Capitalist Asset Stripping in the 1970s

EVENTS | 1970s

The 1970s witnessed a dramatic transformation of British industry, marked by the rise of a new breed of capitalists who challenged and ultimately dismantled the established post-war economic order. This era was characterised by what became known as asset stripping, a ruthless business practice that led to the destruction of large parts of British industry and profoundly reshaped the nation's economic landscape.

The Established Order: Captains of Industry and the Post-War Consensus

In the 1950s, Britain's economy was dominated by a small, influential group of individuals known as the Captains of Industry. These were eminent industrialists and bankers who regularly convened at the Court of the Bank of England. Their power stemmed from the vast industrial empires they controlled, and they worked in partnership with politicians to shape the nation's future. The term "captain of industry" itself was coined by Thomas Carlyle, who advocated for these figures to assume responsibilities akin to old feudal lords, strengthening social bonds in industrial communities.

The prevailing economic philosophy of the era was Keynesianism, which posited that economies could be managed through government spending and taxation. This approach perfectly suited the patrician outlook of both Tory politicians and the Captains of Industry. It fostered a sense of responsibility among these elites, who felt obliged to act for the welfare of their fellow citizens, akin to landlords caring for tenants or officers for their soldiers. This vision sought to create a stable, predictable Britain under their control, fostering a sense of home and community in industrial towns, even if this stability was at times artificial or maintained through subsidies.

The Conservative government, led by Harold Macmillan, confidently won the 1959 election with the slogan "You've never had it so good," a testament to the perceived economic boom. While this reflected a period of stability, it was set against a low threshold, as rationing had only ended five years prior, and Britain was still recovering from the war. During this period, there was an unwritten social contract, often based on handshakes and informal customs, that prioritised community and social bonds over purely transactional relationships. This patrician approach was characteristic of the "One Nation Tory" philosophy, which sought to draw the party towards a more inclusive, welfare-oriented stance.

However, what the Captains of Industry failed to realise was that their world was on the brink of collapse. A hidden secret about their power structure would soon be exposed: the severing of ownership and control. Over the years, shares had been sold off, and the founding families no longer held majority shareholdings. Their claim to power was, in effect, a fiction. This vulnerability, coupled with a general complacency and outdated notion of control, made them susceptible to new, ruthless forces.

The Emergence of the Asset Strippers

The destruction of this old industrial world began with Jim Slater, a suburban accountant who possessed an uncanny ability to predict stock market outcomes. Slater, fascinated by games and their predictability, honed his skills by managing his own portfolio with "stunning results" and writing a successful column as "Capitalist". In 1964, he co-founded Slater Walker, an investment company that quickly grew by managing other people's money.

Slater's crucial discovery was that many of the so-called Captains of Industry did not actually own their companies, despite the lingering belief that "son followed father" and families perpetually ran businesses. Companies listed publicly were owned by shareholders, and in many cases, families held only a small shareholding, making them "open to change from the outside".

Slater then pioneered the hostile takeover, a practice rarely seen in Britain before. His method involved secretly buying up a target company's shares at a high price, going behind the backs of existing management.

A notable example was Cork Manufacturing, a family-founded company run by Colonel Coote. Despite Coote's insistence that it was a family business, Slater correctly asserted it was a public company, exposing the illusion of the Colonel's power.

This act, considered "outrageous and ungentlemanly" by the city establishment, demonstrated that the respect Colonel Coote received stemmed not from personal affection but from the belief that he owned the company.

The Mechanics of Asset Stripping

Slater's innovation lay in his formula for asset stripping:

• Upon taking over a company, he would immediately sell off large parts of its land and factories, which were then demolished for property development.
• The cash proceeds from these sales were then used to fund the next, even larger takeover.

Slater himself rationalised asset stripping by arguing that if a firm's assets were "stripped," it meant they had "not been properly used," and such actions released value. This approach, while generating quick profits for Slater and his investors, did not necessarily make the companies more productive. Instead, it was primarily about making quick money by selling off productive assets or dissolving unprofitable parts. The profitability reported often came from these sales proceeds, rather than genuine improvements in industrial efficiency.

This marked a shift towards economic short-termism, where fiduciary piety to shareholders became the paramount concern, sweeping away established social bonds and community ties.

The ruthless, unscrupulous practices of these new capitalists were seen as breaking the informal customs and traditions that underpinned British society. This period witnessed the rise of a certain section of the middle class, especially a "left-wing, anti-native, anti-traditional" part, that ascended to influence.

The Claremont Set: Goldsmith and Rowland

A group of takeover men emerged, breaking up the old paternalistic world of British industry. Their social hub was the Claremont Club, a gambling establishment in Mayfair, run by John Aspinall, a "ferocious professional Gambler" who admired and admitted "Risk Takers".

