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The following was written by Ivor Catt, would-be defender of the high-quality techie, or 'technocrat', in December 2002, after the death of the Jewish 'Industrialist', Arnold Weinstock. It shows that many techies have no idea at all about the world. - RW
The Fatal Flaw
The rapid collapse of Marconi, alias GEC, is food for thought.
Arnold Weinstock, with the help of the British Government, forced the merger of all British electronics companies into a massive company called GEC. This is because the dogma of the time, promulgated by the then Minister of Trade and Industry Tony Benn, was that Big is Beautiful. British industry in general, and British electronics in particular, would only be able to compete globally if it had companies as big as the competing companies abroad, for instance Siemens.
Previously, it was said, the greatest merger Weinstock ever achieved was when he merged with the daughter of GEC’s previous boss Sobell. This and more is discussed in the “Stinking fish” article in New Scientist, which led to a libel action which was dropped when New Scientist went for Disclosure..
Weinstock asset stripped, and created a widely noted and discussed money mountain of £2 billion. He also talent stripped, so that for decades, GEC was an empty shell. However, since all journalists were hostile to technology, and ignorant of it, this passed unnoticed. It was well known within GEC that Weinstock had got rid of the technical middle management, for reasons which will be explained later. However, this did not deter technology-free (and technology hating) city slickers and journalists from writing books about GEC’s brilliant management, investing in GEC, and advising everyone else to do the same. For decades, GEC profited from government cost-plus “defence” development projects which often lacked any end product. Nimrod was an example. However, in the same way as GEC would change its name when scandal broke, so Nimrod was a name given to successful minor projects as well as the major £1 billion spectacular failure.
GEC ended up valued at perhaps £10 billion, with Weinstock, the grand old man of the company, owning a good percentage. The £2 billion money mountain received frequent comment. Then came the time for the succession.
First, Weinstock tried to install his son, but ran into too much opposition from major shareholders, presumably the Pension Finds. In due course, the lead position went to Lord Simpson, who spent the money mountain and more on third generation mobile phone licences. It appeared that he was getting away from “Defence”.
In the space of only a few months, the mighty GEC was gone with the dotcom crash, down from £35bn to £150m. That is, its share value was down from £20 to 20p. In the process, Weinstock’s holding collapsed down to a few millions.
Technology-free journalists (which means all journalists), noting that Simpson was a technocrat, blamed the collapse on him. GEC had grown and prospered under Weinstock for decades, and soon after that great manager and financier handed over control, the company he had nurtured so carefully for so long was gone. All analysts ignored the fact that the weapons industry gives only a fraction of the return on capital invested of other industries, and that GEC’s growth had been less than that of its competitors. These things had been remarked upon decades earlier, but were now ignored in the rush to praise Weinstock the accountant and blame Simpson the technocrat.
The Collapse.
Why did a massive company, widely praised for its management (by Weinstock), collapse so suddenly after he gave up control?
The Market.
Predators noted that the succession made GEC temporarily vulnerable, or weaker than usual. They sold GEC shares short on a massive scale. The scale of their sellings made GEC’s share value collapse. The predators continued to sell, so that the amount they had to pay on settlement day was minimal. By then, nobody wanted GEC shares.
GEC was the perfect illustration of the fact that massive profit can be made out of destroying a company. In the same way as one profits from buying on a rising market, one profits from selling on a falling market. The only difference is that, whereas a bull has limited commitment, to the amount he buys, the bear has unlimited commitment if the market rises after all. However, this risk is fully covered by selling through a limited liability subsidiary. If things go wrong, the subsidiary goes into liquidation, leaving Soros or the like secure but a little less wealthy.
For this wheeze to work, all that was necessary was for Soros and his ilk to believe that GEC was in trouble, and together to be much larger financially than GEC. They did not need to know that GEC was an empty shell. In any case, being themselves technology-free, they would prefer a high-tec company to be technology-free like themselves; that is, they would prefer an empty shell to a real company.
