Monday, 16 January 2012

Let's not scupper that yacht before we build it

Keen to take my mind off Arsenal's disappointing display against Swansea, I notice that Michael Gove is suggesting that we buy the Queen a new yacht, which will apparently cost around £60 Million (we could buy a whole team of full-backs for that sort of moolah). I'm not sure why he thinks this would be an appropriate diamond jubilee present (unless he has in mind a diamond-encrusted dinghy in the manner of Damian Hirst), but I don't think we should dismiss it out of hand.

Of course he may not be serious. This could just be a stalking horse to secure his plan B, money to provide a memento for every schoolkid (perhaps a Dinky yacht care of the dinky minister), in which case we might assume he leaked the letter. Or perhaps this is an attempt to portray the Tories as crass and insensitive (it could work), in which case we might assume that Nick Clegg, one of the addressees, leaked it (his rush to comment today has a whiff of cordite about it).

Elsewhere, the Deputy PM is raising the ideological bar with his call for a "John Lewis economy", which he equates with employee shareownership, even quoting John Stuart Mill to make sure all the Lib Dems wake up and take notice.

This has provoked some calls of hypocrisy, given his associated criticism of bankers' bonuses, on the grounds that bonuses and profit-share are much the same beast. This claim is not true. Bonuses are deducted pre-profit while dividends are post-profit, giving rise to the agency problem - i.e. executives looting a business to the detriment of its owners. What this ad hominen criticism distracts from is the consistent failure of attempts to extend shareownership, to deliver the "shareowning democracy" that was envisioned under Thatcher and is now the centrepiece of Clegg's pitch.

In the UK, only 15% of the population (about 20% of adults) own shares directly, i.e. in the form of equities or shares in mutual funds. Despite the privatisation programme of the 80s/90s, this only represents 10% of total UK market capitalisation.
Given that most individuals hold very small numbers of shares, and that shares in mutuals do not confer voting rights in the end companies, the extent of democracy is limited to say the least.

Clegg's solution is a "right to request" shares, implying a statutory obligation for all PLCs to at least consider implementing an employee shareownership scheme. This will not materially change share ownership. Share options granted to UK employees per annum seem to be around £5 Million, which is about 0.25% of market capitalisation. I can't find stats on the total share of employee schemes by value, but I doubt it will be more than 1 or 2%. As the employee has to pony up the cash (albeit with tax benefits), it's unlikely this figure will increase much.

A right to request is not a right of any substance - the employer can presumably turn down the request without penalty, as is the case with similar rights in respect of flexible working. Clegg's speech is thus mere waffle.

Meanwhile, the real business is elsewhere with George Osborne announcing the government's intention to make the City of London the global centre of trade in the Renminbi, China's currency. While the Tories are ideologically opposed to picking winners in industry, they have no trouble doing so in financial services and even acting as touts for the City. Osborne's speech in Hong Kong is also noticeable for the tacit admission that the whole rebalancing/march-of-the-makers thing is dead - we're back chasing the services dragon again.

This is a shame. Apparently, we could pump £60 Million into the economy and create new manufacturing jobs on Clydeside by building a yacht (come on, they wouldn't dare award the tender to a shipyard in Hamburg).

What's more, we could fund it mutually, at £1 per head of the population, which would mean everyone would get a share certificate to hang on their wall, including those excited schoolkids. Then we could lease it to the Queen, the proceeds providing a dividend. Of course, a majority of the shareholders might decide that Brenda wasn't the best customer (we'd surely get more out of a Russian oligarch or a Gulf sheikh), but that's democracy for you.

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