How not to save the British economy

A simple way of summarising a key plank of the Tory’s economic policy is that it involves shitting on the poor the morning after a red, hot curry. No, I’m not talking about the benefit changes because that’s more a madras than a phaal, what I mean here are the changes beginning to be made that originated in the report on employment law submitted by Adrian Beecroft, a driver of several Aston Martins, a private equity millionaire and a Tory party donor*.

Beecroft, the private equity millionaire and Tory party donor whose given fistfuls of fivers to the Tory party, began his report as follows; “Britain has a deficit crisis, from which the only escape route is economic growth. Growth needs to be encouraged in every way possible. Businesses must be able to manage their affairs in a way that allows them to become more efficient, more competitive on a domestic and global basis and hence more likely to grow and employ more people.

Yet much of employment law and regulation impedes the search for efficiency and competitiveness. It  deters small businesses in particular from wanting to take on more employees: as a result they grow more slowly than they otherwise might. Many regulations, conceived in an era of full employment, are designed to make employment more attractive to potential employees. That was addressing yesterday’s problem. In today’s era of a lack of jobs those regulations simply exacerbate the national problem of high unemployment”.

Cool. Me? I work in a lightly unionised PLC to be sure, but in an industry with an established tradition of gold plating the minimum standards employment law sets because its engaged in the “war for talent” bullshit i.e. I’m insulated from much of the mad shite Beecroft trotted out. Similarly, so are public sector workers who, for the most part, have good union representation. 

But, Beecroft - the private equity millionaire and Tory party donor - knows this, he does refer explicitly to small businesses after all. Really, his notions will have the greatest impact on those most reliant on employment law to set the minimum standards their employers have to meet, which in practice means the lowest paid. 

So here's a (tweaked**) list of the 10 worst paid jobs in Britain in 2012 because they’re the people most exposed to the Beecroft proposals:

• Haridressers £12.1k
• Waiters £12.4k
• Bar staff £12.8k
• Kitchen & catering assistant £12.9k
• Nursery assistants £13.9k
• Sales & Retail assistants £14.3k
• Cleaners £14.4k
• Housekeepers £15.1k
• Cooks £15.6k
• Receptionists £15.9k

Picking thru the list you notice a couple of things. 1) They’re feminized occupations for the most part, 2) they’re non-union, but 3) and most importantly, given the  Beecroft chat about global competitiveness, you can’t export/outsource any of them, not a frickin’ one (you try getting your hair cut via an Indian call centre, go on I dare ya).

So there you are then, putting to one side the Tory tosh shat out in say Britannia Unchained, the reality of actual Tory policy, as shat out by Adrian Beecroft - the private equity millionaire and Tory party donor whose given fistfuls of fivers to the Tory party – is that to restore Britain’s global competitiveness and address the deficit crisis, we need to make it easier to hire and fire bar staff. And nursery assistants. And receptionists, especially the receptionists. Now I don’t know about you, but to me that seems as mental as its dumb as it’s completely beside the point as it’s nasty.

 * Didn't realise Beecroft part owned Wonga. I originally assumed he was just trying to come up with ways to cut costs at the companies he owned. Turns out his proposals are actually geared to drumming up more pay day lending business as well.

** Tweaked in the sense that the list had sales assistants in it multiple times

Who dat

Watching Paul Krugman bitch slap Jon Moulton on Newsnight was fun. Like for all Jon Moulton, rightly, made his (public) name speaking vast amounts of common sense about Rover as the Phoenix debacle took shape, it turns out he’s a pro-austerity fella and as such deserved all he got. One wee thing that confused me though is the way he keeps getting introduced/described as a venture capitalist, because my understanding is he’s not.

Like calling Moulton a venture capitalist is like calling a dentist a gerontologist. So sure a dentist and a gerontologist are both medical fellas, but they’re ones with very distinctive specialisms/areas of expertise, who do different things and use different tools. Similarly, whereas a venture capitalist typically focuses on early stage businesses and typically, besides commercial savvy, provides technical expertise related to what it is a business does as well as equity, yer man Moulton is better described as a private equity bod, who targets well established concerns e.g. Reader’s Digest, and provides/inflicts generic financial engineering alongside commercial savvy. Plus, his deals typically involve oodles of debt with a cheeky wee bit of equity on the side.

