‘Cheers’ said Hugh, raising his glass. ‘Or should that still be Sant at this point?’ Everyone on the Paris to London train felt obliged to mark the moment that it entered the tunnel. In time, I suppose, people will become blas about it. But for now travelling under the Channel remains a wonder, even for frequent travellers.
Looking out of the window, I pondered the cause of this wonderment. The trains and the control systems might use some of the world’s most advanced technologies but civil engineers will tell you that the digging of the tunnel itself was no great breakthrough. And, as a project, it had followed the traditions of the railway building boom of a century and a half ago. It was completed late, went over budget and seems doomed to lose money for many years to come.
The real wonder, I concluded, was that hundreds of thousands of small investors, who are normally highly risk averse, should have been persuaded to subscribe for shares in it.
I thought Hugh might be able to help me understand. As we had settled into our seats in the Gare du Nord, he had told me he was in advertising. And selling shares to the public like detergents and breakfast cereals through huge advertising campaigns was, after all, a significant element of the British financial scene during the 1980s. Where, I wondered, did the ‘share-owning democracy’ – a major part of Thatcher’s platform – stand now.
‘Well,’ said Hugh, ‘if you go back to where it all started, the sale of the first tranche of BT, you have to understand that wider share ownership wasn’t an objective in itself. At the time BT was four times bigger than any previous offer in the world. Many wise heads in the City said that it was too large for the market to absorb. A new source of demand had to be created if institutional investors were to be convinced that the offer would be oversubscribed.’
‘The general public?’
‘Yes. Millions of people who had never even thought of investing in shares had to be persuaded to apply for shares so the institutions would be convinced that the offer would be oversubscribed. Hence the big advertising spends.’
‘And it worked.’
‘And how. Millions applied. And then the government realised that wider share ownership could have a political advantage. So in later large flotations, the objective wasn’t just to ensure the offers were oversubscribed. It was to make ordinary people feel that through owning shares they had a real stake in the economy.’
‘But it didn’t exactly create an equity culture, did it?’ I ventured. ‘Millions were taken out of savings accounts when a flotation was mass-marketed. But when issues were oversubscribed and money was returned, people didn’t go into the secondary market and say, I’ll have some ICI or Marks & Spencer now. They put it straight back into the savings accounts.’
‘I suppose so,’ said Hugh. ‘But think what was created. For the first time, millions of people had a sense of owning something, of participation.’
‘The sense of participation must have taken a few knocks recently,’ I suggested. I reminded him of the British Gas annual meeting where small shareholders voted overwhelmingly against the remuneration packages the directors had awarded themselves only to find the vote overturned on a poll in which the institutions supported management.
‘That’s the way things work’, said Hugh.
‘And what about water?’ I went on. ‘When there were public utilities, people were prepared to make sacrifices when there was a drought. But this summer the attitude to shortages was very different because people knew they were dealing with profit-making companies.’
‘Perhaps,’ said Hugh.
‘And there were the regional electricity companies. Wasn’t the public sold on having a stake in their local suppliers?’
‘It was a brilliant concept,’ said Hugh. ‘I mean, turning your customers into shareholders creates a whole new relationship’.
‘And now the companies are being taken over by big conglomerates. Where’s the new relationship now?’
‘But the shareholders make money so there can be no grounds for complaints.’
So it hadn’t really been about having a stake in the economy. It had been about showing people how to make a quick buck.
My ears popped as the train left the tunnel. I wondered about the people who had bought shares in Eurotunnel. They certainly hadn’t made money. And now that the company had suspended interest payments, they faced being diluted in a financial restructuring which was sure to involve a debt for equity swap.
I realised that the problem with using consumer advertising to sell shares is that it has to focus on a simple message – essentially Buy this and you’ll make money. Any wealth warning about how shares can go up as well as down gets lost in the small print.
