Friday, May 09, 2008
Let's get back to proper jobs
Times: Credit crunch to claim 40,000 financial jobs
About time the UK economy re-balanced to doing real work I reckon.
I have lost count of the number of times banker's million pound bonuses are harped on about by the media.
My boss in engineering is on a million Euros per annum basic plus bonus. And we don't hear Auntie Beeb bleeting on about that do we !!
Sooner we get back to basics, the sooner we can get back to a sensible economy.
Posted by voiceofreason @ 09:53 PM (776 views) Add Comment
17 Comments
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1. bystander said...
Out of an estimated 350000 a loss of 40000 would still leave a healthy 310000 money movers in the city. These important economic factors are representative of a cull that has been necessary for years to cut the wheat from the chaff. The city, hoprfully will be reborn stronger, leaner and more ethically minded, but I am not holding my breath. Greed, greed, greed, will continue as the mantra and will become stronger and stronger, again over the coming months and years, for what other purpose does the city and all those who play in its overpaid, mismanaged and morally bereft halls exist?????
2. drewster said...
Secondly, financial services are high value-added services. High value-added is the main national economic goal. An hour spent building parts for vacuum cleaners will add only $3 of value to the economy. An hour spent designing the next new Dyson might add $30 of value. But an hour spent in the banking industry, deciding whether to lend millions to some upstart young vacuum-cleaner company, can reap hundreds of dollars. That's why we benefit from outsourcing the low value-added manufacturing jobs and freeing up labour to work in the high value-added sectors.
Thirdly, we enjoy a competitive strength in financial products. The world trusts British financial products. (Unlike, say, cars - people in Japan aren't raving about how wonderfully reliable Rover was). Wealthy individuals and companies around the world stash their cash with us because they don't trust their own governments. Consider a country like Ecuador which has had eight heads of state and a minor coup d’état in the last ten years alone. Or consider up-and-coming Thailand which had a coup in 2006. Britain has been a stable sovereign country for over 300 years. No matter how reckless Gordon Brown is, he can't ruin that track record.
So if Monty Python had asked: "What have the banks ever done for us?" We can now say that they've made our lives easier, cleaner, safer, and richer.
3. Canterburydreamboy said...
>working in a bank is a lot safer than working in a factory... farm
True - but we all need to eat, so someone has to work on the farms... and we all want TVs/bicycles - so we need factories, somewhere.
>Banks don't pollute the air either
True - but you don't mention banks wider environmental footprint: PCs on every desk, aircon, acres of marble from round the world...
Plus the bigger environmental footprint of the well-paid staff, who consume more than the less well paid.
I agree with your 2nd two points - but be aware that some banks are now moving their best people to China or the middle east, where bigger growth than the 'old world' means scope for more and bigger deals.
Which means, how long before (like maufacturing before it), other countries can do banking as well as we can.
Lastly, I have a concern that UK banks are actually drag on the UK consumer:
overdraft fees - was it £4 or £8B the banks made a year...
bait and tag deals - high interest savings account this month, become dogs next month
innovative products that shaft consumers - 'mis-selling' problems arise every few years
over-charging to run our pensions - why do pension funds with many £Bns need 2 3 or 4% management fees each year! Where is the ecomony of scale, competition
3 days to clear a cheque !
like big pharma companies who (contrary to popular wisdom) spend more on sales+mktg than R&D... banks + insurers and pension funds etc... wonder if they spend more on sales+mktg than R&D on their computer models and etc
4. quiet guy said...
@drewster
Thank you for a very interesting comment and a counter against the doomsters. I like to hear a reasoned contrary view.
While I recognise the historical truth of your argument, I have to ask a question: will these advantages you discussed serve us equally well (or at all) in the future?
My fear is that our economy is somehwat like the cartoon character Wile E. Coyote who runs off cliff edges without realising that gravity will shortly introduce itself. Yes, perhaps we are still trusted to perform financial services but the incredible greed and hubris of the last few years makes me wonder how much we can abuse that trust.
Fundamentally, your post leads me to the conclusion that reliability and integrity may be real econcomic assets - if we haven't traded away too much for a quick profit.
5. doom&gloom said...
Few comments:
Article states, "One positive aspect of the predicted economic slowdown, will be the closing of the North/South divide. London's abrupt economic slowdown will see the gap between the North and South narrow, for the first time since 2002." So the south of England suffering economic hardship is a 'positive aspect', because the north of England won't suffer quite as much? Shame on The Times for giving Angela Jameson a job as a 'journalist'.
Also mentions prediction of '7.6% HP declines over the next two years'. A bit behind the curve on that one considering Halifax BS have recorded a 2.5% decline just for the month of March 2008 alone....
