WHY THE POPULISTS MUST WIN

2 July 2024

Two tribes at war over territory. The scene shows the intense expressions of fierce combat.

We should understand human behaviour as fundamentally an extension of natural behaviour, whose goals are survival and reproductive success.

Over the course of evolutionary history, repeated episodes of conflict over territory, food and mates - eg the forever wars between lion tribes or between lions and hyenas - create strategies that seek to control and expand territories, because territory provides resources and security. We say this strategy for survival, built up over evolutionary history, is "instinctive".

As animals with a brain however, we think about this and try to understand it.

This scene captures the mystical and grand essence of ancient Greek mythology.

Strategies for survival and reproduction get hardwired into our biology as the genetic codes in genes (survival of the fittest through natural selection) and what you might call the shape of our brains (instinct eg language).

These primitive drives are like a wild horse that we humans think we've tamed, but of course we haven't and Freud's id is triumphant. We all know this at some level ... well all of us except our political masters it seems - eg the horrors always happen in the basement in popular films like Hitchcock's Psycho.

It's supposed to be us in charge of the chariot, but instead it is this wild horse that's going to smash us all up unless we do something about it. When people talk about "the death of god" they are talking about life having no purpose beyond these base instincts...it's a kind of nihilism that says life has no purpose, that everything is relative, there are no absolute truths, there is no such thing as an objective morality, nothing to think about here, we are slaves to our existential angst, inequality and exploitation is natural, just get on with it.

Hobbes in "Leviathan" observed that in a state of nature, human life would be "solitary, poor, nasty, brutish, and short" due to this constant competition for resources.

But we are human and the space above the eye line means we have room to think about why we are here and the threats ro our existence. We come together in communities, we give up some freedom in exchange for protection, we create governance hierarchies and agree to obey the boss, maybe we elect them. We can even as thinking beings make deals with other tribes to quieten the frontier!.

But we don't, the West seems to have lost its way, our leaders have lost the moral compass that we acquired throughout the history of civilization and in its place a paranoid instinct for survival reasserts itself. We've lost our guiding sense of right and wrong and our striving for beauty, truth and justice, we are not interested in suppressing the urges of the id, our primal animal instincts reign supreme.

A way must be found to reassert reason and control, to overcome Mearsheimer's "structural offensive realism". Putin and the global South have given up on the West, they are no longer interested in making defense treaties or financial arrangements, they don't see it as a possibility and anyway they don't trust us anymore, so now it's up to "us".

Who is this "us"? Well, it is "We the People" and this is why populism is at the fore again.

It is for the people to impose behaviour driven by ideals upon our leadership, impose idealistic standards rather than realistic ones, if not through the ballot box, then take to the streets.

Two semi-human tribes sitting down to make a peace deal. The scene conveys a sense of reconciliation and harmony.

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INEQUALITY

30 June 2024

Spiralling inequality is a ticking timebomb for the next government

https://www.thetimes.com/article/889c52ea-8f15-4767-8164-9b33d891d2c5?shareToken=56c991cfd097db51f13e9c85886613ba

The stark contrast between wealth and poverty in a modern British cityscape, symbolising the urgent need for bridging the gap and fostering a fairer society. The scene captures both the severity of current inequalities and the hope for a brighter, more equitable future..

Written in rhe style of SOMERSET MAUGHAN - he would have had a thing or two to say about this scourge of our modern world.

SUMMARY

Spiralling Inequality is a Ticking Timebomb for the Next Government

In the dim glow of an English twilight, as the shadows lengthen and the air grows cool, one might find solace in the serene beauty of the countryside. Yet beneath this tranquil veneer lies a disquieting truth—a truth that, if left unaddressed, will surely disrupt the delicate balance of our society. Inequality, in its many insidious forms, has become an unrelenting spectre, threatening to unravel the very fabric of our nation.

One cannot help but feel a profound sense of urgency when confronted with the stark reality of our current predicament. Consider the plight of fifteen million souls, nearly a quarter of our population, who languish in the grip of poverty. Meanwhile, the wealthiest twenty percent hold dominion over two-thirds of the nation's wealth, and a mere one percent possess half of its land. This is not merely an imbalance; it is a chasm, a gulf that separates the fortunate few from the struggling masses.

