The MT Diary

On yer Velib, Boris; Manhattan perks up; Darling buds of May; finance boffins lose out.

by Howard Davies
Last Updated: 31 Aug 2010

A weekend in Paris, like nostalgia, is not what it used to be. But is it worse than a weekend in London, with every other street dug up and gloomy bankers at the bar crying into their champagne about the 50% tax rate? Oh yes. Let me count the ways.

First, there's the price. One of the few profitable business lines left for the banks is foreign exchange, so even though our plucky pound has picked up a little, you're lucky to get more than EUR1.05 a throw, which makes eating out in Paris a costly hobby. And the food is now, as a rule, a cut below London's. The breadth and variety of food here has generally passed Parisians by, and they've never been able to cook a vegetable anyway. The only green veg they live on are laurels.

The range of wine, too, is not a patch on what you find here. They haven't noticed Australian, South African or American wine, let alone New Zealand's, whose sauvignon blancs regularly knock their Loire equivalents into a cocked beret in international competition. And let's not forget the legendary charm of the French waiter.

Between meals, there's no contest. Music in London is streets ahead, and theatre too. Hard to tell when it comes to art, as you have to queue for ages to get into a gallery. The Musee d'Orsay and the Pompidou will have to await another trip, when swine flu has kept 80% of tourists at home. Football? Do me a favour. The cup final, on the weekend we were there, was between Rennes and Guingamp (no, I've no idea, either).

But there is one trump card - the Velib. In a tasteful livery of postmodern grey, rental bikes are on every corner, accessed through a system that seems near foolproof. It's cheap, at just EUR1 an hour, and the bikes themselves are better than functional. After dinner, a 15-minute ride, past lines of empty taxis, is juste le billet, and can even help to digest the stodgy food. It's shameful that our two great London mayors have spent the past six years fiddling about with bendy buses and traffic lights, rather than on something that really reduces congestion and emissions.

Mayor Bloomberg offers no rental bikes in New York. It's a brave person who ventures onto two wheels in Manhattan, where the potholes can engulf a yellow cab, but the business mood today seems better than in London, especially with the dreaded banking stress tests now done. Some think we are approaching the foothills of the sunlit uplands, where milk, honey and in-the-money options flow.

That's not my view, I have to say. I am suspicious of false dawns in which dead cats peak too soon. But then I am a congenital pessimist, which I suppose is why I wasted my prime on audit and regulation. Those essentially unconstructive occupations appeal to my Cassandrian tendencies. A more rational case is that the impact of unemployment on confidence and consumer spending has barely been felt so far, so a second downward leg to the market is quite possible. We'll see, but I have to admit that a good amount of smart money is now betting the other way.

Over here, the Chancellor was sufficiently optimistic to launch a report on the future of our financial services. Indeed, he came to the LSE to do it.

It's not an easy time to sing the praises of the great wealth-creating skills of our leading-edge derivatives traders and short-sellers. De Gaulle's famous put-down of one of his opponents, 'He has missed a good opportunity to stay silent', came to mind. But Win Bischoff, late of Citigroup, and Richard Lambert of the CBI, did as good a job as could be done. They acknowledged that the financial sector is likely to grow less rapidly than the rest of the economy for some time, and that some of the former fast-growth areas will depart unlamented. Bischoff confessed he won't miss the excitements of CDOs squared, where Citi lost its shareholders' shirts.

On the other hand, finance is something we are good at (at least, south of Hadrian's Chinese wall), and if we throw out the baby with Fred Goodwin's bathwater, we may regret it. So one key message was that our financial sector needs to continue investing in its intellectual property, through partnerships with universities, in particular - which US firms do far more of.

Sounds persuasive. But it's hard to reconcile it with the Brownite-Mandelsonian rhetoric about science being the ladder we'll use to climb out of the recession. One understands why politicians say that sort of thing when cornered by critics who reproach them with their banker-chumminess in the past and publish old photos of Gordon and Fred in flagrante, as it were. But this political rhetoric has resulted in large cuts in the research budgets of business and finance-related universities across the country, and especially in London, where the LSE and London Business School have seen their income slashed, in spite of coming top, or thereabouts, in research rankings. There seem to be left and right hands at work in Downing Street.

I'm in favour of retaining as much of our high-value-added manufacturing as we can. But it is hard to think of a developed high-wage economy that has seen manufacturing increase markedly as a proportion of GDP (except perhaps in periods of recovery from war or natural disaster). So we'll need to maintain a strong service export base too, in which finance will still play a big part. Say it very quietly, though, for now.

Howard Davies is the director of the London School of Economics

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