Sunday, 26 July 2015
‘Quarterly capitalism’ is short-term, myopic, greedy and dysfunctional
Will Hutton in The Guardian
It has been obvious for years that British capitalism is profoundly dysfunctional. In 1970, £10 of every £100 of profit was distributed to shareholders: today, under intense pressure from short-term owners, companies pay out £70. Investment, innovation and productivity have slumped. Few new companies grow to any significant size before they are taken over.
Exports have stagnated. The current account deficit is at record proportions. The purpose of companies now is not to do great things, solve great problems or scale up great solutions –why capitalism is potentially the best economic system – it is to become payolas for their disengaged owners and pawns in the next big deal or takeover. Not only the British economy suffers – this process has become the major driver of rising inequality, low pay and insecurity in the workplace as management teams are forced to treat workers as costly commodities rather than allies in business building.
Regular readers of this column will be familiar with the refrain, and the stubborn resistance from the British mainstream. There is absolutely nothing wrong at all with the British private sector, runs the Conservative argument: to the extent the British economy does have problems they are rooted entirely in taxation, regulation, unions and government. But in a week when the Financial Times – a great British asset and embodiment of the best of our journalism – has been sold to Nikkei for no better reason than to support Pearson’s short-term share price, powerful and public criticism of the way British capitalism operates has come from an unexpected quarter.
Last year, the governor of the Bank of England, Mark Carney, called on firms to have a greater “sense of their responsibilities for the system”, in particular the social contract on which market capitalism’s long-term dynamism depends. On Friday’s Newsnight, the chief economist of the Bank of England, Andy Haldane, built on the governor’s concerns. He began with the seven-fold increase in the proportion of profit distributed to shareholders in dividends and bought-back shares over the last 45 years, which he said necessarily “leaves less for investment”. The explanation was simple: British (and indeed American) company law “puts the shareholder at front and centre. It puts the short-term interest of shareholders in a position of primacy when it comes to running the firm.” He thought company law that placed shareholders on a more equal footing with other stakeholders – workers, customers, clients – would work better. Dare I say it – stakeholder capitalism?
He damned the way the public limited company has developed. “The public limited company model has served the world well from a growth perspective. But you can always have too much of a good thing. The nature of shareholding today is fundamentally different than what it was a generation ago. The average share was held by the average shareholder, just after the war, for around six years. Today, that average share is held by the average shareholder for less than six months. Of course, many shareholders these days are holding shares for less than a second.”
In New York, at almost exactly the same time Newsnight was transmitting its interview with Andrew Haldane, Hillary Clinton was speaking from the same script, attacking what she called “quarterly capitalism”. “American business needs to break free from the tyranny of today’s earning report so they can do what they do best: innovate, invest and build tomorrow’s prosperity,” the Democratic presidential front runner declared. “It’s time to start measuring value in terms of years – or the next decade – not just next quarter.” She does not want to reinvent the public limited company, but she proposed the most far-reaching tax reforms of any Democrat presidential nominee to change the incentives for shareholders and executives alike. In American terms this is a revolution.
It is long overdue and the argument is beginning to get traction in the US. Free-market apologists insist that the more cash is handed back to shareholders, then the more they have to invest in innovation. The stock market is doing its job: promoting efficiency. The trouble is that everyone can see it’s 100% wrong. The market is hopelessly inefficient, greedy and myopic. When Larry Page and Sergey Brin floated Google, they took care to insulate the company from “quarterly capitalism”: they accorded their shares as Google’s founders 10 times the voting rights in order to protect their capacity to innovate from the stock market – what they considered Google’s real business purpose.
From robots to self-driving cars, from virtual reality glasses to investigating artificial intelligence, Google is now one of the most innovative firms on Earth. Meanwhile the typical US Plc, like its counterpart in Britain, is hunkering down, investing and innovating ever less and distributing more cash to shareholders for the reasons Haldane explains. Far from market efficiency, the whole system is undermining the legitimacy of capitalism.
