Where is John Redwood in this General Election “campaign”? It hasn’t formally started, but it feels as though it has, as our Prime Minister goes head on with Michael Howard’s children.
Redwood is part of Tory leader Howard’s Shadow Cabinet of the Living Dead, those relics of Thatcherism who we thought had been laid to rest in the early Nineties, but who have sat up in their political coffins in the mid-Noughties. Apart from promising in January, as shadow secretary of state for deregulation, that in government he would abolish £4.3bn-worth of quango-bureaucracy for investment in public services, Redwood has been invisible. Perhaps it’s because Howard has taken the election battle into the politics of health, immigration and family values, none of which is Redwood’s natural territory.
But it’s a shame that Redwood isn’t in the front line rather more. I’d have thought that the current circumstances of the world economy and issues of cross- border trade would be right up his Parliament Street. The US is booming while Europe is rather limp and the circumstances must be right for wheeling out the Redwood creed that the free market and deregulated trade environment of the US offers us a far more attractive commercial model with which to ally ourselves than staid old Europe, with its pettifogging bureaucrats and cross-border frustrations. Perhaps he would want to demonstrate that his government would cosy up to George W Bush’s regime in the US and offer the UK its own version of simultaneously compassionate and right-wing neo-conservatism. But his problem in that regard is that Tony Blair has done that already.
Nevertheless, there is much in a comparison of the US and Europe that would support Redwood’s worldview. Corporate deals in the States have been more than brisk, with Procter & Gamble’s $57bn (£29.6bn) play for Gillette and SBC’s $16bn (£8.3bn) telecoms acquisition of AT&T. So far this year, according to Dealogic, total deals activity in the US has risen by some 15 per cent to $233bn (£121bn), while equivalent corporate activity in Europe has declined by about a third to a total value less than half that of the US at $106bn (£55bn).
I’ve heard a variety of reasons for this imbalance, perhaps the weakest of which is that global corporations are wary of corporate governance standards in Europe. I’d have thought that our Parmalat and Marconi scandals this side of the pond hardly compare with the WorldCom and Enron scams over there. But perhaps they’re seen to fix things rather more quickly than us. And the weak dollar is clearly playing a role, encouraging inward investment and consolidation. Growth opportunities are simply cheaper in the US.
Moreover – and this is natural Redwood territory – the regulatory barriers to entry are far higher in Europe than in America. This is particularly the case in vibrant sectors such as financial services and telecoms. Add to this persistent differences in local regulatory regimes in Europe and highly fragmented labour markets and you have what Europe’s critics would call all the ingredients of inefficient markets. One answer, at least in the short term, must be for Britain to behave like and concentrate its trading efforts on the US, rather than Europe. I imagine Redwood might agree with that.
But back to corporate governance. There couldn’t be a better example of the inconsistent and often bovine nature of European governance than that which did for Deutsche Borse’s putative bid for the London Stock Exchange. Rolf Breuer, the beleaguered chairman of the Borse’s supervisory board, has blamed short-term and short-sighted attitudes among hedge funds for the frustration, but everybody knows that it was really down to institutional shareholders, such as Generali and Fidelity, which were implacably opposed to the bid. The supervisory board is hopelessly cumbersome and militates against significant cross-border activity – and it’s typical of German corporate structures, meaning that one of Europe’s key economies is focused inwardly, rather than internationally.
So what are the implications of all this? Well, the first point is that a fundamentally strong US economy, with its internal free-market efficiencies, will have a far clearer run at European acquisitions than many of our native operators. Secondly, some of the best investment banking talent in Europe will continue to be attracted to the US, where it’s easier to make a fast buck in the acquisitions business.
Maybe Redwood will want to make some of these points in the wake of this week’s Budget. If he does, I’d like to make my own right now: I’d have thought that the relative uncompetitiveness of cross-border deal-making in Europe, compared with the US, makes the case for greater integration of European markets and economies, not less.l
George Pitcher is a partner at communications management consultancy Luther Pendragon