The president of our National Welfare Rights Network is a man named Michael Raper.
Surely an excellent name for someone who constantly thinks about how best to take advantage of taxpayers.
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When I read the following column by Will Hutton, lambasting private equity firms for daring to take over big UK companies like supermarket J. Sainsbury or whoever, I laughed out loud. Here is his lead paragraph in Friday’s Guardian:
Rubbish. Firms that are floated on the London Stock Exchange, Nasdaq or the Martian 250 are privately owned, Will. They are not owned by the state. True, limited liability laws, as the libertarian writer and friend of mine, Sean Gabb, likes to point out, present serious issues in terms of the gap between ownership, responsibility and control (I wrote about this topic a while ago). But to argue that private equity shops like Apax, Carlyle or Texas Pacific – those evil Amerikans – are taking what should be ‘public’ into grubby ‘private’ hands is economic illiterate nonsense. Firms exist to make a profit, Will. As Milton Friedman trenchantly put it without hint of apology to the gods of ‘social responsibility’, a company’s job is to make a profit for their owners, not to further whatever corporatist/fascist/socialist/ist agenda that happens to attract the gaze of Guardian editorialists. Why the current wave of hysteria about private equity? It is being fuelled by two things: fear and envy. Fear of the power of these sometimes shadowy firms to buy up famous companies with great wodges of debt finance, or leverage, as the finance geeks put it. Envy, because of the large bonuses that the private equity honchos pay themselves and the often high profits they make in turning firms around. And of course no story about private equity can be written without referring to the Masters of the Universe lampooned by Oliver Stone in Wall Street or portrayed in books with such objective titles like Barbarians at the Gate. In the main, what these firms do is target cash-rich firms that are run by often lazy executives who have presided over crappy business decisions. Take the meltdown of Marconi a few years ago, one of Britain’s most famous companies. That was a listed company. The destruction of value and jobs in that company remains, in my mind, one of the most disgraceful episodes in British corporate history and who knows, it might have been saved from making big errors had a private equity fund been in charge, rather than deluded executives. Private equity firms helped stymie Deutsche Börse’s foolish bid for the London Stock Exchange 2 years ago, and have turned around businesses. They typically buy and hold a firm for 5 years or more, take a hands-on approach to running firms before spinning them off to another buyer or floating them in an IPO. So Will Hutton should spare us sentimental guff about how limited liability firms floated on the stock exchange represent the perfect model of doing business or something that Adam Smith or Voltaire would exalt. They are merely one of the many ways in which economic activity manifests itself. As interest rates rise and the economic cycle turns, some of the excesses of leveraged buyouts will fade and private equity transactions will decline. No doubt Will Hutton will forget everything he has written and go back to bashing listed firms for their “short-termist” fixation with pleasing shareholders, or whatever. As mentioned several times in these pages, by the way, one additional reason why listed firms go private is because their bosses prefer not to have to put up with onerous reporting requirements under US and other laws, like the onerous Sarbanes-Oxley rules. If Hutton or other big government advocates are worried about the migration of companies off the listed stock market, they might like to remember that point. Right, my rant of the day is over. Enjoy the rest of the weekend. Update: have slightly amended the text about Marconi, just to reinforce the point. One commenter, Bryan Appleyard, has argued that firms become “cultural” forces, as if released from the laws of supply and demand. I have heard some odd attacks on private ownership and M&A before, but that is a new one. Companies that have been taken over by private equity include the Automobile Association, Kwik Fit, Debenhams, various property firms, HEA, the US health chain, and many more. I don’t really see how the cultural issue makes a bit of difference to the folk who work in them or buy their products. I’d also add that I think some of these private equity deals are in danger of coming unstuck, and no doubt much gloating and gnashing of teeth will occur when or if this happens. It is partly a function of low interest rates and the impact this has on asset prices. Monetary growth is strong at the moment and this is one of the ways in which money supply growth comes out. Another lesson from Friedman to remember. February 24th, 2007 | 39 comments - (Comments are closed)
 Sometimes you see a set of numbers and they really make you sit up and gasp:
Nice work, Messrs Sarbanes, Oxley and Spitzer. February 21st, 2007 | 8 comments - (Comments are closed)
You can almost hear the crunch of gritted teeth as the Guardian reports on how kibbutzers have “allow[ed] the market to take the place of the idealism”. February 20th, 2007 | 13 comments - (Comments are closed)
Here on Samizdata, we do not have a single ‘editorial line’ and therefore we sometimes disagree with each other. And this is a case in point. Midwesterner has stated that:
