In the city
BP and the new capitalism
Nicholas Davenport
,We are back again in what the City calls trading markets'. The bull market in equity shares is in suspension but this does not mean that a bear market has begun. While uncertainties cloud over the political and economic scene, while we have alternations of good and bad news, we should welcome the see-saw movements in the markets Which `traders' can exploit for a quick profit. The City cannot live on dead markets. Take gilt-edged for an example. The longs' lost several points recently because of government defeats in the House of Commons. (How the City clings to that father-figure, the prime minister! Now that the Labour Party needs him far more than he needs the Labour Party the City assumes that his authority over the wild men will Stiffen to our mutual advantage.) The giltedged market was upset because the increase in income tax allowances on by Labour rebels and Tories in the Finance Bill Committee would add about £350 million to the PSBR (public sector borrowiflg. requirement) apart from the £200 million added by the withdrawal of the higher petrol duty. But it need not have been so apprehensive.
First, the effect on the PSBR will be less than the £550 million because of the reflationary effects on tax revenues (fiscal drag), and secondly, the PSBR is likely to undershoot the budget estimate for 197778 through bad arithmetic in the forecast.
There is another good reason why the gilt-edged market should not be so alarmed. The disturbance to the budget arithmetic suggests that Mr Healey will not risk a July mini-budget. Further, the difficulties in arriving at a Stage Three pay restraint remove the possibility of the Government having to agree to an uneconomic high minimum percentage figure for wage bargains. So, with the yields on the highcoupon longs' approaching 14 per cent after the recent setback the gilt-edged market is looking in my view a `buy' once again.
Another point which should reassure the market is that the effect of the huge placing of £564 million of BP shares has the same damping effect on the money supply as a `tap' issue of gilt-edged stock. So there is no.need to worry about money supply problems for the next six months. The success of the variable coupon issue £400 million sold in a month or so is another reason why the monetarists should keep their mouths tightly shut for the rest of the year.
The BP placing enforces my recent plea for the diffusion of capital. BP has always been a narrowly held company with only 110,000 shareholders. (ICI has over half a million and has increased the number by issuing shares to employees.) It is said that the 'authorities' would like to see small investors taking an interest in the BP issue and have therefore made the application forms available at the Post Offices, hoping to entice them into buying by making £3 only per share payable on application with the rest of the £5.45 due after five months. But the market does not expect more than a few thousand small investors to respond. The placing reminds one of the lamentable fact that the ownership of capital remains concentrated in a tiny percentage of the population. In the US about 21 per cent of American households own about 80 per cent of the productive capital. In the UK the spread is wider because of the growth of the life and pension funds but the ownership of productive capital is still in relatively few hands. This will explain the perennial imbalance between the industrial power to produce and the economic power to consume. This imbalance arises not because of the existence of private property, as Marx tvrongly argued, but because the ownership of private property is not widely enough spread to supplement the incomes of consumers by way of profits and dividends.
The American remedy for this imbalance, if we accept the Kelso and Adler proposals in their Capitalist Manifesto, is to stop the exclusive financing of new capital formation through the existing financial machine, which makes use of the accumulated savings of the few capital owners, and set up a new loan apparatus which finances the acquisition of equity shares by the unprivileged and unendowed families, the shares being held in escrow for them until the dividends receved on them are sufficient to repay the loans. A correspondent, Mr R. A. Shakespeare, who seemed critical of my public unit trust proposal does not have to tell me of the spread of these employee share ownership schemes in America but he should have mentioned that they require, advantages which our companies do not. Moreover in The Capitalist Manifesto Kelso and Adler require corporations to pay out all their net profits to the new shareholders to complete the revolutionary diffusion of capital they required.
Now consider how my public unit trust plan would work in the diffusion of the BP placing. Assume that the PUT by this time is holding £5000 to £10,000 million of existing equity shares taken over from the commercial unit trusts, the investment trusts and the pension funds. It would now subscribe for the whole £564 million worth of BP shares, obtaining the finance for this operation from the investment institutions in the City, who would subscribe to a debenture of the PUT instead of subscribing to the BP placing. The PUT would then issue BP sbares to small investors (workers primarily) who would not pay for them immediately not until the dividends received on the shares held for them in escrow were sufficient to repay the loans. All it means is that the investment institutions hold a PUT loan stock secured on BP shares as collateral instead of BP shares. A fine beginning for the revolutionary diffusion of capital which is essential to bring back the workers into a co-operative national consensus who now feel completely alienated from the British Establishment — and even from a Labour government whose `Social Contract' offer they are rejecting.
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