Rather than pedantry, the nomenclature being used matters. A lot. Back before the credit crunch crunched private equity became one of capitalism’s more evil, unacceptable faces, one dominated by multi-millionaires who paid less tax than their cleaners and who couldn’t attend a black tie do without protestors barracking them as they rolled up in their respective Aston Martins, Ferraris, Bentleys etc.,. And while that was here and then, over in the US right now there’s a wee, politicised debate about the worth of private equity prompted by the fact Mitt Romney made his fortune in it.

Ahhh, I’ve answered my question about howcome private equity people are now being called venture capitalists by the mainstream British media haven’t I? It’s a way of involving them in public debate whilst avoiding debate and disassociates them from what was previously said and thought. Plus, venture capital is a much more moral, credible and legitimate activity – the strike rate for venture capital investments is much lower than it is for private equity i.e. venture capital really does involve the risk taking that provides one of the major justifications for economic inequality. Plus, venture capitalists genuinely do help bring new things to the table, Facebook being an obvious example, a media thang that’s in as sharp a contrast with the investment made in Reader’s Digest by Jon Moulton’s company as it’s possible to find. So perhaps rather than be inaccurate the BBC etc., should use a new label in line with how these guys are now being presented, howzabout they call Jon Moulton et all, the bearer’s of God’s golden balls of economic common sense?

Except, getting some accuracy into the chat would also highlight private equity’s current problems (though funnily enough not ones that apply to venture capital to anything like the same degree, which stem from the fact we’re in a credit crunch.

This is because the private equity model and private equity profits are predicated on the ready availability of credit; the more private equity borrows to leverage a deal and the cheaper it borrows, the more profitable it is. Unfortunately, since late 2007/early 2008 there has been a step change in the availability of credit and the terms on which it’s lent. Basically, it’s far harder for private equity investors to buy up a company and make money primarily on the back of swapping expensive equity for cheap credit. Instead, they have to work a damn sight harder and be more creative i.e. they actually have to add value.

Now a couple of things follow on from this. One is what in fucking hell was a high profile private equity boy i.e. a player in an entire industry/asset class predicated on borrowing as much as possible as cheaply as possible, doing arguing against the use of cheap debt to ease the economic misery of tens of thousands of people. Seriously. Like private equity loading a business up with debt so half a dozen people can buy more Tuscan villas is a good thing whereas government borrowing to build necessary infrastructure that also cuts unemployment is bad why exactly? And to borrow Paul Krugman’s chat about how economies differ from households, my liability/debt is your asset i.e. the holes in British bank balance sheets that taxpayers subsequently filled were partly punched into them by private equity boys who made personal fortunes as a result.

The other thing, of course, is that if I was a venture capitalist, “ahem” private equity investor, I’d be smart enough to realise the cheap credit days are gone for the foreseeable future so would be looking elsewhere to make my millions.

I know, if we can’t cut the cost of the debt that’s integral to the private equity business model, lets look at influencing other costs, most obviously labour. And hey presto we’ve just had another “venture capitalist” Adrian Beecroft i.e. no he isn’t he’s a private equity bod who just happens to give money to the Tories, producing a government report recommending changes to employment law geared almost entirely to cutting labour costs in ways that (a) would have a significantly adverse impact on what lots of people earn and (b) would consequently increase the tax credit subsidy employers already receive.

So the view of leading “venture capitalists” is that only private equity should be allowed to borrow big, with the taxpayer taking the risk, and that taxpayers should also hand over even more money than they already do to “venture capitalists” via the tax credit subsidies paid to the recipients of shit wages in the companies they buy so they can get even more Aston Martins, Ferraris, Bentleys etc.,. Alternatively, howzabout spades start getting called spades and private equity, private equity.


A July 24th P.S. -  the distinction between Private Equity (was leveraged buyout as a mate minded me) and venture capital clearly matters in the US if not here judging by the attempts now being made by venture capitalists there to disassociate themselves from Mitt - he was private equity not venture capital , geddit! - Romney.