And what of our children, those beacons of hope and promise? Disadvantaged youths find themselves nearly nineteen months behind their peers by the time they reach their GCSEs. It is a sobering thought, for it means that we are failing our future, condemning them to a cycle of unrealized potential and unfulfilled dreams.

In the richer boroughs of our cities, the well-heeled enjoy an additional eighteen and a half years of healthy life compared to their less fortunate counterparts. Such disparities are a testament to the pervasive and pernicious effects of inequality on our society. It is a cruel irony that those blessed with wealth are granted the luxury of time, while those burdened by poverty are denied even this most fundamental of human rights.

The inequities extend beyond mere wealth and health. They seep into the very foundation of our tax system, where the affluent—those who command incomes of ten million pounds a year—pay an effective tax rate of just twenty-one percent, akin to that of a modest earner of thirty thousand pounds. This is because their fortunes are derived primarily from capital gains, taxed with a leniency that borders on the absurd.

It is little wonder, then, that a pervasive sense of injustice has taken root among the British populace. Eighty-five percent of our citizens express concern over the state of inequality in our land. They sense, with an instinctual clarity, that the scales of fairness have tipped too far. It is not merely a question of economics, but of morality, of what is right and just.

There are three pillars to this concern. The first is a simple, yet profound, recognition of unfairness. It offends our collective conscience that a child born into poverty should be denied the same opportunities as one born into affluence, or that the wealthy can exploit a different set of rules to their advantage.

The second pillar is the corrosive impact of inequality on our society, economy, and democracy. We stifle the potential of countless would-be entrepreneurs, fostering instead a culture that rewards extraction over creation. Our social fabric frays as the wealthy wield disproportionate influence, eroding trust and cohesion.

The third pillar is the unsettling realisation that the future promises only to exacerbate these divides. The Institute for Fiscal Studies warns that inherited wealth will increasingly dictate lifetime earnings, heralding an unprecedented and unequal transfer of resources from one generation to the next.

To counter this ominous trend, bold and decisive action is required. The next government must embark on a journey to redress the balance, to forge a society where opportunity is not a privilege, but a right.

We must start by aligning capital gains tax rates with those of income, ensuring that wealth is taxed equitably. The draconian two-child limit on benefits should be abolished, lifting 250,000 children out of poverty at a stroke. A substantial increase in the supply of social housing is imperative, as is the guarantee of affordable, quality early-years provision for all children.

Employment reforms are also crucial. Zero-hours contracts must be banned, and a real living wage ensured through the cooperation of responsible businesses and trade unions. These measures would provide stability and dignity to the working populace.

Funding these initiatives need not burden the taxpayer. By empowering HMRC with additional resources to close the £39.8 billion tax gap, we can secure the necessary funds. This investment would yield substantial returns, with every pound spent generating fourteen pounds in additional tax revenue.

Investing in a fairer society is not merely an altruistic endeavour; it is a pragmatic one. By fostering success irrespective of one's birth, we cultivate a more prosperous and harmonious nation. If we fail to act, the consequences will be dire. The spectre of extreme political shifts looms on the horizon, a stark reminder of the stakes at play.

In conclusion, "Spiralling Inequality is a Ticking Timebomb for the Next Government" is a clarion call to action. It presents a meticulously crafted argument, rich with thoughtful and practical solutions. The structure is clear, the prose engaging, and the vision compelling. As we stand at this crossroads, the choice is ours: to act decisively and create a fairer society, or to ignore the warning signs and face an uncertain future. The time for action is now.

ARTICLE

Spiralling inequality is a ticking timebomb for the next government

Some 15 million people in the UK, almost 25 per cent, are living in poverty. There are practical steps ministers can take to tackle injustice in our society

Idon’t want to sound alarmist, but inequality — whether socioeconomic, regional, racial, gender, class-based, or disability-based — is getting out of hand. Consider the following statistics, which the Fairness Foundation (an organisation I founded) collates in its Fairness Index:

• Some 15 million people in the UK, almost 25 per cent, are living in poverty, while the richest 20 per cent own two thirds of the country’s wealth and less than 1 per cent own half the land.

