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ÒHE CITY OF LONDON AND ITS ROLE AS A FINANCIAL CENTER
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
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