Ed Miliband: A Case Study Of Rhetoric Over Facts

On an almost daily basis Ed Miliband, Leader of the opposition Labour Party, announces his latest attack on the ancient regime of ‘capitalists’. No matter how specious his argument he is rarely challenged on facts by the other ineffective politicians he criticises, often being left to set the political agenda du jour; only his minions are challenged by more astute journalists on Today or Newsnight. The government’s collection of idiots is left running to catch up, often implementing policies worse than Miliband is prescribing.

This has repeatedly happened with much of his recent agenda-setting such as the ‘cost of living crisis’, where he focused on energy prices, the largest rise in the last 20 years being overseen by him when in government. His outpourings have cause energy companies to increase prices to lock-in profits ahead of any 2015 Labour majority, and to cause the shares of the banks wrongly nationalised under his and Balls watch to crash, reducing value to the shareholders (i.e. us, mainly).

In his FT article entitled ‘Our toxic blend of capitalism and short-termism‘ Miliband calls for a discussion on “how we can build a better, more responsible and productive form of capitalism” and blames a crisis “caused by inadequately regulated financial activity” and “rules that encourage wealth creation focused on short-term returns, fail to reward productive behaviour and skew distribution towards the top”. Yet again, these accusations all fly in the face of evidence: the banks are more heavily regulated than at any time in the past and he calls for many unproductive and anti-re-distributive policies (e.g. 50% tax). In the same piece he says: “short-termism seems hard wired (sic) in to our economy, with small companies unable to access the capital they need” not recognising that the high corporation tax that he advocates encourages businesses and their owners to make short-term decisions.

Miliband, in his speech to the Labour Party conference in September 2011, asked “are you on the side of the wealth creators or the asset strippers?” The Director General of the CBI responded that “I don’t recognise this idea that there are large numbers of companies in this  ‘predatory asset stripper’ class. This is just very black and white and it  doesn’t reflect the world as I see it”. Perhaps Miliband had recently watched Michael Douglas in Wall Street, imagining it to be a documentary? Digby Jones, former CBI Director-General and Labour government Minister for Trade and Investment, said Miliband’s comments were “divisive and a kick in the teeth for the only sector that generates wealth that pays the tax and creates the jobs this country needs.”

The view that Hedge Fund managers are evil capitalists just trying to put people out of work is quite stupid; like all of us in life they are trying to make a profit. All of us, in business or our personal lives, want to make a profit. Socialists may deny that fact, but quickly accept that spending more than you earn is a bad thing and leads to poverty; they expect the state, i.e. taxpayers, to make the poorest families ‘profitable’, yet denounce those very taxpayers (individuals and businesses) that attempt to do so.

Hedge Fund activists are simply trying to make a profit too. Their chosen method is no different to any other business – they buy something which is of lower value than they consider it should be, attempt to make some change to the underlying product and then sell at a profit, often several years later. And yet Miliband calls these people “irresponsible capitalists“.

Miliband recognises that “some [takeovers] might have been crucial to turning a failing company around” but fails to identify his data in this area.

An excellent Economist Blog on Corporate Governance published tomorrow (!) entitled ‘Anything you can do, Icahn do better‘ states that critics of Hedge Fund, such as Miliband, are wrong: “empirical proof that activists exacerbate short-termism is strangely elusive” (thanks to @johnycassidy for tweeting this). As usual Miliband’s calls for action are driven by his socialist view that the market (i.e. us citizens making voluntary transactional decisions) is wrong, and that he and his political clique are right.

The Economist Blog refers to an excellent paper recently published by Harvard Law School, entitled ‘The Long-Term Effects of Hedge-Fund Activism‘. This paper concludes thus:

“This paper has investigated empirically the claim that interventions by activist hedge funds have an adverse effect on the long-term interests of companies and their shareholders. While this claim has been regularly invoked and has had considerable influence, its supporters have thus far failed to back it up with evidence or even to subject it to an empirical test. This paper provides a comprehensive investigation of this claim and finds that it is not supported by the data.

[…]

We find no evidence that interventions are followed by declines in operating performance in the long term; to the contrary, activist intervention are followed by improved operating performance during the five-year period following the intervention.”

As usual Miliband believes his dogma is correct despite evidence to the contrary. He rabble-rouses his natural electorate against the productive in society who fund his privileged position, his pension fund, expenses-based lifestyle, and all of his beloved socialist infrastructure that the state controls.

He is an evidence-free zone; a snake-oil salesman of socialist rhetoric.

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