Elon Musk would be very welcome in Britain
The paralysing myopia of the UK economy is in desperate need of some Musk-like chutzpah
Elon Musk, the maverick entrepreneur behind Tesla electric cars, achieved another first this week. As far as I am aware, nobody has previously dared risk the wrath of the American Securities & Exchange Commission by announcing a takeover bid on Twitter.
I suppose we shouldn’t be so surprised. Thanks to the equally mercurial Donald Trump, Twitter is already the favoured channel for broadcasting often quite dramatic changes in US policy. Yet this was something else. Securities trading in the US is just about the most highly regulated activity anywhere in the world. It is expected, moreover, when making a $70 billion (£54.5 billion) offer to take your company private – as Musk did on Tuesday – that you have all your ducks in a row, your funding in place, and that you do so through the correct channels.
In the event, not even his own board seemed to know Musk’s intentions, and comb the world, as American journalists did, for the sources of the claimed funding, not one did they find.
I’m sure Musk is serious, but his purpose seemed as much that of burning the hedge funds that had been “shorting” his stock as anything more substantive. “Shorting” is the practice of selling shares you haven’t got in the belief that the price will fall, allowing you to buy at a lower valuation and pocket the profit. Musk hates these speculators with a passion more normally reserved for paedophiles and terrorists, and took evident pleasure in their pain when his tweet caused the stock price to surge and destroyed their positions.
But then this is a man who routinely delights in getting himself into scrapes. Talking of paedophiles, only last month he falsely accused the British cave diver who helped rescue Thai boys trapped in an underground cavern of being just such a specimen after the diver’s team had refused the assistance of Musk’s submarine technology. Although he did subsequently apologise, when initially challenged, Musk doubled down, tweeting “bet ya a signed dollar it’s true”.
On a recent investor conference call, his response to one of Wall Street’s top investment analysts was simply: “Boring bonehead question and not cool. Next”. Treating the financial community with contempt is all part of the furniture in the weird and whacky world of Elon Musk.
Like many of America’s West Coast techies, Musk considers himself an iconoclast not bound by normal rules and conventions. He’s a dreamer and risk taker. Should he ever get tired of Trump’s America – obviously, he’s already had numerous run-ins with the US president – he’d be very welcome over here. The paralysing myopia of the UK economy is in desperate need of some Musk-like chutzpah.
The closest entrepreneur we’ve got is, I suppose, Richard Branson. Musk is on an altogether different scale, but besides their ambitions in space, this much they do have in common; Branson, too, took his company private after floating it on the stock exchange, declaring “an entrepreneur does not thrive best in the public company scenario”.
Quite so. The tragedy of today’s stock markets is that they are so hidebound by rules, regulations and codes of conduct that they seem quite incapable of properly serving their core purpose – that of funding economic progress and prosperity.
They have always been the playgrounds of rent-seeking parasites and speculators, but in recent years it’s got very much worse. Only around a tenth of all stock trading on the New York Stock Exchange is these days for the traditional purpose of buy, sell and hold investment. The rest is driven by computers and algorithms, responding at speed to tiny movements in price and sentiment – so called “quantitative” and high speed trading.
Over the past 20 years, the average time for holding a stock has plummeted from an already astonishingly short two to three days to just two seconds. Ownership has become so transitory that in any conventional sense it has lost all meaning. The natural market disciplines it places on a company have instead been replaced by a great panoply of constraining regulation and crushing, narrow-minded prescription. Musk is right to reject this madness, and instead seek the backing of committed, long term, patient capital.
As with all generalisations, there are of course exceptions. Stock markets have been perfectly happy to fund Amazon’s dash for growth, foregoing the short term for the promise of jam tomorrow. But even in America, such examples are comparatively rare. Too often, cost cutting is chosen as an easy substitute for genuine top-line growth. Bonus-enhancing share buybacks have taken the place of visionary high risk investment in the future.
Musk may yet fail with Tesla. Many investors are betting that his electric cars will be overtaken by better and cheaper models from established auto manufacturers. But would the incumbents ever have awoken from their slumbers but for Musk? I doubt it. Let’s hope he succeeds in taking his company private. He deserves his escape from the tyranny of the “quants”.