One of the FT's early morning emails includes this headline:
Ebay is to spin off PayPal which accounts for as much as half of its $65bn stock market value, in a further unravelling of one of the few remaining successes from the dotcom era of internet companies.
The story is here, but the detail does not concern me; it's that contextual comment that does.
What the FT is saying is that in little more than a decade most of the supposed value created in the dot.com era has now dissipated.
Back in 2003 I co-authored my first activist paper* (I was a late developer, not getting going until I was 44). It was entitled 'People's Pensions'. My co-authors were Colin Hines and then MP Alan Simpson.
In the paper we argued:
This paper proposes an entirely new arrangement for the provision of second pensions [Ed: i.e. those beyond the basic state pension] in the 21st century. This is called the “People's Pension”. It is not a mere tinkering with the rules (as, for example, stakeholder pensions were). The People's Pension is different because it looks at the pension crisis as one part of a range of problems affecting the UK economy, and creates a solution that solves both the pension crisis and many of those other problems as well. And, as fundamental elements in that solution:
1. It includes the explicit assumption that the basic state old age pension must be sufficient for a person to live on with dignity and without the need for means testing, and releases finance to assist this. It also incorporates the assumption that this pension will increase in line with earnings.
2. It provides a way to substantially improve the State Second Pension which means that this scheme will be much more attractive than it has been .
3. It creates an entirely new investment framework, completely free of the stock market, to provide a secure and safe place in which an individual or company pension scheme can invest to provide for a pension in retirement.
We argued that this was possible because:
People's Pension will be backed by People's Pension Funds. These entirely new funds will be created to provide a way in which pension contributions can be invested in the building of new public infrastructure projects such as:
- schools and universities
- hospitals and other health facilities
- transport systems (including railways, trams and bus networks)
- social housing
- sustainable energy systems
The 'value' created in the dot.com era has faded and passed, and the result has been, at least in part, a 0.7% annual decline in the value of pension funds since the turn of the century. The value in all those assets we suggested pension funds should invest in has remained intact for society at large, if undermined in too many specific cases by PFI.
It is often said that the state should not pick winners and losers. I tend to agree. Market sentiment almost invariably over backs losers. And yet if the government ignored market sentiment entirely and backed social and fundamental economic need the state can hardly lose. As it would not have done if pension funds had been invested as we suggested in 2003.
Despite that the state is still backing the picking of winners and losers by state subsidising the casino that is the stock exchange by making pension funds that use it the foundation for most second pensions in this country. That's a fundamental error.
I still await the day when we will get the pension reform we really need. I am beginning to doubt I will have time to invest in it but for the sake of others I will keep making the argument.
PS: * I realise I got this wrong: country-by-country reporting beat People's Pensions by a month. I've been on both themes ever since
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“most of the supposed value created in the dot.com era has now dissipated”
You are kidding right?
Off the top of my head Amazon, Google, Pandora, GoDaddy, coupons.com, eHarmony, Rhapsody, Priceline, WebMD, Akamai are all survivors with high values today.
And those that failed spawned ideas, industries, technologies and entrepreneurs that have created further value in newer ventures.
Two extract value by being virtual monopolies and by tax abuse
Who the heck are the others?
I assume the “monopolies” you refer to are Amazon and Google. If only I knew of other places to buy books, videos, anything or to search the internet…. Other than HMV, Waterstones, Bing, Startpage, Yahoo, etc, etc.
As you’ve not heard of the others then I assume your statement that there’s “no value from the dotcom boom” wasn’t researched. Try using Google…
Pandora… (internet radio) $274m revenue, 250m users
GoDaddy… (domains and websites, like 1&1 that you use) $1.14b revenue
coupons.com… (coupons) $1b valuation
eHarmony… (dating) >$1b revenue
Rhapsody… (internet radio) expected to IPO at $4b
Priceline… (price compare, discounting) $6.8b revenue, $1.89 net income
WebMD… (medical) Market cap $1.5b
Akamai… (serves 15-30% of internet traffic, even for your Apple updates) Revenue $1.6b
A few billion makes your case?