But bit by bit influential voices such as Haldane’s are having the nerve to declare the Anglo-American system does not work. A rich collection of reflections and commentary edited by Diane Carney (Mark Carney’s wife) was published after London’s Inclusive Capitalism conference last month. Yet, except for former business secretary Vince Cable, no leading British politician has entered the lists. It will be intriguing how George Osborne reacts: one instinct will be to sack Carney and Haldane, as he has done Martin Wheatley, the head of the Financial Conduct Authority, for being too tough on the City. Another will be to co-opt the argument for the one nation Tory cause before the Labour party does.
He needn’t worry too much. One of the reasons that Tony Blair dropped his advocacy for stakeholder capitalism back in 1996 after the publication of The State We’re In was because too many leftwing Labour MPs took the Jeremy Corbyn line that the party’s mission was to socialise capitalism rather than reform it, while too many rightwing Labour MPs such as Peter Mandelson and Alistair Darling were terrified of upsetting business, as today, it seems, is Liz Kendall. He had zero internal political support, business was distrustful and the Tories were accusing him of returning to 1970s corporatism. Today the Bank of England and the likely next US president are supporters. Will one of the contenders for the Labour leadership have the courage to make the case? So far, they have all been mute. If Andy Haldane has done nothing else, he will have dramatised the poverty of today’s thinking about capitalism – in both main political parties.
It has been obvious for years that British capitalism is profoundly dysfunctional. In 1970, £10 of every £100 of profit was distributed to shareholders: today, under intense pressure from short-term owners, companies pay out £70. Investment, innovation and productivity have slumped. Few new companies grow to any significant size before they are taken over.
Exports have stagnated. The current account deficit is at record proportions. The purpose of companies now is not to do great things, solve great problems or scale up great solutions –why capitalism is potentially the best economic system – it is to become payolas for their disengaged owners and pawns in the next big deal or takeover. Not only the British economy suffers – this process has become the major driver of rising inequality, low pay and insecurity in the workplace as management teams are forced to treat workers as costly commodities rather than allies in business building.
Regular readers of this column will be familiar with the refrain, and the stubborn resistance from the British mainstream. There is absolutely nothing wrong at all with the British private sector, runs the Conservative argument: to the extent the British economy does have problems they are rooted entirely in taxation, regulation, unions and government. But in a week when the Financial Times – a great British asset and embodiment of the best of our journalism – has been sold to Nikkei for no better reason than to support Pearson’s short-term share price, powerful and public criticism of the way British capitalism operates has come from an unexpected quarter.
Last year, the governor of the Bank of England, Mark Carney, called on firms to have a greater “sense of their responsibilities for the system”, in particular the social contract on which market capitalism’s long-term dynamism depends. On Friday’s Newsnight, the chief economist of the Bank of England, Andy Haldane, built on the governor’s concerns. He began with the seven-fold increase in the proportion of profit distributed to shareholders in dividends and bought-back shares over the last 45 years, which he said necessarily “leaves less for investment”. The explanation was simple: British (and indeed American) company law “puts the shareholder at front and centre. It puts the short-term interest of shareholders in a position of primacy when it comes to running the firm.” He thought company law that placed shareholders on a more equal footing with other stakeholders – workers, customers, clients – would work better. Dare I say it – stakeholder capitalism?
He damned the way the public limited company has developed. “The public limited company model has served the world well from a growth perspective. But you can always have too much of a good thing. The nature of shareholding today is fundamentally different than what it was a generation ago. The average share was held by the average shareholder, just after the war, for around six years. Today, that average share is held by the average shareholder for less than six months. Of course, many shareholders these days are holding shares for less than a second.”
In New York, at almost exactly the same time Newsnight was transmitting its interview with Andrew Haldane, Hillary Clinton was speaking from the same script, attacking what she called “quarterly capitalism”. “American business needs to break free from the tyranny of today’s earning report so they can do what they do best: innovate, invest and build tomorrow’s prosperity,” the Democratic presidential front runner declared. “It’s time to start measuring value in terms of years – or the next decade – not just next quarter.” She does not want to reinvent the public limited company, but she proposed the most far-reaching tax reforms of any Democrat presidential nominee to change the incentives for shareholders and executives alike. In American terms this is a revolution.
