough to be among the largest 100 companies by market value in the world, and that was still the case in 2007. Today it has only five in this select group.

Corporate Britain’s decade of pain is partly caused by its skew towards banking, oil and commodities and emerging markets, which have all had a difficult time. But too many foreign takeovers by British firms have flopped. About a quarter of all such activity since 1997 was orchestrated either by Vodafone or by Royal Bank of Scotland, both poor dealmakers. A gaping current-account deficit is also part of the explanation. To finance the gap Britain must either borrow or sell assets to foreigners, including luxury flats in Mayfair, pedigree stallions—and big companies.

One possible response to all this is indifference. British multinationals’ poor return on capital abroad—4% in 2016—means it may make sense for savers to invest elsewhere. Many foreign takeovers have been excellent for Britain. Jaguar Land Rover, a carmaker, revived after it was bought by India’s Tata Group. Nonetheless, having a critical mass of global firms matters. American multinationals deploy three-quarters of their capital investment and 84% of their research-and-development spending at home. Having a cohort of global firms based in Britain cements London’s role as a business hub. And the analogy with free trade, which would suggest that resources swiftly get reallocated from big dying firms to fast-growing ones, is not straightforward when applied to the market for corporate control. There is a finite stock of big global companies that is hard to replace. Britain probably could not create a new drugs giant if AstraZeneca were bought.

Blocking all over the world

Britain tweaked its takeover code in 2011, giving bidders less time to try and win their prize. The results have been mixed. Pfizer, an American pharma firm, failed to buy AstraZeneca in 2014. On the other hand AB Inbev, a beer firm backed by the same investors as Kraft Heinz, bought SABMiller, a British-listed firm, in 2016. After the bid for Unilever a further tightening of the rules is likely.

One option would be to mimic France, which gave extra voting rights to what it judged to be long-term shareholders in 2015. Yet that would never wash with Britain’s institutional investors, who are keen on the “one-share-one-vote” principle. As part of its proposed industrial strategy, the government may instead label more sectors as strategic and block takeovers in these altogether.

Even the free-market wing of the ruling Conservative Party is on board: John Redwood, one of the architects of privatisation in the 1980s, backs a change. For deals that are permitted, the government may impose conditions on bidders. When SoftBank, a Japanese firm, bought ARM, a chipmaker, for $30bn in 2016, it had to agree to run ARM as a separate business based in Cambridge, where it will do research. Britain’s 30-year experiment with a free market for takeovers is quietly coming to an end.