• Disadvantaged children are almost 19 months behind their peers in terms of learning outcomes by the time they take their GCSEs.

• People living in the richest areas of the UK enjoy an average of 18.5 more years of healthy life than the poorest 10 per cent.

• Some people earning £10 million a year pay an effective tax rate of 21 per cent on their income, the same as someone on £30,000 a year, because most of their income is in the form of lightly taxed capital gains.

There’s plenty of evidence that, while many Brits do not think that we should live in a society of perfect equality, the overwhelming majority think things have gone too far, with 85 per cent of people being concerned about inequality in Britain today.

This concern has three components. The first is an increasingly unavoidable sense that these forms of inequality are just unfair. It’s not fair that children born into poorer families do not get the same opportunities as everyone else, or that many wealthy people are able to benefit from a different set of rules to everyone else.

The second is that inequality is damaging our society, our economy and our democracy. We’re depriving thousands of potential wealth creators of the chance to set up their own businesses, and we’re incentivising business models that are not based on creating wealth, but just extracting it.

The third is the widespread feeling that wealthy citizens and corporations have a disproportionate influence over our legislature. We’re creating social divisions that undermine cohesion and trust, and reducing public faith in democracy and in the ability of politicians to do anything about it.

And the bad news is that all of this is likely to get worse. We’re on a negative trajectory in terms of fairness and inequality. To take just one example, the Institute for Fiscal Studies has shown how the wealth you inherit has a much bigger impact on your lifetime earnings than it used to, and the coming decades will see an unprecedently large — and unequal — passing down of resources, primarily from property, from the baby boomers to younger generations.

To address this, the next government has to take bold action to reduce wealth inequality and build a fairer society. Levelling up opportunity through education is important, but won’t be enough on its own; we have to deal with inequalities outside as well as inside the school gates if we are going to make a noticeable difference to people’s living standards and life chances.

Bringing rates of capital gains tax closer to income tax rates on working people would be a good start, as would scrapping the punitive two-child limit on benefits (which would immediately lift 250,000 children out of poverty).

Massively ramping up the social housing supply, guaranteeing that all children can access affordable and decent quality early-years provision, banning zero-hours contracts, and responsible businesses working together with responsible trade unions to ensure all working people earn a real living wage would all help, too.

The cost of this crucial shopping list could be easily funded without any extra taxation by giving HMRC more resources — an absolute bargain when you consider that every £1 spent produces £14 in additional tax revenue, to go after the £39.8 billion the Revenue admits is leaking out of the tax collection bucket known as the “tax gap”.

Investing in a fairer society would pay for itself in the long term by encouraging and enabling success from all citizens irrespective of the throw of the dice at birth.

If we don’t make progress on this agenda over the next parliament, I fear the 2029 election result might see the hard right making gains we have never seen before in this country, as foretold in the results of the recent EU elections.

The stakes for the next government, and for all of us, are pretty high.

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DISSERTATION: HOW SHOULD THE GOVERNMENT MANAGE THE ACTIVITIES OF PRIVATE EQUITY

28 June 2024

Private Equity as a Beneficial Force. 

This image presents a bright, thriving economic landscape with modern skyscrapers labeled "Private Equity" supporting vibrant small businesses. The small businesses are bustling with activity, showcasing signs of "Open" and "Expanded". People in the background appear happy and prosperous, representing the positive impact of private equity on the economy.

Private equity (PE) plays a significant role in modern economic management, offering both opportunities and challenges. In this dissertation, we will explore the definition and evolution of PE, its benefits, its disadvantages, and how to balance its impacts with economic stability.

Starting with the basics, private equity refers to investment funds that acquire and restructure companies, often using significant amounts of borrowed money through leveraged buyouts (LBOs). This approach enables PE firms to purchase companies by borrowing a large portion of the purchase price, typically using the acquired company's assets as collateral. 

Over time, the concept of PE has evolved from straightforward asset stripping to a more sophisticated method of extracting value through operational improvements and strategic direction.

