3 MARCH 2007, Page 34

The row about private equity is mostly the Labour party arguing with itself

The current row about private equity seems to me to have much more to do with the flexing of union muscles in anticipation of a return to influence under Gordon Brown than it has to do with efficiency and fairness in the use of capital. The GMB union has taken the lead, publicising its claim that private-equity takeovers are fundamentally evil by staging stunts to embarrass Damon Buffini, Britain’s leading black businessman and the head of Permira, the firm that bought up Homebase, Bird’s Eye, New Look and the AA. On one occasion the union paraded a camel (and presumably the eye of a needle) outside the church where Buffini worships, to remind him how difficult it is for a rich man to enter the Kingdom of Heaven.

This reminds us that the unions’ hostility is largely provoked by envy of City pay — plus suspicion of the fact that some private-equity millionaires, including Brown’s friend Sir Ronald Cohen, are also Labour party donors. But in public debate their case is couched in terms of job losses, ‘asset-stripping’, ‘lack of accountability’ and allegedly unfair tax advantages. Will Hutton in the Guardian, in their support, accuses private equity of ‘carrying short-termism to new extremes’ and undermining the concept of a public limited company as a joint enterprise in which public scrutiny helps managers make better decisions.

Well, it is indeed a surprising mutation of capitalism that so many familiar companies have been taken out of the stock market — Sainsbury’s could be next — and that one fifth of private-sector workers are now ultimately employed by private-equity owners. But it is hogwash to argue that this is generally a bad thing. Private takeovers are not, in practice, likely to be any more brutal than public ones — and in both cases the business taken over usually has a better chance of surviving and prospering after it has been through the pain of rationalisation. The chairman of a listed mining company told me this week that managements in many sectors, including his own, often feel more secure under private-equity ownership, because it enables them to take a threeto five-year strategic view, rather than being driven by short-term stock market whims. Pension funds now invest heavily in private-equity deals for the simple reason that they offer better returns than the stock market — and those above-normal returns are needed to fill black holes made larger by the Chancellor’s notorious tax-grab on pension fund income. Not all private-equity activity is good, but by and large it is a positive force in the British economy. The noise surrounding it is mostly Labour arguing with itself.

On-board Lord

Ilast saw Earl Jellicoe, who died this week aged 88, on a station platform in Outer Mongolia. The former war hero and fallen Tory cabinet minister was also a roving ambassador for British business in the days when public companies liked to adorn their boards with bemedalled lords — but George Jellicoe was far more than a ‘Christmas tree decoration’, as Tiny Rowland once called non-executive directors. His intellect and toughness met the exacting standards of Siegmund Warburg, who made him a director of his bank; and to judge from my encounter with him on a train from Beijing to Ulaan Baatar, the more intrepid the mission he was asked to undertake — in this case representing Davy, the engineering group — the more he relished it.

I confess I only recognised him because I read his credit card upside-down as he was checking out of a Beijing hotel in front of me, but my party and his (wife, daughter, and a man from ICI) soon fell to drinking together as the train rattled across barren northern provinces. Then we proceeded to the diningcar where, my diary records, ‘a very jolly session develops ... some good sweet and sour pork of which George orders two extra portions’. The party continued in the extraordinary bar-discotheque of Ehrlian station, the border halt where the wheel bogeys had to be changed to fit the gauge of Mongolian tracks. As things got livelier still in the early hours and George and I became warm friends with Mr Liu, the station’s barman-cum-signalman, I noted teenage Daisy Jellicoe ‘periodically telling her father to shut up’. The next morning, somewhere in the Gobi desert, George and his wife dropped by my compartment for coffee with, in his case, a big shot of whisky in it; they gave us the remains of their picnic supplies to sustain us on our onward journey to Moscow. We waved goodbye as they were ushered by diminutive Mongolian officials into a black-windowed Mercedes at Ulaan Baatar, the Earl relaxed and affable in battered trilby as if arriving for a day’s racing. His generation really were a special breed.

Making a mark

Oli Barrett is an engaging young entrepreneur who launched a social experiment called Make Your Mark With A Tenner, in which 10,000 young people were challenged to achieve as much as they could in a month with £10 each. Some of the results were remarkable. Newsnight viewers have watched the progress of a team at Manchester Academy — the school attended by Jessie James, the 15-year-old killed in a Moss Side shooting last year — as they turned £40 into £900 so far by making and selling origami decorations. Barrett tells me that what has struck him most forcibly is the entrenched ageism and scepticism that confronts youngsters who want to try out their ideas in business: ‘Most people thought they’d just spend the money on sweets and drugs.’ He was also impressed by participants’ innate grasp of the workings of capitalism: like private-equity players, the Manchester team understood the power of leverage, negotiating a loan at 7 per cent interest to finance a stall at a fair where sales prospects looked particularly good.

The 50 teams judged to have made the greatest social impact will now be given £1,000 each to take the exercise to another level, and there is talk of replicating the game in other countries. I wonder what would happen if Labour ministers were made to play. Peter Hain would no doubt spend £10 on tanning products, and tell the media that what’s good for him is good for Britain. John Prescott might buy a meat pie, and hire a team of consultants to tell him how to spend the change. But Gordon Brown would win hands down, by confiscating all the other players’ tenners.