It is long overdue and the argument is beginning to get traction in the US. Free-market apologists insist that the more cash is handed back to shareholders, then the more they have to invest in innovation. The stock market is doing its job: promoting efficiency. The trouble is that everyone can see it’s 100% wrong. The market is hopelessly inefficient, greedy and myopic. When Larry Page and Sergey Brin floated Google, they took care to insulate the company from “quarterly capitalism”: they accorded their shares as Google’s founders 10 times the voting rights in order to protect their capacity to innovate from the stock market – what they considered Google’s real business purpose.
From robots to self-driving cars, from virtual reality glasses to investigating artificial intelligence, Google is now one of the most innovative firms on Earth. Meanwhile the typical US Plc, like its counterpart in Britain, is hunkering down, investing and innovating ever less and distributing more cash to shareholders for the reasons Haldane explains. Far from market efficiency, the whole system is undermining the legitimacy of capitalism.
But bit by bit influential voices such as Haldane’s are having the nerve to declare the Anglo-American system does not work. A rich collection of reflections and commentary edited by Diane Carney (Mark Carney’s wife) was published after London’s Inclusive Capitalism conference last month. Yet, except for former business secretary Vince Cable, no leading British politician has entered the lists. It will be intriguing how George Osborne reacts: one instinct will be to sack Carney and Haldane, as he has done Martin Wheatley, the head of the Financial Conduct Authority, for being too tough on the City. Another will be to co-opt the argument for the one nation Tory cause before the Labour party does.
He needn’t worry too much. One of the reasons that Tony Blair dropped his advocacy for stakeholder capitalism back in 1996 after the publication of The State We’re In was because too many leftwing Labour MPs took the Jeremy Corbyn line that the party’s mission was to socialise capitalism rather than reform it, while too many rightwing Labour MPs such as Peter Mandelson and Alistair Darling were terrified of upsetting business, as today, it seems, is Liz Kendall. He had zero internal political support, business was distrustful and the Tories were accusing him of returning to 1970s corporatism. Today the Bank of England and the likely next US president are supporters. Will one of the contenders for the Labour leadership have the courage to make the case? So far, they have all been mute. If Andy Haldane has done nothing else, he will have dramatised the poverty of today’s thinking about capitalism – in both main political parties.
Saturday, 25 July 2015
The last thing Labour needs is a leader like Jeremy Corbyn who people want to vote for
Mark Steel in The Independent
At last sensible Labour politicians are injecting some maturity into the leadership debate. To start with, Tony Blair’s aide John McTernan called anyone who nominated Jeremy Corbyn a “moron”, which is such a refreshing change from the divisive and childish approach of the Left.
His next statement will be that Jeremy Corbyn smells like a poo-poo and anyone who votes for him has a tiny willy, because John McTernan understands the importance of Labour appearing grown up and united.
Now Blair himself has informed us Corbyn would be a disaster. This could cause a problem, because for giving his views in a speech Blair usually charges at least £200,000, and Labour’s finances are stretched enough as it is. Normally he’s advising the government of Kazakhstan or a Saudi Arabian oil company, or shaking hands with characters like Colonel Gaddafi so it’s surprising he didn’t suggest cancelling the election and putting the army in charge of the party, and sentencing Diane Abbott to 500 lashes. Even so it’s sweet of him to take time out from his busy schedule.
He said that if your heart is telling you to vote for Corbyn, you need a heart transplant. You can see how he thinks this, because the first word anyone thinks of when they see Blair is “heart”. Tony Heart Blair is what his friends President Assad of Syria and ex-military ruler Mubarak of Egypt call him.
When you’re responsible for all the heartfelt warmth and sunshine that resulted from invading Iraq, it’s understandable if you get angry with heartless types such as Jeremy Corbyn who opposed it all along, but not everyone can live up to Blair’s standards.
Blair’s supporters point out that although his current image is tarnished, we should remember he was hugely popular in 1997.