The significance of PE in modern economies cannot be understated. PE firms inject much-needed capital into struggling businesses, driving efficiency and innovation. They bring in management expertise, revitalize companies, and often turn them into profitable ventures. This injection of capital is especially crucial during economic downturns, where traditional financing might be scarce. For instance, PE investment in companies like B&M and Homebase has driven significant turnarounds, highlighting the potential for positive outcomes.

Private Equity as a Malign Function. 

This image portrays a dark, stormy economic landscape with towering skyscrapers labeled "Private Equity" overshadowing small businesses. The small businesses look worn and struggling, with signs of "For Sale" and "Bankrupt" prominently displayed. The scene depicts job losses and a sense of despair among people in the background, representing the negative impact of private equity on the economy.

However, the picture is not entirely rosy. The benefits of PE come with substantial risks. Leveraged buyouts result in high levels of debt, which can become unsustainable, particularly in a rising interest rate environment. This financial instability can lead to bankruptcies, as seen in high-profile cases like Toys "R" Us. 

Additionally, the focus on short-term profitability often leads to rising prices and "price gouging", reduced employment benefits and job cuts, negatively impacting communities and the overall social fabric.

Thirdly, Business Process Reengineering are employed to reduce operating input costs, increase operating efficiencies and enhance customer satisfaction. However, all too often, these "better, faster, cheaper" measures to retune the company's production result in lower benefits and longer hours for staff business  purchasing by negotiating 

Balancing these benefits and risks is a critical challenge for economic management. Effective regulation is necessary to mitigate the financial risks associated with high leverage. Governments need to implement measures that ensure transparency and accountability in PE transactions, protecting both the economy and the workforce. Strategies for sustainable investment, such as encouraging long-term growth and innovation, can help align the interests of PE firms with broader economic stability.

In conclusion, while private equity can drive efficiency and innovation, it also poses significant risks due to high leverage and a focus on short-term gains. Effective management involves balancing these aspects with robust regulatory frameworks to ensure that PE investments contribute positively to long-term economic stability.

Future research should focus on developing regulatory models that balance the innovative potential of PE with the need for economic stability. Further debates could explore the ethical implications of PE practices and the role of government in mitigating social impacts, ensuring that private equity can be a force for good in the economy.

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HOW TO WRITE A DISSERTATION

28 June 2024

Taking the draft answer to the question what is the role of private equity in the good management of a country's economy as the input let us try to rewrite it using a formal method for writing a dissertation.

Here is the method we wish to follow.

1. State the subject. What are the benefits and disadvantages of private equity in the management of a country's economy?

2. Explore the meaning of the question, the ways of understanding it and of misunderstandings or confusuons. What are we talking about when we say "private equity", "a country's economy", "benefits and disadvantages". Give an example of each definition.

3. Ask questions of the subject. What are some of the ideas that people have about PE? Why is this subject of Private Equity important in the context of the economic management? What are the reasons for the existence or causes or needs for PE ? What can be some of the effects of PE? 

4. Identify the issues. There are contradictions, paradoxes, problems that must be resolved for the best management of the economy. What are these issues? How do these issues conflict with the requirements for good management?

5. Give background references to show where my dissertation where the arguments in my dissertation are coming from for example Schumpeter talks of capitalism's "creative destruction" - perhaps PE plays a role in this. Cite the work of respected academics and economists and journalists and case studies (like Homebase, like Toys R Us). These references will justify my arguments.

6. Elaborate a 3 or 4 part plan for the final dissertation (we are in draft here). Each numbered part can have a few numbered sub-parts. There must be a transitional paragraph between each part.

7. Write an Introduction. On the basis of points one to six above please now write the Introduction. 

7.1 introduce the subject with a quote or a general remark 

7.2 identify the issues start by stating the question then define what are the requirements for good management of an economy and then state the problems or issues that private equity creates. 

7.3 now summarize the steps my argument will proceed through EG first of all we will look at... , then we will look at ... etc.

