Margaret Thatcher by Photo Bucket
As with so many deaths amongst politicians, the like-minded flock, unified in the will to secure the body's immortality. For the sake of our history books, I must trample down the proclaimed immortality of 'Thatcher's Privatisation Revolution', a mantra that is glowing neon-bright as her defining achievement. Even The Economist has failed to explore the hermeneutics of the idea, proving once again that economists are not scientists if they let something like this slip by. In their recent Eulogy, A Cut Above the Rest:
"Mrs Thatcher's privatisation revolution spread around the world. The post-communist countries embraced it heartily: by 1996 Russia had privatised some 18,000 industrial enterprises. India dismantled the licence Raj--another legacy of British Fabianism--and unleashed a cavalcade of successful companies. Across Latin America governments embraced market liberalisation. Whether they managed well or badly, all of them looked to the British example'.
It will surprise no one to learn that Privatisation is simply an 'all-American' phenomenon. Thatcher had nothing to do with the concept or its widespread practice. The economic machinery behind the idea drafted by the young Turks in the brokerage houses of Lower Manhattan, not by the grocer's daughter born in Grantham. Simply put, this big idea - the original concept of privatisation, the inherent dollar possibilities of the mega merger, in fact the whole damn schlemiel - was originally conceived by a body of Goldman Sachs people, way back in the early 1960s.
The precursor to privatisation was the glimmer in the American eye to break into the business of Europe. The main event that allowed Goldman Sachs to extend its remit beyond its own corporate limitations was the Kennedy Tax Bill (1963). At the time the US balance of payments was under considerable strain; capital was flowing out of the country. It was a major concern in Washington who passed the Interest Equalisation Tax, a law that effectively prevented foreign companies coming to the States and borrowing and forcing American companies to borrow overseas to fund and finance new foreign operations.
The event of Interest Equalisation was significant for one reason. American companies were big. Too big. The biggest in the world. And somehow, they needed to get bigger. Corporations like General Electric, BF Goodrich, Corning, Kraft (names now lost over time), were challenging the best economic minds of the day, saying, "Hey look, we've won out in our domestic markets - what can we do about winning overseas?"
Michael Coles was a relatively lowly figure, minding his own business down in the basement of the Corporate Finance Department of a large brokerage house in New York. With interest equalisation however this bright, intensive young man envisioned pyrotechnically, the bright white light of a new kind of deal. Perhaps one of the biggest. A mega-deal grown in the US and delivered to the biggest client of the moment. The continent of Europe.
The concept he was selling was privatisation.
Michael Coles realised that he couldn't run this idea, this "deal' out of New York. To lend it credibility, he had to test the theory out himself. With the support of his bosses, he chose to start in London. He took with him as companion the high-profile economist 'Joe' Henry Fowler who had up until that time been President Linden Johnson's Secretary at the Treasury. Joe and Michael set off on a long trip around Europe to see what was really going on. The message they got in London was very very clear: "Nice to have you chaps here old boy but don't think you'll get any more business, we'll give you all the business you're ever going to get out of London'. While the big Merchant Banks looked unassailable and impervious to the men of ideas from New York, they hadn't reckoned on the Government of the Day lending an ear to the brassy Americans.
Enter Margaret Thatcher who held out-stretched arms for anybody trying to do investment banking business in London. Her metallic anima, a beacon for all American power brokers of the day. More than mere political greeter, she went further by matching the high-minded fiscal propositions of Joe Henry Fowler and Michael Coles by lowering personal tax rates in the UK.
Margaret Thatcher's proper historical role at this stage was that of a scenic engineer, setting the stage for the financial-services industry in London to be loosened from its rather geriatric system; where the merchant banks controlled this and the brokers controlled that and we didn't talk to 'him' without talking to 'him' first . She loosened all that. A construct that effectively waved in the entrepreneurials, unchallenged.
London then experienced a revolution. The effect of the Big
Bang or the liberalisation of the London Stock Exchange, now created a launch
pad for some of Lower Manhattan's wrestless power brokers. The first big deal
was the privatisation of BT. The highly successful second issue was brokered by
Eric Dobkin of Goldman Sachs.
So whilst Thatcher had fitfully paved the path, the body traffic was all Goldman Sachs. Men like Michael Coles and Eric Dobkin, not Margaret Thatcher, created the concept of equity capital markets in 1984/85 in the UK. A concept that was, up until this point, a purely north American phenomenon. It was so easy because European capital markets at that time simply didn't exist. Most offerings were via rights issues. There was no marketing expertise at all in the selling of equity and the only leverage you had was to offer current shareholders enough of a discount to subscribe for more.
This was a monumental opportunity that a company like Goldman Sachs would never allow itself to overlook. To go over to the UK and capture the moment. Like an errant parent buying love with sweets, Goldman Sachs were selling and Thatcher was eager to buy. With the success of the BT privatisation, the American power brokers had the strength and the leverage to take on more privatisations. Many more. With their research and trading prowess, their marketing prowess, they managed a staggering series of multi-billion-dollar deals with the UK Government throughout the 1970s and 1980s.
Naturally, as the progenitors of the concept, Goldman Sachs won the mandate to act as the lead manager for the next privatisation of British Gas. Goldman's precision performance here, a re-hash of their tried and tested marketing road--show process. At the end of the routine the brokers would simply report their recommended price for the share offering to the UK Government.