More Damage by Organised Money

The sell off of UK’s manufacturing continues with the £8.1bn hostile bid for GKN from so called ‘turnaround specialist’ Melrose, turnaround being defined as asset strip, break up and sell off. According to GKN CEO, Anne Stevens, shareholders such as hedge funds ‘could not give a crap’ about the engineering firm’s future. Melrose is part of the predatory, financialised sector, beloved of free market ideologues such as Philip Hammond, which is destroying the real economy and its component firms such as GKN.

The logic of such deals is based on a ridiculously out-dated economic ideology going back a hundred years and more which can be summarised in three simple statements from cold war days.

Von Mises argued, in The Free and Prosperous Commonwealth, that the ideology, ‘if condensed into a single word, would have to read: property, that is, private ownership of the means of production’

Friedrich Hayek, whose Constitution of Liberty Margaret Thatcher believed in, held that the free market was the key to an efficiently growing economy; government intervention had to be rejected and the resulting unequal distribution of income and wealth accepted.

Milton Friedman’s contribution in Capitalism and Freedom was to argue that ‘(f)ew trends could so thoroughly undermine the very foundations of our free society than the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.’

Those three assertions explain our financialised and corrupted industrial landscape today. They encourage and justify, solely for the short term gain of shareholders, the hostile take-over, asset stripping and destruction of our remaining real economy producers such as GKN.

All three statements are absolutely wrong.

The means of production are not privately owned. Shareholders own shares not the means of production. As owners of shares they enjoy freedom from any liability arising from the activities of the related means of production. These days, the average period of shareholding is less then 5 months and more than half are measured in nanoseconds. The majority of shareholders are actually financial intermediaries placing bets on short term share price movements rather than with any real interest in the long term future of the companies in which they ‘invest’.

There is no such thing as a free market. All markets are required to operate within the law, and if some markets operate with limited regulation beyond that, the natural process of competition will inevitably lead in the end to the most effective competitors gaining monopolistic influence and becoming the de facto market regulator. Extraneous regulation is essential to preserve competition which is the vitality of the capitalist system.

The Friedman argument, when it was made had neither legal nor theoretical justification (see https://gordonpearson.co.uk/2013/08/09/saving-the-friedman-legacy/). Despite lobbying by the self-perpetuating organised money establishment, legal support is still lacking, though a patently false theoretical support, agency theory, was subsequently invented and still survives as a theory.

Though these three assertions are frequently shown to be utterly false, they continue to be dominant influences over how capital markets work. That is, as predators on the real economy. and the real lives of real people.

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