Actually there are loads of them. If a foreign state wants to subsidize (say, mp3 players) that I buy at the expense of their hapless taxpayers,well, more fool them. In the long run it is unsustainable and if at some point their wicked government stopped the export of said products, then the glory of capitalism is that domestic producers will simply re-appear or an intermediary market for importing them via a third party will pop up, but in any case it is hardly a tragedy for the overseas people purchasing said products. Is it ‘fair’ to the mp3 player manufacturers elsewhere else? Wrong question because trade is not about fairness in that sense. If it is ‘unfair’ that a country (say, Taiwan for example) subsidies a product to make the price lower, why is it not ‘unfair’ that a western state makes me pay more for my mp3 player because they have forced domestic mp3 player manufacturing companies to expend vast sums on welfare payments and other labour cost increasing regulations and hence making them uncompetitive? As the USA is generally less regulated than most other countries, by the logic of ‘fair trade’, no one else should allow the US to import ‘their’ unfairly under-regulated products into their over-regulated markets. If you follow the logic of ‘fair trade’ rather than ‘free trade’, a nation-state should not allow its subject people to trade with anyone not subject to that nation-state’s laws (i.e. there should be no international trade at all), otherwise it is bound to be ‘unfair’ in some way. Labour costs, raw material costs, ease of market entry, etc. etc. are always going to vary. Moreover, it is a mistake under most circumstances to accept that buying a product from a foreign company is trade between (say) the UK and US. Unless a state of war exists or I am trading with a state owned company, trade occurs between me and a company, not ‘my’ nation and some other nation. Unless the company I trade with is largely an adjunct of a foreign government, it is just trade between private people. To think otherwise suggest accepting that the state has a controlling interest in every economic action you make, even if the other party is not subject to its sovereignty. From both moral and utilitarian perspectives that is a serious mistake. February 19th, 2007 | 59 comments - (Comments are closed)
Five consecutive years of record trade deficits. There are very few rationalizations for supporting unilateral global free trade, but in the spirit of David Letterman, here’s my top ten. Starting with: And, the number one rationalization of unilateral free trade, drum roll please: Seriously, → Continue reading: Global free traders have some explaining to do February 19th, 2007 | 42 comments - (Comments are closed)
I have been keeping an eye on the French Presidential race, if only because it is high time perhaps that that great, sometimes infuriating country had the sort of leader who might unleash the entrepreneurial energies that do exist. (Entrepreneur being of course a French word). We like the witty French economics writer Bastiat at this blog and it would be lovely to think that some of his classical liberal spirit might return to that country. Alas, Nicolas Sarkozy, the Gaullist candidate, has already signalled that he is as hostile to capitalism as any Sartre-reading socialist:
Hedge funds, which are investment pools usually registered in sunny Caribbean islands, have become a bugbear for protectionist-minded politicians, who fear the ability of these folk to quickly move in and out of a company’s stock, a currency or bond to make a profit. Hedge funds typically amplify the size of the market positions they take by what is called leverage – borrowing to you and me – and from time to time their bets go badly wrong, as happened during the Russian debt default crisis 9 years ago. On the whole, though, hedge funds make markets more liquid and efficient by increasing the number of buyers and sellers in a market and their arbitrage skills remove inefficiencies in how assets get priced. They also, on a more venal level, generate enormous revenues for financial centres like London and Wall Street. They often put pressure on underperforming company boards to raise their act, which is hardly a bad thing. Like private equity buyout funds, however, hedge funds sound mysterious and a bit dodgy; they prefer to operate in secret and their PR is often awful. For most people, a hedge fund manager is a guy with a slicked haircut shouting into a telephone. The French business culture, despite a few improvements, is overwhelmingly dirigiste, and can ill afford to give the finger to some of the sharpest financial talents around. If Sarkozy wants to market himself as a sort of French proto-Thatcherite, this seems hardly the way to go about it. Bashing speculators is the oldest and one of the grubbiest tricks in the political book. It plays on public ignorance about economics, it plays on envy at great wealth, and panders to the out-dated idea that wealth is only real if you can hit it with a hammer or or dig it out of the ground. Sarkozy should do his underperforming republic a favour and read some Bastiat instead. February 14th, 2007 | 9 comments - (Comments are closed)
A law firm I use sends out a regular newsletter to their business clients. This arrived in my mailbox some time back. At first I just read it and thought ‘interesting’. But reading it again, I think it may be of interest to some Samizdatistas. Sections 1 and 2 seem reasonable enough. Section 3 is iffy. But, starting with section 4, some things definitely look like, if actually enforced, they will have a substantial effect on business in China and its overall economic trends. Things like this are what may provide concern for China’s continued economic growth:
We have a lot of commenters and contributors who travel to China; presumably some of them have business there. I would be interested in knowing what they think of these proposed labor market reforms. Will China actually try to enforce all of these parts of the law, or is it just for show? And if they do enforce it, what will the repercussions be? February 9th, 2007 | 7 comments - (Comments are closed)
