In the City
A farthing for the Falklands
The invasion of the Falkland Islands
demonstrates yet again that the main risk in international business these days is not losing one's money through a dud com- mercial enterprise, or as a result of a bank going bust but is the old one of expropria- tion. It's the propensity of foreign powers to steal what is not theirs which really blows a hole through the balance sheet.
In the particular case of the Falklands that hole is not immediately visible. There used to be a fine old company analagous to the Hudson Bay Company called the Falkland Island Trading Company. Based in London, it operated much of the Islands' one basic industry, that of producing wool and selling it annually on the international market. The price of the shares used to fluc- tuate against two barometers, the first being the size of the annual wool clip and the second the price of wool. Over the years the company built up some useful assets in the United Kingdom, being in the shipping and wharfinger business as a result of its far- flung interests in the South Atlantic. As the inunediate commercial value of these assets in terms of their earning power declined, the underlying property values rose. Conse- quently, it was inevitable that some sharp analyst in a City back room should get out his slide rule and work out the break-up value of the company as a whole. Finding that this was substantially above the market capitalisation he and one or two friends began assiduously to put together a holding in the company so that by 1973 they had something like a third of it to offer. The result was that the Falkland Island Trading Company was duly taken over and disap- peared eventually into the maw of the Coalite Group. So that's that. Presumably even if the Falklands stay under Argentine rule somebody will have to sell the wool clip.
Of more importance to the Argentinians is of course the potential mineral and Perhaps even oil wealth of the largely unex- plored tracts of ocean bed and the chunks of Antarctica which come with the posses- sion of the Islands and its substantial (in area) dependencies. The operation of the two hundred mile limit rule ensures that the areas concerned are enormous. Whether or not there is any oil remains to be seen. It's Murphy's Law that oil will be found now that the Argentinians control the place.
It's all part of a somewhat dismal pattern so far as British interests in South America are concerned. When the last war ended we Owed the Argentine a considerable amount ," money for the awful corned beef which had sustained us in battle and it was simple for that country to enforce a one-sided set- tlement of the debt by seizing a great chunk
of this country's investments in the place, particularly the railways. From then on it was downhill all the way. What the Argenti- nians didn't take we tended to let go anyhow. In many cases the Americans step- ped into our shoes. One can cite many ex- amples. A typical one is that of Leaches Argentine Estates, which had the distinc- tion of being a British overseas company. That is a very nice thing to be from a tax point of view and, combined with the substantial asset it owned in the Argentine, mde it a target for a takeover by the American Deltec Corporation in the Sixties. There was little anyone could do about it, as the shareholders were widely spread. The then effective head of the controlling family interest was about to be or had just become Provost of King's College, Cambridge, and the demands of the academic post didn't really permit a full and active commercial engagement at the same time. However a reasonable rearguard action was fought and a fair price at the time was obtained for the control of the old British company. Many such passed to foreign owners much more easily and more cheaply. But pass they did.
The problems that beset the foreign operator in a country like the Argentine, or indeed in any third country, abroad, are not just peculiar to British interests. Directors of several of the world's largest multi- nationals met a few weeks ago in London to discuss, as they do from time to time, the problems of doing business in the current difficult economic climate. When they had gone through all the usual matters which worried them, like high interest rates, short- age of credit, falling demand and so on, they still agreed that the most serious judge- ment which they had to make was in which of the countries where they were operating were they most likely to face expropriation or nationalisation. They were surely right in their sense of priorities. For a sound business can survive practically any form of economic difficulty; what it can't survive is expropriation.
Time was when this simple truth used to bear pretty directly upon the country's defence policy. The very existence of the Royal Navy was justified by its role of defending British commerce abroad. This role was extended in due course to defend- ing such interests as the oil refinery in Abadan. At some point the commercial in- terests got severed from defence policy. It was indeed at Abadan in the early Fifties that the connection between the two most clearly broke down. The British concessions and investments were under threat of ex- propriation and Herbert Morrison was on the point of sending in the Navy. The Americans dissuaded us from moving; quite simply we lost the concessions and were given a small compensation by way of par- ticipation in the international oil consor- tium that took our place. Since then, defence has been about things like Trident and commerce has had to look after itself.
The consequences of that division have included the loss of much of the British fishing industry, as a result of Britain's in- ability to carry on the Icelandic fishing dispute, and now there comes the apparent loss of the Falkland Islands. The old in- terest in Middle Eastern oil which this coun- try used to have has now been eclipsed by North Sea oil which is so much more conveniently placed in strategic terms. But even here there is a certain doubt in some City quarters as to whether this interest could really be effectively defended if it came to a challenge, particularly a maritime one from, say, the Russians. Traditionally the City has had a close interest in and links with the armed services. Partly this is patriotism and partly self-interest, for no country can have as widespread and inter- national commercial interests as the United Kingdom without being involved in political and defence issues. The City is nothing if not an internationally-orientated market. We may only be the size of Sweden or less, yet our commercial interests remain worldwide just as much as they were during the heyday of empire. This is a feature which the Government's defence strategy with its commitment to the nuclear deter- rent and its involvement in NATO may, surprisingly, have ignored.
`Does that reassure you that all our pilots are experienced?'
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