When S told me that his top manager was trying to destroy his company which he was trying to save it, he assumed I knew that money could be made out of destroying a company. That is why he failed to explain the mechanism which was demonstrated so spectacularly in the case of GEC a decade or two later. That is, I did not realise that one can make money by selling short provided that one destroys in the process. This is the mirror image of making money by buying, or investing, in something which grows.
The Truth.
There are no grounds for my saying that major financial groups knowingly destroyed GEC by selling short. All that the above tale demonstrates is a fatal flaw in the Limited Liability company. A subsidiary can attack a company or a country’s currency without the mastermind being liable for the resulting destruction. In fact, no master mind is needed. All that is needed is financial centres, for instance pension funds, with large amounts of money to wield egged on by rumour. It appears that no journalists understand the mechanism. So long as they all believe the same story, the destruction results, and they are all amply rewarded. The destruction is most likely to result without the predators knowing what they are doing. Such predators as understand what they are doing sleep uneasily in their beds, and stop doing it. Those that remain are those who do not understand, and who are much more efficient as a result. The most efficient system of all is if they are loosely directed from above by those who understand the process, and live with the guilt.
This fatal flaw in the Limited Liability Company will be one of many. The underlying flaw is that limited liability removes accountability, leaving the big predator to destroy anything smaller. It appears that the damage is limited by inefficiency. This means that as computers and the internet increase efficiency, the predatorial damage will increase.
It is clear that our system, based on limited liability, is only viable if it is heavily regulated on a worldwide scale.
Weinstock-Style “Defence” Contracting.
The government used “Defence” spending to regulate the economy, so it was erratic. Weinstock organised his company ideally for this. Lower level engineers were hired straight from college, bright-eyed and bushy-tailed. It took them only a year or at most two to realise that they were in a blind alley, and leave. These bright young things were granished with a smattering of more experienced temps like me, hired for the contract on double pay. (Hired on a government funded cost plus 14%, the higher their pay, the better.) When the next “defence” contract came along, Weinstock could hire in this year’s graduates and some more temps, and repeat the cycle. He could match his low level staff closely to the ebb and flow of the contracts.
Middle management presented a bigger problem. As family men with mortgages, they were less likely to leave to save their careers. Weinstock left them on half pay, so that only incompetents stayed. During low funding times, he had to keep paying these poor men half pay, but all the same, they would leave in a trickle.
These three ruses made Weinstock the ideal contractor for defence spending by his buddies in government.
On my website I pointed out that it was impossible to conceive of Weinstock being a crook, or even a shyster, because that year he occupied the Queen’s carriage to the opening of Ascot, while his wife brought up the rear in the second carriage with the Duke of Edinburgh. In any case, he was an accountant, so these ruses may not have been intended. It was well known that his sole interest was the balance sheet for each division, and if the current six months proved poor, the man in charge of that division would be fired. One journalist who interviewed him at GEC Headquarters reported that he had no long term plans, or strategy. It is possible that the three ruses alleged above developed naturally without any intent; the inevitable result of an accountant’s approach to hi technology.
Working as Principal Lecturer down the road, I would ask my day release students how long they intended to stay at GEC. Every one of them assured me that they realised they must not stay long, or it would ruin their careers. An engineer who spent more than a few employed at GEC was not taken as a serious candidate for his next job. Of course, this applied to any engineer employed in “defence”, but the principle operated with a vengeance in the case of GEC (where I myself was employed for many years).
Ivor Catt 27dec02
Lord Weinstock
Britain's premier industrialist for three decades, he built a world-class manufacturing empire with efficiency and passion
Alex Brummer. Guardian. Wednesday July 24, 2002 [Catt does not know that 'British' media is Jewish owned]
Lord Weinstock, who has died aged 77, was Britain's premier post-second-world-war industrialist. For more than three decades, as managing director of the General Electric Company (GEC), he remained at the top of one the nation's greatest and most successful industrial enterprises, in a period when manufacturing was steadily declining. The fact that Britain is still a leading player in the global power industry, and has a world-class, research-based defence industry, can largely be attributed to his precocious skills.