8. Elaborate the plan from the points from in point 6 above.

9. Conclude. 

9.1 Resume the steps in my argument. 

9.2 precisely answer the question stated at the beginning and give my own personal take but avoiding the pronoun "I". 

9.3 identify any questions still remaining that I might have.

10. Open up the subject for further research and debate.

https://youtu.be/cP28zpHpbNY?si=7r6pHbtm_EMrC2lx

=====Example

 1. Subject: Benefits and Disadvantages of Private Equity in Economic Management

The topic explores the role of private equity (PE) in managing a country’s economy, highlighting both the benefits and drawbacks.

 2. Clarifying the Question

When discussing PE, we refer to investment funds that buy and restructure companies, often using significant amounts of borrowed money (leveraged buyouts). A country’s economy includes all businesses, employment, and financial markets. Benefits can include efficiency and innovation, while drawbacks might involve increased debt and job losses. For instance, PE investment in a retail chain might modernize operations but also lead to significant layoffs.

 3. Perceptions and Importance of Private Equity

Ideas about PE:

- Positive: PE can revitalize struggling businesses and foster innovation.

- Negative: PE often prioritizes short-term profits, leading to job cuts and reduced stability.

Importance in Economic Management:

- PE is crucial for injecting capital into the economy, especially during downturns.

- It influences economic stability and employment rates.

Reasons for PE:

- Access to Capital: Businesses seek PE for growth and restructuring.

- Expertise: PE firms bring management expertise and strategic direction.

- Returns: Investors are attracted by the potential for high returns.

Effects of PE:

- Positive: Enhanced efficiency, innovation, and competitiveness.

- Negative: Increased leverage, potential for bankruptcy, and social impacts like job losses.

 4. Issues and Conflicts

Contradictions and Problems:

- Leverage Risks: High debt levels can lead to financial instability.

- : PE’s focus on short-term gains can undermine long-term economic health.

- Social Impact: Job cuts and reduced benefits can harm communities.

Conflicts with Good Management:

- Stability vs. Efficiency: Balancing economic stability with the drive for efficiency and profit.

- Regulation: Ensuring adequate regulation to protect against excessive risk-taking.

 5. Background References

- Joseph Schumpeter: His concept of "creative destruction" highlights how innovation can disrupt and transform industries, a role often played by PE.

- Case Studies:

  - Homebase: Struggled after PE acquisition, highlighting risks of excessive debt.

  - Toys "R" Us: Bankrupted due to high leverage, demonstrating potential negative outcomes.

- Academic Perspectives: Studies by economists like Steven J. Davis and John C. Haltiwanger on the heterogeneous effects of PE buyouts on employment and productivity.

 6. Dissertation Plan

Part 1: Introduction to Private Equity

- 1.1 Define PE and its role in the economy.

- 1.2 Historical context and development of PE.

Part 2: Benefits of Private Equity

- 2.1 Efficiency and innovation.

- 2.2 Case studies of successful turnarounds.

Part 3: Disadvantages of Private Equity

- 3.1 Financial risks and leverage.

- 3.2 Social impacts and job losses.

Part 4: Balancing PE with Economic Stability

- 4.1 Regulatory measures.

- 4.2 Strategies for sustainable investment.

Transition: Moving from understanding the nature of PE to exploring its real-world impacts and regulatory frameworks.

 7. Introduction

7.1 Introduction with Quote:

"Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary." – Joseph Schumpeter.

7.2 Identifying Issues:

Private equity can both invigorate and destabilize an economy. Good economic management requires balancing efficiency with stability. However, PE’s high leverage and short-term focus can create significant risks.

7.3 Summary of Argument:

First, we will define PE and its historical context. Next, we will examine its benefits through efficiency and innovation. We will then explore the disadvantages, focusing on financial and social impacts. Finally, we will discuss how to balance PE’s advantages with economic stability through regulation and sustainable practices.

 8. Elaborating the Points

Part 1: Introduction to Private Equity

- Discuss the definition and evolution of PE.

- Highlight its significance in modern economies.

Part 2: Benefits of Private Equity

- Explore how PE can drive efficiency and innovation.

- Provide case studies like B&M and Homebase to illustrate successful turnarounds.

