Politics and Business

You will have noticed that a General Election is coming. But before you start to consider the extent to which firms will be affected by a change in government, stop to consider the significant change in the relationship between politicians and business over the last couple of years around the world.

The BBC’s Robert Peston has picked up on 5 quick examples: very helpful when you’re working through that PEST analysis.

Peston’s blog points out that before the credit crunch, business seemed to be in charge and politicians were junior stakeholders. Here are a few areas in which Peston argues the tables have been turned:

BHP Billiton and Xstrata (two mining companies) have laid into the Australian government’s weekend announcement of a new 40% tax on the substantial profits earned from mineral and resource extraction in Australia. The Australian government wants the multi-billion dollar tax proceeds to finance tax cuts for other businesses.

Much of the recent drop in BP’s share price is the result of uncertainty about the damage to the company’s prospects in the US that may result from how politicians and regulators react to the disastrous leak from its oil platform in the Gulf of Mexico. Oil is always a political business. But it has become more political than ever, as the environmental risks of its extraction are perceived to have increased in so many different ways.

The fraud charge levelled by the Securities and Exchange Commission against Goldman Sachs is the most visible sign of a global trend of financial regulators attempting to tell banks who is in charge.

All banks face uncertainties about future actions by governments and regulators, which will determine what new taxes they may face, what activities they may be forced to withdraw from, how they pay their executives, what stocks of capital and liquid assets they’ll be forced to hold, and so on.

Then, of course, there’s that refusal by European regulators and governments to trust the judgement of airlines that it was safe to fly around the ash cloud.

Peston finishes with, “So any investor has to think very hard indeed when putting money into a business about whether that business is likely to rub up against government in a way that is likely to diminish or - perhaps more rarely these days - enhance value”.