With­out Blair, Labour will al­ways strug­gle to get on with busi­ness

The Sunday Telegraph - Money & Business - - Business - JEREMY WARNER

The Labour Party con­fer­ence starts to­day, and lord help us, Labour’s claim to be the UK’S gov­ern­ment in wait­ing is be­gin­ning to have an aw­ful in­evitabil­ity about it. Labour ben­e­fited last time around from an an­gry, Re­main protest vote, which is un­likely to be re­peated in quite the same way at the next elec­tion. How­ever dis­il­lu­sioned with the sta­tus quo we might be, it’s hard to be­lieve there can be any kind of a nat­u­ral ma­jor­ity for the hard Left agenda ar­tic­u­lated in Labour’s last man­i­festo.

All the same, the party is plainly on a roll un­der its un­likely Marx­ist leader, Jeremy Cor­byn, with the most re­cent poll giv­ing it a four-point lead over the To­ries. The last Labour Party con­fer­ence was vir­tu­ally bereft of any busi­ness pres­ence, but we are told that the lob­by­ists are lin­ing up to par­tic­i­pate this time around. Busi­ness is be­ing forced to treat Cor­byn and his team se­ri­ously.

Even the hottest headed of fire­brands tend to mod­er­ate when faced by the com­pro­mises of gov­ern­ment. Prin­ci­ple and po­lit­i­cal ide­al­ism be­come sub­sumed by grim re­al­ity. New­com­ers tend to grow up fast. But per­haps it’s un­wise to rely on it in Mr Cor­byn’s case. Tax­payer funded uni­ver­sity tu­ition fees, re­na­tion­al­i­sa­tion of the ma­jor util­i­ties, higher taxes on top earn­ers, new taxes on wealth, new taxes on prop­erty and so on – these are flag­ship poli­cies that won’t eas­ily be sur­ren­dered. Flesh­ing out some of the de­tail, Labour has said that share­hold­ers in busi­nesses ar­bi­trar­ily judged to have failed the pub­lic will not get full com­pen­sa­tion in the threat­ened round of na­tion­al­i­sa­tions. A smash-and-grab fu­ture awaits.

Launch­ing Lon­don Tech Week a cou­ple of months back, Sadiq Khan, the cap­i­tal’s Labour mayor, said it filled him “with pride to see our tech sec­tor thriv­ing”, and he planned to make the cap­i­tal into “the world’s lead­ing smart city”. He has a funny way of show­ing it. Kick-start­ing his cam­paign, Khan’s Trans­port for Lon­don has de­ter­mined to ban Uber from our streets. I’m as­sum­ing he won’t suc­ceed in tak­ing us back to a world of queu­ing at the ATM so as to have suf­fi­cient phys­i­cal cash to stand in the rain await­ing the un­likely prospect of a black cab with its light turned on. Even so, the in­tent is ob­vi­ous. When it comes to the in­ter­face be­tween busi­ness and pol­i­tics, ac­com­mo­da­tion is gen­er­ally the sen­si­ble ap­proach. But faced by Cor­byn’s New Model Army, it may be bet­ter to stand and fight.

Do­ing the right thing

Can fi­nan­cial mar­kets ever be made en­tirely hon­est? This might seem un­likely, given that more than two hun­dred years of leg­is­lat­ing against mar­ket abuse has so far failed to stamp it out. In its lat­est an­nual re­port, the Fi­nan­cial Mar­kets Stan­dards Board (FMSB) lists an as­ton­ish­ing 27 dif­fer­ent cat­e­gories of mis­con­duct, rang­ing from straight in­sider deal­ing to wash trad­ing, spoof­ing, cor­ner­ing, win­dow dress­ing and ware­hous­ing. Some of these have re­mained amaz­ingly per­sis­tent, as ev­i­denced by the re­cent Li­bor and for­eign ex­change scan­dals. The FMSB, es­tab­lished in the wake of the Li­bor de­ba­cle un­der the chair­man­ship of Mark Yal­lop, a City vet­eran who be­gan his ca­reer at Mor­gan Gren­fell, has set it­self the am­bi­tious task of cor­rect­ing the mis­chief through self-help. Whole­sale mar­kets are in essence be­ing given the op­por­tu­nity to fix their own prob­lem. They have a pow­er­ful in­cen­tive to do so, and not just be­cause of the need to re-es­tab­lish pub­lic trust; in the past five years, banks glob­ally have paid some $375bn (£277bn) in con­duct fines, about 80pc of which re­lated to whole­sale mar­kets.

