BUSINESS ABROAD: The New Capitalists

A clerk in one of Britain’s largest investment trusts last week shook open a soiled manila envelope, and out fell a wad of crumpled £5 notes, accompanied by a crudely scrawled order to buy stocks. “The man probably had the money in his mattress for 25 years,” said a fund executive, “but we’re getting used to this sort of thing.” This “sort of thing” was such a rush to buy shares in British corporations that the Financial Times’s share index soared to 259.7, up from 188.1 last fall. Many a broker grumbled that the invasion of new, little investors was forcing prices so high that yields for longtime investors were being sharply cut.

Mad About Mutuals. The boom in stock ownership in Britain was reflected in many a nation around the world, showed a profound change in the savings habits of people with small incomes. Before, if they saved at all, they put their money under the mattress, or in government securities or postal savings. Today, millions who once looked on stock ownership as the pastime of the rich, and stock exchanges as sinister cabals against the common man, are eagerly investing in capitalism. One of the easiest ways, as in the U.S., is through mutual funds.

In Britain, 42 mutual funds have sprung up (four of them in the past 15 months), offering to invest sums as small as 38¢. With 400,000 buyers enrolled, British fund assets jumped 50% in the past year alone, to $336 million. Among newcomers to the capitalist class are thousands who still have no bank accounts. A poll of investors showed that one-fourth left school in the grammar grades. So radically has the British attitude toward buying shares in capitalism changed that even the Laborite Daily Herald in its financial column now urges mutual funds as a good place to put working-class savings. The Tories are delighted, well realizing the obstacles that such investment is creating for nationalization if the Labor Party gets back into power.

The swift spread of stock ownership is even more striking on the Continent. In West Germany, the Adenauer government is plowing ahead with its plan to “reprivatize” a $1 billion industrial empire inherited from the Nazis. Last spring the government sold the giant Preussag mining combine to 216,000 new German stockholders limited to annual incomes of $3,800 or less. In one sweep of a pen, the total number of German stockholders was increased by a third, to around 800,000. Determined to have a competitive private-enterprise economy, the government is now planning to sell off the great Volkswagen works, a steel and iron-ore company, a shipbuilding company and an aluminum company. Finding buyers is no problem. Since they were issued in March (and nearly 200% oversubscribed), the Preussag shares have risen in value from $34.50 to $59.50. Public interest in stock purchasing has risen to such a pitch throughout Germany that the Frankfurter Allgemeine Zeitung recently toured the schools in a poorer section of town, found 14-year-olds who knowingly employed stock market terms. Asked the newspaper: “Is the stock market becoming the soccer field of tomorrow?” In Holland, the Heyn chain of 360 grocery stores gives out coupons instead of trading stamps, and the coupons can be turned in for special debentures now paying 7%.

Washing-Machine Dividend. Prewar, only 1,600,000 Japanese held stocks, and these fronted mainly for the Zaibatsu combines, which had a death grip on Japanese industry. Today some 10 million Japanese own shares, a third of them through the rapidly expanding mutual funds (the four largest increased their assets three times from 1957 to 1959, to $811 million). In addition, millions of small-salaried Japanese regularly buy corporate stocks. Example: Toshimi Tsuchiya, $90-a-month Tokyo water-pump salesman, is building an education fund in stocks for his boys, 1 and 3, and has already bought Mrs. Tsuchiya a washing machine from his dividends.

Since the Australians voted out their socialist government in 1949, the Menzies regime has pushed stock ownership enthusiastically. Today 80% of Australia’s stockholders are small investors. This has not only helped Australia expand her economy by raising risk capital from small investors, a previously untapped source, but it has created an acute problem of electioneering for the out-of-power Labor Party. Corporations and business in general are much harder to attack. Australia’s leading steelmaker, Broken Hill Proprietary Co. Ltd., once a favorite whipping boy, has 60,000 stockholders, compared with 37,000 five years ago. Asks a Labor strategist: “How do you criticize the company when so many bloody voters own its shares?”

Despite the progress, there are still many obstacles in some Western nations to stock buying. Italy has a law which requires registration of all stock owners. Though long defended as a worthy means of trapping tax cheats, the law has shut off an estimated $500 million in new capital, helped confine stock ownership to only 300,000 out of the 50 million Italians. In Switzerland, financial and industrial giants tend to monopolize stock ownership, keep out individual investors. Moreover, in many countries, little is done to give investors the basic information they must have to invest their money wisely, instead of on the basis of tips and crooked promotions. In France, most corporations do not issue quarterly-earnings statements, and annual reports often come out a year and a half late. Biggest obstacle is the reluctance to split stocks. Thus the per-share values often rise to $300 to $400, thereby freezing out all but the wealthy investor.

With stock values racing upward, economists and politicians are aware that any slump would nip the spread of the new-style capitalism, give the socialists and Communists a potent weapon. But the danger is regarded as so small that many politicians are looking for new ways to spur stock buying. British Conservative Party leaders are recommending a plan for new regulated mutual funds, in which dividends paid to investors who hold their certificates seven years would be completely taxfree. To the plan’s originators, the move toward making everybody a capitalist has only begun.