In the city
The folly of the ECI
Nicholas Davenport The life and pension funds are elephantine in size—approaching £4000 million net a Year—but to see them performing like a tame elephant at a circus with Tony Benn as r,higmaster and Jack Jones flicking the whip Is not an edifying sight. This was the show Put on last week when Equity Capital for Industry invited subscriptions up to £50 million from the insurance companies and life °ffices, the investment trusts, the unit trusts and FFI (Finance for Industry) in order to demonstrate to the left wing of the Labour Movement that the City is full of good guys who will never starve industry of capital. Whether Jack Jones still persists in his false accusations I do not know but it must be Obvious even to him that when Imperial Chemical Industries can raise £200 bY a rights issue in a couple of hours the Machinery of the capital market is working as smoothly and as effectively as it ever did. ,"-;ast Year the City raised about £2000 mil,."°° by way of capital issues and in the first lour months of this year another £640 million. If the trade unions could only guarantee that new machines would not be overmanned but be allowed to increase the Productivity of labour there would never be any shortage of capital to finance them. The £50 million offering of Equity Capital for Industry is a watered-down version of the £500 million issue first proposed by the City fairy godfathers who succumbed weak he left's malicious propaganda instead " giving it the lie. The reason is that the godfathers have been split. The Scottish life °ffices and some English ones were opposed to the whole idea. Even now the participants have protected themselves (like the trade unions) by means of the block vote. Under thhe articles of association each member will ave one vote for every £ I' of capital he represents. sn, The capital is divided as to £33 million in ares between insurance companies (£17 Inulion), investment trusts (£8 million), unit trusts (£4 million) and FFI (£4 million) and sitc) £17 million in units of an Equity Capita' Unit Trust available only for pension .unds which are free of capital and income
that It es. the is clearly stated in the prospectus concerns Which will invest only in have good prospects, that it
w, not engage in support operations for iaMe ducks and that its policy is `to maxi.111, Ise' returns like any good capitalist. One tnerefore wonders what it expects to do which cannot be done through the existing Tchinery in the City, especially as the s PC subsidiary of the FFI was set up nt:ee,ificallY to deal with the smaller comes In in the so-called 'Macmillan gap'.
Lord Plowden, the chairman of EC!, has said that his company, the great Tube Investments, from which he is retiring, would not have been able to take over many smaller companies if there had been an ECI to sustain their independence. Does he mean that an ECI would have prevented the creation of his efficient and cost-saving merger, Tube Investments, and have allowed small companies to continue their less efficient and less economic use of labour and resources? One cannot help concluding that the ECI has been set up by the more nervous and timid City fathers to finance in concert what they would not have thought worthy of finance individually.
The fqlly of the ECI creation is that it blurs the distinction between what is public enterprise and private enterprise, 1 between what is state controlled economy and a mixed economy. We are going through a period of great social and political change which is bordering on revolution. There are definitely revolutionary groups at work which seek to take over the trade unions by stealth and then confront thenation with a switch to a centralised communist state. They make use of the amiable Tony Benn and the honest Jack Jones, who utter revolutionary cries, and also of Labour's National Executive which has been preparing for a long time a programme for the nationalisation of the banks. (This was fortunately not ready for last week's meeting.) They must have been delighted with the ECI prospectus, for the nationalisation of the ECI will be the first step towards the nationalisation of the life assurance companies. It is sad to see' the Governor of the Bank of England, who is behind the creation of the
ECI, playing into their hands. What he should have realised is the prime importance of keeping the idea of a mixed economy alive in the public mind. A mixed economy means a healthy export-orientated private sector financed by City institutions free to make up their own individual minds as to who is profit-worthy enough to be financed.
These City institutions have already financed calls from a third of the companies making up the FT index of thirty industrial shares. This may explain why, with the anxiety caused by the sinking pound, the FT index has been slipping back towards 400 instead of rising towards 450 as Mr Healey's miracle deal with the TUC would have justified. The market was, in fact, suffering from new issue indigestion before the ICI asked for £2013 million and the ECI for £50 million. Incidentally, if less than £30 million is subscribed the ECI pterodactyl will never take off from the ground.
But there is something more than indigestion which may account for the drop in the FT index and the extremely low level of turnover in equity shares. The life and pension fund managers have assumed that the Bank of England made a mistake in raising 'Bank rate' to l0 per cent, for the protection of sterling and that as dear money is inflationary the rate must come down again to 9 per cent, that is, if Mr Healey expects the inflation rate to be halved and to reach a single figure by next April. So they are putting money into long-dated gilt-edged stocks where 13 per cent can be secured instead of into equities where the average dividend yield is around 5.2 per cent. This may give them a good 'management' turn for their funds but a drifting equity market should be seen as an opportunity to buy by those who believe in the industrial recovery of Britain. For what has been achieved by Mr Healey's deal with the TUC? It is the opportunity to preserve, under the adroit consensus tactics of the new Prime Minister, a mixed economy with a profitable private sector which will guarantee our freedoms.
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