6. doom&gloom said...
@drewster. Good to read your interesting post. My thoughts are:
'financial services produce less environmental pollution than manufacturing' - agree with this
'financial services are safer for employees than manufacturing' - agree
'design is a "higher value" service than manufacturing' - agree (to an extent)
'an hour spent in the banking industry, deciding whether to lend millions to some upstart young vacuum-cleaner company, can reap hundreds of dollars' - IMHO this is the million-dollar question. As quiet guy says, we've all done well economically out of this in the 'western world' up until now, but will this continue in the future?
Banks charge 'interest' - creating money out of money, but where is this 'new money' ultimately coming from? IMO the current boom has been based on debt-creation, and this is facilitated by the banking industry which 'lends millions of dollars to upstart vaccum cleaner companies'. Bankers are currently masters of the economic universe, but this is utterly dependent on the population of the world accepting a token system of economic exchange and accepting that this token system has some intrinsic value (and that borrowing and charging interest is OK).
Yes, we do currently enjoy competitive strength in financial products. I guess you have to believe though that 'financial products' are more than just a lot of variations of the theme of 'borrowing and lending' to believe these have long-term benefits for the UK economy.
I take your point that politically we are one of the most stable regimes in the world. Economically though, the UK has had a few minor upheavals already (Northern Rock, etc). I wonder how many companies/individuals will want to stash their cash in the UK if we have a some more serious ones.
It's all very well spending an hour in the banking industry reaping hundreds of dollars, but once it's Zimbabwean dollars you're reaping then you're not doing as well as you thought you were! :-)
7. drewster said...
@quiet guy,
Thank you for taking the time to read my comment. Re your final sentence - "if we haven't traded away too much for a quick profit". I don't think we have, but we need to keep a close eye on it. That means having a properly regulated financial sector which plays by the rules. Our reputation for integrity relies in large part on our sense of "fair play". Fair play isn't just a national personality trait, it's an institutional trait embedded deep within our judiciary (courts) and legislature (houses of parliament). To give another example: London is a major hub not only for financial services but also for international law. Foreign companies with relatively weak ties to Britain will often choose to settle disputes here because our system is perceived to be the most fair. This is despite our lawyers being some of the most expensive.
Law, banking, stockmarkets, and insurance are all seen as zero-sum games. None of them produce anything tangible, yet all are absolutely necessary for an economy to function - even quasi-communist China has a stockmarket. If we didn't have the protection of the law, we wouldn't buy expensive cars. If we didn't have the protection of insurance, we wouldn't drive them. If car companies couldn't borrow from banks or raise capital from stockmarkets, cars would never be built. We in Britain are fortunate to be the lawyers, bankers, stockmarkets, and insurance agents for the whole world. Places like Dubai and Singapore are desperate to win a share of that lucrative international trade, and if we aren't careful we risk handing it to them on a plate.
8. drewster said...
@d&g,
Thanks for your comments, I agree in particular about the reputational risk from Northern Rock! On your million-dollar question, every industry goes through growth and slowdowns. The credit crunch may have marked the peak in the UK banking sector - just as the 1973 oil shock marked the peak of the US car industry. Take the car example: after 1973, American consumers discovered cheaper and more economical Japanese cars. The US car industry has been in decline ever since, despite government bail-outs and political wrangling. Every passing year the Japanese have stolen market share from the Big Three US car-makers. I fear that our financial services sector may go the same way as our customers drift away one-by-one to cheaper services in Dubai (0% tax!) or Singapore.
On the ever-expanding credit, acceptance of the system, etc. - That's a different angle and probably best discussed on another thread to avoid confusion.
9. renting2 said...
Thanks for your very well reasoned comments drewster. It's nice for someone to be able to get me to take a step back and look more objectively at this whole situation. Vote drewster for head of BoE!
10. alan said...
I've read a lot of interesting comments in this post, thanks.
I think there is a lot to be said for a balanced economy.
There is less impact from cyclical economic swings, school leavers have a good choice of career and there is less of a divide between rich and poor.
11. uncle tom said...
Drewster,
You seem to imply that as a nation we have a choice between white collar or industrial work. We don't, in the long term, we have to do both.
For the last few years we have been able to import vast quantities of good quality manufactured goods at absurdly low prices - a consequence of countries like China and India playing economic catch-up, but this is not ultimately sustainable - trade must ultimately balance, and with North Sea oil and gas nearly spent, the UK has to resume manufacturing with some urgency.
The City benefits from the UK's reputation for being 'The world's honest broker' but that advantage is not cast in stone.
