Aveva: Another Case Against British Policy

The technological software company Aveva is a very successful Cambridge spin-off company. Although in a different field of activity from ARM, it shares many similarities with the firm that Mrs May allowed to go to Japanese owners in her first days in office. These include the availability of talent and significant start-up funding in physical and intellectual proximity to Cambridge, and strongly competent management.

This company has become a world leader in an area where there is an almost-infinite global demand for their software, which provides a template for designing almost any process plant and the structures in which it can best operate. It is growing promisingly, and could probably have a great future on its own. However, a leading French company has decided that they way forward [regardless of Brexit] is to take Aveva over, then incorporate some of its operations into Aveva, and profit further.

There is no French university in the global big league: where Cambridge, Oxford and the leading London colleges are stars; so it makes sense for the intending French owners of Aveva - as with the Japanese owners of ARM - for the time being [at least] to maintain and even extend the operations and the investment at the Cambridge site. Cross-fertilisation and the simple buzz of social and physical proximity to talent are huge benefits that Britain gains from having top quality intellectual resources.

Even the dim politicians who are dawdling about the Brexit discussions, and balking at the inevitable decision that any sane leaders have to take, that Britain must remain within the European Economic Area must see, yet again, that Britain has huge resources of inventiveness that have for centuries been the country's greatest economic asset. Discussions about how far the UK can collaborate with EU institutions that will keep the UK in the closest contact with the intellectual developments forging ahead are a very important aspect of the whole Brexit debate. There are some signs that collaboration and the transfer of people between UK and continental universities are already being reduced by the irrational fears which people like Liam Fox and the 'hard Brexiteers' are unconsciously fostering in people who are concerned about their personal futures.

As with the concentration of intellectual and technical resources in insurance and banking in the City of London, so with the leading universities the concentration of technical and scientific talent in the British hubs is massively greater than anywhere on the continent. If the City or Cambridge University is weakened by any sort of boycott by the EU, it will not enable the French to build up Paris as a hub for finance, or Bonn or Bologna as a global technology giant: any spiteful weakening of British institutions will merely strengthen New York, Singapore and other non-EU business centres, and the great universities of the USA as foci for research. Specialist journalists have been making this point effectively over some years, but it has not yet spread into the wider public consciousness and has barely touched the limited wits of the political class. It would be hoped that the example of Aveva would enlighten them, but my expectations of those woodentops are extremely low.

Political Credibility

M Macron is due to win today's election to the French National Assembly by a landslide. A party that did not exist - was not even publicly predicted - two years ago is expected to win a massive majority in the legislature. Its leaders then propose to go head-to-head with the trade unions in order to 'modernise' [i.e. Thatcherise] the economy. Their plan is to make hiring and firing of employees easier, to challenge the shortness of the standard working week; and generally to break the power of the unions over strategic decision-making by French firms.

M Macron is presented as having virtually 'appeared from nowhere' to create his 'France on the March' movement which would take the presidency and capture the Assembly; but in fact he is the epitome of the French establishment. Napoleon developed the old monarchy's technique of finding people of modest origins and developing them for high public office - by way of selective higher education, where appropriate - and then rewarding them with lands and titles if they succeeded. Macron stands firmly in that tradition. The child of teachers in a solid provincial middle class, white town he was selected for the highest level of 'administrative' education. Then he served in a series of government posts before moving smoothly into banking where he perfected his English while gaining an insider's knowledge of the 'Anglo-Saxon' dominated transatlantic banking system.

Then he was considered ready to be given middle-ranking ministerial office in the floundering Socialist government, from which he moved smoothly to the destiny of revamping the failing party system and achieving a populist following. Although the older-established parties ran candidates and campaigns against him, the field was effectively surrendered to him in circumstances where the rest of the established political class was becoming genuinely afraid that the National Front might otherwise win power.

Even his highly unusual matrimonial arrangements marked him out as special and memorable, without being open to censure.

