In this election campaign, much is being made of whether or not the main UK Parties are business friendly. The fire sale of British owned assets, euphemistically nominated as foreign direct investment, is held to indicate that the UK is ‘open for business’. Over the past 35 years, company after company and industry after industry has been sold off to foreign ownership. The same has been achieved with the sell-off of public assets, the latest example being Eurostar, and public services and utilities which have been privatised and in the majority of cases sold to foreign owned entities.
It all has nothing to do with being ‘open for business’. The political motivation is to achieve a short term (ie relating to the next election) economic gain, completely ignoring the long term costs. The short term stats appear to be all that matters, so they can be quoted ad nauseam in media interviews.
Being seen as business friendly is clearly conceived as being worth either a lot of votes or a lot of money. So Parties shrink from confronting or challenging in any way what they conceive of as “business”. They appear ‘intensely relaxed’ about business people getting ‘filthy rich’. They seem tolerant of tax fraud on a massive scale. They shrink from regulation of markets. They are in awe of the financial sector. They talk about support for the SME sector, but do little. It seems they simply do not understand what business is about. Why should they? They’ve none of them been near it except for photo-opportunities.
Like most systems, industries start, grow, mature and decline, exhibiting quite different characteristics at each stage, which require quite different forms of support and regulation. Start-ups need public support. Mazzucato’s The Entrepreneurial State identified the necessity for public investment in new technologies which appear too risky for commercial organisations to support. The current starring example is graphene. Public investment can get the blue skies research started, commercial organisations can take on the resulting development. UK has been historically good at the former and notoriously bad at the latter. Apple is one example of this combination of inputs, its success being heavily dependent on public support.
New industries when established and growing tend to be highly competitive and would only be reduced and frustrated by unnecessary regulation. Competition ensures consumer interests are served as companies focus on delivering better value to customers in order to increase market share and thus profitability. This process typically results in a small number of the most successful competitors beginning to dominate the market. Porter’s Competitive Strategy describes this process of industry concentration. Regulation becomes necessary in order to protect and maintain competition and the interests of consumers. Such regulation used to exist in the UK, but has been mostly dismantled. Collusion between competitors to fix prices remains an offense, but in ‘business friendly’ UK, there is now nothing to prevent mergers and acquisitions from developing the monopolistic power to fix prices.
At the mature stage of an industry, the nature of business has completely changed. The focus of concern is no longer to do with technologies, or customers, or employees. Business has become a financial operation, the company a financial entity, driven by the imperative to maximise shareholder value at the expense of everyone else. The successful entities are those that have achieved monopolistic power. Such monsters have emerged time after time, for example in energy supply, audit and professional services consultation, banking, public service sub-contracting. [I will ignore on this occasion the simple fact that the imperative to maximise shareholder value is based on utterly false premises.]
This whole process now takes place in a global setting with nation states having reduced control, and the financial entities apparently able to run rings round them. This is so dysfunctional that it is unlikely to remain that way for long. The virtual, internet-enabled world is a relatively new phenomenon and legitimate modes of control have not yet been agreed. But in due course control and regulation will have to be established.
The current political obsession with being ‘open for business’ is based on a lack of understanding of the nature of business. The political imagination appears to envisage all business as the SME operation at the growth stage of an industry where competition effectively does the necessary regulation. They then apply their naïve diagnosis to all industry. “Free markets – open access” as Foreign Secretary Philip Hammond put it when as industry secretary he awarded the £1.4bn Thameslink contract to Siemens, rather than to UK’s last rail producer, Derby’s Bombardier. But ‘free markets – open access’ applied to industries dominated by financial entities seeking to exploit their monopolistic power to maximise shareholder value, leads inevitably to the predatory financial sector we have today. In a mature economy like the UK this is a profound error to make.
Perhaps the 2015 UK election will be a non-event. Both major parties are determined to demonstrate their business friendliness, based on their naïve misunderstandings. But practical opposition is building. Maybe the 2020 election will be more interesting. By then the current level of disgruntlement may have reached a degree of coherence, and those currently smaller parties which are in it for the long haul, like the Green Party, will then provide a serious challenge to the status quo.