There's a discussion in the FT this morning on the absurd prices being paid for IT company takeovers at present. That's not especially interesting to me in itself, but the following comment is:
In situations such as these, it matters little if the acquiring company overpays. After all, big tech companies have never had more cash than they have today, and they are finding it just as hard to put their money to work as everybody else is.
I am sure that was not meant as political commentary; it is instead offered as an aside on the way the world is. But the fact is that in a couple of sentences a very great deal that summarises exactly what is wrong with the world right now is said.
Big companies have so much money they do not know what to do with it.
Worse than that: they are actually struggling to find a use for it.
And if they overspend the sentiment is 'so what?'
In a world of need I think these are statements of fact, casually admitted. What is worse, government policy, to reduce tax for example, is intended to exacerbate this state of excess for the few who command these resources and exploit them for their own benefit.
This is not an environment of wealth creation, innovation, or of efficient markets. This is a world of exploitation, wealth preservation and the protection of power.
The author of those sentences did not intend to summarise all that is wrong with the corporate world, but he did.
In a world of need a few are living with excess beyond imagination and all power is tilted in their favour. No wonder we live in a world that is so stressed.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
This one has £10 billion less now. Or should that be “customers fined £10 billion for banks fraud”
http://www.cityam.com/1408668882/17bn-bank-fine-sets-new-record
Just imagine if the majority of the population were in such a bind. It would be viewed as a great concern.
All this dead money, corporate balance sheets, tax haven hoards is just silting up the economy.
As the owners will never surrender it, it might be prudent for governments to spend more into the economy at the level of human beings in order to devalue this buried treasure and render it less relevant.
Yes
They need to spend it. What you do with money, to make the economy work at all, is you have to spend it. You don’t hoard it because then you just get more of it and that does no good. You have to buy a thing, whether it be an island or a ball-point pen, as that puts money back into circulation where you need it to be so you can get it back and buy another thing. Your wealth is the thing, not the money. People don’t get that.
You are right
They don’t get it
It’s a tech bubble which will soon crash. Been here before and will return. nothing that can be done about human exuberance. On the other hand, central bank policies which encourage cash hoarding and speculation and strip out meaningful return for risk which might encourage investment and income rises could well do with some blame!
Money needs to be spent otherwise Britain may become an Italian Tragedy – a knackered state, with a large budget balance!
Italian Tragedy!
http://www.pieria.co.uk/articles/italian_tragedy
For most the reason they do not spend it is that they are limited by the articles of their incorporation in what they can invest………
Apple for example must invest in electronic and software firms, they can’t just go around buying football teams and farms!
For some like Microsoft they are so huge that any large acquisition would bring issues with monopoly charges.
Most of the US firms are just waiting for better terms in bringing their money back into the US so they can pay out to shareholders.
If you want that money invested in something useful then you would recommend lowering the tax on repatriation?
I recommend that they pay tax, like the rest of us
Your problem with that is?
The problem I have is that currently under the law they have the option of keeping the money offshore and not paying tax. Just like people have the option of not selling an asset and therefore not paying Capital Gains.
Multinational companies are very obviously not like the rest of us as they exist in more than one country at a time so the comparison is useless….
They do however pay tax in the US on their US profits…………..if you want them to invest their money then why not reduce the tax on repatriation?
It sounds to me like you want to have your cake and eat it!……Either put in place a law stating that all World Wide profits must be repatriated (and live with the consequences) or stop moaning that they refuse to pay the tax and leave it offshore!
We pay tax on our worldwide income and paying tax in another country does not prevent the need for declaration and payment of potential liability here
Why should companies have a better deal?
But if I as an individual invest in an overseas company I only pay tax when a dividend is remitted to me – assuming no CFC proviions etc. are applicable. If the company doesn’t pay a dividend to me then I don’t pay any tax. That isn’t any different from what is described above, so I am not sure they do have a better or different deal from me.
That depends on whether you control the overseas company or not
If you control it you might find you are in for a nasty UK tax surprise
Ok … fair enough … my personal tax knowledge is a litle rusty.
… Which is why I don’t do any personal tax work for anybody even when asked- unless it’s very very very straight forward for friends/people I know on a free basis.
Why don’t they just change their articles then?
Probably becasue investors want to know what they are investing in. If they invest in Microsoft they want to know they are investing in a technology/software company and not in a company that is involved in say owning football clubs.
Mainly becasue investors want to spread their risk over different sectors based on their own personal risk profile – they don’t want microsoft diversifying and changing that risk profile.
I don’t believe that: most companies around the world can now do anything that they wish and it does not seem to diminish their appeal
But most do stick to their main business line. You’re not going to see GSK start up a mining business or Rio Tinto going into pharmeceuticals!
Primark?
I read somewhere that Bush did a deal with holders of off shore profits in about 2004 and they were only to ay 5-6% tax on re-entry. They argued that the money would be used to grow the economy but in fact only two corporations did and the rest just used it to pay dividends. of course, it mean that the few could spend but it seems that it was not used for investment.
Apologies for not being able to recall where I read it so, Richard, if you don’t know and it’s not useful, you may wish to delete it.
There was such a deal
Your recall of what happened is pretty much right
And dividends are taxed….
Only if we can find the shareholder – which is very often quite hard
Shall we get real here?
It was 18 years ago, next month, when my late colleague pitched the case for business with a primary social benefit, concluding:
“It is only when wealth begins to concentrate in the hands of a relative few at the expense of billions of others who are denied even a small share of finite wealth that trouble starts and physical, human suffering begins. It does not have to be this way. Massive greed and consequent massive human misery and suffering do not have to be accepted as a givens, unavoidable, intractable, irresolvable. Just changing the way business is done, if only by a few companies, can change the flow of wealth, ease and eliminate poverty, and leave us all with something better to worry about. Basic human needs such as food and shelter are fundamental human rights; there are more than enough resources available to go around–if we can just figure out how to share. It cannot be “Me first, mine first”; rather, “Me, too” is more the order of the day.”
For all the hype about re-imagining capitalism, so far only he has put it into practice.
http://www.managementexchange.com/story/re-imagining-capitalism-new-bottom-line
Comments like those of your right-wing contributors above miss the point.
The main argument that Pretty Boy George put forward for lowering CT rates was that large corporations would know what to do with such funds. They’d do much better than “the mandarin in Whitehall”.
It is now clearly apparent that, confronted with this largesse, big corporations actually don’t know what to do with it at all. I don’t think this will come as a surprise to the many of us who have found large private corporations to be no less inefficient
than public ones, but with much less accountability, but it must come as a rude shock to the people on the Right who believe that the mere fact of being in the private sector (assuming one can tell which, these days, isn’t easy) guarantees optimum efficiency.
You are right
The idea was that the state was ‘squeezing them out’
In reality it is clear it was the other wAy round