The Day of the Locusts

The Social Democratic Party ( spd) agreed to abandon its Marxist rhetoric and embrace market capitalism in 1959, but casual observers of the current political campaign in North RhineWestphalia could be forgiven for not knowing that. Party officials led by chairman Franz Müntefering have delivered a ferocious critique of private investors that has dominated the campaign.

In his most cited remarks, Müntefering compared private equity groups and short-term investors like hedge funds to “swarms of locusts” that fall on companies, devour all they can, and then move on. “Some financial investors don’t waste any thoughts on the people whose jobs they destroy,” he told a German newspaper. The fire and brimstone is part of the spd‘s effort to woo back voters disillusioned by the government’s own economic reforms. Last Friday, Chancellor Gerhard Schröder himself joined the apocalyptic debate by calling on his ministers to examine whether hedge funds should be subject to tougher regulation. The remarks are striking, given that the same government authorized hedge funds to operate in Germany only last year. The immediate pretext for Schröder’s change of heart was last week’s ouster of Werner G. Seifert, the long-serving chief executive of the German stock exchange. The rebellion that ejected Seifert was led by The Children’s Investment Fund (TCI), a British hedge fund. Angered by Seifert’s costly and unsuccessful bid to take over the London stock exchange earlier this year, TCI pushed for a reshuffle of Deutsche Börse’s management and the replacement of most of its supervisory board. As well as securing Seifert’s removal, the investors also picked off Rolf Breuer, the chairman of the supervisory board, who said he would quit before year’s end.

Many Germans were taken aback by the sight of heads rolling at the exchange — a symbol of German capitalism — but not all believed “locusts” were to blame. Reinhild Keitel of Schutzgemeinschaft der Kapitalanleger, a German minority shareholders group, describes Müntefering’s interventions as “an absolutely scandalous election ploy.” Dieter Hundt, president of the Confederation of German Employers’ Associations, fears the debate will prove “extremely damaging” to the country’s international image. “What’s happening currently makes me want to vomit,” he told one TV interviewer. Business argues that foreign investment is vital for the economy and that short-term investors, while sometimes uncomfortable for management, keep them on their toes.

But unions adore the locust comparisons, and are urging the government to introduce measures to discourage short-term speculative investment — a ban on funds acquiring and then breaking up companies, for example. Following the Deutsche Börse shake-up, even some of Germany’s leading capitalists are starting to agree. Breuer, who will continue as supervisory board chairman of Deutsche Bank — Germany’s largest — after his departure from the stock exchange, said last week that no big German company was now immune to outside shareholder pressure. Keitel of Schutzgemeinschaft der Kapitalanleger draws a different lesson. She expects the capitalism debate to simmer down after next week’s poll, but the discussion of the coup at Deutsche Börse “will continue for a lot longer.” Management ignored the strong feelings of a large minority of shareholders, she says, and “that was a very big mistake.” It remains to be seen whether the locust imagery will save the spd‘s skin in North RhineWestphalia — or whether that rhetoric, too, turns out to be a big mistake.