Business

This Observer piece really seems to wander a little in its* argument.

Manufacturing is great because well, it\’s manufacturing, innit, so much better than just those services like finance and The City.

And then the praise for the fact that a lot of what we class as manufacturing is actually services, like design and maintenance.

Eh?

* See first comment.

This turned up on EU Referendum earlier in the week of course, now with Christopher Booker (not all that much of a surprise, Richard North is Booker\’s co-author on several books and his researcher at times). The most important part of the story to me is this:

Since these costs will be much the same for her as for a multinational with a turnover of billions, she says: "I do not know how a directive could have been designed like this. The needs of smaller businesses have simply not been allowed for. It is astounding."

The reality seems even worse. It is clear from the impact statement that Brussels knew, when it drafted the directive, that it would put what it calls small and medium enterprises (SMEs) at a significant disadvantage against their big competitors. "SMEs," it admits, "are particularly affected by the directive, while larger companies are more likely to be able to bear the costs of dossier preparation."

One likely upshot of the directive is that many of the 1,000 SMEs in Britain that rely on chemical formulations for their products will be unable to afford the costs (most of them wholly unnecessary – chemicals such as benzalkonium chloride have been exhaustively documented for decades).

Most will be forced out of business. Many useful products will disappear from the market. The cost of developing new, more effective products, in a market where most are low-value and offer only small profit margins, will be so prohibitive that innovation will be stifled.

The only people rejoicing at this example of regulatory overkill are those multinational companies that played a considerable part in drafting the directive.

Yes, we have regulatory capture. The bureaucracy, the real government, asks all sorts of people, in fact anyone with an interest at all, to contribute to their fact finding exercises and calls for opinion. Small businesses of course never respond: who has the time or inclination to wade through millions of pages to find out whether they\’ve decided to screw you this week or next?

Large companies of course have the resources to do so. So it is the views of large companies which prevail in the writing of the rules themselves. Yes, why not, another 20 pages of irrelevant questions: that\’ll stick it to those small companies which are our competitors. Hey, why not make it so complex that there needs to be a whole department in a company to deal with it? Great! That 15 man company down the road can\’t do that now, can they? Damn them for skimming off sales that should rightfully be ours!

You know, if we make it complex enough then they might have to hire specialist outsiders, consultants at £2,000 a day to help them fill in the forms! Excellent, and of course, it\’s all being done for the kiddeeeees!

And thus Marx\’s prediction becomes true, markets slide towards monopoly. But not because of the inevitability of this happening in a market economy, but becuase of the interaction of big government and big business.

Just as an example here, I complained about the restrictions that REACH places upon one of our imports. One Europhile federast said that it was simple, I should simply band together with my competitors to pay the costs of registration and testing of the product.

Erm, I don\’t actually know who all my competitors are for a start. And even if we did, and we combined to get that registration, there is no way that we can stop a new entrant into the market from using that registration without paying for it or contributing to our costs. Given that the cost of the registration is of the order of €100,000 and the whole EU market is worth €500,000 a year, on tight margins, that\’s something of a problem really, don\’t you think?

And this is for a product which is simply two metals mixed together. Lord alone knows what it\’s like for those who supply more complex products.

OK, so yet another investigation into the supermarkets. But this is the bit I found most interesting:

The OFT has also been plagued by actions from rivals of companies against whom it has dropped investigations – and this is the Irishman\’s biggest bugbear.

"People out in the market should compete in the market. Not by using public resources as a way of manipulating their rivals," he says.

That\’s extraordinarily naive: perhapos businesses should compete out there in the market, but that doesn\’t mean they will.

That, of course, being the very basis of having an Office of Fair Trading, that while they should compete in the market, they don\’t always do so.

And if you\’ve got a regulator out there that you can complain to, if that complaint is successful your competitor gets fined 10% of turnover, well, why wouldn\’t you make the complaint? And if the complaint isn\’t successful, you\’ve still caused them great expense and management time defenmding themselves from the allegation.

In fact, you\’ve actually got an incentive to enter into a collusionary pact, or at least discuss doing so. Go along, nod at the right time and then shop your rival to the OFT and see them being fined 10% of turnover. You get off scott free because of the whistelblower\’s provision, that he who confesses first don\’t get punished.

The housebuilders\’ fines are expected to dwarf the OFT\’s record £121.5m fine levied on BA last summer.

Of course, no one has deliberately done that to a rival yet, but they could do.

Guido thinks that closing Grangemouth for two days will make the country run out of fuel.

No, I don\’t know either.

I also don\’t know whether this is true or whether it\’s an urban legend. My guess is that it\’s true.

The storage capacity of the fuel tanks of all the cars and lorries on the road is greater than the storage capacity of the entire supply system. We don\’t actually need to have an interruption of supply: we just need everyone to try and top off their tanks at the same time.

What a waste!

Thousands of shops, restaurants and cafés will be forced to register their staff with a new child protection agency and have their criminal records checked if they employ children for weekend or summer holiday work.

