Where's yur market fundamentalism now, Jimmy?

I have to replace several of my domestic appliances and I popped off to the local library to consult their back copies of  'Which' consumer magazine. As usual, the highest rated appliances came from Bosch and Miele. 'Which' regularly gives their  products the highest ratings for performance, quality and durability.

Out of curiosity I looked the two companies up on Wikipedia.  Both are based in Germany. Miele's sales are 2.8 billion euros and they employ 16,500 people. Bosch's sales are 38 billion euros and they employ 270,000 people.

Neither is a public company. Miele is owned by the founding families. Bosch is owned by a charitable foundation. Neither has to worry about their quarterly earnings or their share price because they are not quoted on any stock exchange.

Neither company is subject to what some call the invigorating discipline of the stock market and others call its malign influence.

Both are free to take a long term view and are not subject to quarterly earnings statements.  They do not have to worry about being taken over and asset stripped. Both are free to keep most of their profits in their businesses and invest in research and development. Bosch invests 9% of its revenue on research and development, nearly double the industry average of 4.7%.

Bosch and Miele produce products of outstanding quality. They seem to get along very well without having the City hucksters peering over their shoulders, ready to sell them out for a quick profit.

It is not only German companies who benefit by being free of the short term thinking of the stock market.

The most successful department store chain in the UK is John Lewis. They are financially successful and  are renowned for their standards of service.  Their staff are not the sullen wretches found in many retail outlets.

Sometimes they charge more, but they also provide more. If you buy from them and there is a problem, you know it is going to be dealt with efficiently and ethically.

It is not surprising that the 68,000 John Lewis staff are motivated. They own the company. John Lewis is a workers cooperative.

Building societies provide much of the UK's housing finance. Nearly all were mutuals; they were owned by their members. Then ten of them converted to public limited companies. Members got shares in the new companies. I got some. Most importantly, their directors got huge pay rises or pay-offs. To maintain their share prices and pay management bonuses the de-mutualised societies started to expand rapidly, mainly by foolish borrowing.

Now all the de-mutualised societies have either failed or been taken over. Several went during the recent financial crash. I had legacy shares in two of the failures. Those shares are now worthless.

None of the building societies that remained mutuals failed. A few merged, but non failed.

I am not suggesting that mutualisation is the solution in every case, but we do need to get away from the short termism that is doing so much damage at the moment.  One solution may be to change the tax system.  We could have punitively high capital gains tax rates where the holding period of a security has been less than one or two years, and much lower rates when securities have been held for four or five years.

Such a change would also affect the bonus culture that was a major factor in the recent financial crisis.  If shareholders were tied into longer term relationships with companies they would soon insist that companies changed their management bonus schemes to emphasise long term performance.

Most of all, we need to get away from the idea that the market has the answer to every problem.

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