The whole plan has worked all-too-smoothly to this point. Now the President can dust off his outdated Econocratic textbooks and set about trying to implement his mission. I am not a betting man, but if the bookies were to offer odds I may well be tempted to punt a few pounds against him.

Four London Markets

Until the so-called 'big bang' in the middle of the nineteen eighties there was a complex of specialist markets: retail and wholesale insurance, retail and business banking, building societies, pension funds, investment management, stock broking, stock jobbing, bond trading, bill trading and several others. Some merchant banks covered a range of these functions; but they all kept clear of retail banking and of all categories of insurance. After the bang most of the non-insurance functions were pretty quickly subsumed into large conglomerates: as a general rule, only the firms that remained under the control of families stuck to a selected range of specialist functions, while the majority leapt into a spectrum of activities that was so broad that the central board of directors could not possibly hope to maintain adequate oversight.

That all came unstuck in 2007-8 and now there is mounting tension between the City of London, weakly 'supported' by the UK government, and the Commission of the European Union who want to impose common methods of regulation and taxation over all finance sectors in all EU member states [and not just the eurozone]. The press is slowly becoming cognisant that insurance will became increasingly expensive if absurd rules of reserving - which may be relevant for banking - are imposed on insurers, More recently feature articles and leaders have been written on the crazy proposal that pension funds should similarly be undermined; shrinking the value of all past and future pension contributions and building up a huge increase in old-age poverty for the future.

It is now urgent and vitally important that the UK government - and, in this, the Labour opposition should declare complete support for the position - declares unconditionally that they will protect the interests of investors, savers [including contributors to pension funds] and those who wish prudently to insure their assets in a rational and affordable system.

It is also crucially important for the survivial of the economy that the international earnings of the financial industries are at least maintained. Assuming that the irrational and irresponsible system of giving traders bonuses proportional to turnover [however risky] rather than on the basis of achieved real profits is replaced by a more rational system of remuneration, it is likely that the income-tax yield from the City will decline hugely; and alternative sources of government revenue will urgently be required if the national deficit is to be diminished. If the historic and entirely rational requirement for reserving by insurers is maintained [and if the daft actuarial preference for bond over equity investment is set aside] that sector can remain the world leader. The Vickers Commission's recommendation that 'retail' banking should be separated [in regulatory terms, if not by separation of ownership - though that would be desirable] from 'wholesale' has been accepted by the government and should be implemented: though fears of the government compromising and thus undermining the separation  are mounting. Given that Vickers will, to some limited extent, be implemented, attention should then be focussed on driving genuine wedges between materially useful merchant banking and the huge mass of activity that is appropriately called 'casino banking'.

Before the intrusion of modern Economics in the eighteen-seventies, Political Economists had tought - correctly - that a distinction should be draen between 'productive' and unproductive investment. Productive investment laid down the basis for more production in the future; unproductive investment provided products that were consumed in ways that did not put anything into future economic activity. That distinction should be restored, and those wholesale financial activities that conduce to the facilitation of productive investment should be in one category [let us call it merchant banking] and those that manage purely speculative finance or hedge financial deals unrelated to material economic capital formation [casino finance] should be in another category. Merchant banking should be regulated and taxed as banking is managed by governments all over the world. Casino finance should be registered, regulated and taxed for what it is: betting. Just as appropriate regulation and taxation have made London casinos popular among global high rollers, and the retail British betting industry has been highly successful, so both face-to-face and online finance gambling in futures, derivatives, short-selling [of shares not owned by the sellers] should be legalised and regulated and taxed as a great British business. Before anyone else does it, the City should develop on its great tradition as the magnet for an expanding global trade in bets, which is what most of the turnover was before the crunch. The credit crisis has arisen largely because governments mistakenly adopted and monetised the so-called "banks'" gambling debts; and part  of Britain's way out of the mess can be speeded by optimising on the existing City expertise.

In due course, real productive investment must enable industry [including creative industrial sectors] to grow and provide an increasing part of the national product; but for a quick fix the opening of the casino finance business - on an open and honest basis - is the primary feasible option.