Any staff responsible for supervising children under 16 will have to be vetted. The measure is in the Safeguarding Vulnerable Groups Act, which was passed in 2006. It was originally intended to screen teachers, nursery staff and youth workers more effectively by requiring them to register with a new quango, the Independent Safeguarding Authority (ISA), but ministers have decided to extend its scope to businesses.

The ISA will conduct enhanced checks through the Criminal Records Bureau (CRB) and give individuals – at a cost of £64 each – a “seal of approval” for working with children. The measure also covers work experience.

So anyone who tries to do what I did successfully at the age of 14, get a job washing up in the back of a curry house for two nights a week during the summer holidays, will now find that businesses don\’t want to employ them as all of their staff will have to be checked: even if it\’s just the supervisory staff that would be three or four people, £250 quid say. Something they don\’t haveto pay if they hire a 17 year old.

But the most up-to-date estimate from the Home Office, which now includes businesses employing under 16s, is that 11.3 million people will have to register.

Eh?

The group has also discovered that the Government’s estimated cost for setting up and running the ISA for the first five years has grown from £91.6 million to £246 million as its scope has increased.

Umm, no, a most misleading figure.

The Government says that the ISA will be “self-funding” but employers will have to bear the £64 cost of registering each staff member,

£64 times 11 million people is, ermm, £720 million or so a year. Oh my! How Excellent!

We\’re headed into a recession and we\’re going to price young workers out of the market and cost businesses the thick end of a billion pounds for, umm, paperwork?

Can we hang them all yet?

Those stories over how Tesco\’s was going to save a billion in tax….we all found out they were nonsense pretty quickly, didn\’t we? It appears that The Guardian might have a few problems over it:

Tesco is to take legal action against the Guardian newspaper and its editor Alan Rusbridger after a series of articles that claimed it avoided paying £1bn in tax by using an offshore structure for property joint ventures.

In a High Court writ the retailer seeks special damages for "libel and malicious falsehood", citing complaints from customers.

Lucy Neville-Rolfe, Tesco\’s executive director of corporate and legal affairs, said: "It is very regrettable that we have had to take this step. We had hoped that the Guardian would be able to accept it had made a mistake and apologise for what it had written, but this has not happened.

"We support free and open debate about the role and conduct of business so long as that debate is based on fact," she added.

In a stock exchange announcement, Tesco said it expects to achieve savings of £23m in stamp duty related taxes on the transactions completed to date.

"The maximum additional savings in stamp duty related taxes that might be achieved from using these structures could be another £30m-£40m, depending on market conditions," claimed Tesco.

The retailer added that it was not uncommon to use offshore companies for joint ventures with third parties, claiming that the Guardian Media Group used a similar structure when it acquired Emap alongside private equity company Apax.

The legal action may put Carolyn McCall, chief executive of Guardian Media Group, in a difficult position. Ms McCall joined the Tesco board as a non-executive director in 2005.

How gorgeously, wondrously, amusing.

I wonder what the reaction is going to be? Given the incredible quality of the original reporting The G doesn\’t have a factual leg to stand on. But libel and malicious falsehood against a company might be a difficult thing to prove.

So, what indeed are they going to do? Apologise or fight the case?

Here\’s The G\’s version.

However, the Guardian said last night that Tesco\’s actions amounted to bullying and were clearly designed to silence public debate on the important issue of taxation.

"This looks like a deliberate tactic by Britain\’s largest retailer to shut down perfectly legitimate inquiries into their methods of tax avoidance. At the same time that two Tesco directors are reported to have lobbied the government in private on matters of taxation, the company is now seeking to chill public debate on the same issues," it said in a statement.

"The articles were in the context of a series of articles on taxation issues in a globalised world. They clearly raised serious matters of public interest in relation to tax avoidance and tax management. We have never claimed Tesco behaved illegally. These are matters of considerable political importance at present, debated by all parties.

"Guardian journalists put a series of questions to Tesco over a period of nearly four months. At no point during the pre-publication correspondence would Tesco even admit the offshore structures, still less give the explanation they advanced post-publication. We offered meetings to discuss the allegations; this offer was rejected. We included Tesco\’s explanation in the articles and have subsequently offered the company the opportunity of a full and prominent right of reply.

"Instead of frankly explaining their position and/or engaging in a public dialogue Tesco has taken the extraordinary step of suing for libel in a clear attempt to close down the debate and discourage others from looking too closely.

"It\’s hard to think of another large public company which would resort to such bullying tactics."

"Bullying"? Methinks the value of the damages (assuming Tesco\’s win of course) have just ticked up.

Supermarkets that use their size to force down prices will be penalised under a plan to encourage competition and choice for consumers. The Competition Commission is today expected to recommend changes to discourage chains from developing local monopolies and forcing smaller stores out of business.

Isn\’t that fabulous? You will be forced to pay higher prices so that the local capitalists can continue to gouge you.

