China’s sovereign wealth fund has bought a stake of nearly 9% in Thames Water and Chancellor George Osborne is pleased about it, boasting that, “ It is a vote of confidence in Britain as a place to invest and do business.” I would describe it more as selling the family silver.
Infrastructure companies are made to measure for ‘widows and orphans’; they offer investors relatively stable income streams over many years and are very unlikely to be wiped out by technological change as Kodak was earlier this week. All of which makes them ideal investments for pension funds which must fund their long-term liabilities to pensioners with suitable investments. With interest rates at record lows the relatively stable income from infrastructure companies is more than ever needed to pay pensions. Something is very wrong if we have to go half way round the world to find investors; I thought the City was supposed to be the world capital of, err, capital!
In a well run world people in their peak earning years would build up a pot of savings, either as individuals or through a company pension scheme. Then, after their retirement, they would draw down their savings leaving the next generation in turn as the capital providers for industry giving them in turn a pension to look forward to.
But this deal breaks the circle. The next generation will now have to work twice as hard – first to earn their way in the world and second to pay the dividends that are going offshore. This doesn’t work unless we see a step change in the size and competitiveness of British industry that was last world-beating (with honourable exceptions) in about 1850. Unfortunately, there is no sign of that changing anytime soon.
For this and other reasons most countries would not sell their basic infrastructure off. We do because, in the infinite wisdom of the market fundamentalists, there should be no borders to the free flow of capital. That’s an argument for another day; suffice to say for now that, even if the fundamentalists are 100% correct, most others are not playing by the same rules nor is there any incentive for them to do so. Can you imagine, say, Centrica (the company behind British Gas) being allowed to become the dominant gas supplier in France in the way EdF has been allowed to move into electricity in Britain? At the very least we should insist on reciprocity; companies from another country operating in sector X should be free to invest here only if UK firms operating in sector X could do the opposite deal and acquire comparable assets in that country. That simple rule would go a long way to levelling the playing field and no-one could argue that it wasn’t entirely fair.