Richard North has a terrific review of the book “Affluenza” by Oliver James. Even reading the cover of this book while browsing through a Waterstone’s shop the other day, I could tell that a book called “Affluenza” was bound to trot out the argument that we comfortably-off westerners were being ruined by too much of a good thing. Flumoxxed by thousands of choices of toothpaste, CDs, breakfast cereals, cars, wallpapers, books, foreign holidays and designer clothes, we just cannot cope. All this stuff, all this wealth, is crippling us. North will have none of it:
Well, since “selfishness” is often a pejorative way of saying that people wish to be happy and prefer to breathe and have a good time rather than be miserable, I usually automatically tune out criticisms of capitalism on the grounds that it fosters selfishness. Even if one is not a great admirer of the late novelist Ayn Rand, I think it is fair to credit her with re-connecting with the old Aristotelian tradition in pointing out that happiness, enjoyment of the material things of life can and do go hand in hand with virtue and goodness. Well all is said and done, when a collectivist/socialist/fascist/some other bully attacks liberalism for “selfishness”, what they are really demanding is that we live our lives according to their – selfish – desires for a particular utopia. → Continue reading: A great demolition of a very, very silly book February 8th, 2007 | 29 comments - (Comments are closed)
Following on from Thaddus’s recent posting about how politicians are trying to enlist children in the Green agenda, it is worthwhile pondering why environmentalism, even the more scientifically credible sort, is often depressing, puritanical and unpleasant. Let’s face it, a lot of libertarians’ hostility to Greenery is a suspicion that the Greens are “watermelons” – green on the outside, and socialists on the inside. Socialism, in as much as it has ever been a coherent political and economic point of view, has been economically if not entirely intellectually discredited. It has been a failure, with varying degrees of nastiness, ranging from the stifling if relatively benign version of Sweden through the to mass killing fields of Mao’s China and Pol Pot’s Cambodia. So if you hate capitalism and material wealth then the Green agenda comes in very handy. There is a danger in this approach, however, and not just because ad hominem points about the motives of one’s ideological opponents often put off the uncommitted. The fact may be that the planet is genuinely getting warmer and that human activity has helped to cause that. Pollution of the air, seas and rivers is a problem for someone who is polluted. The destruction of ancient woodlands and the loss of flora and fauna is bad. So I can see why environmentalism appeals not just to anti-capitalists, but to conservatives and liberals who want to live the good life and ensure there is plenty of that good life around for future generations. There is in fact a school of environmental thought that harnesses ideas of property and markets to make its case. Another point I’d make is this: why cannot the Greens, or at least the more sensible ones, throw off the image of po-faced puritanism that so often hangs around their pronouncements. His Supreme Blogness, Glenn Reynolds, has interesting thoughts here on how technologies like electric cars and so forth should be sold not as a sort of “hair-shirt” consumer gesture but because such technologies might be fun and interesting for people. Fun – that is a word one does not hear much about when discussing technological fixes for our planet. Perhaps we should hear it a good deal more. February 4th, 2007 | 16 comments - (Comments are closed)
I have no idea whether the journalists at the Daily Telegraph make it their business to read this blog (although they most certainly should do so, naturally) but this article nicely backed up my point the other day about the economic upsurge of India. In my posting here, a number of commenters scoffed with disbelief that some jumped up rating agency should be so daft as to proclaim that India’s debt rating has improved, and that the country'[s economy is improving. “My dear boy, this is India!” you can hear them cry. And one commenter, bless him, even suggested that India is still far behind most of Latin America, a comment sure to provoke hollow laughs from any entrepreneural type hoping to prosper in Chavez’s Venezuela. Of course, as I said at the time, India is still moving up from a relatively low base. During the immediate post-war years, the East Asian economies in places like South Korea, Hong Kong and Taiwan powered ahead while India, influenced by those dreadful Fabians and London School of Economics types who stuffed the old colonial service, embraced socialism, planning and progressive taxes. But the fact, that cannot be denied, is that this country, with its vast, English-speaking population, relatively stable system of property rights and its admirable enthusiasm for the world’s greatest sport, is shooting the economic lights out. There is just no pleasing some people, it seems. February 1st, 2007 | 18 comments - (Comments are closed)
The good news from India keeps coming. This week, the international credit rating agency, Standard & Poors pronounced that the “Third World” nation had become so prosperous that the risk of lending money to the country had fallen significantly.
As anyone who has taken out a personal loan or mortgage will know, getting a stronger credit rating is a big deal. India is now ahead of economic basket-cases such as Argentina or Venezuela, and has got there by a programme of economic liberalisation. I keep banging on about the vigour of the Indian economy – notwithstanding the still-grinding poverty in parts of the country – because it is probably the most positive economic story of our times. It shouts, loud and clear, that markets work. Market economics is doubly potent when combined with a relatively robust civil society, protection of property rights and the priceless asset of an international language like English. Meanwhile, India-based Tata Steel has sealed its purchase of UK steelmaker Corus. January 31st, 2007 | 16 comments - (Comments are closed)
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