Speaking at an event in London organised by the Chartered Institute for Securities and Investments (CISI), the Liberal Democrat MP for Twickenham and former economist for Royal Dutch Shell (pictured) said: “Finance is a public good, but it doesn’t always work that way.”
Part of the problem, he said, is a mis-match between the needs of long term savers and investors and the short termism of markets.
“We have a very large pool of savings looking for long term returns. Then there are long term projects. How well does the system match long term savers with long term investments – not very well.
“There is a breakdown in that relationship. The system of intermediation is very short termist. As a country part of our culture is very short termist in how we do things. We have a problem of a short term culture is financial markets.”
Small and medium sized enterprises (SMEs) that try to secure business funding are among the hardest hit by this mis-match, Cable acknowledged, despite two years of the government’s Funding for Lending scheme, which is designed to incentivise banks and building societies to boost their lending to the real UK economy, especially to SMEs.
“It is extremely difficult for SMEs to get hold of long term capital to fund their business. If you are in a company that wants to invest you will get punished by the markets because short term performance is below par,” he said.
As a result, Britain is becoming “addicted to takeovers”, the business secretary claimed.
“It’s actually quite difficult to grow a company organically in the UK then float it to raise capital. So we’re becoming addicted to takeovers.
“But all the evidence we have is that this churning of takeovers destroys value.”
However figures from the Office for National Statistics (ONS) suggest merger and acquisition activity has slowed, falling to its lowest level in 45 years as companies put off capital spending until they are certain of the UK’s recovery.
UK firms bought just 26 other British firms with a value of at least £1m in the first quarter of 2014, down from 59 acquisitions in the final quarter of last year, resulting in the lowest level of domestic takeover activity since the ONS records began in 1969.