Life in the new City MONEY
NICHOLAS DAVENPORT
So it turns out that we are much more important than any of you imagined—those of us who work in the City. In the tiny area devoted to banking, insurance, merchanting and broking we are contributing to the balance of payments in good foreign exchange no less than £900 per head. This compares with only £360 per head in manufacturing industry. And the figure is 'net'—after taking into account- the 'import' content of our export. (The import content of manufactures averages about 20 per cent while that of services is under 10 per cent.) Outsiders who live in remote areas like Gower Street will have to be more deferential in future.
This remarkable statistic I take from An Economic Study of the City of London up to the Year 2000, prepared by the Economist Advisory Group under the direction of Profes- sor Dunning for the Corporation of London. Drawing on the figures of the report from the Committee on Invisible. Exports they estimate the foreign exchange earnings of the City in 1965 as between 1245 and £265 million ot about £200 million-net after deducting the earnings of overseas branches. This is not far from the £185 million estimated for 1963 by Mr William Clarke when he made his study for the Institute of Economic Affairs three years ago. The biggest earners are the banking sector with £82{ million (El7+ million from foreign ex- change dealing) and merchanting with £85 million (£45 million from the commodity mar- kets). Insurance fluctuates wildly, but broker- age is steady with £35 million plus.
The Stock Exchange is not separately treated but I have no doubt its earnings are sharply on the rise. I have never known so many bulgingly rich stockbrokers. Their increasing wealth derives from the ever rising turnover in equity shares—the flight from cash into real values—but the fantastic premium of 421 per cent on investment dollars suggests that they are now contributing heavily to the nation's foreign exchange earnings. The Treasury's 25 per cent grab' is alone bringing in some $200 million a year. The Life Assurance Society of which I happen to be deputy chairman brought into the Treasury last year $1,250,000 through the sale of $5 million premium dollars. My colleagues. and I should be wearing the Queen's export medal in company with the proud makers and exporters of 'horror films.
The City has always been a big earner of foreign exchange. It all dates back to the Stuart restoration and the origins of finance-capital- ism. The stock market emerged-around the 1670s, Lloyds in 1687-88, then the merchant banks and finally the Bank of England (1694). The City became-rich in the mercantile era of the eighteenth century, and although the indus- trial revolution of the nineteenth century created a new group of capitalists in the pro- vinces, the finance-capitalism of the City carried on the old mercantile tradition and steadily in- creased its investment overseas and its foreign exchange earnings. By the mid-nineteenth cen- tury the Port of London was handling half the nation's trade and this undoubtedly contributed to the City's role in commodity markets and merchant activities, but it was the City's ability to offer the international trader a 'package deal' in interlocking services—in finance, shipping, insurance—which enabled it to become the world's greatest financial centre.
But times have changed. According to this study the Second World War was an economic watershed in the life of the City. A few months of inaccurate German bombing accomplished what it would have taken a generation of urban redevelopment to achieve. Manufacturing and retailing disappeared and this Was followed by the commercial and finan- cial specialisation of the Square Mile. The City, the report says, is no longer important as a place where goods are bought and sold. Its business is now almost entirely confined to the transfer of 'rights and titles' not only in this country but all over the world. Between 25 and 30 per cent of world trade is settled and invoiced in sterling almost wholly through the City offices of the clearing banks and merchant banks. The foreign exchange market is the most active in the world and is now evolving new markets in Euro- dollars and CDS.
' The commodity markets serve most interna- tional commodities. The Baltic provides the major market in shipping and air freight with Lloyds and the insurance market covering risks and ensuring world-wide standards of safety. The Stock Exchange deals in more foreign securities than any other foreign exchange. The merchant banks, international in origin, have adapted themselves to the new controls over capital movements and are developing a big business in domestic mergers, takeovers and industrial reorganisation. The present complica- tions of domestic and international tax law have intensified the demand for the City's financial expertise. In fact, as times change, the City be- comes more and more important as a specialist financial `brains trust.'
What aids its specialist financial role is the restriction of its space. Arrive at the Bank and you will find yourself within walking distance of all the merchant banks and stockbrokers. What is more important, these bankers and brokers call on one another daily. The face to face encounter is essential for the confidential advice which is demanded. It is also good to know that the lunch rooms of the new parlours are being put to better use, like the coffee rooms of old. The standard of eating has definitely gone up: the cordon bleu cook has been a wel- come immigrant. Working conditions have vastly improved for everybody. The shortage of space has sent the skyscrapers in the City soaring to heights undreamed of before the war. Another curious feature of the changing times is that the Bank of England is still the temple of the City and the Governor still its high priest. Recently there has been talk of a City 'Neddy.' It has not gone very far. The big 'Neddy' has a City banker, Kenneth Keith, on the board, and with his liaison committee that is considered quite enough. The Bank has been formally nationalised, but it still regards itself as an inde- pendent public board like the BBC. The Gover- nor remains the Father of the City even when he is not an Old Etonian. It has always made me laugh when socialists talk of taking over 'the commanding heights of the economy.' When they took them over—five or six major indus- tries and steel—they found that the command- ing heights of the economy were still dominated by the City network of interlocking director- ships and shares. If ever Barbara Castle tried to take the City over the elite would all retire to Zurich and command from over there. And the nation would lose heavily in foreign exchange.
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