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Paying the price of financialisation
Published: 7 May 2008
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Workers, governments, taxpayers and ordinary shareholders pay the price of the increasing domination of the real economy by financial markets. That was the clear warning given to a meeting of the UNI Management Committee in Nyon Switzerland. Short-term ambitions to squeeze the maximum cash out of companies by private equity and hedge funds are also accompanied by “selling short” manoeuvres that deliberately lower share prices and can make companies more vulnerable to predatory take-overs. A private equity take-over often means job losses and even minority shareholdings by PE groups or hedge funds can mean a change of direction on companies to cut costs - like in the case of Deutsche Telekom. Even if they escape the clutches of the predators, companies under pressure often respond by cutting jobs themselves. And hedge funds and private equity groups carry on with virtually no regulation - or “light regulation”. “The financialisation of the world’s economy is not helping the real economy - it’s speculation based usually on somebody else’s money and greed,” UNI General Secretary Philip Jennings told the committee. Although the scale of PE buyouts has been affected by the drying up of cheap credit the PE groups are still busy buying up smaller companies, said Philip. UNI has been engaged in discussions with PE groups in the US and the UK over the last year to see if an accord with unions on the behaviour of PE towards workers and their collective arrangements in the event of a buyout can be achieved. “It’s like the old Wild West,” said UNI-Asia Pacific President Joe de Bruyn. He singled out the “short sellers” - speculators who collect “borrowed” shares (for a fee) to deliberately sell down the price of a company, to buy back the shares at a lower price at a profit or to make a company more vulnerable to a takeover. “It’s manipulation to make money at the expense of other people - shrinking the value of other people’s holdings including pension fund investments that finance workers’ pensions. There are many losers and many of these financial practices are based in tax havens so that governments and citizens are the losers.” In Japan the government has moved against “predatory investments” reported Shoji Morishima, UNI Telecom president with national flag-carrying companies most at risk. “We need to keep a close eye on the financial sector,” he told colleagues. Hedge funds should talk to unions and works councils if they are contemplating investing in a company, recommends a draft report to the Management Committee and pension funds are urged to practice socially responsible investment. Tax regulation should change to end the current bias that rewards short term investors. Hedge funds have been condemned as “locusts” in Germany and legal changes to extend take-over protections for workers to private equity and hedge fund buy-outs are suggested by the report. A separate report on Pension Funds and private equity shows that “while a majority of the major pension funds in Europe, Japan and Australia have PE investments, these are currently on a smaller scale than investment by US pension funds”. This could change - and there are signs of that - so unions are urged to work to influence pension funds to stick to their traditional values and the values of the unions who represent those funds’ participants. |
