T
here’s plenty of evidence to
suggest the world’s going
to hell in a handcart.
Whether it be Donald
Trump’s unique brand of
chaos, Britain remaining
paralysed with fears over Brexit, or that
the polar ice caps are still melting; it’s
hard not to feel decidedly pessimistic.
But amid all this doom and gloom,
global capitalism is apparently forging
ahead. Dividends in the second quarter
of the year hit a new high, according to
US investment firm Janus Henderson.
A record $513.8bn was handed to
investors in the three months to June.
The asset manager says shareholders
around the world will bask in payouts
totalling $1.4 trillion (£1.2 trillion) over
the course of this year.
Of course, such generous rewards to
shareholders are like a red rag to a bull
for Corbynistas. They’re just one more
example of the way in which the
owners of the means of production are
screwing the proletariat.
It’s highly unlikely that the hard Left
is going to accept the argument that
dividends don’t simply line the pockets
of City high-fliers; that they fund tens
of millions of retirements. Not to
mention that they also quietly top up
the financial clout of most trade unions,
which invest their financial reserves in
all manner of stocks and shares. But if
we do assume that everyone benefits in
one form or other from dividends, the
fact that records are falling surely ought
to be celebrated? There’s a number of
reasons why not.
First, the rate at which dividends are
growing hit a two-and-a-half year low.
This, as the boffins at Janus Henderson
pointed out, was a product of “the
deceleration in the world economy” – a
concerning turn of phrase that conjures
up thoughts of bubbles bursting.
Then there’s the fact that the
numbers have been favourably skewed.
One example of this comes from Japan.
Historically, Japanese firms have been
fairly miserly when it comes to
dividends. More recently, however,
they’ve changed their tune. Those
operating in the world’s third-largest
economy have decided that they’d be
better off handing cash back to
shareholders, instead of sitting on
bundles of it in an environment of
ultra-low interest rates.
In the US, meanwhile, corporate
profits have been turbo-charged byRecord dividends reveal a total
lack of entrepreneurial spirit
It’s highly unlikely
that the hard Left is
going to accept the
argument that
dividends don’t
simply line the
pockets of City
high-fliersPA WIREoliver gill
A
s central bankers prepare
to meet in Jackson Hole,
Wyoming, they may need
to embrace more radical
economic ideas. Policy
makers face the worrying
conundrum that wages have remained
broadly static for the last decade
despite global GDP growing.
In 2017 when a nurse pointed out
that her wages had not increased for
several years, then-prime minister
Theresa May quipped: “There is no
magic money tree.” Well, maybe Mrs
May was wrong. I believe there is a
magic money tree and it is coming to
western economies very soon. I am
talking about MMT. And strangely,
MMT doesn’t stand for “magic money
tree”; it’s Modern Monetary Theory.
MMT expounds that a country that
issues debt in its own currency can
never go bust as it can simply print
money to repay its debts. The debtor
nation’s only concern is to protect
against debasement of its currency,
which it does by keeping inflation
under control. In
a low-inflation, or
nearly
deflationary
environment,
MMT advocates
significant,
stimulative,
public spending
through public
sector wage
increases,
infrastructure
investment, expanded public services
and selective tax breaks. The theory
then says that when inflation does
appear, it can be held in check through
tax increases and reductions in public
spending, as well as traditional rises in
interest rates.
For now, MMT is an academic
notion. But that could soon change.
Quantitative Easing (QE) also started as
the theory of an imaginative academic
named Ben Bernanke, who proposed
in a 2002 speech to the US Federal
Reserve that the government could
fire up its printing press and use the
money to purchase financial assets, if
interest rates ever reached zero while
‘Were MMT
put into
practice, its
results could
please both
voters and
politicians’
We can’t be
trusted with
the magic
money tree
Paddy
Dear
deflation threatened. It was just an
idea. Six years later it became real, and
has subsequently become prevalent in
many of the developed world
economies. QE arguably prevented the
world from slipping into deep
economic depression and allowed for
modest economic growth in
developed western economies, along
with lower unemployment. But all that
printing of money to buy financial
assets greatly enriched the owners of
those assets while wages have
remained stagnant.
More than a decade later, the world
is still contending more with deflation
than inflation, economies are still
sluggish, interest rates can’t go much
lower and societal pressures of an
increasing wealth gap are rising. If it’s
okay for central banks to print money
to buy financial assets, then why can’t
federal governments print money to
give to the nurses, teachers,
firefighters and restaurant workers
who are trying to get by on the same
income they had 10 years ago? It’s a
particularly attractive notion because
that money is likely to be spent and
will circulate into the economy
immediately rather than relying on
trickle-down economics of QE.
