In the City
Tips for the Governor
Jock Bruce-Gardyne
Who would be the Governor of the Bank of England? A few weeks ago, when he played his maiden innings before the Commons Treasury Select Committee, Mr Leigh Pemberton apparently let slip a comment to the effect that Bagehot had not used the words 'growth' or 'inflation'. This innocent aside has now earned him no less than nine closely-written foolscap pages from Mr Austin Mitchell, the industrious Labour MP for Grimsby. Mr Mitchell ap- peals to the Governor's better nature 'to put your country's needs before those of the Government of the day' (or, as he put it rather more emotively when the Governor appeared before the Committee, to give priority to 'the interests of people and jobs,' over those of 'finance, the City and the banks') by engineering an increase of £40 billion in the money supply, and a massive cut in the exchange rate. For after all the Bank is a free agent in these matters: 'Can you imagine the mess the Americans would now be in if the Fed had as much freedom of action as the Bank of England?'
That must have given the Governor — or those who have to compose responses to such unsolicited counsel on his behalf — a hollow laugh. But while Mr Mitchell's nostrums for a new lurch into hyper- inflation are woefully familiar, his descrip- tion of a huge expansion of domestic credit successfully sanitised by massive purchases of commercial funds by the Bank of England in the run-up to the last election (and since) does strike a chord. Mr Mit- chell, needless to say, is all for it: 'something I am quite sure that the Bank would never have agreed to under a Labour government' (where was he in 1974-6?). Those of us who doubt the regenerative properties of overborrowing by the per- sonal sector are bound to be less enthusi- astic.
Perhaps the Governor gave more thought over the Easter weekend, however, to stric- tures from a rather weightier quarter: the shrewd and articulate managing director of the M & G unit trust group, Mr David Hopkinson. They were worthy of it. Mr Hopkinson's is the latest voice to rubbish the Stock Exchange's 'Discussion Paper' about life after the Big Bang, and to accuse it and the Bank of England of complacen- cy. He worries about the defence of the small investor; conflicts of interest when what we have hitherto called the brokers and the jobbers cohabit; the corruptibility of negotiated commissions on the purchase and sale of shares; what happens in the next bear market when the devil takes the hind- most; and how an adequate trade is to be maintained in the secondary lines of stock.
Crying over spilt milk is widely judged a pointless pastime, and all the more so when the milk unspilt would soon have curdled. It is an unhappy fact that the private small investor is liable to draw the short straw in the new environment. Mr Hopkinson may regret it, and he will not be alone; but it is not much use turning on the Governor of the Bank of England and the Chairman of the Stock Exchange for their failure to defy the tides.
The serious part of Mr Hopkinson's charge of grapeshot, though, is the warning of the threat to the marketability of second- line shares. For the prime purpose of the Stock Exchange is to enable firms both big and small to raise capital on a judgment of performance. And it is here that the 'discus- sion document' leaves something to be desired.
Consider the not wholly dissimilar change which overtook the shopping precincts 20 years ago when resale price maintenance was abolished. That legislative change, like the Parkinson concordat, largely recognised a fait accompli. And there were widespread fears that we should all be condemned to choose from a narrow range of swift-selliTnghe pSpreecptaatcokra2g8 April 1984 promoted lines on the supermarket shelves. For the most part this has not happened' The small stores have managed to survive on a combination of personal service, specialised lines and flexible hours. The Stock Exchange's 'discussion docu- ment' does not seem to offer any similarly assured future for the marketability of secondary lines of stock. The corporate treasurers of ICI, Glaxo and GEC have nothing to fear from the new dispensation; They are already well known to institutional investors across the globe from Wall Street to Tokyo. And no doubt there will always be a market for the punters who fancy Aa flutter on the latest offering on the Unlisted Securities Market. But will the institutions feel the same confidence as they do today in their ability to find a buyer at an acceptabt,e price for a parcel of shares they are millde" to dispose of in a company with a perfectly respectable record which happens to be unknown on Wall Street? That is the ques- tion to which the Bank and the Stock Ex- change toolanteeed to address themselves before it is afflict
No such anxieties presumably those masterminding the promised deb
ute of British Telecom and British AirwaYs' They will not lack a market: in their case, the question mark concerns the price, Ail s in the case of British Airways last week report from the CAA is not calculated to help. It deserves a cheer for all that. Hitherto the argument over BA's flotan- tion has been conducted largely ,s BA's BA's Lord King and British Caledonian_ Sir Adam Thomson. Sir Adam's theme ltrd been that BA in its present shape violin! emerge into the private sector as an nticc)iri trolled monopoly; and that it sb°111 therefore be obliged to sell a substantial dents, if of trfouthteesy toarBeCiaolte(arensdte odtp. er indePe. To 1,2/11cnnd Lord King replies 'over my dead body% and that the claims of monopoly are so the poppycock when account is taken of ur Bfotriteiisghnaairirplionretss.plying for traffic from ° The CAA has put its finger on the Nli?.; !(, link in both propositions. The availabi0 of other international carriers is a fat lot a 0i good to the scheduled service passenger so long as routes and fares are, in the delicate phraseology, subject to arrang„,. ments 'to ensure that blood is not drafcl'ai And transferring routes from BA to 15_.in would not make a ha'porth of differenc`,ic this respect. Giving a couple of doine!ltie airlines their heads to bid for custom 011,`,er same routes would be a different Inall`v. altogether — as the CAA has already ed at home. It would also put a slightlY "So ferent complexion on the BA price-tago..n_ the certain resistance of most of the c ;Iwo tries of te of carriers inetigoennatotihye notion of two g competi n
usiness among the for hem may be seen as a blessing in &spin is . some quarters in Whitehall. But the
r. p
passengers boun
surely right: the answer is not log or BCa1, but both.ically
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