AMID the furore in the mainstream press, the Carillion debacle is yet another stark lesson in the way the modern state has operated to enable accumulation by financialised multinationals. 

In its own way, the disastrous collapse of the contracting multinational might be as instructive as the 2008 crash was about the banking sector.

Finance capital fuelled Carillion’s growth and over-extension, and then set the company on a course to destruction

As many people have pointed out, Carillion was a child of the neoliberal reform of the state. 

It was forged out of the takeover of several other construction firms aimed at securing more bids for government outsourcing contracts and an increasingly diverse portfolio of public-private partnerships in the design, building, management and operation of hospitals, schools and other infrastructure projects.

Yet, as other commentators have noted, a construction contractor like Carillion was always vulnerable to collapse in this context. 

With profit margins in the construction industry on the lower side and projects like hospitals and bypasses taking years to complete, Carillion had to keep winning business to keep its revenue levels up.  

But this imperative was pressing for Carillion because, like most multinationals, it was owned by financial investors who were fixed on its share price.

Carillion was listed on the London Stock Exchange and like most British-based multinationals, subject to the short-termist investment horizons of investors who hold wide portfolios of shares and look for high profit margins over a very short horizon. 

Carillion’s shareholders included a large number of investment banks, asset management funds and private equity funds. 

These funds assessed the health of Carillion and bought or sold its shares by looking at its revenue and the amount of cash on its balance book. 

Chief executive pay and bonuses were similarly linked to the ability to generate cash and support the company’s share price. 

So Carillion had to make low bids for contracts to ensure that it secured them and it had to keep doing it over and over, expanding into unfamiliar and more risky areas. 

Once a few started to go wrong, the company would be forced to generate cash quickly in ways that would attract the attention of investors watching its share price.

The point here is that Carillion was not just operating in a tough market. Its growth was enabled by a finance capital sector that then locked it into operating in this way regardless of profit margins. 

In common with other multinationals, especially US and British multinationals, Carillion was governed by finance capital's short-termism. 

Finance capital fuelled Carillion's growth and overextension, and then set the company on a course to destruction.

Fittingly, it was finance capital that delivered the death blow.

Hedge funds poring over its annual reports noticed that it was extending the time it took to pay suppliers and profiteered on bets on the collapse of its share price. 

The company’s share price fell further as it issued a series of profit warnings and aimed to generate cash by selling off parts of its operations overseas and raising more short-term debt. 

By 2017, Carillion had a revolving credit facility, a one-year loan in essence, of £790 million. Inevitably, the company breached the terms of the loans provided by the bank which called for the company to hit target earnings-to-debt ratios. 

The banks refused to renegotiate the terms of the loans, smelling what became apparent when the company was put into liquidation, that Carillion’s asset base of contracts was, from a potential buyer’s point of view, worthless.

Once the slide had started, inevitably, the state was expected to prop up its ailing creation. 

The government fed Carillion with new contracts including HS2, clearly terrified at the prospect of its imminent collapse. 

The banks then asked the government to underwrite Carillion’s debts and repeat the miracle they’d performed in 2008-9. 

While it declined to do this, the government is now stepping in to support public-sector contracts to ensure that suppliers and their workers get paid for now.

But at a deeper level, the rise and fall of Carillion reveals the way in which the state apparatus has been captured by finance capital agencies and reshaped to serve its interests. 

For example, as Richard Burgon recently pointed out in this paper, the original rationale for outsourcing and PPPs was established neoliberal thinking that said the market could deliver greater efficiency. 

As outsourcing became big business, a revolving door was built between government and City-backed outsourcers, ensuring that the government of the day, whatever its hue, would hear the same message from civil servants, lobbyists and their clients.

Through complex webs of contracts, City-backed and based firms were built into the fabric of the state. 

Outsourcing was promoted and serviced by armies of lobbyists and by consultancies KPMG, PricewaterhouseCoopers, Deloittes and so on which benefited from fees charged to governments and companies alike at every stage of the process. 

KPMG gave Carillion a clean bill of health as late as last year, while PwC holds two contracts with Carillion and is now collecting fees for valuing its assets for liquidation.

When faced with a crisis that puts tens of thousands of jobs at risk and threatens insolvency to thousands of small to medium-sized construction industry businesses, the government’s range of options doesn’t include nationalising or shoring up Carillion because of the neoliberal “austerity” borrowing rules it follows and because these would fall foul of the free market EU state aid rules. 

Instead it chose to keep feeding Carillion contracts in the hope that the plates would keep spinning and then tried to persuade the banks to continue Carillion’s credit facility.

And as with the financial crisis, the neoliberal state’s so-called market regulators failed too. 

The Financial Conduct Authority is investigating profit warnings made by the company last year after the horse has well and truly bolted. 

The Pensions Regulator, for example, said nothing about the fact that Carillion paid out £80m in dividends and only put £47m into its pension scheme, in spite of its £580m deficit.

It’s not just outsourcing and PFI that need to be unpicked but the development of a historically distinct relationship between state, finance capital and multinationals. 

This is what makes the concepts of state monopoly capitalism and financialisation helpful. 

Any project that purports to transform Britain will be immeasurably stronger if it is based on an analysis that can go deeper than the acts of a vicious and incompetent government, the greed of big business or even the dominance of “neoliberal ideas.”