The City of London and its role as a financial centre
Тhe city of London and its role as a financial center
Chapter 1.
Introduction. The Concept of the City of London.
Britain is a major financial centre providing a wide range of specialised
services. The country’s economy has for a long time been directed through
the great financial institutions which together are known as “The City”,
capital “C”, and which are mainly located in the famous “Square Mile” of
the City of London.
The “Square Mile” in the Roman Times historically emerged on the Thames as
the business and industrial nucleus of the future London. Through centuries
of business and religious developments the City assumed its role of the
world commercial centre as it is known today . When in the 20th century
Great Britain lost its empire and other financial centres got established
in the world, the city adapted itself to changed circumstances to remain
a world financial leader. The City of London has the greatest
concentration of banks in the world (responsible for about a quarter of
total international bank lending) , the world’ s biggest insurance market
(with about 1/5 of the international market ), a Stock Exchange with a
larger listing of securities than any other exchange, and it remains the
principal international centre for transactions in a large number of
commodities. A large proportion of Britain’s wealth has been invested by
the City overseas. The City’s annual foreign income roughly double that of
the British manufacturing industries. The above proves the City’s world
significance as a financial centre. Geographically the City is a large
office area bubbling with life at daytime and comfortably quiet outside the
office hours. It’s historical sights like the Tower of London, St Paul’s
Cathedral, the Museum of London, the Monument and others as well as the
beautifully impressive architecture of the office buildings attract crowds
of visitors. The only housing project, the Barbican, provides very
expensive accommodation along with an arts centre, a school and some
official premises.
Since after the mid - 80s financial and related services have started to
expand outside the “Square Mile” though the City of London remains the
symbol and actual reality of the country’s power.
C h a p t e r 2
Britain’s Economic and Financial Position Today at Home and Abroad.
Finance and industry of the British economy go hand in hand as industry
requires a diversified network of financial institutions to develop
successfully. Although Britain’s financial power today exceeds that of
the country’s industrial achievement, the country was for years “the
workshop of the world”. It still remains a highly industrialised country
but the end of the 20th century saw tendencies for the economic decline.
Historically, after two world wars and the loss of its empire Britain found
it increasingly difficult to maintain its leading position in Europe. The
growing competition from the United States and later Japan aggravated the
country’s position.
Britain struggled to find a balance between the governments intervention in
the economy and almost completely free-market economy of the United States.
The theories of the great British pre-war economist J. M. Keynes
stated that capitalist society could only survive if the government
controlled, managed and even planned much of its economy. These ideas
failed to get Britain out of the image of a country with quiet market
towns linked by steam trains puffing slowly through green meadows. Arrival
of Margaret Thatcher, the Conservative prime-minister in office between
1979 and 1990, discarded these theories as completely wrong. Mrs. Thatcher
claimed that all controls and regulations of the economy should be removed
and a market economy should recover. Her targets were nationalised
industries. She refused to assist the struggling enterprises of the coal
and steal industries which were slimmed down in order to improve their
efficiency. In the steel industry, for example, the workspace was reduced
from 130000 people to 50000 by 1990s and the production of 1 ton of steel
by 1990 took only 3,7 man hours instead of 12 man hours in 1980. The
government believed that privatisation would increase efficiency and
economic freedom would encourage private initiative. A lot of big publicly
owned production and service companies such as British Telecommunications,
British Gas, British Airways, Rolls Royce and even British regional Water
Authorities were sold into private hands. Britain began to turn into a
country of shareholders. Between 1979 and 1992 the proportion of the
population owning shares increased from 7 % to 24%.
The Conservative government reduced the income tax from 33% to 25% as an
incentive in production. This did not lead to any loss of revenue, since at
the lower rates fewer people tried to avoid tax. At the same time the
government doubled the VAT on goods and services to 15%. Today it is 17%.
Small business began to increase rapidly. In 1984 for example there was a
total of 1.4 million small business though including “the black economy”
the figure was nearer to million. Proportionately, however, there were 50%
more of them in West Germany and the United States and about twice more in
France and Japan.
