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Who owns Britain?

In the battle between private and public ownership, the true proprietors of British industry are not what we think.

In an excellent article on Grimsby in the London Review of Books, James Meek wonders why we in the UK sell our ports and railways to foreign owners while other countries do not.The Port of Grimsby and Immingham belongs to ABP (Associated British Ports), part-owned by two Canadian pension schemes and Singapore’s Global Investment Council. Travel south and you arrive at the Port of Felixstowe – controlled ultimately by Hong Kong’s richest man, Li Ka-Shing. London Gateway is owned by DP World following its purchase of P&O ten years ago. DP World’s majority owner is the government of Dubai. DP World and ABP collaborate at the Port of Southampton.

Meek contrasts the buccaneering local capitalists who built Grimsby into a bustling port, once home to the world’s largest fishing fleet, with the current absent owners and their lack of interest in anything but economic gain. He writes: “They just want their five per cent return of equity, as smoothly as possible, thank you.”

Meek’s analysis and storytelling are brilliantly woven together but there are a few gaps worth filling in. First, among the owners of ABP, Hermes, which Meek describes as a British investment house, holds ten per cent alongside the Canadians and Singaporeans. Hermes is an investment house but a rather unusual one for the City of London because its owner is the BT pension scheme. In other words, there is a giant British pension scheme alongside giant foreign pension schemes. 

So that’s one cheer for the home side? Not really. Although BT was itself once an essential, nationally-owned service, these days the BT Pension Scheme and its asset manager, Hermes, are looking for return on equity arm-in-arm with the Canadians and Singaporeans. In this sense, London, where both the BT Pension Scheme and Hermes are based, might as well be Toronto or Singapore as far as the dockworkers in Grimsby are concerned. Hermes is located in an ugly building on the cheap side of the City of London but is home nevertheless to folk in the same kind of pinstripe suits that the rest of the world associates with greedy bankers. Buccaneering local capitalists they certainly are not.

Do we want state ownership?

It is likely that what the owner of Britain’s infrastructure Meek has in mind is the state itself. But in the election campaign there were only two parties explicitly promising major renationalisation: the Green Party and Trade Unionist and Socialist Coalition (TUSC). The mainstream parties have long left the telephones, airports and electricity companies to private ownership.

If you want to know why, review the vox populi that is Channel 4’s Gogglebox. During a party political broadcast by the Greens promising to bring railways back into public ownership, Tom Malone Sr (he’s the one with five dogs) asks how they are going to do that. He mutters about the people who own the railways now. 

As it happens, in 2001 Railtrack plc was bought out by the then-Labour administration. Shareholders protested at the price offered, one likening Transport Secretary, Stephen Byers to Robert Mugabe for grabbing others’ possessions. But the railway tracks are back in public ownership. That’s how renationalisation gets done. Not enough ordinary folk, if that’s what Gogglebox represents, believe it is possible.*

The tragedy of privatisation is in part one of misperception. Not just the misperception that the private sector is free of the vices or inefficiencies that plague public service (Railtrack was renationalised because of a series of fatal crashes caused by crude cost-cutting and outsourcing). But also the misperception that rich bankers and fund managers in the City own all the money they use to buy our railways and ports and electricity companies. The simplistic divide between public and private ownership is equalled by a ‘them’ and ‘us’ mentality when it comes to finance.

Pension schemes such as those that own ABP ultimately belong to ordinary workers (Meek sometimes talks about pension funds for pensioners but current employees contribute). If dockworkers in Grimsby get a pay rise, it is because telephone engineers in Enfield have been chipping in six per cent or per cent of their monthly salary for decades. That money has gone into the BT Pension Scheme, which gave it to Hermes to go out and buy a slice of a huge container port, and keep the workers there content. 

This connection is barely understood by the working population. Out of some combination of ignorance, apathy, disdain and deference we clock the owner of a company, e.g Hermes; see that they are located in the City of London and presume that the money simply belongs there in deep vaults to which only fat cats have a key. The truth is that if there are deep vaults, the money there flows in month after month from workers – shelf-stackers at Tesco, librarians at Herefordshire County Council, Ontarian park rangers, or dockworkers at ABP itself. If these people’s pension contributions dried up, then business in the City of London, Wall Street and Zurich shrinks.

The agency problem

None of this means that pension schemes are a force for good. They have an advantage in legal character over banks or insurance companies because their schemes are essentially non-commercial, not-for-profit organisations. So pension funds could be a force for good. But there is much awry. Because their management is typically by trustees, ie part-timers, pension funds are weak. The City knows this and has become proficient at milking off a lot of pension fund capital, and hence influence, in the form of fees. 

