Mannerisms

In a telling phrase, a national organiser of the Transport and General Workers Union, Brian Revell, said this week: “Private equity companies do not create wealth; they extract it for their shareholders.”

It is a phrase reminiscent of the crushing judgement on private equity companies of one of Silicon Valley's most successful CEOs, Wim Roelandts, CEO of Xilinx.

“Private equity buy-outs are a scheme for a few people to get rich quickly”, said Roelandts, “they’re not looking at the strategic direction of a company. They buy a company, leverage the hell out of it, sell bits and pieces, cut the R&D spending and go public to get their money back.”

In the semiconductor industry it did not take long for the private equity takeovers of NXP and Freescale to result in the destruction of Crolles, Europe’s flagship centre for basic microelectronics R&D.

Within a few months of being bought by private equity companies, NXP had pulled out and Freescale had announced it was going in with IBM for its chip R&D which is as good as saying it is pulling out of Crolles.

Now Crolles was a creator of wealth. By giving Europe controlled access to microelectronics technology, it guaranteed a level of world-class competence in Europe’s semiconductor industry. It was a social good.

Pirate equity is a social evil aimed at making rich people richer. And, as the pirates run rampant in Europe, and the national governments seem too frightened to regulate them, it is good to know that there’s a body of people strong enough, and prepared to stand up to them and protect Europe's businesses.

Not only have the unions got the power to wreck by industrial action the financial assumptions on which the private equity companies base their bids, they also have the power to lobby governments for important legislative changes which can clip the private equity funds' wings.

For instance, for some extraordinary reason, the private equity funds can set the interest on the borrowings which they use to buy businesses, against tax.

Hopefully Gordon won't continue to allow the private equity funds to destroy jobs, while getting a subsidy from the taxpayer for doing so. The unions are trying to get him to abolish tax relief on these loans. Good luck to them.

The unions have, since Mrs Thatcher, lost their empire and not yet found a role (as US Secretary of State Dean Rusk once said of Britain). Now here’s a noble role to which they can aspire.