The lure of MMT may become
irresistible for politicians standing for
election offering “sound economics”
that provides “quantitative easing for
masses”. Perhaps in the UK after
Brexit, or perhaps in the US after the
2020 election, political leaders may
heed the many demands for the
government to spend on rising wages
and living standards, the way it once
spent to save banks and bankers.
Were MMT put into practice, its
short-run results could even please
both voters and politicians.
Governments will be able to issue
bonds and inject the proceeds directly
into the economy so that optimism and
living standards will rise. Inflation may
remain muted as we’re still countering
deflationary risks, and if inflation isn’t
a problem, then neither is all that
newly issued debt.
But MMT and QE differ in an
important respect. QE is controlled by
central banks that are broadly
independent, run by technocrats and
beholden to their mandate of low
inflation. MMT, through fiscal and
public spending policies, would be run
by elected governments beholden to
their electorate. When inflation does
emerge and the time is right for taxes
to go up and public spending to be
reduced. It seems dangerously naïve to
assume politicians and their electorate
will implement policies that they
perceive will make them worse off.
So MMT is flawed, not by economics
but by human nature. They say central
bankers should take away the punch
bowl just as the party gets going.
While we may trust central bankers to
do so, I haven’t been to a party yet
where the party goers themselves
elected to remove the punch bowl.Paddy Dear is co-founder of Tetragon, a
closed end investment company where
he serves on the board of directors and
investment committee.Trump’s tax cuts. Record dividends are,
therefore, a product of one-off changes
rather than better operational
profitability, per se.
The Janus Henderson figures also
highlight an arguably more worrying
trend: the propensity for companies to
pay big special dividends. As any
seasoned director will tell you, sitting
on piles of cash makes you ripe for a
takeover target. Simplistically put,
companies facing such a conundrum
have two choices: invest the money or
pass it on to investors.
Increasingly so, it feels like the latter
option seems more appealing. And in
Britain, there are some great recent
examples. Anglo-Australian mining
giant Rio Tinto handed back billions
after selling off its coal mines. RoyalBank of Scotland announced a £1.7bn
one-off earlier this month – but it was
hardly a cause for celebration.
Chairman Sir Howard Davies
complained of “considerable
uncertainty and considerable
nervousness” and fears of “low
growth”. Fine, as a captain of industry,
one must be realistic. But the tone was
one of a bank that netted a load of lolly
and dared not even entertain the idea of
using it for anything else. Yesterday’s
figures also don’t include share
buybacks. And here one can find
another recent example of a disturbing
lack of corporate ideas and ambition.
Whitbread last month completed a
£2bn share buyback programme that
followed the sale of Costa to Coca Colafor £3.9bn. There was never any doubt
that most of the proceeds of the sale
would be returned to investors. Surely
this gave a company that has
transformed itself on more than one
occasion the platform to do it again?
This is the company whose long and
illustrious history has included
bringing Heineken to Britain in the
Sixties and (for a short time in the early
2000s) making Stella Artois posh. A
conglomerate whose portfolio has
included Marriott Hotels, Pizza Hut and
David Lloyd gyms.
But no. Left with Premier Inn as its
only asset of note, Whitbread is now a
shadow of its former self.
Big dividends are an important
source of income for the world’s
investors. But they should not be the
only consideration. Indeed, even The
Business Roundtable, an influential
group of American chief executives,
has conceded to this. “Shareholder
primacy”, once the only creed across
the Pond, now sits alongside workers,
suppliers, customers and communities
as five key considerations, the business
group says.
Nevertheless, that records continue
to fall shows the strength of the global
corporate balance sheet. This is far
from a weak position. Dividend
payments are still going up. But scratch
beneath the surface and there’s
evidence of a more disturbing trend: a
certain lack of entrepreneurial spirit; to
shun investment in favour of rewarding
investors. And that’s a cause for
concern.Red letter day for
Greene King investors
A penny for the thoughts of Greene
King’s former boss Rooney Anand.
After 14 years at the helm, transformingthe company from plucky Bury St
Edmunds brewer to one of Britain’s
biggest pub chains, he stepped down
in May.
He had ridden out some really tough
times. The smoking ban, the credit
crunch, even the acquisition of the
Spirit chain of pubs was far from
smooth. Short-sellers had been and
gone; he was happy in what he was
handing over to former Madame
Tussauds chief Nick Mackenzie.
He’d done well for shareholders. But
wouldn’t it have been good if he’d
waved goodbye by handing them a deal
worth more than 50pc of Greene King’s
current share price?
Yesterday’s takeover was well
sign-posted after all, with plenty of
chatter in the City both before and after
Anand’s exit that Greene King was a
takeover target.