I don’t think so
GoDaddy (for example) is one of the biggest internet domain name and site hosting companies in the world
2011 revenues were $1.14bn.
The fact you haven’t heard of this and the other companies suggests you are talking on a subject you have insufficiently researched.
(and that’s true whether you publish this or not)
Oh come on: a company valued at a likely excess multiple of earnings that will fade from view in a few years is not fundamental value
And it is definitely not the required basis for pension investment
But as ever you chose to nit pick and ignore the real issues
whereonearth.com – sold for £28m to Yahoo. No value there?
Good question
“Good question”
Stop the press! I sense some bad feeling, tell me more 😀
No bad feeling
I left a long time before the sale and did not negotiate it
Shame, takes a special kind to hang on until the company hits big and not cash out early.
You don’t know what I did
So stop speculating
I don’t understand this line of reasoning at all. The only reason the state can’t lose is because it can always tax and provide a ‘return’. But that doesn’t mean there is an actual return in terms of creating value. It could just be a ponzi structure. Indeed, if it was the case that the state could naturally deliver more of a return than the private then communism would have been more successful than capitalism. Also, aren’t the likes of Piketty saying the returns to capital are too High? If we really want to change something, how about not creating inflation? Then risk adverse savers could simply save in cash, instead of buying equities.
So these things don’t earn?
How is that?
And yet if PFI’d apparently they do, for the private sector.
Again, how is that?
Or is dogma just getting in your way?
James, you suggest that a state run scheme “could just be a ponzi structure”. On the basis that pension fund values have declined at a rate of 0.7% over a 13 year period, I would suggest that the pensions industry HAS been doing exactly that.
Also, why would using pension funds to finance the sort of projects Richard has advocated create inflation, or unacceptable risk for the risk averse? Or is that just a red herring?
Creating real wealth in infrastructure, manufacturing and transport doesn’t earn? No land values don’t go go up? If Labour got it’s finger out, these values could be targeted by a LVT.
Investment in council housing, infrastructure and investment towards a manufacturing base, something the Germans sensibly retained, will create real wealth, not the Ponzi wealth of the banks based on the rise of house prices.
The broad qualification for pension fund investments should be that they can demonstrate that they are likely to benefit subsequent generations and to enhance their ability to support a non-working population of pensioners. This would include social and infrastructure investment and investments in emerging domestic industries and resource use efficiency. It would not include investment in government debt arising from failure to tax or investment in house price or any other asset price speculation. In short, pensions should not be able to lever wealth from the current working population in order to meet current obligations where this harms the prospects of future pensioners.
So, all this pension money has been invested in
“schools and universities – hospitals and other health facilities – transport systems (including railways, trams and bus networks) – social housing – sustainable energy systems”
No doubt all the services will be provided free or at low cost.
And now someone retires.
Where does the income pension come from?
And how do you think PFI is paid for?
Most of those services including a charging element – have you not noted?
What is the difference between charging here and in the private sector (btw: the only answer possible is ‘none’)
If Peoples Pension Funds were designed to provide decent pensions for everyone there is no real problem with them investing in PFI projects…….even though they might be more expensive to procure, the revenue streams would be helping pay for the people’s pensions. People would pay more for PFI financed infrastructure but that finds its way back to the funding of their pensions through the revenue streams the funds are investing to share in.
Where pension funds benefit only part of the population, investing in PFI projects (or other social infrastructure such as social housing) amounts to rent extraction by one part of the population (those who benefit from the pension funds) from another (those who do not have a pension fund).
Interesting
For me this is an important issue and a pointer to the necessity for decent pension provision (DB or other forms of earnings related pensions) to be universalised. In the unfinished policy paper I emailed to you I advocate the resurrection and universalisation of DB pensions although equivocate between the terms DB and earnings-related. I think we are looking at the same objectives but from slightly different vantage points resulting in slightly different but probably compatible solutions. As is John Clancy.
I will get to it….soon