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A couple of weeks before the UK general election in early May, I found myself seated for lunch with a French, an Italian and an American analyst at an international IT conference. With our hosts preferring to stick to bits and bytes, our conversation inevitably drifted to politics.

The Italian was interested in the closure of carmaker MG Rover. Would the Labour government really let that happen, even in the run up to an election? In Italy, he explained, governments have always intervened to stop failures on this scale, but now Prime Minister Silvio Berlusconi insists he will not bail out car maker Fiat if it cannot solve its financial problems. MG Rover was a worrying precedent.

The American too, had a direct interest. General Motors is in severe difficulty, and President Bush and his advisors have shown little concern, other than advising GM that "it needs to learn to compete".

In France, boasted the Frenchman, none of this could ever happen. The government had helped Renault through its worst days and the company is now profitable. The same is true of Bull, the systems and services company, he added, (although it is only profitable if 'exceptional items related to the recapitalisation' are excluded). Such bail outs might be expensive, but they sustain a national skill base.

Naturally, with Anglo-French rivalry being what it is, this prompted me to take a free market stance: All of the big European 'National Champions' of IT in the 1980s - ICL of the UK, Bull of France, Siemens and Nixdorf of Germany and Olivetti of Italy - received colossal funding from their national governments, but it all proved useless (and possibly counter-productive) against global competition. The most successful companies - German software powerhouse SAP for example, Sage of the UK, Business Objects with its roots in France - thrive in open, level and global markets.

The debate ended wistfully: If those big European computer makers had got together in the 1980s, rather than fought each other, perhaps Europe would now have its own IT giant, rather like the very successful Airbus. We could only wonder. And, anyway, injected the American analyst, Airbus is state-aided on a vast scale.

A few days later, the question arose again with renewed urgency. Just a week before the election, telecommunications giant BT announced the huge multi-million contract for the biggest re-fit of a national telecoms network ever announced, the so-called 21st Century Network (21CN).

BT picked eight big telecoms equipment providers to supply the equipment - and left out the UK's national champion, Marconi. In making its choice, BT plunged its close partner, and a great British institution, into deep chaos. Its shares plunged 40%, and 2,000 jobs are likely to be lost. Most financial analysts think Marconi will now be sold to a foreign rival.

A big row has ensued. Unions have demanded that BT behave as other Europeans might, and support its national industry. But the (outgoing) Department of Trade and Industry minister, Patricia Hewitt, could say no more than that government "has no role here".

For its part, Marconi has become increasingly bitter about the behaviour of its biggest customer (BT accounted for 27% of Marconi sales in 2004). After initially saying it was "disappointed", some officials are reported as saying it is "disgusted". And Mike Parton, its CEO, has suggested that BT misled Marconi on how the contracts would break down, severely disadvantaging its bid. BT says this is wholly untrue.

So which approach works best - the interventionist, supportive way favoured by the French government, the unions, and perhaps Marconi; or that favoured by Blair, Berlusconi, Bush and BT's chairman, Christopher Bland?

It is worth saying that both paths carry huge economic risks. Failure to support an industry can kill a skill base and, in some cases, trigger social disorder; but the interventionist approach can give an illusion of control, while at a more global level, markets are fundamentally restructuring, making profitable participation for those in denial ever more difficult.

BT's managers understand that no one is immune, which has led them to pursue ruthless procurement policies. Telecoms markets have been in turmoil for at least 10 years, yet the real upheaval to be wrought by global competition and packet switched networks has scarcely begun.

That is why BT's Bland said: "If you return to the old stasis of placing orders with business [partners] with which you are friends, or your national business, then you will not get a genuinely good result." It is harsh, but for all concerned it is better that it is Marconi in trouble today than BT tomorrow.