Part 3: Disadvantages of Private Equity

- Discuss the financial risks associated with high leverage.

- Examine the social impacts, including job losses and community effects, with examples like Toys "R" Us.

Part 4: Balancing PE with Economic Stability

- Discuss the need for regulatory measures to mitigate risks.

- Explore strategies for encouraging sustainable investment and long-term growth.

 9. Conclusion

9.1 Resume Steps:

Summarize the exploration of PE’s benefits, disadvantages, and the need for balanced regulation.

9.2 Answer the Question:

Private equity offers significant benefits in terms of efficiency and innovation but poses risks due to high leverage and short-term focus. Effective management involves balancing these aspects with robust regulatory frameworks.

9.3 Remaining Questions:

How can regulatory bodies ensure that PE investments contribute positively to long-term economic stability? What measures can protect employees and communities from the negative impacts of PE?

 10. Further Research and Debate

Future research should focus on developing regulatory models that balance the innovative potential of PE with the need for economic stability. Debates could explore the ethical implications of PE practices and the role of government in mitigating social impacts.

FRENCH ACADEMIC METHOD

10-Point Plan for Writing a Dissertation Using the French Academic Method

1. Select a Research Topic

   Choose a topic that is both interesting and relevant to your field of study. Ensure that it has enough scope for research and is feasible within the given timeframe.

2. Conduct a Literature Review

   Gather and review existing research related to your topic. This helps in identifying gaps in the current knowledge and establishing the context for your study.

3. Formulate a Research Question

   Develop a clear and concise research question or hypothesis. This question should guide the entire research process and define the study’s objectives.

4. Design a Research Methodology

   Decide on the methods you will use to collect and analyse data. This could include qualitative methods, quantitative methods, or a combination of both.

5. Create an Outline

   Draft a detailed outline of your dissertation. This should include an introduction, literature review, methodology, results, discussion, and conclusion. An outline helps in organising thoughts and ensuring a logical flow of information.

6. Write the Introduction

   Introduce your topic, provide background information, and state your research question. Explain the significance of your study and its contribution to the field.

7. Develop the Literature Review

   Summarize and critically evaluate the existing literature related to your topic. Identify the gaps in knowledge that your research aims to fill.

8. Describe the Methodology

   Detail the methods used for data collection and analysis. Justify your choice of methods and discuss any limitations.

9. Present the Results

   Report your findings in a clear and systematic manner. Use tables, graphs, and charts where appropriate to illustrate the data.

10. Discuss and Conclude

   Interpret the results, linking them back to your research question and the literature reviewed. Discuss the implications of your findings, acknowledge any limitations, and suggest areas for future research. Conclude with a summary of your study's contributions.

French Academic Method in Practice

The French academic method emphasises thorough preparation, structured argumentation, and critical analysis. It values clarity, coherence, and rigour in presenting research findings. By following this 10-point plan, you can produce a well-organised and impactful dissertation.

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AMERICAN PRIVATE EQUITY THREATHENS THE UK ECONOMY

28 June 2024

https://youtu.be/hIyl5SI6OL0?si=wWlGveLcKZrS8Hr-

BACKGROUND

In the past the activities of Private Equity were called asset stripping the idea was to borrow a pile of money using the target asset as collateral reaching the finances and upgrade the asset and then extract the improved profits and eventually sell on the asset at a substantial markup.

This often brought big social problems as restructuring would involve redundancies however for those PE activities undertaken at a time of low interest rates the Threat to the economy inflation and employment, now becomes more serious.

THE LBO, HOW IT WORKS

Post brexit and post covid, American private equity recognised that Valuations to Earnings multiples in the UK were significantly lower than in the US and they proceeded to buy up many high street names on cheap debt, using the leveraged buyout LBO tool.

The idea of the leveraged buyout is to borrow a large wedge of money, maybe 80% of the purchase price, to buy an asset - in this case, a chain of High Street shops - often with the acquired company’s assets used as collateral.

And after re-tuning the finances and upgrading the asset, sell it on at a profit. The sale includes the debt, ie selling on the debt, the debt is not repaid by the seller but is included in the sale, the debt is passed on to the buyer together with the asset, it is not repaid by the seller out of the sale proceeds.

