Brain wasn't working, you're absolutely right. SOE not SEO.
On your first point: I don't know. I was reading about the overall decline in British industry the other day. In 1952, half of Britain’s working population was employed in manufacturing. Share of world manufactured exports was 25.4%. The stock market was packed full of production-heavy firms. By 2009, only 2.9% in manufacturing. That's pretty steep.
So I do wonder if part of the answer is that we simply lost institutional confidence and expertise, whilst allowing private sector predators into the space. That's too reductive and simplified but might be something I explore later.
Maybe I’m being thick, but can’t really see the problem in the most of those situations.
Broadly going bust is a good thing from the perspective of wider society. The shareholders get wiped out (punished for allowing poor decisions) and the lenders take over. If the business is fundamentally productive but just had too much debt, it will carry on operating as before (imagine will happen to Thames Water), otherwise it might be broken up, the useful bits sold off etc. Scarce resources (capital and labour) are freed up for more productive purposes. Stripping Debenhams of its assets and then filing for bankruptcy is a good thing from society’s perspective.
The collapse of British Steel might be high profile (and a key bit of the ecosystem), but is pretty inevitable given the UK government’s revealed preference to limit heavy industry (high energy prices and heavy regulation). There is not much point subsidising it to keep it going whilst the rest of the ecosystem dies off from the same causes.
The actual issue with Barclays was a) the government offering a bailout to the banks without wiping out the shareholders and ideally giving a token haircut to the bondholders and b) the senior leadership of Barclays refusing to take the ridiculously generous bailout, essentially because of its limits on pay and bonuses, instead choosing to take much more expensive money from the Qataris. This is a classic principal agent problem, ripping off the shareholders.
The only one on that list that seems debatable to me would be ARM. There is a geopolitical argument for having national champions - they can be lent on which gives a country power and influence. There is also probably some economic benefit to having them - management and senior leadership roles likely based in the UK, more likely to invest in UK and in training etc. But has to be weighed against the ability to raise capital at early stages. Part of the reason it’s so easy to raise in the US is because there are massive non-IPO exits. The harder you make it for foreign buyers the more you reduce these and the harder you make it to raise capital.
> paid dividends while loading debt
Buying cheap, shedding costs and selling off sounds predatory. This seems fraudulent.
Excellent article. 👍
Interesting article, when do you think these problems (passive governance, lack of overall strategy) first started emerging in the UK?
Also was "SEOs" meant to be "SOEs"?
Brain wasn't working, you're absolutely right. SOE not SEO.
On your first point: I don't know. I was reading about the overall decline in British industry the other day. In 1952, half of Britain’s working population was employed in manufacturing. Share of world manufactured exports was 25.4%. The stock market was packed full of production-heavy firms. By 2009, only 2.9% in manufacturing. That's pretty steep.
So I do wonder if part of the answer is that we simply lost institutional confidence and expertise, whilst allowing private sector predators into the space. That's too reductive and simplified but might be something I explore later.
Maybe I’m being thick, but can’t really see the problem in the most of those situations.
Broadly going bust is a good thing from the perspective of wider society. The shareholders get wiped out (punished for allowing poor decisions) and the lenders take over. If the business is fundamentally productive but just had too much debt, it will carry on operating as before (imagine will happen to Thames Water), otherwise it might be broken up, the useful bits sold off etc. Scarce resources (capital and labour) are freed up for more productive purposes. Stripping Debenhams of its assets and then filing for bankruptcy is a good thing from society’s perspective.
The collapse of British Steel might be high profile (and a key bit of the ecosystem), but is pretty inevitable given the UK government’s revealed preference to limit heavy industry (high energy prices and heavy regulation). There is not much point subsidising it to keep it going whilst the rest of the ecosystem dies off from the same causes.
The actual issue with Barclays was a) the government offering a bailout to the banks without wiping out the shareholders and ideally giving a token haircut to the bondholders and b) the senior leadership of Barclays refusing to take the ridiculously generous bailout, essentially because of its limits on pay and bonuses, instead choosing to take much more expensive money from the Qataris. This is a classic principal agent problem, ripping off the shareholders.
The only one on that list that seems debatable to me would be ARM. There is a geopolitical argument for having national champions - they can be lent on which gives a country power and influence. There is also probably some economic benefit to having them - management and senior leadership roles likely based in the UK, more likely to invest in UK and in training etc. But has to be weighed against the ability to raise capital at early stages. Part of the reason it’s so easy to raise in the US is because there are massive non-IPO exits. The harder you make it for foreign buyers the more you reduce these and the harder you make it to raise capital.