City short termism

Well this is a new experience for me - I am going to favorably quote a fund manager. Particularly as I am on my way back from a meeting in London on pension governance, which had little good to say about them as a group!

Ian McConnell in today’s Herald has a very interesting interview with James Anderson, manager of the £2.7 billion Scottish Mortgage Investment Trust. In this interview he has described the UK's political and economic leadership as "deeply lacking" and "profoundly frivolous".

He appears to have been prompted by the dangers of any EU exit, following the Cabinet splits on this issue. Now, we may disagree about the EU, but what was more interesting is his view that this policy is driven by the City’s regulatory concerns and short termism of a finance driven economy.

For example, he took issue with the short-term view of global stock market players who did not like companies investing for future growth at the expense of immediate profitability. He also regards one of the main problems in the UK economy as: "I think the single dominant one is still the extraordinary mental dominance the City of London exerts over our economic policy-making. I don't believe - that the business model of the banks has become transparent; has become simple rather than complex - they have slightly more equity. To believe that the fundamental problems of the British financial system have changed is hard."

On former Conservative Chancellor Nigel Lawson's call last week for the UK to leave the EU he said: "You read about what Nigel Lawson says about wanting to come out of Europe. It is really about protecting the City of London from regulation. I think it is profoundly frivolous to blame Europe for the problems of our economy, or think exiting Europe would solve the problems of our economy."

He also called for moderation of austerity economics saying: "Austerity, from the perspective of cutting current expenditure, is to my mind counter-productive. I think we are increasingly learning that. Austerity for the sake of it – is it being pursued anywhere other than Britain now?"

Finally he rounded on short termism in financial markets: "The great danger of that, the message companies are taking from that, is you shouldn't invest because, if companies say they are investing for future growth, the markets don't like it at all. That is pretty much everywhere in the world."

Some of this message has clearly been digested by the Labour Leader, Ed Miliband. In a little commented on (except by me) section of his Scottish Labour Party conference speech, he committed to abolishing the requirement for publishing quarterly accounts. This is a cause of short termism as companies start to worry about the impact on share prices, rather than focusing on long term strategies. I think he understands the importance of rebalancing our economy away from finance to more productive parts of the economy. A big challenge, but it appears that he might have at least some allies in the finance sector.

I will now need to recover in a dark room and then normal service will be resumed!