If that money had been re­tained as cap­i­tal, Mr Yal­lop points out, it would have sup­ported some $5 tril­lion of bank lend­ing to the global econ­omy.

For some, self-reg­u­la­tion will never be a sat­is­fac­tory, or ef­fec­tive, sub­sti­tute for the leg­isla­tive va­ri­ety. Yet the fact is that statu­tory reg­u­la­tion rarely works in driv­ing bet­ter stan­dards of be­hav­iour in mar­kets; prac­ti­tion­ers must do that for them­selves. Lon­don’s rep­u­ta­tion for pro­bity was shat­tered by the fi­nan­cial cri­sis. Any­thing that helps re­store it is worth sup­port­ing.

Death of lever­age

Toys R Us has gone bust not be­cause of Ama­zon, but be­cause it was loaded up with debt. This is the pri­mary les­son to draw from the lat­est ca­su­alty of the global re­tail shake-out. Caught be­tween the ex­po­nen­tial growth of on­line re­tail­ing on the one hand and “big box” re­tail­ers such as Wal­mart on the other, things have ad­mit­tedly be­come in­tensely dif­fi­cult for tra­di­tional, bricks-and-mor­tar spe­cial­ist re­tail­ers such as Toys R Us.

Yet no busi­ness can sur­vive by stand­ing still; Toys R Us sim­ply failed to adapt quickly enough to chang­ing times. The com­pany’s pri­vate eq­uity own­ers – KKR, Bain and Vor­nado – would no doubt deny that this was the re­sult of their own mis­man­age­ment, or in­deed the $5bn of debt they orig­i­nally used to help fi­nance the takeover, but when in a hole it sure doesn’t help to be pay­ing out $250m a year in debt ser­vic­ing costs, or for man­age­ment to be spend­ing half its time wor­ry­ing about how to re­fi­nance the debt when it falls due.

The Toys R Us de­ba­cle may there­fore amount to more than just the death of an­other com­pany. It may also presage the end of the highly lev­er­aged takeover, a fi­nan­cial model that once seemed to vir­tu­ally guar­an­tee its clev­erer spon­sors big pay­backs. The trick was es­sen­tially to buy the com­pany with its own money, sweat the as­sets to ser­vice and pay­off the debt, then pocket the change. The tax ad­van­tages of debt over eq­uity made the whole process dou­bly more lu­cra­tive. The pri­vate eq­ui­teer won; the tax­man lost.

What the down­fall of Toys R Us demon­strates is that es­tab­lished busi­nesses are wast­ing as­sets, par­tic­u­larly in an age of very rapid tech­no­log­i­cal and in­dus­trial change. In such an en­vi­ron­ment, al­most any com­pany left to stag­nate while it pays off its cap­i­tal is likely to fail. Up against the likes of Ama­zon, with no debt and no pres­sure from its share­hold­ers to pay div­i­dends, it won’t stand a chance. In any case, the once spec­tac­u­lar re­turns of lev­er­aged takeovers may be largely a thing of the past.

‘The last Labour con­fer­ence was vir­tu­ally bereft of any busi­ness pres­ence, but the lob­by­ists are lin­ing up this time around’

There are omi­nous signs that Jeremy Cor­byn’s Labour could form the next gov­ern­ment, and busi­ness is be­ing forced to treat him se­ri­ously

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