In his book Private Island, Meek portrays “the agency problem” well in a chapter on Thames Water:

“It is a tale of clever middlemen. On one side, millions of Thames Water customers paying an inflated private water tax. On the other, millions of Dutch, Canadian, Australian and British pensioners, dependent on their pension in old age… In the middle, an international fraternity of fund managers, telling the Thames customers what a brilliant deal they have… and telling the world’s pensioners what an extraordinary return they’re getting on their stake in Thames Water.”

Meek’s abrasive conclusion is that it’s not possible for both messages to be true, which reminds me of an institutional investor day held by one of those big fund management firms at The Savoy Hotel in London (where else?). A curmudgeonly Scottish portfolio manager, the kind of man who buys and sells stakes in water companies and ports - was asked if he thought a particular business deal was a win-win situation for both parties involved. “There’s no such thing as a win-win situation,” he replied grumpily and stared. The audience laughed heartily but perhaps this man was being honest: when it comes to managing money, it is not possible for both sides to win. 

Three years ago a bunch of UK pension schemes tried to fight back against those clever middlemen, specifically in buying and selling infrastructure, by setting up an investment club, the Pension Infrastructure Platform. George Osborne trumpeted the scheme as “British savings for British jobs.” The City middlemen would not be in the driving seat and were not allowed to join the platform - but thus far the PIP has only squeaked. Three founder funds, including the BT scheme, left hastily when it became apparent that, in spite of bringing together organisations with more than £150bn in capital, PIP wasn’t going to build anything itself. Instead, the pension funds will end up owning long-running PFI-type contracts. PIP itself, which may have a handful of employees by this summer, is on course to look like a British pension fund itself, with a few well-meaning staff relying on the clever middlemen to handle the actual complexities of the deals.

Those complexities, including a whole chain of ownership, stakes, spin-offs and subsidiaries not to mention contractual agreements, further obscure the essential fact that even George Osborne acknowledges: workers’ savings make and break other workers’ jobs. These concatenations, many of which exist to avoid tax, have caused plenty of embarrassing situations: Church of England vicars discovered their savings were backing Wonga, the loan shark. Dutch doctors found their pension was funding cluster bomb manufacturers. Even when the connection between workers at either end of the investment chain is made, the impossibility of a win-win asserts itself. 

Fiscal power

Three years ago GMB members at Great Western Hospital in Swindon went on strike over alleged racist bullying by bosses at Carillon. Carillon is a sub-contractor for Semperian, another British investment house, which runs the Great Western under a PFI contract. A substantial chunk of Semperian is owned by the London Transport Pension Fund. When the RMT union heard of the stand-off at the Great Western, it threatened to press the pension fund to divest from Semperian. The RMT has a say, but not control, over the London Transport fund.

It is a complicated story, alien to most people’s understanding of how businesses work. In the old days, such a convoluted chain of ownership and management would have been inconceivable. Back then, there were employers and employees. Possibly the only other division that mattered would be whether employers were in the public sector; hospitals, schools, the army, or the private sector; shops, farms, factories.

But in all cases, the divide between employer and employee was clear. The kind of changes in our economy that Meek details in the LRB and Private Island have given life to all kinds of uncomfortable but important revelations whereby blue-collar workers unknowingly supply money to maintain PFI contracts over fellow blue-collar workers. 

This new world of convoluted ownership also means that reactions have changed. The RMT did not send tube drivers down to stand in solidarity on the picket line with the cleaners in Wiltshire. The union tried to help by using its capitalist muscle – the ability to buy or sell assets.

Three years later at the Great Western, however, London Transport Pension Fund remains invested in Semperian, which in turn continues to use Carillion. The Great Western Hospital Board criticised Carillion in a report last autumn for risks to quality and safety in food hygiene, cleanliness as well as the poor employee relations. But the Board does not own the Hospital and hence does not have the power to terminate Carillion’s contract. No win-win here for the Carillion employees and the RMT members who are ultimately earning a pension off them.

At times, the work of Meek and others such as John Lanchester evaluating the nature of capitalism can make one more resigned than hopeful. But there really is no excuse for people not to make the link between what they save and the terms and conditions of other workers. The message to all working pension scheme members (there are over 18 million in the UK alone) is simple: stay online now and have a look at the scheme’s annual report. See what companies or PFI projects your savings have bought. The reading might surprise you. It might shock you. Because we all own more than we think.

 

*Roughly one million people in the UK voted for the Green Party at the General Election

Brendan specialises in explaining public and private welfare systems. He writes about how people save and the business of saving, for the Financial Times and Investments & Pensions Europe among other publications. He is currently investigating the commercialisation of Intellectual Property within universities. He began his journalist career with the FT Group.

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