MONEY AND THE CITY
The two faces of capitalism
Nicholas Davenport
The title of a recent front-page leader — ' Cleaning Up The City' — caused me some alarm because the Editor never warned me that after cleaning up No 99 Gower Street he would be moving in onto my sidewalk. I thought he exag gerated the extent of the dirt he found about the place. In a mixed economy we all need, as he said, enterpreneurs who build up an organic business but he objected to the " johnny-come-latelies " who sweep into the City, play with shares, borrow from a gullible public, engage in property speculation and in innumerable ways make money out of money, as Mr Harold Wilson used to say.
But I can assure him that it is not as easy as all that. You cannot borrow from the public unless you have built up assets and pledged them as collateral and you cannot acquire assets unless you have taken risks yourself in their acquisition.
Certainly, far too much money has been made out of property de velopment. After the Tories had removed the licensing rules and the development charge in 1953/54 millionaires grew over-, night, like mushrooms. This was exposed in Oliver Marriott's clas sic book The Property Million aires which listed over one hundred — "all with one gift in com mon — the ability to use profitably the millions lent bybanks and insurance companies." They borrowed on the security of the office blocks built on vacant sites which they had secured for a song. The most successful, as we know, was Harry Hyams who had made E27 million by the age of thirty-nine. But why blame these smart Alecs
for taking advantage of the outrageous liberties bestowed on them by laissez-faire Toryism?
I am all for the millionaire who has a flair for creating wealth out of the skilful organisation of labour and materials — on him largely depends the growth of the economy and the export trade — but to allow property millionaires to grow untaxed — at that time — out of the manipulation of life as surance money for site development was a nasty blot on the Tory freedom of the nineteen fifties.
The huge profits now being made out of inflated land and house values att going into the pockets not only of developers but of fi nancial institutions and charities. They should all be taxed heavily.
The Editor asks "how much of the City is necessary? " This raised my hackles because 1 have constantly stressed in these columns that the City provides the free capital market where the savings of the people collected by the life and pension funds and unit trusts and building societies are converted into the capital investment without which the economy could not grow or employment increase. But 1 have always thought it amazing that no Government, except the 1945/51 Labour Government, attempted to direct the flow of these vast savings — now approaching £4,000 million a year — into the right channels for the most socially desirable and the most economically productive types of investment. The directors of a life company could invest the whole of their net premiums in Japan. I have never advocated direct Government control and direction of the national savings, which would generate all the muddles and mistakes of the centralised communist state, but when I was on the board of a mutual life society, and became familiar with the executives of the great life companies, I knew that they were always willing to co-operate with the Government and obey the voluntary restraint programmes which the Bank of England occasionally laiddown. The only positive direction ever given to the life companies was by a Tory government which demanded so many millions for the Export Credit scheme.
No advanced capitalist system can exist without a free capital market and the freer it is the more' likely it is that the enterpreneur will be able to raise the risk capital essential for the growth of a dymanic economy. But the freer it is the more likely also it is that it can be abused by the share-pusher and manipulator. The Stock Exchange Council prescribes rules for dealing, for introductions and mergers and take-overs which are far more strict than those prescribed by the Companies Acts which Mr Walker promises to revise. But what has made ' Funny business ' in share dealing more difficult to detect than it used to be has been the growth of the fi
nancial conglomerate — the bank which is finance house, a unit trust management, an insurance company, a property company and a financial service company all rolled into one. Such a conglomerate can acquire interests in other companies which are' warehoused' in its unit trusts and other subsidiaries without any one being the wiser. My colleague Skinflint has been attacking this system for a long time and there is no doubt that a new Companies Act should make it impossible for a finance house to own a unit trust management or portfolio management company where ' warehousing ' and other undesi rable practices can be indulged in. I do not consider that even a joint stock bank should be allowed to own a merchant bank as some do. Two extraordinary events in the City have recently called atten tion to the growing public suspi cion of bigness. The proposed merger between Hill Samuel and Slater Walker Securities has been called off because discussions between the two companies since the offer was sent to shareholders and disclosed (sic) "fundamental differences of work-style and per sonalities." A curious phrase to use seeing that the differences of work-style and personalities had been obvious to every one for many years! The merger was virtually killed by The Sunday Times who had twice told the Hill Samuel shareholders to say ' no ' because it was impossible on the facts available to judge whether the deal was in their true interests seeing that (to quote) "the inter leaved layers of Slater Walker subsidiaries were often consolidated, de-consolidated and reconsolidated within the space of a single financial period." A new Companies Act should not only compel the disclosure of all such financial legerdemain but put a stop to it, however honestly it may have been conceived in the interests of the parent shareholders.
The second event was Mr Harold Lever calling upon the Government to investigate the share-dealing background to the partial sale of the National Group management of Unit Trusts by Sir Denys Lowson to the Triumph Investment Trust at £8.67 per share, when six months earlier the shares were passing hands at 620. This is not the first time that the shares of unit trust management companies have been exchanged at fancy figures ana the public is wondering how much inflated prices can be justified and how such huge profits can be made out of mucking about with shares on behalf of savers.
The answer to the public suspicion is not to try and nationalise the City. An alert Stock Exchange Council and a stricter Companies Act which requires the disclosure of much more information would meet the case. But the Government should put a limit on the size of banks and forbid financial conglomerates. The Bank of England which lately removed all restraints on the acquisition of merchant banks is not the right body to police the City.
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