Private Equity could buy the asset using low interest debt and pass that debt on to the buyer, who found it manageable because of low interest rates.

THE RESULTS

Burger King, The Body Shop, New Look, Morrisons, Byron Burgers, Wagamama, Café Rouge, Pizza Express, Bella Italia, Madame Tussauds, Zizzi. These are examples of High Street names controlled by Private Equity. Bought by PE at a period when UK valuations were on average 11 times earnings, compared to 20 in America.

DEPENDENCE ON CHEAP DEBT

Brexit and covid caused the pound and stocks to plunge, making these assets appear cheap compared to their valuations of just a few months earlier and compared to valuations for equivalent American assets.

Between 2016 and 2023 Private Equity PE companies spent 200 billion USD dollars buying UK assets compared with 81 billion in Germany and 36 billion dollars in France.

It is a problem because Private Equity backed companies employ 1.9 million people in rhe UK and their suppliers employ another 1.3 million. 

If interest rates increase significantly, as they have done, then these deals can go wrong, meaning higher prices for consumers as the company attempts to pass on the higher costs of capital, and loss of jobs if they can't.

THE PROBLEM

PE brings in a lot of money to the UK economy, at a time when Brexit has made the UK a less interesting place to invest, but leveraged buy-outs carry risks to the economy from the rise in interest rates - inflation, price gouging and employment.

What policies might a new incoming UK government develop In order mitigate the risks to the economy and to increase FDI ?

GOVERNMENT INTERVENTION

The government must consider ways to mitigate the immediate threat to the economy as well as policies for long-term management of PE and FDI.

Post brexit and covid, private equity companies looked at the market-cap-to-earnings multiples for quoted and family companies, and comparing America with UK found that the UK was little more than half the American market valuation.

So they piled, in taking out cheap loans, often on the collateral of the target company itself, to buy up, then retune the finances,  upgrade the asset in order to extract the enhanced cash flow, with the idea that later they would sell out at a substantial capital markup.

That's how capitalism works so what do we have to complain about?

You might think the sale means that the seller can repay the Debt out of the sale proceeds but that is not how a leverage buyout works the lbo means the buyer acquires not just the asset but the debt as well. This is what the word "leverage" means. It means borrowing a pile of cash to buy not just the asset but buy the target's debt as well. In effect the buyer is restructuring the sellers debt using capital that it has borrowed at a lower interest rate than the seller was paying.

That's all fine and dandy until the interest rate for the buyer on its debt increases what happens then well the buyer the PE company will try to pass the increased interest rate onto the companies customers or if it can't it will go bankrupt. So here are threats to inflation and employment - the twin mandates of the Bank of England.

I don't know if this was anticipated by the b o e and changes made to the regulatory framework because the Bloomberg short video doesn't actually give any negative real world consequences all it does is to highlight the risks of lbo at a time of low interest rates.

So anyway if we were too seriously consider this video then we would look at short and medium term responses from the Boe, from the government.

In the short term there'd be tax-funded government bailouts or subsidies and encouragement to these PE companies to restructure their finance. That's what it means when it says government is lender of last resort.

Hopefully the government has set up a department to monitor cash flow and debt levels and changes in the business processes of the companies in this now vulnerable sector of the economy and offer advice and guidance to avoid employment disasters, disasters for the economy but also for communities.

Then there'd be stuff to discourage these companies from suddenly laying off great numbers of workers and to offer retraining if they do, and to lead the company's down the path of sustainable business processes like green energy initiatives or local sourcing of products... in other words, to lubricate the wheels of capitalism.

But you might wonder whether the government had policies in place at the time because after all what goes down must come up and here we are with the higher interest rates.

I don't have any info on how real the risks in that video are I mean what High Street chains have gone under? Perhaps something in residential property construction and home maintenance...

Surely there must be strict controls on borrowing by these PE companies and regulations to make sure that financing is declared openly and transparently?

Surely the whole tax and innovation regime is set up to encourage long-term sustainable growth rather than short-term profit?