The Blair viewpoint has clearly affected Margaret Beckett, as she’s one of the MPs who nominated Corbyn, and her response to being called a moron was to agree. She regrets helping him to stand for the election, she says, as she never guessed he would win as much support as he has. This is a novel attitude towards democracy, that the worst thing you can do in an election is allow someone to stand if they might win.
Maybe Labour should change its rules for elections again, so that anyone who disagrees with Blair is only allowed to stand if they sign a pledge to get fewer than eight votes.
Luckily, Corbyn’s opponents are making a persuasive case for their own bids. Andy Burnham is especially clear that he’s opposed to the Tory’s Welfare Bill, as it will “Hit working families” and “hit children particularly badly”. Indeed he’s so opposed to it that he was determined not to vote against it. The most effective way to oppose it, he insisted, was to abstain rather than vote against it, because that way he can unite the party against it.
It’s so rare that a politician speaks clearly like that, in a language we can all understand. Presumably he’ll be telling all his supporters not to vote for him in the leadership election, but to abstain as that way he can win by even more.
Burnham is known as an Everton fan, so when he’s at their games he must try and persuade the Everton supporters to sing “Spurs and Everton, Spurs and Everton, we’ll abstain on this one evermore, we’ll abstain on this one ever-more”, rather than fall into the trap of supporting the team he supports by supporting them.
Maybe his plan is to make Labour electable again by supporting all the different policies. If he becomes leader, Labour will support the cuts and oppose them, and oppose fox-hunting but support it as well, and that way the party can win votes from everyone.
At last sensible Labour politicians are injecting some maturity into the leadership debate. To start with, Tony Blair’s aide John McTernan called anyone who nominated Jeremy Corbyn a “moron”, which is such a refreshing change from the divisive and childish approach of the Left.
His next statement will be that Jeremy Corbyn smells like a poo-poo and anyone who votes for him has a tiny willy, because John McTernan understands the importance of Labour appearing grown up and united.
Now Blair himself has informed us Corbyn would be a disaster. This could cause a problem, because for giving his views in a speech Blair usually charges at least £200,000, and Labour’s finances are stretched enough as it is. Normally he’s advising the government of Kazakhstan or a Saudi Arabian oil company, or shaking hands with characters like Colonel Gaddafi so it’s surprising he didn’t suggest cancelling the election and putting the army in charge of the party, and sentencing Diane Abbott to 500 lashes. Even so it’s sweet of him to take time out from his busy schedule.
He said that if your heart is telling you to vote for Corbyn, you need a heart transplant. You can see how he thinks this, because the first word anyone thinks of when they see Blair is “heart”. Tony Heart Blair is what his friends President Assad of Syria and ex-military ruler Mubarak of Egypt call him.
When you’re responsible for all the heartfelt warmth and sunshine that resulted from invading Iraq, it’s understandable if you get angry with heartless types such as Jeremy Corbyn who opposed it all along, but not everyone can live up to Blair’s standards.
Blair’s supporters point out that although his current image is tarnished, we should remember he was hugely popular in 1997.
The Blair viewpoint has clearly affected Margaret Beckett, as she’s one of the MPs who nominated Corbyn, and her response to being called a moron was to agree. She regrets helping him to stand for the election, she says, as she never guessed he would win as much support as he has. This is a novel attitude towards democracy, that the worst thing you can do in an election is allow someone to stand if they might win.
Maybe Labour should change its rules for elections again, so that anyone who disagrees with Blair is only allowed to stand if they sign a pledge to get fewer than eight votes.
Luckily, Corbyn’s opponents are making a persuasive case for their own bids. Andy Burnham is especially clear that he’s opposed to the Tory’s Welfare Bill, as it will “Hit working families” and “hit children particularly badly”. Indeed he’s so opposed to it that he was determined not to vote against it. The most effective way to oppose it, he insisted, was to abstain rather than vote against it, because that way he can unite the party against it.
It’s so rare that a politician speaks clearly like that, in a language we can all understand. Presumably he’ll be telling all his supporters not to vote for him in the leadership election, but to abstain as that way he can win by even more.