Among the most prominent figures in this set were James Goldsmith and Tiny Rowland:

• James Goldsmith: Described as better educated, more cultured" and a "bon viveur," Goldsmith was nevertheless a "ruthless competent". He specialised in targeting food companies, famously acquiring Slimcea, a slimming bread maker, and immediately selling off many of its assets, reportedly acquiring the company for nothing. Goldsmith was seen as having a strong desire for power and was considered a formidable enemy.
• Tiny Rowland: Rowland operated beyond Britain, focusing on Africa. He was convinced there was immense fortune to be made in independent Africa by acquiring Britain's old colonial industries at a low price, as established companies were pulling out due to political instability.Rowland presented himself as a new partner to African politicians, aiming to build a modern industrial Africa with them. His most notable acquisition was the Ashanti Gold Mine in Northern Ghana, which had been run by a British company for over 80 years under General Edward Spears.Unable to buy Ashanti outright, Rowland secretly flew to Ghana, offering the new rulers a deal: he would run the mine in partnership with them if they cancelled Spears's lease and gave it to him. He allegedly offered them money. When news of the lease termination leaked, Ashanti's share price crashed, allowing Rowland to buy the company on the cheap.

Rowland’s method was growth by acquisition, not by investment. He systematically stripped profits from his African companies, feeding them back into the London Stock Market to inflate his share price, enabling further takeovers.

This relationship with African presidents was not really sincere and honest. Rowland's relentless pursuit of power meant he would lie, put one person against another, and do anything to achieve his aim. He even fabricated profits by consolidating sales figures from inter-company trading to make losses appear as gains, a practice amounting to fraud.

Government Involvement and the Bubble Economy

The asset strippers, initially despised outsiders, soon gained political influence. Jim Slater emerged as a public figure, portraying himself as a new kind of industrial manager concerned only with making a profit and providing increasing returns to shareholders. He claimed to be using the stock market to reshape industry and increase productivity without needing investment.

The Labour government of Harold Wilson, under the guidance of Tony Benn (Minister of Technology), ironically adopted methods similar to Slater's. They masterminded massive takeovers and mergers, creating large conglomerates like Upper Clyde Shipbuilders and British Leyland through forced mergers of old companies. This was part of a broader corporatist agenda, influenced by the American model of large-scale corporations, aiming for fewer, larger firms with agreements between government and trade unions. These government-orchestrated takeovers, much like Slater's, resulted in the sacking of thousands of workers, justified by journalists and commentators as "necessary casualties" in a "war to make Britain Great again".

In the early 1970s, Edward Heath's Conservative government came to power, initially rejecting Keynesian ideas and advocating for less government intervention, allowing "lame ducks" to "go to the wall". However, this "Thatcherite philosophy 10 years ahead of its time" led to factory closures and soaring unemployment. Faced with this crisis, particularly the bankruptcy of Rolls-Royce in 1971, Heath panicked and reversed course, initiating a "dash for growth". He poured money into the economy, increasing government spending and relaxing borrowing.

Much of this money flowed into the stock market, creating a speculative bubble that did little to make industry more efficient. Instead, it primarily boosted the new companies of the takeover men, sending Jim Slater's share price to "astounding heights". Slater, now arrogant from constant praise in the press, became the dominant force in the City of London, setting up his own banking operation and a network of satellite companies dedicated to asset stripping. He became an official adviser to the government, with his whiz-kids portraying themselves as new industrialists working with the government to "reconstruct and modernise Britain". This revealed a "superficial idiocy" on the part of politicians, who, impressed by boasts and crude results, brought in individuals whose methods ultimately proved destructive.

The 1973 Crash and Its Aftermath

The success of the tycoons was a facade, merely profiting from Britain's industrial decline rather than rebuilding it. By 1973, Heath's "dash for growth" had failed, leading to rampant inflation and violent strikes as the government attempted to control wages. The government privately believed it was losing control of the country, overwhelmed by the power of trade unions.

In a desperate attempt to regain control, Heath announced an immediate freeze on wages, prices, and profits. This decision panicked the stock market, and the bubble finally burst. Share prices plummeted in a catastrophic crash, "a steeper fall than there had been in this country at the great crash of 1929-31". This event shattered the post-war idea that the economy could always be managed by printing more money.

The crash had severe consequences for the asset strippers:

• Jim Slater went bankrupt, retiring to write children's books, including "Big Nose" and "The Zulu Principle," an investment guide advocating becoming a world expert in a narrow field quickly.
• James Goldsmith and Tiny Rowland survived the crash and left the country, Goldsmith to America and Rowland back to Africa. Both swore revenge on the British establishment.

The fall of the tycoons was swift. When Rowland's creation of fake profits was exposed by accountants, combined with secret payments to an ex-Tory Minister, Duncan Sandys, the establishment turned against him.

Edward Heath publicly condemned Rowland as "the unpleasant and unacceptable face of capitalism," despite the government's previous complicity. Rowland, however, won a dramatic victory when the thousands of small shareholders voted for his reinstatement, demonstrating the shift of power to market forces. This victory proved fleeting, as the crash underscored that ultimately "no one controlled the market".

Legacy

The period of capitalist asset stripping in the 1970s marked the irreversible decline of Britain's traditional industrial landscape.

The actions of figures like Slater, Goldsmith, and Rowland, while initially seen as agents of modernisation, ultimately stripped the country of productive assets, contributing to its long-term economic struggles.

The comfortable, if complacent, world of the Captains of Industry was replaced by a more ruthless, short-term oriented capitalism, profoundly impacting communities and social structures.

The period is seen as one of poor governance, demonstrating how even intelligence and hard work, Good Will and good cooperation of ordinary British people could not prevent the nation from getting poorer. It epitomised the shift from an age of chivalry to one dominated by sophs, economists, and calculators.