Taking stock, here are a few things we learned, or re-learned, about business and management in 2022 – and should take with us into 2023.
Many avowed capitalists aren’t very good at capitalism, and the least good are those who believe in it most fervently.
i) Liz Truss-Kwasi Kwarteng. From all the evidence, the Trussonomic two actually believe the sub-Ayn Rand propositions they set out in the preposterous Britannia Unchained – trickle-down economics, deregulation of anything that moves (except labour, where the opposite applies), extreme individual incentives, and poorhouse-style welfare – a purely ideological posture that is wrong in theory and unworkable in practice. Even now, they appear to believe that it was their methods that were wrong, not the substance – the telltale excuse of those who won’t recognise they are barking up the wrong tree. They have learned nothing, and given the chance would try the same thing again. Beware.
ii) Elon Musk et al. 2022 was the year the tech bros (Zuckerberg, Bezos, Bankman-Fried, Musk) suddenly discovered what it was like to be an ex-master of the universe. According to Bloomberg’s Billionaire’s Index (yes, there is such a thing), between them the 500 richest lost a staggering $1.4 tr last year. Musk led the pack as the only person ever to lose $200 bn, having been of course one of only a tiny number ever to have made that amount in the first place. As noteworthy as the totals is that while the polycrisis did no one any favours, the titans – Musk, Zuckerberg and Bankman-Fried in particular – needed no outside assistance: the losses were their own unaided work.
Ironically, the governance arrangements the founders put in place to stop pesky investors from interfering with their freedom to move fast and break things offered no protection against them smashing up their own companies. Techies don’t walk on water, and some of their outsized gains are the result of dark arts and Silicon Valley connections rather than prowess or foresight – eg the access of Uber and Tesla, the latter boosted by numerous fake Twittter accounts, to fabulous quantities of cheap FOMO capital far beyond the reach of competitors (from which angle, incidentally, Musk’s Twitter purchase almost makes sense as vertical integration with the social media that he revels in). These are advantages that are now evaporating by the day.
Meanwhile, the wild rides of Meta, cryptocurrency exchange FTX, Twitter and Tesla should call time once and for all on the myth of the infallible tech entrepreneur, together with dual-class stock structures and buddy-style governance. 2023 should be the year lawmakers and regulators finally block the loopholes and privileges that permit the giddy accumulation of financial, political and social power in the hands of a few individuals whose only qualification is that they are uber-rich.
iii) Investors and corporate directors, who, as they do once every generation, have forgotten that spreading wealth and narrowing inequalities isn’t bolshevism. It’s essential to making capitalism work. Jobs and wages are the transmission belt of wealth distribution and growth in our economies. To replace them with gig jobs and pay (Uberisation) or software for the sole benefit of shareholders and option-laden executives is self-defeating and unsustainable, and a major contributor to the current waves of social and labour unrest. As Larry Elliott wrote in The Guardian recently:
‘Three factors were behind the massive jump in productivity in the middle decades of the 20th century: ideas, investment and the struggle against inequality. Economies only really started to motor when new products were available to the masses through policies that encouraged full employment, collective bargaining and rising wages. Currently, there are plenty of ideas but the other two factors are missing. Until that changes, the global economy will be stuck in its low-growth rut’.
What goes around comes around – again
Remember that what goes up usually ends up coming down, my first editor, Bob Heller, used to say. He’d have repeated it again last year, when (along with tech, crypto and property stocks) war in Ukraine and the subsequent energy crisis abruptly sent into sharp reverse the cult of outsourcing- and globalisation-led efficiency that gathered speed in the 1980s. There were obvious trade-offs even then, but they were increasingly shrugged off in a heady atmosphere of glasnost and end-of-history triumphalism that relegated resilience to the back burner.
Now it is firmly at the front. By now outsourcing is so embedded that it is almost impossible to unscramble as supply chains morph into fluid ecosystems, blurring the boundaries of firms. Nonetheless, as companies – and countries – are realising in the wake of the pandemic and the war in Ukraine, there are financial costs to the hollowing out that offshoring and outsourcing have entailed, leaving some economies uncomfortably squeezed by pinchpoints in eg energy, microchips or even basic foodstuffs and PPE – or in the spectacularly unresilient case of the UK, all of the above. This, of course, is just one part of our most careless and damaging privatisation, the wholesale outsourcing of the functions and policy-making that are government’s job to the market. Hence the current regime’s lack of means or even ideas about what to do to bring to an end any one of today’s seemingly endless succession of crises. And don’t call austerity a policy: as the last decade has taught us, it is the absence of one, and it always leaves the presenting problems worse than before its application.
