How the powerful took the capital out of capitalism


The disappearance of P & O is a milestone in business organisation – it symbolises the arrival of capitalism without capital

The disappearance of P&O as an independent British company will be a milestone in the geographic transfer of economic power. It will also be a milestone in business organisation – it symbolises the arrival of capitalism without capital.

Sir Richard Arkwright, the greatest mill-owner of the late 18th century, was the world’s first modern industrialist. Arkwright owned his mill and the spinning frames that were the source of its productivity. The complexity of these machines and the economies of scale obtained made factories more efficient than traditional outworking by contractors. This is still the rationale of large-scale business organisation today.

The source of Arkwright’s authority was clear. Arkwright owned the premises and the machines and therefore he decided who worked in the premises and on the machines. P&O similarly came into being to provide capital and the company’s ownership of the ship meant that the captain was ultimately responsible to the shipowner. Substantial capital was needed to service the British empire.

The organisation of production determined the structure of business and hence the order of society. Those who owned capital gave orders to those who supplied labour. A social and political transformation followed the transformation of business and economics in the industrial revolution.

But modern employees generally do not know who owns the capital they use. Their office may belong to a property company or an institutional investor. As for their desks and computers, it would often need a forensic accountant to sort out legal and beneficial ownership in complex modern financing structures.

Today’s executives do not derive their authority from the ownership of assets. Their authority comes from their position in a hierarchy and they acquire it in the same manner that priests, aristocrats and generals always acquired theirs: through family and personal connections, and their own political skills.

Large companies have today taken over the role once assumed by churches, landed estates and army brigades in determining the order of society. Marx’s world, in which capital determined class structure and power went with ownership of the means of production, was but a short interlude: and as Marx predicted, it ended, though not in the manner he predicted and perhaps not for the reasons he predicted.

Paradoxically, people who would angrily reject any suggestion that their thought is tinged with Marxism continue to use his categories. They talk of stockholders as business owners, although it is impossible to point to anything they own. They talk of profits as returns to capital, although they are really mostly economic rents – returns to brands, reputations, intellectual property, to corporate knowledge and organisation, and the exercise of market power.

Modern equity markets are securities markets not capital markets. The gap between returns on equities and falling returns on bonds encouraged all companies whose assets are distinguishable from their business to enhance reported earnings per share by stripping the capital from the business. Property went first: retailers ceased to own their shops, brewers no longer owned their pubs. Innkeepers became distinct from hotel keepers and banks did sale and leaseback deals on those of their branches that had not been converted to restaurants.

Property companies were taken private, to be reinvented as transparent investment trusts: utilities, after a brief and disastrous flirtation with the notion that they could earn equity returns from trading, settled for bond-like yields in geared subsidiaries. And now, with P&O, the ships and the ports also disappear from the public market.

The facia identifies the operator, not the owner, of capital. The name of the airline on the side of the plane and the company logo on the back of the truck today give no clue to the ownership of the vehicle. It is a far cry from the days when the signs that said Arkwright’s Mill, Selfridge’s Department Store and P&O identified the property of Richard Arkwright, Gordon Selfridge and one of Britain’s first, and greatest, multinationals.

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