Ed Miliband thinks you can divide firms up into good and bad ones and that you can then regulate and tax them accordingly. Some are producers and some are predators/asset-strippers.
You’re probably wondering how one decides which is which. Take the business interests of someone such as Andrew Rosenfeld. Rosenfeld, the FT tells us, has recently returned from spending five years in Geneva as a tax exile. He is also a “property tycoon” and back in 2005 came under fire for refusing to accept any responsibility for the £68m pension deficit at retail chain Allders on its collapse (he held a large stake). Legally, all this is fine, but nonetheless if I was sitting on one of Miliband’s quangos and I had a little good/bad check list in front of me, I’m guessing I’d end up classifying Rosenfeld as a predator. But once you start down the path of making moral judgements on perfectly legal businesses doing perfectly legal things, where do you stop?
Is private equity a predator or a producer? Our check lists might go for the former. But as Allister Heath points out in City AM, “for every failure of private equity, there are numerous case studies that have ended up as job-creating turnaround stories”. And what about, say, property developers? Are they predators because they buy something and sell it on for a higher price? Or producers because they employ tradesmen and decorators and provide nice places for people to live? What is someone like, say, Warren Buffett? Everyone thinks he is just grand, but Berkshire Hathaway exploits long-term valuation anomalies. It doesn’t build businesses.
Once classified as predators, what would happen to corporate executives? Would they be welcome at Ascot and Wimbledon? Would they be able to sit on quangos? Would they ever get to be tsars of anything? Would Miliband accept their donations? That’s worth asking simply because Rosenfeld has just pledged £1m to his party and I daresay many of the other business whizzes my quango would be classifying as predators have done the same at some point. Tricky, isn’t it? Miliband might also wonder what would happen if you turned your good/bad checklist on a tax-and-spend government. Producer or predator? Quite.
The problem with capitalism, as with most of life, is that you can’t make the bad stuff go away. You can’t legislate against greed, selfishness and bad attitudes. The best you can do is to create relatively simple and fair-ish legal and tax systems and hope that by doing so you encourage people to build straightforward legal businesses that pay the taxes they owe. As Alistair Darling put in my interview with him, “I think there is a limit on what you can do in passing laws… you can’t legislate to make someone a good person, it just doesn’t work.” I think it is time Darling and Miliband had a little chat.