Hamish McRae: The cautionary, curious
tale of Facebook's public flotation

Our Chief Economics Commentator on a week that

didn't go quite as Mark Zuckerberg had planned


Anyone who invested in Facebook will doubtless feel a little less friendly towards it than they did a couple of days ago. And I suppose if you are looking for symbolism, you could say the fact that Facebook shares fell by more than 10 per cent when they started trading was a signal that the social network bubble is about to burst.

Well, maybe. What happened may simply be the result of over-greedy advisers, issuing too many shares at too high a price and failing to heed the classic rule of all share floats: you leave a little fat in the deal for investors because if they lose money on this one, they are unlikely to stump up next time.

But there is a bigger story here even than Facebook. It is the challenge to the whole system of shareholder-owned companies, for the publicly-quoted corporation has been the very core of the Western economic model. It is a model that has swept the world – not only do these companies supply us with most of our daily needs, our private sector pensions depend on their performance. Just about everywhere, state-owned companies have been sold off or are being sold off to shareholders.

So it was natural that the founders of Facebook should go down the classic path once they had built up a company to a reasonable size. Reasonable size? Well, the valuation is huge but remember this is a company that right now has fewer than 3,500 employees.

Because quoted companies are the dominant model of ownership we tend not to notice that this model is under a lot of pressure. Most obviously, share prices in the developed world have, at best, moved sideways since the beginning of this millennium. The FTSE100 share index was 6,930 on 31 December 1999. Yesterday it was trading at around 5,400. This is a depressing performance.

There are also issues of governance. These include a catastrophic managerial failure across the financial services industry. They include the distribution of rewards to managers vis-à-vis the return to shareholders. And they include concerns about the short-term attitudes of the investment community.

But below the radar something else has been going on that may be even more corrosive. It is that a lot of the innovation, energy and drive in the world economy is coming from elsewhere. This is partly geographic: the quoted company is not the dominant form of ownership in the fastest-growing parts of the world in Asia.

It is partly that the level of scrutiny imposed (maybe rightly) on Western public companies makes it difficult for them to operate in areas where ethical and environmental standards are different from those of the home country. Thus Chinese companies, not European or North American ones, are putting most of the new infrastructure into Africa.

It is partly that the regulatory requirements of quoted companies discourage entrepreneurs from going public. Better to stay small and avoid the hassle. That makes Facebook a particularly interesting example of the reverse, and it will be a test case as to whether it can retain its drive from now on. At any rate, in financial markets private equity companies have a flexibility to do things that public equity ones can't.

Whatever the balance between these elements, the fact remains that the global footprint of the quoted company, rising for 30 years, seems now to be shrinking. That makes it hard for savers to share in the wealth generated by global growth. China has become the world's largest car producer but it is hard to invest in the industry; you can buy General Motors shares, but perhaps you might not want to. So let's welcome Facebook to the club. But let's cherish the quoted company. For all its problems and imperfections, this form of ownership remains the simplest way of giving ordinary people a way to share in the global economy.

We're not all grumbling

The OECD, along with the IMF, has been opining about the state of the UK economy. But the little thing I noticed was the OECD's update of the Better Life Index that they have calculated, trying to analyse the things that make people happy in different countries, and creating an app for people to identify the things that make themselves feel they are having a better life.

The inputs include the usual ones of income, housing, education, health and so on, but they also have softer ones, such as safety, the environment and work-life balance. The general results seem to be that Americans, Swiss and Scandinavians come top of the league, with most other developed countries, including the UK, a little below them. This should serve as a nudge for policy-makers: Britons would like to feel safer than they do, for example. But the big point is that most people in most rich countries are pretty happy on most counts. That, in these difficult times, surely comes as a comfort.


React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Business Development Manager / Sales - OTE £45,000

£35000 - £45000 per annum: Recruitment Genius: This company is a solutions / s...

Recruitment Genius: Sales Executive - OTE £45,000

£18000 - £45000 per annum: Recruitment Genius: A Sales Executive is required t...

Recruitment Genius: Test Development Engineer

£35000 - £40000 per annum: Recruitment Genius: Are you inspired to bring new a...

Recruitment Genius: Trainee Motor Engineer

£14000 - £18000 per annum: Recruitment Genius: This is an exciting opportunity...

Day In a Page

Read Next
Kennedy campaign for the Lib Dems earlier this year in Bearsden  

Charles Kennedy: A brilliant man whose talents were badly needed

Baroness Williams
Nick Clegg (R) Liberal Democrat Leader and former leader Charles Kennedy MP, joined the general election campaign trail on April 8, 2010  

Charles Kennedy: The only mainstream political leader who spoke sense

Tim Farron
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview