In the City
A bereavement
Tony Rudd
THE collapse of Stone-Platt, the textile machinery manufacturers, seems like another nail in the coffin of Britain's in- dustrial body. Certainly it's a bereavement of some significance. This was not another Laker, a Johnny-come-lately company bas- ed on the exploitation of a small segment of world demand. Stone-Platt was in a sense an institution, well known for its tech- nological innovation, its export success and a reassuring presence in the sense that it em- bodied so many of the attributes of modern-day industrial success that are so significantly lacking in British industry as a whole. For a company like this to go bust, throwing thousands into the ranks of the unemployed, bringing personal distress to its first-class management, is a sad matter indeed. Who is to blame?
The immediate culprit, of course, is the prime mourner at the funeral, the bank, in this case the Midland. It was the bank's refusal to continue to extend the credit necessary for the continuance of the business that brought it to a halt. It's almost inevitable though that in any business that is in real trouble it will be the banks that precipitate the end, simply because they arc the lenders of last resort, and if they cease that is the last resort. In- evitably the immediate recriminations are against the bank. They are bound to be the bad guys in these circumstances because they pull the trigger. Yet there is a point beyond which the banks cannot go. They have to be able to see their money back. And it may well be the case that with Stone- Platt they couldn't really see their money back. Not at least on bankers' terms. And these are that the lending should be secure, the return of the principal should be beyond question and that interest should be paid out of earnings. On these criteria, Stone- Platt doubtless did not stand up.
The predicament of middle-sized com- panies like Stone-Platt, caught in a reces- sion which has gone on for far longer than had been expected, and prisoners of an ex- change rate which has gone the, wrong way on balance, is serious. It is no use supposing that the discipline imposed by the recession has actually done these companies good. It hasn't; it is in fact bringing them to their knees and in some cases, as we can see, is actually killing them off. The theory that we are all going to emerge 'leaner and fitter' from it all doesn't, in these cases, stand up. Of course against this reasoning there are those that say that if we can't maintain a viable industry in a field like textile machinery then it's no use supporting a 'lame duck'; the skilled people of Stone- Platt can become bingo callers and milkmen. In the Thirties they could have become domestic servants and before the first world war they could all have joined the Army and gone to India. The argument here is false of course because we don't ex- ist in a situation of perfect competition; far from it. It's very imperfect. The competi- tion in international markets in which our exporters operate is, strictly speaking, un- fair in many ways. The conditions are af- fected by what overseas governments do, the subsidies which they give to their local industries, the hidden tariffs which they operate and all the other tricks of the trade which the wily and the unscrupulous (who
'It's too dangerous to go out around here — I stay in and watch violence on TV.'
are the vast majority) make use of. They support their own Stone-Platts against ours, Do we support ours against theirs? In other words it's up to us whether our ducks are lame.
Presumably the experts at the Bank of England and in the Department of Trade who are watching what is happening In industry and have their finger on the Pulse are monitoring the situation and know where all the borderline cases are. Presumably they have got all the figures on their computers so that well before the final danger signals come up the experts can move in. One says 'presumably' because the case of Stone-Pratt suggests otherwise. It suggests that nobody has his finger on the pulse. On the contrary it suggests that as this appalling recession proceeds and corn' pany after company gets nearer the brink, there is really no lender of real last resort around. In other words we may expect a whole host of medium and even large size companies to go over the brink before tins whole wretched phase is over. Left to its own devices the system can hardly produce any other answer. Clearly the banks are ful- ly if not over-lent in many cases. They are doing their best, but their lending is becom- ing over-extended. In deserving cases the City is subscribing more equity capital. Paradoxically, going back to Stone-Platt, that company received an equity injection last year of around £12 million, but it wasn't enough. Yet at least the City tried. In the case of companies less well known, even that kind of equity injection, once things have become difficult, is pro" blematical. It's easy to raise equity money when things are on the up and up but when the trend is downwards who, amongst equi- ty holders, wants to put up good money after bad? The fact is that there should be a lender of last resort other than the banks. And their criteria should be appropriate to the problems of rescue. That is to say that an equity fund is needed which isn't run on normal commercial lines but is based on the principles of a 'bail out'. If the rescue Plan fails, then the money is forfeit and the other creditors, including the banks, still get their bit, whatever that may be. If however the rescue succeeds then the 'ball out' fund gets a return equivalent to that Of a piece of the equity. In other words, it's a convertible loan, but unsecured. Most cool- panics in the position of Stone-Platt would rather give away a great chunk of the benefit of future recovery rather than go under and so would their shareholders. A fund, backed by a government guarantee, which had large enough resources, would be able to see these kinds of situation through and would be able to reap the subsequent benefit in the recovery to come.
What is needed is a resuscitation of the Industrial Reorganisation Corporation, the old IRC. It's such a pity that the doctrinaire attitude of this government towards 'in' terference' prevents this kind of initiative. Perhaps, though, even they will change their minds as events unfold.
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