CITY AND SUBURBAN
Dear Gordon, you've got to be able to fire them before you start hiring them
CHRISTOPHER FILDES
The company chairman paid Margaret Thatcher a compliment she might have done without: 'Say what you like, but she's moved unemployment off the shop floor and on to the street.' I thought at the time that she planned to win the election by calling it while the employed were still in the majority, Now Gordon Brown in his Mais Lecture puts all this down to doctrinaire monetarism, defunct and not to be resurrected. Since those days, our economy — and still more, of course, America's — has come up with new jobs for old, and unemployment has moved to the Continent. It has been entrenched there by a multiplying host of regulations, all intended to protect jobs. As Alan Greenspan has been heard to say, you've got to be able to fire people before you start hiring them. In Britain, the turning point came 20 years ago this weekend, when a new Chancellor, Geof- frey Howe, took a deep breath and scrapped exchange control. We were free to invest abroad and companies had to show that capi- tal invested in this country could earn its keep, which meant that the jobs on the shop floor had to be real. I had assumed that exchange control was there for ever. Lord Cromer as Governor of the Bank of England might have called it an infringement on the rights of the citizen, but ministers and their advisers had thought they were in the busi- ness of managing a declining economy, whose currency needed all the props that they could give it. Managing without props has worked better, and we scarcely need to subordinate our economy to a regime of reg- ulation and protection run from the Conti- nent or to trade the pound for a minority shareholding in its currency. Best of all, the end of exchange control was a blow struck for economic liberty, without which, as the great monetarist libertarian Friedrich Hayek taught us, there can be no liberty.
Warburgs at Wimbledon
NATWEST is advised in its hour of need by J.P. Morgan and by Dresdner Kleinwort Benson. It is on the receiving end of an auda- cious bid from the Bank of Scotland, advised by Credit Suisse First Boston and by Morgan Stanley. Brooding on a counter-bid, the Royal Bank of Scotland is advised by Gold- man Sachs and Merrill Lynch. Four Ameri- can gunslingers and one each from Germany and Switzerland: where is the home team? What's become of Warburgs? Forty years ago another classic shoot-out (over British Aluminium) saw Siegmund Warburg's upstart bank take on the City establishment and win. It went on to build a client list which included more than half of our top 100 com- panies. The Treasury came to treat it as a national champion, the British investment bank which, in a deregulated world, could take on the best and win. Then, on one cold spring morning four years ago, Warburgs succumbed to a cheap bid from a Swiss bank. Shareholders got no more than the value of their assets, and the name and connections went for nothing. Its veterans still fume about this, hinting that the mantle should have fallen on other shoulders — theirs, for instance. This was the fatal step on the down- hill road to the Wimbledonisation of the City: we stage the tournament but the for- eigners are in the finals.
Thank you, Mam
NOW Peter Stormonth-Darling suggests that the great man was in the wrong busi- ness. Siegmund Warburg had always des- pised investment management, which was used by less high-minded bankers as a receptacle for their mistakes. He had tried to sell Mercury Asset Management or even to give it away, and finally floated it, with Warburgs keeping 75 per cent. Hence City Cinderella as the title for Mr Stormonth- Darling's account (Weidenfeld & Nicolson, £20) of his life and times at Mam, where he was chairman, and Warburgs. Cinderella grew to'be the richer sister. It was her dowry that Warburgs would have brought to its ill- starred match with Morgan Stanley. Mam made a scene, Morgan Stanley pulled out and Warburgs was left stranded at the church door to be picked up by a passing gnome. What went wrong? Mr Stormonth- Darling grumbles that Mam was never con- sulted about Warburgs's ambitions. Certain- ly the costs got out of hand. I remember the set of accounts showing that the average salary at Warburgs, tea-ladies included, ran into six figures. The basic mistake, so he says, was to be absorbed into the City estab- lishment. (Being cast as a national champion was no help.) Lunching at Warburgs at the time, I was surprised to be offered an excel- lent claret. It would never have happened in Siegmund's day.
Borrowers' market
REGULATORS know that they will never get promotion if they report that all is hunky-dory on their watch and there is nothing much for them to do. That goes double for outfits like the Consumers Asso- ciation, which has its living to earn, though from its prissy manner you might not think so. Nothing like a good scandal for catching attention and getting the consumers to sub- scribe. Its latest ploy is to name and shame the mortgage lenders. Some of them, so it says, make you pay through the nose for breaking your contract with them, and the government should commit itself at once to regulating them by statute. This goes down well with all those who believe in the citi- zen's inalienable right to buy a house with borrowed money and get rich, and quite well with some of the lenders, who hope that new rules will keep new competitors out. It will play less well with Don Cruick- shank, who is reviewing the banks for the Chancellor and has already told him that regulation and competition are each others' enemies. Just now there are something like 80 lenders competing for business, and new ones pop up every week, so if you do not like the Halifax's offer there has never been a better time to shop around. Not so long ago there was only one mortgage rate, fixed by a cartel of building societies, and you had to queue to get it. I do not now recall what, if anything, the Consumers Associa- tion had to say about it, but I know which deal was worse for the consumer.
All square
THE Bank of England has discovered the Dull Headline game ('Small earthquake in Chile: not many dead'.) It publishes pam- phlets written in algebra by its economists, and their latest is a prizewinner: 'Monetary policy loss functions: two cheers for the quadratic'. The text is every bit as exciting.
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