CITY DIARY
CHRISTOPHER FILDES
That economics and fashion go together. is, I think, most clearly shown by the correlation between the hemline and the Financial Times index of ordinary shares. They have risen pari passu, with a secular upward trend since the mid-'fifties. This year, in particular, both have reached new heights—gratifying if not always justified—and in the process disproved a number of expert forecasts. The same phenomenon could be seen in the 'twenties; and when in 1929 the cold wind blew, the market and the hemline abandoned their intoxicating heights and fell like lead. Absit omen.
In economics, as in fashion, the cycle of taste has accelerated, and revivals sweep in and out of vogue at unexampled speed. Who would have expected, five years ago, to feel nostalgic for Mr Selwyn Lloyd? But the `Selwyn Was Right' movement has come •and gone; and 'Reggie Was Right' is now the cry. Timing it neatly before the conference, four- teen Conservatives mrs put out a manifesto which argued that 'breakthrough to growth' had been the answer after all. Next time, though, there should be import controls to hold the line and keep the balance of payments in some sort of order. This is, as a matter of fact, two thirds of the recipe—the other third being an incomes policy—that Sir Roy Harrod has long been urging; so long, in fact, that fashion-conscious economists tend to dismiss it as 'that old thing of Sir Roy's.' It is a striking thought that Mr Callaghan has only to stay rooted in No. 11 Downing Street a little longer to participate in his own revival.
Invisibles,' says the doorman at the City's Aldermanbury House, 'are on the eighth floor.; and when you get out of the lift you realise what he means. There in front of you is a large office, apparently uninhabited, yet fully equipped and crammed with desks and chairs. This, then, is where the invisible earners toil, perceptible only to the eye of faith, or perhaps in ultra-violet light . . .
Kleinwort, Benson have in fact lent a floor of their building to the Committee on Invisible Exports—of which Mr Cyril Kleinwort is deputy chairman—and a whole floor is more than Mr William Clarke, director of the study, really needs: hence those empty desks. This week the committee publishes its report, Britain's Invisible Earnings.
The whole proliferation of committees on this, little noddies on that, and inquiries into the other has produced nothing comparable with this report. It is of the first importance, and deserves to have a major influence on economic policy. Until now it has been pos- sible to treat invisible earnings as a kind of fringe benefit—largely because they are in- visible, and often unclassified or speculatively assessed. The committee's first contribution is to point to the sheer scale of invisibles: last year the country exported goods to the value of £5,110 million and services to the value of £2,823 million, so that invisibles brought in more than one third of our receipts from abroad. When you compare the monthly display of nervous twitching induced by the trade figures with the vague realisation that invisible pay- ments are probably in our favour, you know that something in public and official attitudes has gone wrong. The committee's recommen- dation—that efforts should be made to get out a monthly figure for invisibles, and that more should be said about them in the Board of Trade's statement—is studiously mild.
Isn't it extraordinary that the Government's figures can telI you exactly how many grey- hounds have been imported and exported during the year, and yet do not assess the in- visible earnings of the City of London? No wonder that one can sometimes sense a wall of incomprehension between the City and the Government. On both sides of the wall atti- tudes grow up, assumptions are made that the report calls in question.
One is the argument—article of faith, almost —that to tamper with sterling would imperil the City's earnings. The report says that, if sterling were less used in world trade, the earn- ings of the merchants and banks would suffer; but that the use of sterling depends 'signifi- cantly' on those services being effective. Else- where Mr Clarke has made the point more strongly : it is the services, not the currency, that matter. People have used sterling because they could not otherwise reach the City's ser- vices. The City now runs dollar markets, and the report wants to see them extended, with —for instance—dealings in dollar bills of ex- change. So do the bill-brokers: the Bank of England has refused them permission on the grounds that such a market would diminish the role of sterling. Perhaps, now that we have the report, this cart and horse can at last be got into the right order.
The choicest invisible income of all comes from the casinos. Among the patiently accu- mulated detail of what copra futures earn and whither tanker-chartering, how pleasant to find 'Playboy : I craps, 6 roulette, 7 black- jack tables, £280,000.' The five big London casinos—the Clermont, Crockford's, the Play- boy, Curzon House, and the Palm Beach— bring in £2,230,000 a year of foreign currency earnings, and for the country as a whole the figure is put at £5 million. I gather Mr Clarke and his secretary thought that this called for an on-the-spot investigation, and spent a useful evening on a tour of the Big Five. But, austerely, they contributed nothing to that margin of profit on the home trade on which a success- ful export operation must depend.
`The shareholder's social role, the factor which makes his contribution of value to his company and the economy, is to insist on profitability.' Holders of au stock who encounter this cheer- ing thought in Professor Michael Fogarty's new PEP broadsheet (A Companies Act 1970? Research Publications, 11 Nelson Road, Green- wich, 10s) may reflect that they have had little chance to fulfil that function before the bid came along. In a sense they can at any time vote with their feet, by selling their stock and depress- ing a company's share price and making it difficult for the board to raise new money. But beyond this they are scarcely placed to insist on anything. And the larger the company, the weaker the shareholders' position and the less chance of a bid.
In most of the new thinking, here and on the Continent, the tendency has been to play the shareholder down. Company law provides that a director's duty is exclusively to serve his share- holders. Company practice is a different matter. Directors at one time or another will let share- holders take second place to workpcople, to the company as an entity in itself. and in a hundred ways to the community—local or national. It these duties ought to be binding on a director, then company law should say so, and company structure should include the means of seeing that they are carried out.
But nothing could illustrate better than Pro- fessor Fogarty's broadsheet the difficulties this involves. In fact, his only firm conclusion is that a Companies Act 1970 is likely to be a first-class muddle. The structure of companies, like that of taxation, took shape long ago, and as with taxa- tion becomes more and more unwieldy as odds and ends are tacked on. But to reform it altogether, to make a new model—that, says the professor, is beyond the part-time ruminations of the Board of Trade.
One of his arguments—that if the shop floor has a claim to be represented on the board, so have professional and technical staff and the `middle managers'—is rather the worse for wear after the results from Edwards High
Vacuum. This highly technological co. mpany received a takeover bid from the American firm of Varian. The managers at Edwards, unwilling to accept alien rule, threatened to resign en masse and successfully blocked the bid. The company has now turned in a thumping loss and its share price is barely half what Varian offered. Will shareholders conscious of their social role please come forward?
Opposite the Board of Trade's vast new offices in Victoria Street has appeared a demi% Italian restaurant called the Vitello d'Oro. (Glossary: the golden calf.)
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