Political meddling in business rarely ends in a pot of gold
Automation effectively makes the dream of ‘bringing industry back home’ irrelevant. But this does not stop opportunist politicians from banging on about it
If you want to know something about the vagaries of political meddling in business, a good place to start would be in Dearborn, Detroit.
This is where Ford Motor Company executives have been trying to get on with the business of producing vehicles at the lowest possible cost but, instead have been spending a great deal of time dealing with the complex politics of production.
US President Donald Trump lambasted them for investment plans in Mexico, which were scrapped in January. Now it turns out that instead of Mexico, Ford will be making a new investment in China, alongside another investment back home.
Somewhere lost in all the political noise surrounding these investments is the reality that Ford is a global company, and a major player in most of the markets where it operates. No one seriously believes that the United States can be the production centre for all these markets, nor crucially, that all vehicle components can be manufactured in the same place.
That lesson about components came as something of a shock to the numbskulls who were busy celebrating the fall in the value of sterling in the wake of the Brexit decision.
“British exports are going to be that bit more competitive”, they boosted. However, it soon transpired that it also meant higher import costs for British vehicle makers, who, like all other global scale manufacturers, import components, which often account for the bulk of their material costs.
So, using political priorities to skewer production capabilities and to defy gravity ignores the realities of the global economy.
Out in the real world, iconic national products, like Apple’s iPhone, are barely made in the United States but are assembled and have components heavily sourced from elsewhere, mainly China.
This applies to a host of other “American” products, including, as everyone now knows, the fashion line produced in China for the company run by Ivanka Trump, the president’s daughter.
Politicians are fixated by industrial production, even though it occupies a dwindling space in most developed economies. They want it boosted to bring back jobs but these jobs are never coming back. In part this is because automation has already made this irrelevant but also because production inevitably gravitates to where costs are lowest. However, this does not stop opportunist politicians from banging on about “bringing industry back home”.
All this nonsense would be quite enough but there is more, much more, as Hong Kong business people know only too well. One minute they are sitting in their offices trying to make sense out of the coming year’s business plan while the next minute they are fielding calls from government officials urging them to sign up for all manner of new schemes emanating from the mainland.
The old mantra of getting Hong Kong business to invest in the Pearl River Delta has been replaced by something called the Greater Bay Area. Before that was the understandably forgotten Closer Economic Partnership Agreement.
Now we have the “Belt and Road Initiative”, involving places like Kyrgyzstan.
Do you really believe that Hong Kong companies would be heading there or to any of the other ’stans, if it were not politically expedient to do so?
Yet, according to Leung Chun-yin Hong Kong business will be playing a “super connector” role here.
The pressure to participate in these schemes is enormous. It is matched only by the private scepticism of the companies who are supposed to commit manpower and resources to help get them off the ground.
Things have got to such a stage that a number of major companies now employ individuals who do nothing other than bustle off on trips with officials in support of these schemes. They come back and write largely unread reports while the bosses try to work how little they can get away with by way of real financial commitment.
Of course, some of these schemes yield results and no business is going to turn down an opportunity to make a buck if there is a real prospect of doing so. But, and this is a very big but, one of the things business people are best at doing, is developing business; it is even possible to argue that they are better at it than politicians and bureaucrats. In my experience, if great opportunities really exist in remote places, it’s a fair bet that business will find them.
And there is a cautionary tale in what happened to Hopewell Holdings when Gordon Wu became the politically lauded poster boy for investing in Guangdong infrastructure projects two decades ago.
To put it politely the cheering surrounding his efforts was matched only by the cascading sound of cash gurgling away down many drains.
Does anyone seriously believe that companies would run better if only they had more political guidance?
Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster