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What’s good about austerity (whatever the Greeks think)

Plus: How Leon Brittan changed the world, and the scandal of late payments

31 January 2015

9:00 AM

31 January 2015

9:00 AM

The only question I remember from my Oxford moral philosophy paper was ‘What is integrity and is it a virtue?’ In the margins of all the politicking that follows the victory of Syriza in the Greek election, I hope someone asks: ‘What is austerity, is it a virtue, and why has it worked in the UK and Ireland but failed in Greece?’ My own definition of austerity in the context of financial crisis, when I debated it with former Greek finance minister George Papaconstantinou, was ‘a synonym for frugal, uncorrupt government supported by willing taxpayers of the sort that has been largely absent in southern Europe’, at which George got very emotional and accused me of stereotyping.

Emotion will rule in Syriza’s demands for release from debt-service penury — because the bailout terms were designed to favour creditors rather than stimulate recovery or protect the vulnerable, and because Germany’s position is forever tainted by war guilt, hence Alexis Tspiras’s first gesture as prime minister, visiting the site of a Nazi atrocity. European Commission president Juncker says Greek debt reduction is ‘not on the radar’, but I don’t trust him and his Brussels establishment not to compromise if they think it will postpone the euro’s existential crisis even for a few months. I have more faith in Mario Draghi of the European Central Bank and Christine Lagarde of the IMF, both of whom I suspect agree with me that austerity really is a virtue and whatever sympathy we may feel for its ordinary citizens, Greece is an incorrigible basket-case, victim not of international conspiracy but of decades of its own rotten leadership.

Plenipotentiary

Obituaries of Leon Brittan largely failed to mention his most important intervention on the global stage. I refer to his championing of Chinese membership of the World Trade Organisation, a cause which he pursued as EU trade commissioner and vice president in the late 1990s. His personal view, that China was ‘an economic superpower in the making’ which needed to be ‘locked into the international system’, was at odds with the formal EU position, which was to do no more than support the defensive approach of US trade negotiators. Brittan thereby presented himself as an intermediary and won the confidence of Chinese leaders, who treated him — then and in his later role as vice chairman of UBS Investment Bank — as a red-carpet plenipotentiary. China’s WTO membership was secured by treaties with the US in November 1999 and the EU in May 2000: the subsequent impact of Chinese manufactures abroad and western currency in Chinese hands has been a dominant factor in the world economy ever since. Brittan was one of the people who made it possible, but it seems history will remember him only for his associations with scandal.

Miserable bastards


My New Year slogan was ‘Pay up, you miserable bastards’, in reference to the practice of late payment of creditors which I called ‘the bane of modern commercial life’ — but I’m sorry to say that the leaders of some of Britain’s biggest businesses have collectively decided to laugh in my face. Diageo is extending its payment terms from 60 to 90 days; Heinz to 97 days; Mars, Mondelez (-parent of Cadbury) and AB InBev (brewer of Stella Artois and Boddingtons) to 120 days. In the industries which these giants dominate, suppliers are typically a fraction of the size of buyers, and have correspondingly higher borrowing costs; and the bigger the company, the more likely it is to be sitting on hoards of cash. The Federation of Small Businesses estimates that £40 billion is owed to its members as a result of late payments; as of last October, FTSE100 companies held net cash of £53 billion.

There are many differences between the UK and Greece, and one of them, crucial to economic revival, is the vigour and resilience of our small and medium-sized business sector — which is being squeezed by big-corporate fat cats who use each other as benchmarks for commercial brutality. It’s nothing but a damned disgrace.

Queen of cock-a-leekie

I once paid a house call on Ena Baxter, Scotland’s doyenne of cock-a-leekie and cullen skink who died last week aged 90. She was in irritable mood, having just had a new oven installed that had ‘foreign’ instructions, and I witnessed a sharp exchange between her and her husband Gordon which belied the cosy domesticity of the image they nurtured for Baxters of Speyside, the family company that was the only British challenger to the US soup giants Campbell’s and Heinz. Gordon (who died in 2013, aged 95) was an irascible chap — ‘independent as hell’, as he said — who ran the business founded by his grocer grandfather in a frugal style, free of debt and scornful of modern management fripperies, that was very much the tradition of the region, shared by some of the great malt whisky distilleries and such homely enterprises as Walkers Shortbread of Aberlour.

Absolute family control was a key to the formula. Employee share ownership was not on offer, and Gordon proudly showed me the leather-bound volumes in which he filed correspondence about the astonishing number of takeover approaches he had rejected over the years. ‘Look here, Colgate-Palmolive! I took the fellow fishing and netted a salmon for him. “That’s all you’ll catch here,” I told him. And Heinz, they came back five times. Tony O’Reilly [Heinz’s Irish-born chairman] said “Come on Gordon, you and I’ll go to Pittsburgh and run Heinz, they haven’t got anyone like you.” I just gave him a rude word.’

But if Gordon and Ena were hard-headed enough to outplay corporate titans, it was their little eccentricities that made the Baxters brand what it was: I also met the man they employed to prod beetroot as it cooked, checking for tenderness, and who doubled as Gordon’s personal bagpiper.


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