Saturday, April 04, 2009

Who ruins Britain?

It's not just the bankers and the politicians. I'm reading Robert Peston's book "Who runs Britain?" and I'm wondering about the social benefits of private equity entrepreneurs.

Take store group Arcadia, for example. In the year 2000, it was acquired by Stuart Rose, at which time it had a turnover of £2.5 billion, debts £250 million and a market capital value somewhere around £100 million. "The business was viewed as dead meat when he arrived." Two years later, the turnover was down to £2 billion, but all the debt was cleared and the group was making an annual profit of £106 million.

Rose then sold out to Philip Green for a reported £850 million (Peston says £775 million), of which Green's personal investment was only £9.2 million.

In 2005/2006, Arcadia's sales were down to £1.8 billion, but profits had risen to £300 million, according to Peston. Green then made it declare a £1.3 billion dividend, £1.2 billion of which went to his wife - who by then was, technically, domiciled in tax-free Monaco. This record-breaking payout was funded by bank loans to Arcadia totalling £1.35 billion, with the result that the group's net asset position went from plus £303 million (in August 2004) way into the red - minus £807 million. You'll see that the dividend accounted for the decline in Arcadia's net worth, and more besides.

Stuart Rose is like a man who buys a sick donkey, nurses it back to health and sells it at a profit. Green appears to me like the new owner who nurtures it further, then suddenly puts back-breaking quantities of heavy stone in its panniers and wanders off on other business, whistling merrily while the poor, over-laden beast staggers behind him in the wilderness. If it should stumble...

I can see what's in it for the bankers (less so, their shareholders). I can certainly see what's in it for Philip Green. But what's in it for us? We work, earn money, pay taxes and what is left we spend in stores that export our capital.

If this is to be the pattern for British business, we are finished. I don't see Johnny Foreigner making plans to take on the obligations of our Welfare State when we no longer make anything he wants; if he's looking for maltreated, ill-bred, indolent slaves, he'll find all he needs closer to home.

Are we making a nation fit for Marxists?


Paddington said...

It's what I've been reading - the collapse will leave the rich much richer, and the rest of us dirt poor. However, as I've said many times, that collapse could well destroy technological civilization.

Wolfie said...

Are we making a nation fit for Marxists?

Or maybe just fit for Nazis?

Sackerson said...

Explain, please, Wolfie. Personally I think Britain is more likely to head far Left than Fascist; and suffer either way.

I've just finished Peston's book, and while generally well-disposed towards private equity types, he ends by intimating at social upheaval if we continue to permit concentrations of wealth and power, the capture of the polity by the rich and the disenfranchisement and improverishment of "the many".

And now I'm catching straws in the blogowind on the lines of Karl was right.

Wolfie said...

The Nazis were not the "right", they are a different version of the left.

The left comprises of two choices at its extremity :

1) Marxism
2) Fascism

They offer two opposing nationalist and monetarist policies but they share an underlying socialist root.

You read Peston's book! Good lord.

Sackerson said...

Agree that I can't see much difference between the two.

Peston began very readably, and he does a good job of explaining the packaged mortgage mess, CDS etc - but golly he's a groupie for the rich and so very me-me-me with it. He can't decide whether to worship Green or condemn him.

Peston's cutesy half-profile pose on the cover suggests a narcissistic streak, and there's a look in his kindly eyes that reminds me of the devastating adjective used by Lytton Strachey of Thomas Arnold: "puzzled".