With a strongly developed intellect and wit, Weinstock overcame an unprepossessing background to become the trusted counsellor to four prime ministers - from Harold Wilson, who saw him as the personification of "white-hot technology", to Margaret Thatcher, who recognised him as a powerful exponent of modern capitalism, although they were often were at loggerheads over her privatisation drive and defence contracts.
However, he was not just the cold-eyed industrialist who, in the Wilson years, drove the amalgamation of Britain's electrical industry - to the chagrin of Labour's leftwing, led by former technology minister Tony Benn, and the trade unions. He was as well known in the bloodstock industry and on the racecourse as in the boardroom, running, with his late son Simon, the Ballymacoll Stud in CoMeath, Ireland.
This was one of the few Anglo-Irish owned and run stud farms capable of producing classic winners. The most notable product of Ballymacoll was Troy, winner of the 200th Derby in 1979, sweeping all before him before being put out to syndicate by the Queen's racing manager, Lord Porchester, for what was, at the time, a record £7.2m.
Weinstock's other great passion was music, which he first discovered as a choirboy at the Poet's Road synagogue, in north London, and was, in latter days, pursued through a friendship with the conductor Riccardo Muti.
Outwardly, Weinstock was a forbidding figure, before whom his senior managers - and even some cabinet figures - would quake. There was nothing dreaded more for a GEC employee than the managing director reaching them at home, late in the evening, after he had been scouring the accounts. The thoroughness of his management, the tight control on costs down to the smallest washer, enabled GEC to prosper and grow in the face of the ups and downs of the UK economy in the 1970s and 1980s, when so much of British manufacturing vanished into overseas hands.
When the economy was going through one of its most severe recessions, under John Major's stewardship in 1990-92, GEC demonstrated a rare consistency, breaching the £1bn profit mark despite the problems of a high exchange rate as a result of the exchange rate mechanism. This was only possible because of the strict cost regime at GEC, which set it apart from the crowd.
But behind the mask of the cold-eyed industrialist, willing to close uneconomic factories and take on the unions and the complacency of much old-style British management, was a warmer figure, whose obsession with his own health meant that he was always there to ensure the best medical attention for an employee or manager's relative with a problem.
His senior associates at GEC - the inner circle with whom he would chew over the day's events - also recognised a good deal of wit, and saw that Weinstock's actions were always governed by a sense of fairness and sentimentality. There was much gentle teasing in his approach to people, though this was sometimes mistaken for sharpness.
Arnold Weinstock was born in Stoke Newington, north London. It was a remarkable birth for the time because of the age of his parents. His father Simon, who had emigrated from Poland to London in 1904, was 50; his mother 46. The oldest of his five brothers was already 24; the closest to him was Harry, by then 15. His father, a master cutter, worked for Hitchcock and Willis, making ladies' coats and mantles in the West End garment district.
When Arnold was just five, his father died after contracting acute pneumonia. Weinstock always retained vivid memories of a tall, dignified man, who would dress up in dark coat and trousers, with his fob watch nestled in his waistcoat, to celebrate the Jewish Sabbath at the Wellington Road synagogue.
His mother Golda took on the running of a busy household, but, by 1934, she was also dead from breast cancer, leaving Arnold an orphan at 11. Then began a peripatetic existence which saw him passed from one brother and sister-in-law to another. This was useful preparation for when he, and his fellow students at Stoke Newington central school (SNCS), were evacuated to Warwickshire in August 1939.
While living at the hamlet of Withybrook, the young Weinstock began to flourish academically. With the help of Freddie Fogg, a master from the SNCS, and the schoolteacher wife of his host, he gained matriculation, and, even more impressively, a place at the London School of Economics.
His days there were spent during the school's wartime exile in Cambridge, where his economics lecturer was Friedrich von Hayek, whose thinking was later to become the intellectual inspiration for Thatcherism. But despite his clear intelligence and hard work, he gained only a disappointing, lower second-class degree.
Two days after his graduation in 1944, Weinstock got his call-up papers, and was assigned to the production and priority branch of the Admiralty at Bath. Few might have guessed that the spindly statistician would, five decades later, be responsible for the manufacture of all Britain's naval vessels as well as the country's radar systems and advanced avionics.