Does the business of moving money in a computerised age really need that many well paid people? And look at the huge investments in places like Qatar and Dubai, aimed specifically at drawing away a lot of the business currently done in the City.
It's a bit rich to argue that bankers are less polluting, as it's not what someone does during their working day that matters, it's their overall lifestyle, and I'll wager the average brickyard worker has a lower 'carbon footprint' that your average investment banker - fewer flights, smaller car, less home to work journey time etc.
12. stillthinking said...
The reliability and integrity that the UK banks certainly benefit from internationally, is a property of UK society and government, not the actual banks. However, whatever there advantages are, the advantages can't get past the total balls up of overlending.
13. uncle tom said...
stillthinking,
Correct - the scale of the eventual actual losses will be immense, with ongoing consequences for the financial sector that will take several years to sort out.
It's hard to say how many jobs will eventually be lost, but most financial companies are likely to downside, some of them dramatically, and some will go out of business altogether.
Of the total employed, a fall of 25-50% seems a fairly likely outcome. 40,000 looks rather modest.
14. Buytoilet said...
@ drewster
Your comments are very interesting. Straight out of a economics free-trade text book. My problem with all our eggs being in one basket is an issue of quality. If we were manufacturing poor quality goods as a nation, we would be concerned about competition. It strikes me that our financial sector is making appalling financial decisions at the moment and it won't be long before new financial capitals rise throughout the world. What will we do then?
15. drewster said...
Canterburydreamboy, alan, uncle tom, and Buytoilet:
I'm not making a passionate defense of the banking sector. There are definitely some serious problems, many of which have been discussed on these pages before. However a lot of people do question their purpose (the title of this post "Let's get back to proper jobs" was what inspired me to write this), and I sought merely to provide some balance.
You've all pointed out that a diversified economy would be better, and I half-agree. A wider range of employment options would benefit school-leavers who may be more suited to manual work than office work. This in turn might reduce our dole queues. However, when we are competing against Chinese labour costs, it's hard to see how we could ever afford to pay our factory-workers a living wage.
If the banking sector loses out to Qatar or Dubai or Singapore then we'd be in trouble, absolutely. But is it any different to the Japanese worrying about the car-making competition from Korea? Or the French complaining about wine-making competition from New Zealand? The best way to defend ourselves is by continuing to create high-quality financial products with a reputation for reliability (like Japanese cars) - not collapsing CDOs which failed to live up to expectations. If the world's investors decide that they'd rather buy a CDO made in Qatar instead of one made in the UK, that's bad news for us.
On the environmental point, you're confusing carbon dioxide emissions with toxic chemical emissions. CO2 doesn't directly affect human health - you could live next door to a gas powerstation for years and suffer no ill effects. On the other hand if you lived next door to a chemical processing plant then there might be toxic emissions in the air or polluted water going into the rivers and seas. That would have a direct effect on human health. Also I don't buy this notion that Joe-bricklayer is low-carbon. Over the last fifty years the UK has become richer and our workers have become richer too. Our carbon emissions are caused by all workers, including Joe-bricklayer, trading up from bus to car and taking holidays in Benidorm instead of Blackpool. It's not just bankers who have long commutes - all sorts of people choose to drive long distances to better-paid jobs.
16. Re Environmental Integity said...
Great conversation, would like to pick up on bankers v's others re 'footprint' which i'd like to extend do meaning our general survivability in the future, and actions which threaten our and other generations' inheritance of our legacy.
Bankers decide where a great deal of funding goes and are cornerstones in terms of the overall footprints of the economic gears in a country and it's economic impact world-wide. For sure, the personal footprint of a banker or brickie is an important issue too re our future survival. However in terms of impact and the rate thereof, banks have the edge with each decision they make. One way for UK financial instruments to gain leverage in this changing world is to show some future credibility as it dawns on the consumers that sustainability is a key part of a product thus guiding other commercial interests locally to gear-up. Banks can push the economy forward by favouring these, which less developed countries won't be so good at (though they can catchup fast, like China which took about 3 years to get abreast of the lock-out of the toy industry after new standards were imposed to stop Cheap Chinese imports, taking over again). Quality UK institutions can cherry pick ensuring both reputation and future work both for commodities and derivative economic products since there is interplay between the two depending on the cost of specialised financial services for them. Perhaps this could help also help build their credibility and make up for their personal excesses, just as say, the brickie might choose to use sustainable building materials and gain entry to a more educated, ethical and responsible clientèle willing to pay over-the-odds and on-time for perceived quality.
17. Renterabroad said...
@drewster - I totally disagree with your neo-lib twaddle - go on, do tell me, you're having a laugh.