Britain's New Generation Of Company Builders
How Margaret Thatcher has instituted revolutionary changes in government to save Great Britain's faltering economy.
If you doubt the role government can play in shaping an economic climate,you need look no further than Thatcher's Great Britain
After decades of economic decline, Great Britain seems to be turning around under Prime Minister Margaret Thatcher. In my two weeks there, I tried to get beyond the rosy numbers cited by her Tory government to find out if fundamental business conditions had really changed. -- J.F.
* * *Sophie Mirman never harbored "illusions of grandeur," she says. All she wanted was a handful of stores -- six of them, tops -- selling socks and pantyhose. The idea came to her one day as she searched London department stores for a pair of cream-colored woolen tights. She was astonished that such a basic item was so hard to find. Today, Mirman has all the socks she'll ever need, and her "grandeur" is no illusion.
Eight years ago, Mirman was employed by Marks & Spencer, the large British clothing chain. She had risen from the typing pool to management. Mirman then moved to Tie Rack, a small group of necktie boutiques, where she served as managing director. But with no equity in the business, she soon grew restless. In 1983, she left Tie Rack to start her own company.
Calling it simply Sock Shop, she set up in a kiosk in a London subway station. Business was so brisk on day one that Mirman knew she was on to something good. Six months later, she opened her second shop, and a few months later, a third.
Today, at 31, Sophie Mirman is chairman of Sock Shop International PLC, a fast-growing hosiery empire with 80 company-owned stores, 450 employees, and sales last year of $26 million. There are Sock Shops in New York City and all over the United Kingdom. Mirman envisions about 500 stores in Britain alone. This year she is advancing into France, and she speaks confidently of conquering the U.S. market.
Sipping tea in her London office, Mirman says her success would have been unlikely without the revolutionary changes set in motion by Prime Minister Margaret Thatcher, who since moving into 10 Downing Street in 1979 has turned Britain upside down.
Preparing to launch that first Sock Shop in 1983, for instance, Mirman approached various venture capitalists. In return for $85,000 she was prepared to relinquish 49% of the equity. "Luckily," she says now, "they thought the idea of a shop selling just socks and tights was crazy. They all turned us down." Instead, she turned to the Loan Guarantee Scheme started by the Thatcher government in 1981. Backed by a 75% government guarantee, Barclays Bank came up with the cash -- £45,000 (or roughly $68,400).
Just over a year ago, with the company's growth accelerating, Mirman needed another cash infusion. She decided to try the Unlisted Securities Market (USM). A junior stock exchange created by Thatcher in 1980, it was designed to enable small companies to go public without the restrictions of London's big board. Mirman floated 20% of Sock Shop equity. The shares opened at £1.25 (just over $2) each, were oversubscribed by 53 times, and finished by more than doubling in price on the first day.
Sophie Mirman has plenty of equity now. The stock that she holds, together with that of Richard Ross, her husband and partner, is worth about $95 million. Mirman's situation is not unique. By last June, the USM had enabled 641 companies to go public, creating in the process some 800 millionaires as well as thousands of jobs. They are only the leading edge, however, of an entrepreneurial groundswell that has transformed Thatcher's Great Britain in ways almost unimaginable a decade ago.
When Thatcher took office in 1979, the island nation that led the world into the industrial revolution had run out of steam, or so it seemed. The so-called "British disease," economic torpor, appeared to be terminal. The country was sinking into genteel poverty, and the signs of decline were everywhere.
Labor unions held the country in a stranglehold. Wages sprinted far ahead of productivity; the London Times estimated that "even efficient British firms are usually overmanned by between 50 and 100 percent." Inflation soared to 24% by 1975. A century after it reached the pinnacle as a world superpower, a demoralized Britain turned to the International Monetary Fund in order to pay its debts. But the harsh measures that the IMF imposed touched off more troubles. In the winter of 1978-79, labor strikes practically shut down the country.
None of this should have been surprising, given British fiscal policies. The top income-tax rate was 83%. The maximum rate on unearned personal income stood at 98%. Fiscal policy created a poor environment for capital formation; for example, only one venture capital fund was active in Britain when Thatcher assumed power (compared with more than 120 now).
The nationalization of uncompetitive industries had wrought further damage. William Manchester, in his biography of Winston Churchill, The Last Lion, relates an incident from the 1940s. Churchill's archrival in Parliament was Labour leader Clement Atlee. One day in the men's room, Churchill arrived to find Atlee standing at the urinal trough. He positioned himself as far away as possible. "Feeling standoffish today, are we, Winston?" Atlee asked. "That's right," Churchill snapped. "Every time you see something big, you want to nationalize it."
In time, the British nationalized virtually every industry of consequence: autos, mining, and railroads. With the government absorbing the red ink, competition was an alien concept.
The country's work ethic disintegrated in a system of cradle-to-grave welfare. In class-conscious England, the upper crust had long disdained industry anyway. The emphasis was on public service and respectability. Money and profit were regarded as crass and vulgar terms, unfit for polite conversation.
The children of upper-class families crowded into the professions -- banking, law, medicine, accounting, academia, and the military. Equally respectable were positions in the civil service and the diplomatic corps. And so when it came time for Britain's best and brightest to select an occupation, business was way down the line.
It wasn't always so, of course. In the eighteenth and nineteenth centuries, British businessmen were titans of trade and commerce. But around 1870, with imperial England at the zenith of its power, a profound shift took place. Manufacturing had made Britain wealthy, but the vast majority of people lived and worked under the most squalid conditions. As a career pursuit, business began to be regarded as "dirty."