After three years at the Admiralty, working hard for very little, Weinstock returned to London, where, with the help of his brother Jack, he quickly found a place working for the West End property man Louis Scott.
At this point, Weinstock made the most critical connection of his life. He was invited by the hotelier Maxwell Joseph to a charity ball at the Dorchester hotel on Park Lane, and placed next to one of the most eligible women in London, Netta Sobell, the daughter of Michael Sobell, an entrepreneur who had made his fortune manufacturing radios and would soon, with the assistance of his son-in-law Arnold, ride the television boom.
In 1954, Weinstock joined Sobell's Radio and Allied Industries, from which base he went on to create a manufacturing giant. So impressed was the City with his management skills that, when the larger GEC was floundering in 1961, Radio and Allied was encouraged to make a reverse takeover of it. Weinstock became the company's managing director just 44 days after Harold Wilson was elected leader of the Labour party.
It was a fateful coincidence. Wilson recognised the talent of the donnish businessman, and, when he made takeover bids for Amalgamated Electrical Industries (AEI) in 1961, followed by a merger with English Electric (owners of Marconi) in 1968, Labour egged him on, despite his policy of radical rationalisation. He was now Britain's top manufacturer, and, in 1970, received his knighthood, shortly before joining the board of Rolls-Royce.
Despite his success, however, he was not entirely acceptable to the establishment. In 1973, much to his chagrin, he was blackballed from Brook's club amid mutterings of anti-semitism.
Throughout the 1970s and 1980s, Weinstock continued to develop the business, both organically and through acquisition, buying up scale maker Avery, the health equipment company Picker, the shipyard at Barrow-in-Furness, the electronics group Plessey - after a bitterly fought takeover - and Ferranti, which had run into financial difficulties. This purchasing spree ended in 1995 when he acquired the last remaining leg of the UK's seagoing platform, the VSEL shipyards at Jarrow.
Against the background of the breakup fever of the late 1980s, which was led partly by the financier Lord Hanson, Weinstock also built a series of relationships with continental and American companies, including Alsthom of France, Siemens of German and General Electric of the US (no relation) in a series of moves designed to make the GEC he had created takeover-proof.
But Weinstock's final years at GEC were not happy ones. In the late 1980s and early 1990s, he found himself increasingly out of touch with the prevailing political and City mood. He fell out with Mrs Thatcher over his opposition to privatisation and the perceived poor performance of GEC in the development of Nimrod surveillance aircraft. He failed to please the City because of the GEC's old-fashioned corporate governance and a belief that he was not delivering enough shareholder value.
As if this were not bad enough, he was struck by personal tragedy. His son Simon, the commercial director of GEC, contracted cancer in 1996, and died before his father had settled the succession at the company. The City insisted that Weinstock Sr move on and, in the same year, he became emeritus chairman, making way for Lord (George) Simpson. The company he left behind was a varied collection of electrical businesses.
Ironically, GEC, at the forefront of developing silicon chip and cellular phone technology, showed no great aptitude for exploiting these commercially, which meant that the company that Weinstock bequeathed was strong on defence but not civilian technology - a distinct disadvantage in the age of e-commerce and the cellular phone.
In 1999, Simpson focused the company on IT and communications, and renamed it Marconi plc. But last month, as a major loser in the dotcom and telecom crash, its value had declined from £35bn to less than £150m, Simpson left with a million-pound pay-off, and Weinstock was said to be deeply upset.
In later years, after the death of his son, Arnold Weinstock rediscovered his Jewish traditions; he took pride in the fact that his daughter Susan chose to bring her children up in the religion of his ancestors, and he drew comfort from the fact that he was able to play a personal role in helping to ensure Israel's survival during the start of the 1967 six-day war. His legacy reached well beyond the realms of business, politics and the turf.
He was made a life peer in 1980, and is survived by his wife and daughter.
– Arnold Weinstock, Baron Weinstock of Bowden in the county of Wiltshire, industrialist, born July 29 1924; died July 23 2002 |