Burnham is known as an Everton fan, so when he’s at their games he must try and persuade the Everton supporters to sing “Spurs and Everton, Spurs and Everton, we’ll abstain on this one evermore, we’ll abstain on this one ever-more”, rather than fall into the trap of supporting the team he supports by supporting them.
Maybe his plan is to make Labour electable again by supporting all the different policies. If he becomes leader, Labour will support the cuts and oppose them, and oppose fox-hunting but support it as well, and that way the party can win votes from everyone.
Labour Leadership cadidates, from left to right: Yvette Cooper, Jeremy Corbyn, Liz Kendall, Andy Burnham
It could be that the reason three of the candidates are struggling to make an impact is they don’t seem capable of expressing what they stand for.
Whenever they’re asked what they believe in they make grand replies such as “I want a Britain not of down but of up, for the always and not the never, that reaches out to all of us, not only people on the 133 bus, a Britain not just of the liver but also the kidney, a Britain that can care, can share, be debonair, fair, abstain on the austere, and say a prayer like Tony Blair.”
Liz Kendall makes some effort to stand for something definite, which is to be like Blair but more so, and next week she’ll probably criticise Blair for only invading Iraq once when he should have done it twice.
There are reports that Kendall has asked Yvette Cooper to drop out, as Liz stands the best chance of beating Corbyn. As every survey shows Kendall is by some distance last, that’s impressive and I might try this myself. I’ll suggest to Mo Farah that he drops out of the 5,000m in next year’s Olympics, as my time of two hours is the only one that stands a chance of beating the Kenyans.
All three are now squabbling, not about ideas or policies or even their favourite type of biscuit, but over which one has the best chance to beat Corbyn. And they must beat him, because by being capable of expressing his ideas clearly and simply, for example by voting against welfare cuts, he makes himself unelectable.
If you look at Corbyn’s record it’s clear he just can’t win elections. In his constituency of Islington North he inherited a majority of 4,456, which is now 21,194. He’s one of the few Labour MPs whose vote increased between 2005 and 2010, when he added 5,685 to his majority. This is typical of the man, defying the official Labour policy of losing votes and getting more of them instead, just to be a rebel.
So let’s hope one of the others triumphs, and at least wins back the votes Labour lost in Scotland, where so many people at the last election said “I canna vote Labour, they don’t abstain enough for me, the wee morons.”
It could be that the reason three of the candidates are struggling to make an impact is they don’t seem capable of expressing what they stand for.
Whenever they’re asked what they believe in they make grand replies such as “I want a Britain not of down but of up, for the always and not the never, that reaches out to all of us, not only people on the 133 bus, a Britain not just of the liver but also the kidney, a Britain that can care, can share, be debonair, fair, abstain on the austere, and say a prayer like Tony Blair.”
Liz Kendall makes some effort to stand for something definite, which is to be like Blair but more so, and next week she’ll probably criticise Blair for only invading Iraq once when he should have done it twice.
There are reports that Kendall has asked Yvette Cooper to drop out, as Liz stands the best chance of beating Corbyn. As every survey shows Kendall is by some distance last, that’s impressive and I might try this myself. I’ll suggest to Mo Farah that he drops out of the 5,000m in next year’s Olympics, as my time of two hours is the only one that stands a chance of beating the Kenyans.
All three are now squabbling, not about ideas or policies or even their favourite type of biscuit, but over which one has the best chance to beat Corbyn. And they must beat him, because by being capable of expressing his ideas clearly and simply, for example by voting against welfare cuts, he makes himself unelectable.
If you look at Corbyn’s record it’s clear he just can’t win elections. In his constituency of Islington North he inherited a majority of 4,456, which is now 21,194. He’s one of the few Labour MPs whose vote increased between 2005 and 2010, when he added 5,685 to his majority. This is typical of the man, defying the official Labour policy of losing votes and getting more of them instead, just to be a rebel.
So let’s hope one of the others triumphs, and at least wins back the votes Labour lost in Scotland, where so many people at the last election said “I canna vote Labour, they don’t abstain enough for me, the wee morons.”
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