“Liberty is always unfinished business.”
As we enter the final lap of the Brexit negotiations you can see leaders across Europe such as President Macron, starting to soften their tones and preparing to accommodate the other side. Boris may puff and Barnier may blow, and the deal won’t be done until 3 am on the morning after it’s due, but it will be done.
When it is, business will adjust to the new environment and life will go on. However we can already see that, in global terms, business holds all the aces, while governments and people are weighed down with debt and parochial concerns.
We frequently argue for a more egalitarian and participative form of capitalism, but it is increasingly clear that only business can deliver that; and they have no democratic accountability to encourage them to do so. There is a dilemma here which we must tackle if we are to develop a world more at ease with itself.
The news that Whitbread plc has agreed takeover terms for Costa Coffee from Coca-Cola provides a graphic example of big business calling the shots.
Costa is a business ideally suited to a retail flotation to its customers: millions of people, generally well-heeled and appreciative of Costa’s service quality, and likely to warmly welcome the opportunity to subscribe for shares, particularly if encouraged by shareholder discounts. It would have a good prospect of achieving a similar valuation to the £3.9 billion sale to Coca-Cola, but there’s no evidence that that was even considered. (See 30/4/18 Costa & Amazon - the retailing revolution)
Yet again the buy-out giants have exercised the combination of their financial muscle and ability to go for a quick kill, and yet another great opportunity for democratic capitalism has been lost.
It’s interesting to look at the juxtaposition of economic power between governments, corporates and the people, and let’s accept that there are a small number of ultra-wealthy individuals who should be included in the corporate category for the purpose of this assessment, because that is where their wealth is vested.
Generally speaking, governments and people are debtors: heavy debtors. Today’s cult of instant gratification, whether through government provision of universal benefits or via consumption and pushing up the housing ladder, has been financed primarily by debt. The 2008 crisis threatened the banking system with the consequences of that excessive debt, but governments shielded the corporate community from taking the hit by itself acting as lender of last resort, taking on huge banking liabilities (with the exception of Lehman Brothers) and pushing down interest rates to ultra-low levels to preserve asset values.
The winners are big business. Shielded from economic disaster, they have continued to build their global economic power so that few can stand in their way, and their lack of democratic accountability and their ability to ‘team and lade’ both their provision of employment and their payment of taxation between nations gives credence to their confidence in their own invincibility.
Why should they change?
Possibly, because otherwise - in due course - nations will get their act together and legislate to change them, and they will not like the result. At the end of the day, even big business is made up of people – staff and customers - and ultimately it’s about quality of life for all, not world domination by the few.
You may recall a few years ago the wave of protest movements brought together by the word ‘Occupy’: there was a major camp just outside St Paul's Cathedral. Many saw it as a reaction to the 2008 financial crash, but I think it had still deeper roots.
I spent an hour or so in conversation with one protester in the camp just outside the financial district in Boston, Massachusetts. We worked through the issues behind their concerns and concluded that it was really a call for ordinary people to play a far more significant role in steering big business and finance.
Politicians respond to this sense of alienation by introducing layers of regulation, which impose still more complexity and cost. Regulators have made some progress in reducing the more opaque forms of self-enrichment, but the City and Canary Wharf remain vibrant symbols of big business and parasitic intermediation, for all to see.
The free market embodies many perspectives: open competition, prices responding to supply and demand, enterprise and creativity - but also excess and self-interest. At its heart is the free ownership of capital - or is it so free? Because, to the extent that it is owned by individuals it is excessively concentrated and, to the extent that it is owned by institutions, it carries no meaning to the general public, no sense of ownership - and therefore no reason why people should feel responsible for its well-being.
Big business can kill off the vital link between ownership and responsibility. By concentrating the power to steer these great engines of economic growth away from the ordinary people that they serve and employ, we must expect that those people will eventually bite the hand of those who expropriate the power.
The real casualty is popular support for the free market itself: because, if individuals are denied access to investing directly in shares, they can have no sense of ownership in, nor responsibility for, the great engines of industry which create wealth in such abundance - and they will turn elsewhere, potentially back to socialism.
So what can business do to address this?
Firstly, we need more recognition of the benefits that personal shareholders bring to businesses: both as long-term investors (for, contrary to popular misconceptions, the great majority are long-term investors), and in providing advocacy for well-run businesses. The London Stock Exchange used to have a rule that at least 25% of listed companies’ shares should be owned by individuals: while they may not be the most appropriate body to set that rule, perhaps others should. This means more retail flotations and a new class of corporate advisers prepared to support personal share ownership, and it means lightening the deadweight of prospectus regulation. (See 6/11/17 Will the dominance of Private Equity become the Achilles Heel of the free market?)
Secondly, corporate governance needs a shake-up in favour of personal shareowners. Boards should be encouraged to communicate more effectively, perhaps with nominated directors with a specific responsibility to ensure that this engagement is happening. Briefings given to institutions should be on the record, and available to all shareholders via company websites. Investment service nominees should be required to provide company information flow (already enabled by law, but at present optional for them). Also, further changes are needed to company law to improve the ability for personal investors to table shareholder circularisations and resolutions. (See 29/5/18 Shareowners must vote - and be able to vote - to make their voice heard)
Thirdly, there needs to be far more focus on empowering young people, who will be the investors of tomorrow. Unlike institutions, wealth held by personal investors needs to move through the generations, and business should facilitate that. The next two decades will provide a good opportunity for such an enlightened approach, with six million young people being able to control their own Child Trust Funds as a precursor to building a positive attitude towards savings and investment. (See 26/3/18 Investing in the next generation - are we?)
This newsletter can do little more than set pointers for the way forward, but both businesses and governments need to appreciate that they are servants of the people, not masters – and boards in particular needs to wake up and smell the coffee, not just sell out to big business.