We seem to have imported the policies of Pierre Poujade, the man who gave Jean-Marie le Pen his political start. Our local socialists do seem to be getting a little national on us, don\’t they?

It\’s famously, umm, how shall we put this, intricate.

The family of JRR Tolkien is suing the studio behind the Lord of the Rings trilogy for £75 million claiming they have not received "even one penny" from the films.

Bonnie Eskenazi, the lawyer for the Tolkien Trust, said: "I cannot imagine how on earth New Line will argue to a jury that these films could gross literally billions of dollars, and yet the creator\’s heirs, who are entitled to a share of gross receipts, don\’t get a penny."

JRR Tolkien negotiated a lucrative long-term deal when he finally sold the film rights to the works in 1969. He received about £100,000 and a percentage of the royalties.

The trust, which manages the estate, is seeking 7.5 per cent of gross revenues after deduction of certain costs.

I\’m sure the studios have now moved on from mere prestigitation into the realms of hyper-accounting, but the classic method was to state that "certain costs" included "overheads". But the allocation of overheads was something left to the studio accountants. Anything and everythng, the kitchen sink, the coke for starlets at producer parties, the development deals with this star and that….all would be loaded onto the accounts of a film in danger of showing a profit. Something truly successful might pay 50% of all running costs of the studio for the year. Thus, regrettably, it would turn a profit.

Comment left on his piece today:

"Economists tend not to see the problem. As the oil price goes up, they assume more cash will be available for exploration, the oil majors will duly explore, and they will find more oil."

Eh? As an amateur economist only might I point out that you\’re missing something really rather important here? Economists tend to assume that as the price rises then people will use less oil. How much less depends upon hte elasticity of demand an in the short term it\’s pretty inelastic (that is, over a period of months or perhaps a year, a rise in price leads to not much change in demand).

But over longer periods it\’s very elastic indeed, as is the demand for just about anything. Indeed, you\’ve told us so yourself Jeremy: your business is based on the idea that people will substitute for expensive oil with lower cost solar as that technology develops in the next few years.

An explosion in an unlicensed Turkish fireworks factory killed at least 20 people, injured more than 100 and caused the five-storey building to collapse.

Which idiot set that up? I thought everyone* knew how to build a fireworks factory? Very strong walls, a very light roof and definitely no more than one story high….

* Well, everyone has read Terry Pratchett, haven\’t they?

Not that I have a great deal of time for him but he\’s right here:

\’Sadly,\’ Branson told an interviewer at Davos two years ago, \’I don\’t think politicians are really in a position to change the world for the better. One of the problems politicians have is they come and go, but perhaps entrepreneurs can stay for 40, or 50 or 60 years.\’

Paul Krugman:

The point is that the quintessential business figures of the 80s weren’t creative entrepreneurs. They were big-corporation executives (Lee Iacocca) and takeover artists (Michael Milken, Ivan Boesky). The gazillionaires who started in garages came later.

Quite So.

Equally, as a member of the WTO, China has made considerable progress in establishing systems of law and accountability. But these systems of accountability and governance are not just weak and underdeveloped: they are also hampered by the Party\’s overriding concern – to continue to monopolise power in a vertical, authoritarian system. To have real accountability, transparency and rule of law – of the kind that Gordon Brown, no doubt would like to do business with – requires independent institutions, a free press, a citizenry with rights and equal access to the law, all of which contain potential challenges to the Party\’s monopoly of power and the spoils that come with it.

Who is this Gordon Brown who will be doing business?

Aren\’t we a country with independent institutions, independent businesses, a free press, a citizenry with rights and equal access to the law, rather than a one party state with a monopoly of power and the economy and the spoils that come with it?

You knew this was coming of course:

The Chancellor has demanded a meeting with the energy regulator to explain why fuel prices have risen so dramatically,

Having a lawyer as Chancellor is going to cause such things. An ignorance of how markets work (err, you have seen that oil is around the $100 mark Alistair?) isn\’t a great qualification for that office.

This is worse though:

Some experts believe that energy companies can buy reserves in advance and that there is no need for the price rises in raw materials to be fed through to consumers at once.

That companies can make long term contracts is true: but that doesn\’t mean that price rises should not be fed through. It\’s pretty much a basic thought that you should sell your products at their replacement costs, not their actual costs. Indeed, all energy companies do this: it\’s why BP and Shell\’s profits soar when prices rise and fall dramatically when they fall. Because they value the oil in process at what they can sell it for, not what they paid for it.

Piece in The G makes this statement.

Jobs define us

An extraordinarily sad statement. That where we export our labour to is the definition of us?

No, humans are really rather more complex beings than that.

That is beset by idiot bureaucracy.

BG: \’Hello Sir I am a supervisor, we are calling a you for immediate payment of the £627 you owe on your gas account. Do you have a debit or credit card handy?\’

Me: \’Is this regarding (address)?\’

BG: \’Yes sir\’

Me: \’This property burned down in June of this year, as I have informed you at least half a dozen times. So this is for estimated usage yes?\’