Greg Clark should not be offering Brexit apologies to some of the world’s biggest companies

Greg Clark should not be offering Brexit apologies to some of the world’s biggest companies

As reported in the Telegraph at the end of last week, last Wednesday night the Chancellor, the Business Secretary and the Brexit Secretary had a conference call with a group of 330 businessmen, within 2 hours of the largest defeat of a government bill in the history of the UK Parliament. Is this even news? If the Chancellor had been saying to them “sorry about that, looks like you should continue preparing for the UK to leave the EU on WTO terms,” the call could have easily been brushed aside – but unfortunately that is not what was discussed.

Instead the Chancellor was explaining the process of taking the option of “no deal” off the table using a backbench MPs bill tabled on Wednesday with further amendments about to be tabled. He also talked about how they could possibly extend Article 50 after reaching across the Commons, surprisingly he did not mention reaching out to the 118 MP’s from his own party who also voted against the Withdrawal Agreement.

Some parts of the transcript are amusing: incredibly, one chief executive admitted he was “very much behind the Withdrawal Agreement” and was surprised that it was so resoundingly defeated. As he is a German executive of a German company, this shouldn’t be a surprise. What did surprise me was that he could not understand why British MPs voted against it. One can only marvel at the exulted distance this man must keep from average humans, their newspapers and other media outlets. How can someone run a company and know so little about the political temperature in the country that is technically their marketplace. But this is not a critique of multinational management. What I want to talk about is Crony Capitalism and why it should not be left unchecked.

Let’s start with Greg Clark – the Secretary of State for Business, Energy and Industrial Strategy – apologising to managing directors, stating that he “completely understands the seriousness and urgency of the situation that you face”. Seriousness and urgency? Surely the very successful businesses on the conference call should have been preparing for the UK to leave the EU since 24th June 2016? But the transcript of the phone call implies that this might not have been the case. We get the impression that these businesses were delaying their preparations. We get the impression that they were actually expecting the UK to give up its sovereignty, just so their companies could retain low transaction costs on their EU27 imports and exports. Surely a CEO would have to be a compulsive gambler to wait until 70 days to the deadline before starting to prepare for it? But CEOs are rarely compulsive gamblers. So maybe they had been given reason to believe that the Withdrawal Agreement would pass.

But Clark’s apology goes further as he says he knows that “some of them have had to make decisions at the expense of more productive uses of the funds you have”. But the people on this call run some of the biggest companies in the world. One can only assume half of them had the mute button on at this point as they fell about laughing at this remark. The UK has supplied these businesses with the rule of law, property rights, an international language, low levels of perceived corruption, a well-organised capital market, the lowest corporate taxes in the G7 and the second lowest in the G20, highways, airports, a transport system, free healthcare for their employees and an educated workforce – not to mention 66 million affluent customers. But Greg Clark is apologising that some of the biggest companies in the UK have had to invest in extra warehouse space or engage an import agent. Or maybe not, as most of them are large multinationals and so probably already have offices in other EU27 countries.

For 40 years, British taxpayers have been subsidising these companies’ transport costs to the EU and in some cases even their low-paid workforces – and finally the British taxpayer has said “enough!” I understand the companies’ displeasure, but they must have realised that the merry-go-round would eventually stop. Corporate life in the UK will still be better than most of the other countries in which they operate. So why is the Business Secretary making a grovelling apology to them?

It beggars belief that Amazon, one of the companies on this call, has gone from the global disruptor that changed the way that the world shops, to its UK head asking the Chancellor for assurances that the UK will rule out “no deal”, in order to placate Amazon’s global board. I wonder how often Amazon tells its business counterparties that “Amazon will not be walking away without a deal, so name your price”? If only established companies spent as much time adapting to new circumstances as they do lobbying government to keep all rules and regulations unchanged…

The biggest problem capitalism faces at the moment is the lack of competition in the market – and this is not helped if incumbent businesses are able to work with governments to develop laws that ensure their market dominance. The life cycle of private enterprise can move very quickly from disruptor company to entrenched incumbent: in cahoots with the ruling party, having a chatty conversation on a first name basis with the Business Secretary, all leading to strategising how backbench MPs will bring forward motions that thwart the Government’s own manifesto commitments in order to enforce the status quo for the incumbent corporate elite.

This transcript would have been less shocking if the politicians on the call had been from opposition parties contesting government policy; but they weren’t. The politicians were the Government. Not only were they Cabinet Ministers, they included the Chancellor of the Exchequer, the second most important member of the Government or – possibly, if they pull off this coup – the most important member of the Government.

The head of Siemens wants confirmation (for his board, of course) that the UK will not go by default into a “no deal”, the head of Amazon complains that he has “incurred quite significant costs”. (His company’s third quarter revenues in 2018 were $56bn (£43bn), which is £4bn more than the £39bn that the UK will have to pay the EU according to the Withdrawal Agreement.)

The head of Scottish Power wants to know when, not if, the Government will apply for an extension to Article 50. The Chairman of Tesco is also worried about the Government not ruling out “No Deal” (How often does Tesco rule out “No Deal”? Try haggling for your groceries next time you shop there.) The head of the Co-Op wants clarity on the “end state” deal in 2020. The head of BP wants to know about the chances of a second referendum. The managing partner of McKinsey wants a clear message from the Prime Minister “in a more balanced way.”

What I very much doubt is that the people on this conference call have any interest in balance. This is Crony Capitalism at its worst: ensuring that entrenched companies remain that way. None of them want balance, they want the cards stacked, very definitely, in their favour.

However, without a doubt the most reprehensible people on this call must surely be the politicians. I am aware that since the Middle Ages incumbent business interests have sought the ear of government to ensure that regulations favour their companies. But in the 21st century I would have hoped that this practice had diminished. Sadly this telephone call makes it obvious that it hasn’t. While Greg Clark and Philip Hammond were both happy to stand on the Conservative Party manifesto promise that the UK would leave the Single Market and the Customs Union, it would appear they are content that a group of patsy backbenchers will prevent this from happening. So 17.4 million voters do not equal 330 company heads working with half a dozen backbench MPs for manoeuvrability, while a handful of Cabinet ministers ensure the direction of travel.

But what has this got to do with free market capitalism, surely this is what capitalism advocates? Well, no it doesn’t. For capitalism to work, companies must be allowed to fail. A healthy capitalist system requires some creative destruction. Capitalism must allow new market entrants and it must also stand aside as inefficient companies fail. Companies must be prepared to change when circumstances change, not lobby governments to keep circumstances rigid.

When business is writing the rules, it is unlikely to write in anything that upsets its market share or its profits. Like Amazon, it is a natural instinct for a market disruptor to itself become a market incumbent, and join the chummy phone calls to Cabinet Ministers to explain what their boards would really appreciate. And if this is such a basic instinct, then it is even more important that the heads of government don’t spend their time acquiescing to every whim of incumbent business. Government Ministers are meant to serve the country and backbench MPs are meant to serve their electorates; neither group should be caught surreptitiously working against their own manifesto to the benefit of a small group of established companies.