The whole idea of the Boe when it comes to managing interest rates is to tackle inflation without discouraging growth.

And knowing nothing about fdi-dimension that the activities of these assets strippers is discouraged by government policies so that fdi comes in in a more transparent long-term diversified area that's good for the economy.

And finally there'll be all the stuff to do with protecting jobs and enabling retraining as the economy evolves.

MORE QUESTIONS THAN ANSWERS

It will be interesting to know why PE was so much lower in Germany and France was it that the assets were less attractive or was it that the regulatory framework was better?

So it's all about how the economy has been managed since the great financial crisis have the Tories made a good job of this I don't know whether the economy is better or worse under threat or blooming it just depends on which Media outlet you read.

Ordinary people are not satisfied and there is a big chance the Tories will be kicked out but what will the policies of an incoming government be?

Actually I'm not so sure about this threat from the asset strippers I know it sounds bad to rely on low-cost capital and focus on short term profits but actually maybe pe is being maligned as it is actually interested in stable longer-term cash flow and long-term re-evaluation of the target asset. It wants to create robust cash cows that it can sell on at a vast profit.

This is all about creative destruction, the survival of the fittest, the search for the most efficient allocation of capital.

Eg, rhe rise of digital photography replacing film cameras, streaming services disrupting traditional cable TV I had a few shares in ITV.

The only examples I was able to find where an LBO has gone wrong are Toys R Us, Debenhams, Lloyds Pharmacy, The Body Shop and Farfetch.

Toys "R" Us failed to adapt to digital innovations and changing consumer preferences. Netflix and Amazon did so well by embracing new technologies and business process models. Lehman Bro failed, Revolut is far more successful their NatWest.

Striving for enhanced cash flow and capital valuation, these PE firms have brought in a lot of expertise. You could probably make an argument that target companies were undervalued because they were poorly managed with poor returns for shareholders. PE changed that.

PE made financing more efficient, improved business processes (which is a job I was a bit involved in) and they have focused on innovation as a tool for long-term improvement.

For example, B&M and Homebase have thrived under PE ownership, according to this article:

https://www.retailgazette.co.uk/blog/2023/12/private-equity-killing-retail/

To me the real criticism of PE which this video completely missed is how it concentrates capital into fewer and fewer hands afterward you're going from public ownership on the secondary market to private ownership in the hands of a few and also it is making it harder for small businesses to survive as this is top-down injection of expertise and economies of scale whereas what we want is bottom up creativity and innovation.

So what I'd like to hear about is is government fitting PE successfully into its management of the UK economy?

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FRENCH LEGISLATIVES FIRST ROUND

26 June 2024

https://www.lemonde.fr/politique/article/2024/06/25/legislatives-2024-ce-qu-il-faut-retenir-du-debat-entre-gabriel-attal-jordan-bardella-et-manuel-bompard_6243693_823448.html

1. Introduction

- Participants: Gabriel Attal (Prime Minister), Jordan Bardella (President of Rassemblement National), Manuel Bompard (La France Insoumise).

2. Key Topics Discussed

- Purchasing Power: 

  - Bardella emphasised reducing energy VAT, budget constraints.

  - Bompard advocated for price controls on necessities.

  - Attal proposed a "purchasing power package" with wage and pension increases.

- Pension Reform:

  - Attal opposed repealing reforms.

  - Bardella suggested flexible retirement ages based on work start age.

  - Bompard aimed to lower retirement age to 62, eventually 60.

- Taxes:

  - Attal promised no new taxes.

  - Bompard proposed higher taxes for the wealthy.

  - Bardella called for an audit of state finances.

- Environment:

  - Bompard prioritised climate change.

  - Attal highlighted budget increases for ecological transition.

  - Bardella promoted nuclear energy, opposed new wind projects.

- Immigration:

  - Bompard argued immigrants benefit the economy.

  - Bardella questioned loyalty of dual nationals.

  - Attal criticised Bardella’s stance on binational job restrictions.

3. Summary

The debate covered economic policies, pension reform, taxation, environmental strategies, and immigration, highlighting clear ideological divides between the participants.

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