August 27, 2006
Barbarians at the gate is what people in the trade call private equity outfits, a type of corporate raider. They bear this nickname because they featured in a book and telemovie of that title years ago. One of the most notorious is Kohlberg Kravis Roberts (KKR), which is leading the assault on Coles.
What should we think of this? To the extent anyone has protested at the takeover moves, the flavour has been nationalistic. Bob Brown, for example said it was ‘in the national interest for Coles to stay Australian. It is an employer of almost 200,000 people and a national icon.’ As an afterthought he added that it could ‘mean big job losses’.
I don't believe in the ‘national interest’ because it always turns out to be the interest of capital. Nationalist sentiment just encourages workers to line up with their enemies. I remember the last big Melbourne mobilisation of flag-waving textile workers against tariff cuts - they found themselves cheering Jeff Kennett like he was a football hero. Not a pretty sight.
And it's not as if evil foreigners will cart the supermarkets and Target stores off to New York. Whoever owns them, they'll still be here to sell us cheap shirts and trashy magazines.
But the nationalist response is off base in other ways. Where does Bob Brown get that national icon bit? What kind of Australian heritage lurks in Coles' Americanoid stores and middle brow management? When CEO John Fletcher took the helm in 2001, he hadn't been inside a Cole supermarket for 25 years. Some icon. Meanwhile this company has been the scene for financial scandals from Brian Quinn to Yannon.
Actually it's not clear we're seeing a foreign assault at all. Andrew Green of the Australian Venture Capital Association says ‘There's every chance it's Australian superannuation money that's going straight back into the Coles bid.’ (Sunday Age 20/8) The NAB and ANZ are apparently part of the gearing exercise. Anyway, the raiders will probably re-sell the assets in a few years - and given the company's local profile, quite possibly to Australian buyers.
Still, the takeover is bad news. But the reasons have nothing to do with nationality, and everything to do with the logic of capitalism. Outfits like KKR borrow heavily as part of their strategy, meaning profits are magnified - but so are losses. On one estimate, if the new management doesn't perform at Coles, investors will lose 25% of their capital a year.
Much is at stake, so the new owners have to be ruthless. But that's the point - these raiders are especially ruthless by nature.
While the bosses running big companies are pretty hard-nosed, they can be affected by daily experience. They ease their mates into jobs, and then kind of look after them; they take a certain passing interest in what the company actually does; and if workers resist exploitation the bosses can get a bit tired of grinding them all the time. Result: management doesn't spend every second of the day obsessively boosting profits. The company starts to ‘underperform’.
But now the market strikes back. Investors get bolshie, turning to corporate raiders who promise to ‘unlock shareholder value’.
Capital reasserts itself in pure form, utterly abstracted from human need or the actual function the company performs. Most investors couldn't give a ratz whether firms make life-saving medicines or weapons of mass destruction; whether a store sells yoghurt or flea poison. What matters is profit, and in this regard all they need to know is that Coles is underperforming compared to Woolworths. Tell them that and they'll cheer on KKR.
KKR and its backers appear as an extreme version of what Marx called ‘personifications of capital’, abstracted from the useful activities that companies perform and the human beings who work there, totally devoted to ‘unlocking value’ - another abstraction, because it's workers who produce value, and it's workers who suffer from takeovers.
So of course Malcolm Maiden is right to say (Age 19/8) that ‘an acquisition will be followed by aggressive job cuts.’ Of course there will be pressure on wages and conditions too. Job cuts might raise ‘issues’, Maiden concedes, but the main thing is that the company will ‘emerge from the process leaner, more profitable and more productive, to Australia's long-term benefit’.
There's that national interest again. It has precious little to do with the interests of workers.