Return of the trust-busters
SO MUCH vitriol has been expended in the US presidential election campaign on the malodorous character flaws of Donald Trump and careless emails of Hillary Clinton that we know less about the likely economic policy of these two candidates than in any other presidential election.
Nevertheless, if Clinton is elected (as polls and markets currently suggest) we should gird ourselves for the new economic era of ‘monopsony.’
This is a condition which occurs when there is so little competition among businesses that it is the workers who suffer.
A lack of challengers means firms do not have to compete for competent employees and this drives wages down.
Distortions that can create inequality are traditionally tackled by ‘soak-the-rich’ tax policies of the kind tried by President Hollande in France. But monopsony makes the case for different kinds of intervention. In the labour market this could involve broadening the reach of the minimum wage – so, for instance, it covers workers in the hospitality and other sectors who are dependent on tips.
Profit sharing opportunities for employees could also be deployed. There may also be a case for strengthening collective bargaining weakened by Reagan- and Thatcher-style trade union reforms.
The most effective means of dealing with the issue might well be to reach back into America’s trust-busting past, which was all about breaking up the big corporations so as to ensure price and employment competition. If that were the case, some of the big mergers currently on the table such as the AT&T bid for Time Warner and the £105bn proposed deal between Dow Chemical and Du Pont could be interrupted.
Beyond that there may well be a case for anti-trust actions against the Silicon Valley giants. In the not so distant the past, the US Justice Department, using the Sherman Act, showed no fear in turning its guns on AT&T and breaking it up into seven different companies, injecting huge competition into US telecoms. A 13-year anti-trust action against IBM was less successful but did lead the company to voluntarily unbundle many operations.
Using the same legislation against Apple could encourage the separation of its design and manufacturing from the ‘Apple store’ which forces users through its gateway to access music and other content.
If Clinton were bold enough and followed the advice of her more progressive advisers she could reshape the corporate landscape for the benefit of customers and workforces.
Farewell Brazil
THE shadow of the past hovers over HSBC as much as it does the other UK-headquartered banks. In the third quarter HSBC’s profits were heavily impacted by restructuring costs, most significantly a £1.4bn charge against the sale of its Brazilian offshoot. The bank’s history in Brazil can be traced back to 1976 but the great leap backwards came in 2003 when then chairman Sir John Bond bought Lloyds TSB’s operation for £657m.
This is another of Bond’s value-destroying acquisitions, which also included the doomladen mortgage lender Household in the US, the late Edmund Safra’s Republic Bank of New York and a money-laundering Mexican operation. All have been unmitigated disasters and damaged HSBC’s reputation for caution.
The current leadership team of chairman Douglas Flint and chief executive Stuart Gulliver has struggled to steady the ship. Net earnings may have fallen 86pc to just £679m in the present quarter but the bank has augmented its capital ratios through sales and a change in the way it accounts for its stake in China’s Bank of Communications. That should ensure the dividend promise is maintained. Having agreed to keep its HQ in Britain the bank warns that UK retail profits may come under stress next year if the economy slows.
The main interest for many investors is what happens when Flint and Gulliver leave. A global search is on for an outsider to replace Flint but finding the right candidate has not proved easy. A retired central banker, such as Mark Carney, could be a possibility but the wait may be too long. Activist investors such as Standard Life are urging an early change.
But other investors spoken to are in no hurry to give Flint and Gulliver their marching orders. Together they have narrowed the focus of the enterprise and in their view should be given time to finish the job rather than hurried into an unnecessary switch.
Beijing rising
AS Theresa May courts Indian trade deals the Chinese continue to plunder UK technology without hindrance.
Hot on the heels of the sale of Framestone – a UK visual effects firm that worked on Gravity and Superman Returns – to China’s Cultural Investment Holdings, Cambridge-based digital radio champion Sepura has caught the eye of Chinese investors. Shares in the firm have soared amid interest from China’s Hytera Communications Corp. It is months since the Prime Minster stood on the steps of Downing Street demanding an end to foreign takeovers and the loss of British high-tech expertise.
Yet so far nothing in the least has changed.