Many small businesses fail to survive mainly as a result of poor management
and also because compared with other European Community Britain offers the
least encouraging conditions. But small businesses are important because
they can grow into big ones and because they provide over half of the new
jobs. It is particularly important because unemployment in Great Britain
rose to nearly 2.5 million people and a lot of jobs are part-time.
Energy is a major component of the economy, which depended mainly on coal
production until 1975, began to rely on oil and gas discoveries in the
north sea. Coal still remains the single most important source of energy,
in spite of its relative decline as an industry, so oil and coal each
account for about one third of total energy consumption in Britain. Over a
number of years British policy makers promoted the idea of energy coming of
different sources. One of them was nuclear energy as a clean and safe
solution to energy needs. In fact Britain constructed the world’s first
large scale nuclear plant in 1956. However, there were a lot of public
worries after the US disaster at Three Miles Island and the Soviet disaster
in Chernobyl. Also nuclear research and safe technology is proved to be
very expensive - by 1990 the real commercial cost of nuclear plant was
twice as high that of a coal power station. Renewable energy sources such
as wind or solar energy, are planned to provide 1% of the national energy
requirements in the year 2000.
Research and development (R&D) in Britain are Mainly directed towards
immediate practical problems. In fact British companies spend less on R&D
than any European competitors. At the end of the 1980’s, for example 71% of
German companies were spending more than 5% of their annual revenue on R &
D compared with only 28% of British companies. As a result Britain has been
automating more slowly than her rivals. In fact it may be the consequence
of Margaret Thatcher’s views on public spending which includes medical
service, social spending, education and R&D. “The Iron lady” argued that
“if our objective is to have a prosperous and expanding economy, we must
recognise that high public spending kills growth of industry”, as money is
taken from the productive sector (industry) to be transferred to
unproductive part of it. As a result in the 80’s only 6% of Britain’s
labour had a university degree against 18% in America, 13% in Japan and 10%
in Germany. Technical education has always been compared with Britain’s
major competitors. According to government study “ mechanical engineering
is low and production engineers are regarded as the Cinderella of the
profession”. Very few school leavers received vocational training. Since
1980’s among university graduates the tendency has been to go from the
civil service to merchant banking, rather than industry. And according to
analysts resulted from the long-standing cultural roots. Public school
leavers considered themselves “gentlemen” too long to adjust fast to the
changes of time. Efforts are now taken by the labour government to boost
technical and enterprise skills in schools. The 1999 Pre-budget report
outlined a 10 million pounds for the purpose.
Despite the favourable effect of “Thatcherism” Britain’s economic problems
in the 1990s seemed to be difficult. Manufacturing was more efficient but
Britain’s balance of payments was unhealthy, imports of manufacturing goods
rose by 40%, and British exports could hardly compete with those of its
competitors. Car workers in Germany, for instance, could produce a Ford
Escort in help the time taken in Britain. In the 90’s among the European
countries British average annual productivity per worker took the 6th
place. The revenue softened the social problems but distracted Britain from
investing more into industry. Many analysts thought that much more should
have been invested into engineering production, managerial and marketing
before the North Sea oil declined.
The Labour government undertakes to improve the situation. In his Pre-
budget report on 9 November 1999 the Chancellor of the Exchequer Gordon
Brown set out new economic ambitions for the next decade. Under them
Britain will raise its productivity faster than its competitors to close
the productivity gap and a majority of Britain’s school and college leavers
will go on to higher education.
In the 80s British companies invested heavily abroad while foreign
investments in Britain increased too. Today in a speech in Tokyo on 6
September1999 the Foreign Secretary Robin Cook said that “Britain is a
chosen country for more investment from Japan than anywhere else in Europe
and more than thousand companies operate in the U. K.”
Mr. Cook added that the huge European Market of 370 million people was “the
largest single market in the world, a market that is set to expand even
further with the arrival of new member states”. In fact he said investment
