Tame the Third Way monster, Mr Davies
Sunday 25 October 1998
Mr Blair and his supporters were last week attacked in Marxism Today for being "Thatcherism in trousers" and for failing to develop a radical new agenda to deal with what its writers sense is a new anti-free market era.
Personally, I suspect that the free market system is going to prove a good deal more resilient than these dinosaurs of the old left would like to think, notwithstanding the blame now being heaped on the capital markets for turmoil in the world economy. But if so, it's going to be no thanks to Mr Blair and the Third Way. Markets and business have good cause to be worried about Blairism, to judge by a new book on the Third Way by the director of the London School of Economics, Anthony Giddens. Since this book is billed as the most definitive work yet on the new politics, and Mr Giddens is widely seen as Mr Blair's intellectual mentor, it seems reasonable to take its words as gospel. Mr Giddens accepts that there is no alternative to capitalism. Instead, he says, the debate revolves around how far and in what ways it should be regulated.
Perhaps unsurprisingly, Mr Giddens wants to regulate it a lot. In fact he wants to iron out the peaks and the troughs in financial markets, to separate speculation from genuine investment and curtail the former; he wants to tax foreign exchange transactions; he wants linked exchange rates, capital controls, and internationally co-ordinated policy frameworks. Above all, he wants a gigantic new global regulator to impose social responsibility on reckless Anglo-Saxon speculators. In summary, and I exaggerate not, he wants to regulate away all known risk.
How all this can be compatible with enterprise and free markets I find hard to understand. Obviously, markets need a degree of policing, to prevent monopolistic abuse and manipulation. But what Mr Giddens proposes goes much further. He wants to get right down into the bedrock of the capitalist system and interfere with market allocation of capital. He also seems to want a level of social interest regulation which cannot help but be a real burden on business and enterprise.
Outside the manifesto commitments of a minimum wage, the social chapter and a windfall tax on the utilities, there has been little evidence of the new dogma in government policy so far. Perhaps that is what Marxism Today means by "Thatcher in trousers". But in the Financial Services Authority, there is potential for the sort of regulatory nightmare Mr Giddens is inclined to impose on markets.
It doesn't have to be this way. The FSA has thus far been well received in the City, and in international capital markets more generally. Howard Davies, its chairman, knows as well as any that the City owes its position at the centre of global capital markets as much to the lightness of its regulatory touch as anything else. He won't want to damage that.
He's also well aware of the dangers of clogging up the system with bureaucracy and red tape, as well as the more pervasive threat of regulatory oppression.
None the less, this is a mighty powerful monster that has been created, and already it is showing an unnerving appetite for officialdom by spewing forth consultation documents, each demanding a response. We can only hope Mr Davies knows how to control this Third Way creation.
Darkness but no dawn
BICC has been a disaster story for as long as I've been in financial journalism. Despite this, nobody ever seems to learn its lesson. Things cannot possibly get any worse, it is invariably said and written every time a new nasty comes creeping out of the woodshed.
But they do. For the Balfour Beatty construction-to-cables group, they just keep on getting worse and worse.
From the moment the company dropped out of the FT-SE 100 index some 12 years ago, the story has been one of relentless decline. For most portfolio managers, last week's outpouring of bad news must have been the final straw. A fresh profits warning and restructuring charge, this time prompted by the group's telecom cables business, caused the shares to plunge another 25 per cent to a level that values BICC at just pounds 175m.
Never mind the FT-SE100, the company will soon be relegated to the Small Cap index if things don't pick up. Over the last five years, the share price has underperformed the All Share index by 90 per cent. You might have thought this cataclysmic fall would have resulted in some corresponding humility. Not a bit of it. The company continues to behave as if still living in its imperial past, complete with a hereditary peer as non-executive chairman, a 13-strong board including no less than five non-executives, and a grand Mayfair head office.
Alan Jones, chief executive, declares hopefully that "most of the things that could have fallen out of the sky at us have fallen". He might have added that other old chestnut that it is always darkest just before the dawn. Don't count on it. With the historic yield at nearly 20 per cent, the shares are already discounting another hefty dividend cut.
Shareholders have waited long enough. Mr Jones has had the benefit of the doubt up until now, largely because of the high reputation he acquired for his handling of the Westland crisis. It is now apparent that investors should have acted long ago.
Only Mr Jones's ego seems to stand between them and their obvious ... I was going to say salvation, but that's not really the word after such a dramatic and prolonged loss of value. If he's not prepared to perform the necessary breakup, demerger and consolidations, then he should move over and let someone else have a go.
Give and take
BMW'S CHAIRMAN, Bernd Pischetstrieder, must bitterly regret his pounds 800m acquisition of the Rover Group. More than pounds 2bn worth of further investment later, and he's yet to turn a profit. But if he does, he won't admit to it.
Still, what's happened has happened, as they say in Germany, and he's now playing what looks to be a quite clever game in attempting to persuade the Government to cough up pounds 100m of launch aid for the new Mini on the one hand, and beating the unions into submission on the other. Mr Pischetstrieder used to blame the strong pound for lack of profitability at Longbridge. Now he blames lack of productivity. This suits the Government just fine, since for once it is not economic policy that is being blamed for a threatened plant closure, but rampant inefficiency.
Industrial aid is always a difficult issue, no more so than for Labour, desperate to vanquish its old image as an easy touch for lame duck causes. But the rest of Europe practises it with abandon, particularly in the motor trade. So, provided Longbridge delivers on its side of the bargain with root and branch reform of working practices, there seems no good reason to deny it. BMW has shown great commitment to Britain. We should expect to give something back in return.
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