As for the deal, the new owners-elect
(shareholders must give it the official
thumbs up) are making all the right
noises. No “material” job cuts. No
changes to strategy. Mackenzie will
stay in place. Only chairman Philip Yea
will go.
Of course, it’s very easy to make all
these promises when you announce the
deal at ten-to-four on a Monday
afternoon and can hide behind the fact
that it’s far too late in Hong Kong to
front up to the press.
As we’ve seen with Ei’s deal with
Slug & Lettuce owner Stonegate earlier
this summer and Fuller’s brewery sale
to Asahi last year, change of ownership
ruffles feathers.
If CK Hutchison is going make big
promises that searing cost-cuts are not
on the cards, they need to be wise to a
couple of things: Britain’s pub landlords
will hold people to their word. And if
they’re wronged, they’re a noisy
bunch.‘Shareholders around the
world will bask in payoutstotalling $1.4 trillion over
the course of this year’Business comment
US corporate titans to give staff
same priority as shareholders
By Jack TorranceBOSSES of some of America’s biggest
companies including Coca-Cola, Apple
and Amazon have promised to put staff
and the environment on a par with
shareholders amid attacks from Demo-
cratic presidential candidates.
More than 180 chief executives have
signed a statement by the lobby group
Business Roundtable promising to end
the principle of “shareholder primacy”
that has long been the basis of Ameri-
can capitalism.
The move comes ahead of this week’s
G7 meeting in France, where rebuild-
ing trust in the economic system with
more inclusive ways of doing business
is expected to be high on the agenda.
While the US economic model has
“raised standards of living for genera-
tions”, the letter reads, “many Ameri-
cans are struggling. Too often hard
work is not rewarded, and not enough
is being done for workers to adjust to
the rapid pace of change in the econ-omy. If companies fail to recognise that
the success of our system is dependent
on inclusive long-term growth, many
will raise legitimate questions about
the role of large employers.”
As well as looking after the needs of
shareholders, the statement said com-
panies should be committed to deliver-
ing value for customers and investingin their workforce to “foster diversity
and inclusion, dignity and respect”.
Corporations should also deal “fairly
and ethically” with suppliers, “protect
the environment” and support “the
communities in which we work’,’ read
the statement, which was also signed
by the heads of Boeing, Citigroup and
Johnson & Johnson. The interventioncame as Left-wing candidates critical of
Wall Street such as Bernie Sanders and
Elizabeth Warren jostle to become the
Democractic nominee for the 2020
presidential election.
While unemployment in the US has
fallen below 4pc in recent years, real
wages are stagnant and popular con-
cern about the environment and ine-
quality is mounting.
Jamie Dimon, JP Morgan chief who
is chairman of Business Roundtable,
said: “The American dream is alive, but
fraying. Major employers are investing
in their workers and communities be-
cause they know it is the only way to be
successful over the long term.”
Other signatories to the letter in-
clude Amazon’s Jeff Bezos, Larry Fink
of BlackRock and BP chief Bob Dudley.
Theresa May made overhauling
boardrooms a key plank of her domes-
tic agenda upon becoming prime min-
ister but plans to put workers on boards
and give shareholders a binding vote
on bosses’ pay were watered down.New York based Estée Lauder has defied gloomy fourth quarter sales predictionsMake-up proves a
foundation of sales
joy at Estee Lauder
By Laura OnitaSTRONG demand for its make-up and
skincare products helped cosmetics
giant Estée Lauder beat Wall Street’s
forecasts for its fourth quarter.
The business, which began life in
1946 in New York, owns more than 25
brands and sells in 250 countries.
Sales rose 9pc to $3.6bn (£3bn) in the
three months to June 30 as brands in-
cluding La Mer and MAC were increas-
ingly popular. Annual sales rose the
same to $14.8bn while net profit for the
year soared almost $700m to $1.8bn.
Fabrizio Freda, chief executive, said:
“This year has been outstanding. We
achieved strong sales across the busi-
ness, fuelled by investments in data and
digital marketing.” Sales in skincare, its
biggest and most profitable segment,
rose 15pc to $1.59bn, while sales in Asia-
Pacific, including China, grew 18pc. Fra-
grance growth disappointed.
Mr Freda said Estée Lauder brands
continue to win market share. The firm
expects sales to rise by up to 8pc this
year but said Hong Kong protest, Brexit
and the China trade spat trade could hit
growth. Shares rose more than 10pc in
New York, valuing the firm at $72bn.BLOOMBERG‘Too often hard work is not
rewarded and not enough is
done for workers to adjust
to the rapid pace of change’28 ***^ Tuesday 20 August 2019 The Daily Telegraph
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