Of course, following the bust in 2000, over a decade of poor returns means those excitable investors who got into shares following ‘Big Bang’ and the privatisations, got burned and left. While share ownership is a bit broader than it was pre-1986, it is being seen as increasingly the preserve of the rich or institutions which manage pension funds. Companies are increasingly eschewing a listing on public markets, preferring to tap other sources of capital. The Economist is in no doubt as to why.
The burden of regulation has grown heavier for public companies since the collapse of Enron in 2001. Corporate chiefs complain that the combination of fussy regulators and demanding money managers makes it impossible to focus on long-term growth.
I’ve also seen the bleat from the left about companies like Boots being taken private. Suddenly the left is reaping what it sows. If you make it difficult to raise risk-capital on the stockmarket, you cause people to seek other, less onerous sources of capital. This means the returns available to the private equity industry (which haven’t been all that good) are not available to the private investor, or his pension fund. This benefits no-one except the caste of city/wall st. insiders.
In the name of equality, share transactions and dividends are taxed, further promoting debt finance over equity. Executive pay is being regulated, further weakening any incentive to go public. The left through rhetoric and regulation is destroying a means by which ordinary people can take control of their lives through investment.
It’s not just at the level of the company. In the name of protecting investors, regulations ensure it’s difficult to give advice, especially on small amounts of money. So the poor are vulnerable to the bucket-shop, leading to poor strategies and lost money even where there is not outright fraud. Private investors are encouraged by tip-sheets into wildly inappropriate stocks because their broker isn’t allowed to point them in the right direction. Banks are the most complained-about sector on the high-street. They are also absurdly tightly regulated, selling investment “products” larded with fees with opaque performance measurements designed to comply with regulation and keep the customer in the dark thereafter. If that same person wanted me to suggest a share for him to dabble in the stockmarket, I would be breaking the law. The bank can chuck his money into a crappy fund and forget about him drawing commission every year for doing so.
The greatest engine for investment has been broken, not by excessive risk-taking (that’s what the stockmarket is FOR) but by over regulation based around the foolish notion that a chaotic system can be rendered safe. What’s left is the kind of big, regulated utility which doesn’t offer the returns to attract the hot money (utilities) massive hype businesses whose owners want to cash out (glencore, facebook) or crappy aim-listed mining juniors whose shareholders are ultimately betting on the financial equivalent of three-legged bob in the 3:15 at Epsom. The rest are there out of habit, until they’re taken over or taken private.
Regan’s epithet about the Government’s view of the economy is aposite:
“If it moves, tax it. If it still moves, regulate it. If it stops moving subsidise it.“
Big business still needs the stockmarket. But only just, and not as much as you, me and your pension fund need it. The Government needs to let it breathe. This is how regulation makes us poorer without making us safer.
Stamp duty (our very own Tobin tax) needs to go. Restrictions on advice need to be softened. Taxes on dividends need to be cut. Share ownership is a means to the ownership of capital open to the masses and it needs to be encouraged, not tamed.