After an initial surge of indignation following Vince Cable's remarks at the LibDem conference, I had rather forgotten about him. However, a fine piece on Spiked! today (http://www.spiked-online.com/index.php/site/article/9656/) by Daniel Ben-Ami, author of the splendidly named blog and book Ferraris for All (http://danielbenami.com/) brought him to mind again. As Ben-Ami describes, Cable is no Marxist, but rather the classic LibDem, fearing both the Left and the Right (as currently defined, something I mean to discuss soon). Like most LibDems, he is in favour of markets but they have to be controlled - by Cable presumably. Like most LibDems, he is in favour of economic growth, but growth in a way that is not damaging - "sustainable" to use one of the current crop of vacuous words. Like most LibDems he is fine with people wanting to earn lots of money - but heaven forbid if they become greedy. And so on.
Cable seems incapable of any real analysis. Take his comments on takeovers. He lambasted short-term investors who are out to make a killing and who collude with bankers to destroy good companies. None of this makes any sense. Firstly, the share registers of most public companies are dominated by long term investors. However, when a takeover offer is announced or rumoured, many of those shareholders sell - but only if the share price equals or exceeds their valuation of the business. They sell before the takeover is completed in order to lock in the price (albeit usually as a small discount to the final price) rather than go through the long and uncertain process of regulatory clearance, shareholder approvals etc. But it is only when the long term investors sell that the short-term investors can buy enough shares to have any influence on the outcome of a bid. So the short-term investors generally buy shares at a price that has already risen and so make only a small profit - whilst taking the risk that the bid may fail and the share price fall. The "killing" is made by those investors who have been in for the long term. And despite the hype and publicity surrounding hedge funds, they only have the financial firepower to influence relatively small transactions.
Secondly, why would a company that has just spend billions buying a business destroy it? The large amounts of debt taken on to finance bids cannot be repaid quickly, so the notion that acquirers rip the heart of a businesses to repay debt quickly is silly. Corporate acquirers buy for the long term, and even private equity buys for a minimum of 5-6 years. Yes there may be rationalisations, but increases in productivity are the only way that economic growth can occur.
Thirdly, Cable massively overestimates the influence of bankers in takeovers. They are massively overpaid for this lack of influence, but in most companies you have a wide range of sophisticated investors who make up their own minds.
That's not to say that M&A is all good. There's plenty of bad takeovers out there but that's a different point and a different post.
Or take the graduate tax. The simple fact is that anybody who gets a "graduate premium" on their salary pays 40-50% more in income tax than somebody who doesn't. For example, suppose I earn £100,000, whereas somebody who didn't go to university only earns £60,000. Every year I pay £16,000 more in income tax than that person. I also probably pay more in VAT, and a whole host of other taxes such as CGT, APD, and ultimately inheritance tax. I repay the costs of my university tuition many time over. Or consider why I'm paid more as a graduate. Because I produce more. My company pays me the value of my labour, and that is good for the business, for other jobs, for corporation tax and so on. Or consider what I do with the additional £24,000 that I take home after tax. I spend it creating other jobs that pay tax and take people off benefit. And so on. The idea that graduates somehow don't pay back their costs is utterly ludicrous. Finally, consider those who take the skills they learn at university and apply them in low paid but worthy jobs. Lo and behold, they don't pay much tax. In other words, we already have a graduate tax that works pretty well.
The people who ought to be complaining are those who are in well-paid jobs but who are not graduates. Those people who worked their way up after leaving school at 16 or 18 are being taxed as if they are graduates - they are the people who Cable should be championing. But no doubt Cable would find a reason why such people should be taxed, because to him tax is a good thing in and of itself.
In the end though, Cable is the classic LibDem. He is the small businessman with small ambitions, who longs for a calm and ordered world that behaves itself and doesn't make too much of a fuss. He wants to run his company and not be bothered by all that hectic and disturbing innovation, change, upheaval and horrendous competition. He wants to look after his employees and make sure they have decent housing and schools and can cycle to work. He doesn't want to be worth tens of millions and can't understand those who do. It's a nice dream, and is far from making him a Marxist. But it's a myth. Capitalism, free markets, free trade, liberalism mean change. They work by promoting, encouraging, enforcing change. It is when governments try to stop or direct some of the changes or try and hold back change wholesale that we run into trouble.
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