BRENDAN BARBER, the General Secretary of the TUC, seems to have ridden to the rescue of the fund manager. The trade unionist has taken a stand for the “victims” of globalisation, calling on British companies that move jobs abroad to take out insurance that pays 70 per cent of their redundant workers’ fall in earnings. “The Government,” he says, “must provide support to older and unskilled individuals to help them adapt to the opening up of world markets.”
Unfortunately, his assessment grossly underestimates the scale and shape of future outsourcing. Globalisation threatens many more people than manufacturing workers, the unskilled and the elderly. In an article in Foreign Affairs earlier this year, Alan Blinder, the economist who worked for the Clinton Administration, forecast that about two to three times the number of US manufacturing jobs — 14 million — would in the future be susceptible to offshoring. His argument is that the definition of “tradeable” goods and services and “non-tradeable” goods and services is fundamentally changed by the information age. It is no longer the case that things you can put in a box (manufactured goods) are tradeable and things that you cannot (services) are non-tradeable. Blinder makes the convincing case that what really matters in the era of the internet is whether services are personal, i.e. face to face, or impersonal, i.e. deliverable down a cable. Taxi drivers and nurses need to be where they work; securities analysts, radiologists, IT technicians and translators do not need to be. Not only will globalisation have a profound impact on white-collar workers, it will have an uneven impact. Barristers may be safe, because they need to operate in the courts in Britain; solicitors look much more vulnerable, as much of their work can be done in an office anywhere.
Taking Blinder’s calculations — and they are educated guestimates — and applying them to the UK is a thought-provoking exercise. The US and the UK economies are structurally not so different: 14.3 million US jobs are in manufacturing — or about 10.7 per cent — the same proportion as in Britain (3.3 million). If the Electronic Age means that impersonal service- sector jobs are bound to leave the country, then seven to ten million people are vulnerable.
The numbers, though, are not a curse, but a spur. Insurance schemes to compensate the “victims” do not address the fundamental challenges of globalisation. Nor do simple calls for more education. The UK needs to think more deeply about the nature of its schooling, nurturing inventiveness, creativity and, happily, personal skills to equip the next generation to do business in Britain.
Long-term assets in the bank
WARREN BUFFETT, who turns 76 next week, famously told shareholders in Berkshire Hathaway that in the event of his death, he has laid out a succession plan in a sealed envelope in his office. “When they open that envelope, the first instruction is to take my pulse again,” he said.
The titans of US finance seem to live in inspiring defiance of mortality. British banking has something to learn from the New World. Only in America would Felix Rohatyn be hired as senior adviser to the chairman and chief executive of Lehman Brothers at 78. Mr Rohatyn, who was poached last week, was a famed dealmaker for three decades at Lazard. After an ambassadorship, he started his own advisory business. Lehman snatched him while he was said to be in talks with another banking boutique.
Philip Fisher, the famed Californian investment manager, felt that he performed better after 75, thanks to “the refinement that comes from contemplating your own mistakes”. James Wolfensohn, who will be 73 at the end of the year, was snapped up last year to advise Citigroup.
In Britain, non-executive directors are kicked out at 65. They can remain, but the corporate governance codes seem to suggest that this is eccentric.
The key is to distinguish between energy, which executives need to run a big organisation, and wisdom, which they need to steer it. Judgment can be more valuable than vigour. Plato, who lived to 80, argued: “Spiritual eyesight improves as physical eyesight declines.” Or, as he might have put it, had he been a financier: old bankers never die, they just trade away.
Break time
PASSENGERS braving the Bank Holiday rush at Britain’s airports this weekend will unfortunately have plenty of time to ponder whether BAA should have spent a bit more money on security, seats and other facilities useful to passengers, and a bit less on retail malls.
The argument in favour of BAA being broken up is a compelling one: in energy, telecoms, water and airlines we have seen the benefit to the consumer — in terms of falling prices — of increased competition.
However, the lesson from other utilities is also clear. It is not simply enough to break up the monopoly. Each airport will continue to need strong independent regulation, if we are not to create seven new mini-BAAs, all monopolies in their own right.
BAA argues that if it were broken up, investment would inevitably suffer and Heathrow and Gatwick would no longer be the 27th and 44th most expensive airports for landing charges in the world. Smaller companies would not have the expertise to spend the £9 billion it is spending on Terminal 5. The £862 million BAA made from retail, which subsidises airport charges, would fall substantially, and airport charges would climb in consequence.
This is a doomsday scenario. The Office of Fair Trading must look beyond that and the airlines’ self-serving calls.
In 1986, 1996 and 2000 various august bodies, including both the Competition Commission and Whitehall, have considered such a break-up and ruled it out, largely because it would not serve the passenger.
Ferrovial paid a substantial premium because it recognised the value of the BAA monopoly. That value should now be released to invest in the nuts and bolts of airport infrastructure and security, rather than just on another glitzy refit of the shopping arcades.
FOR a country that eschewed the free market for so long, the Russians are catching up fast. A quarter of the £17.8 billion raised on the LSE this year has been for Russian companies. If the IPO trend continues as it has so far, the Russians will account for £8 billion of the approximate £30 billion raised this year. If the Kazakhs are added, it could be £11 billion. This requires that the City ensures the integrity of post-Cold War capitalism. But, whether it is Poles plumbing or Russians floating, our eastern European partners are a boon to London. Rouble Britannia!