The Great Reckoning. Finally, one I think I got right. The upheavals and shortages rolling through labour market aren’t going away – just, like Covid, breeding new variants. First the Great Resignation, then the Great Attrition, then ‘quiet quitting,’ and now the Great Walkout – angry strikes multiplying all over the US and UK. In fact, what we are witnessing is the consequence not of a labour shortage, but a shortage of jobs that people will consent do at current levels of pay. It’s the market, stupid! Anti-strike legislation, or refusing to negotiate, are ploys that come straight out of the King Canute playbook, with just as much chance of success. Leaving aside that in some areas such as health, the ‘minimum conditions’ the new law would require strikers to observe would be an improvement on today’s ‘normal’, simply ending the strikes will do nothing to address the underlying reality: the jobs just aren’t attractive enough. Until that changes, expect the New Year to be both cold and hot.
Simon – beautifully written and argued with your angry passion. You might add a couple of points to the roll-call of awful management. First the baleful role of private equity in the last forty years. The classic model of gathering a group of very wealthy individuals into a secretive fund which is then used to buy up perfectly respectable companies that may not be growing as fast as their shareholders would like (particularly the actual share price) has proved a disaster. The victims of their takeovers are usually paid for by borrowings set against the victim’s assets, then they are loaded with debt as the new owners take out hefty dividends. finally after cutting costs and often investment, the new leaner business (many jobs have also gone) is then either floated or sold on to another buyer (sometimes yet another private equity firm attermpting to repeat the trick). All of the financing is of course helped by easy tax breaks on the leverage in the deals and the profit made by the original investors, which is of course shrouded in secrecy. The private equity community are the locusts of modern capitalism, leaving a trail of weakened and often bankrupoted businesses behind them.
But my second point is that they have been aided and abetted in this by the generally supine attitude of much of the financial press in Britain during this time. The worship of the deal and takeover battles in the 1980s and 1990s dominated the financial press. Industrial titans such as Lord Hanson or Sir James Goldsmith were lauded for their skills and many a senior financial journalist lost their sense of impartial obeservation and analysis of the facts to side slavishly with this or that titan. Indeed one senior figure once told a prospective recruit words to the effect that “we don’s ask awkward questions, we prefer to be their weeknd house guests.” The result was enthusiastic cheerleading as blue chip Britain was taken over, chopped up and sold off. Yet thirty years later who remembers the likes of Lord Hanson or Sir James Goldsmith? Yet the very “boring” or staid German and European companies who were the British competitors – and who were derided for their lack of vim or lower returns of course have survived and largely prospered.
Brexit is of course another disaster – the result of appalling political mismanagement – which has had and will continue to have profound implications (none positive) for British business for many many years. But that is worthy of another of your splendid polemical broadsides Simon. Happy New year to you and your readers.
Happy new year – I’m now taken with the idea of minimum service levels in ‘vital’ services specified in law as long as, if they are not met when strike activity isn’t happening, the fierce financial and any other penalties are applied to the responsible collective bargaining organisation (the political party in power).
Simon I should have added a third point to my “rant” above. The botched privatisations of the last few decades are now coming back to bite the government and sadly the British people. The water companies, with their pollution of rivers and coastal areas, their opaque finances and ownership, the balance sheets stuffed with debt when they were floated with bribes of cash and virtually no debt. are now the most egregious examples of how not to flog off state assets.
They are of course closely followed by the energy companies and the railways. Along the way there have been other lesser sales which have proved lucrative for the initial investors but sadly not for the original owners – us the long-suffering taxpayers – who have had a raw deal to say the least. All this is yet another examply of utter political mismanagement.
I only just got round to reading this for some reason. Brilliant summary! I fear the consequences of it all have only just started, and at a time when global heating which is steadily creating novel problems such as food competition is only recieving speeches from government but little action – again for idealogical reasons.