London: Economic Dominance Through Financial Markets
My experience at union Investment Management (I-JIM), an investment house located in Mayfair Village, sheds some light onto the attention explanations for this configuration. One of the things I noticed during my first few days of work was the Incredible time that the employees devoted to their jobs In order to maximize productivity. Financial services companies have offered a tempting bait for potential employees: a relatively flexible work environment unchained from the shackles of hierarchical constraint, as well as a good wage providing workers with a strong incentive.
Capital markets have been the motor for the relatively successful British economy in the past three decades. The macroeconomic result of this was a large influx of immigrants, especially from Eastern European countries such as Poland. Another consequence Is the penchant for Parliament reject any legislation attempting to restrain Britain’s financial cash Statistically speaking, financial services employees enjoy longer weeks than the average Britons.
Hilary Metcalf and Heather Role from the National Institute of Economic and Social Research published a report that concluded that the mean full- time financial services employee works 2 hours longer than the overall UK mean (39 vs.. 37 hours respectively)l . This difference does not seem astounding so one Is forced to ask where this reputation for longer hours comes from? Certainly my experience at MIM supports the stereotype.
Junior traders would come In between 8-8:30 and work until After taking into account lunch, which would almost never exceed 30 minutes, the average work day at the investment house for the entry level employee was around 9 to 10 hours. This translates to almost 50 hours per week! The aggregate work-week statistics did not specify that 23% of financial services employees work over 50 hours a week which compares favorably to the overall UK mean of 18%1. My personal experience a well as the statistics clearly point o the conclusion that the success of financial services can be attributed to the work ethic of its constituents.
When trying to deduce the relative economic success of a sector we must obviously dig deeper than the average number of hours a full time employee works. A much more important Indicator is productivity. The percent of total UK Gross Value employment is a meager 4% which suggests that its productivity is approximately 2. 5 times that of the countrywide economic averaged. Once again, I-JIM does not fail to go along with the general trend reflected by the statistics. Employees at this company re given very difficult objectives to complete.
The Junior trader must get two accounts funded during each month and this is no easy task considering that the minimum account balance is 10,000 GAP. Unfortunately, many fail to achieve this requirement and are let go, as was the case with two people during my short two- month tenure. Management at I-JIM stressed the high turnover of the industry during meetings which put all entry-level workers on their toes in order to spike their effectiveness and overall work ethic.
The increasing productivity of I-J financial services has extended to other parts of the economy creating a regional economic roughhouse that compares well to other nations on the continent. My only office experience has come in Poland which I can contrast sharply to my current work environment. In terms of work ethic, British workers surpass their Polish counterparts. In Poland all the workers filed out of the office at exactly 4 pm when their work day ended, while at I-JIM almost all employees stayed past their supposed ending time.
Additionally, the Polish work day is filled with breaks that cumulate to approximately an hour. This did not occur to the same scale at the British office of I-JIM despite the informal atmosphere. The aggregate data supports my conclusion as English workers edge Poles in full-time work hours per week 42. 7 vs.. 42. 2. This disparity is not as large as the one in productivity where Britons beat their Polish counterparts by over 50 points on the EX. productivity index (OHIO=E average)3. The reason behind this is that real wages are much lower in Poland.
As a result, workers do not have as much motivation to extend their work day as they have a tougher glass ceiling of wage potential. Their British counterparts have a much higher upside in terms of living standards correlated to increased productivity. As Engel Meager from the Institute of Employment Studies in the I-J states, “productive workers’ utility is based (positively) on wages and work effort, but linked (negatively) to the likelihood of losing their Job and becoming reliant on benefits. 4 Clearly, in economic terms, higher wages correlate to increased productivity because the return for increased marginal effort is greater so the incentive is magnified. This is why the EX. statistics stray so far from the “hardworking” Polish stereotype, which is seconded by Roy Glendale from the Guardian, “Our research has found a mixed reception to foreign errors in I-J cities. Many are worried about the rise in crime but, equally, people recognize Poles as being particularly hard working and adding to the economy. 5 The best solution for many Poles to gain a substantially better economic position is to emigrate out of Poland to England, for example, where they will undoubtedly increase their productivity under a higher wage stimulus. Hard work and increasing productivity are not the only factors that have created the financial services behemoth in London. Legislative deregulation has been a huge boost for companies such as I-JIM. The Financial Services Authority is the main governmental body regulating the company and I actually witnessed firsthand an audit by this government agency.
The auditor stopped in for only one day despite the fact that I-JIM handles millions in cash, equities, and contracts for difference (CUFF) on both the directly with the FSP she stated that the regulatory authority was not overly demanding in the information it requested. On a side note, whilst speaking with one of the senior traders about Royal Dutch Shell (a company traded on the ELSE but incorporated in the Netherlands) he made a remark about how he had to sell his sections in the stock because I-JIM lacked FSP permission to trade such companies.
The fact that he purchased shares in the first place of a company he was not legally allowed have long shows how little control the British government is exacting on financial markets. The I-J government has done its fair share of supporting the sector because its success has continuously helped patch up budget deficits. Margaret Thatcher’s “Big Bang” saw billions of dollars of foreign capital swarm London in a period of overarching deregulation of capital markets. In 1997, under the Chancellorship of Gordon Brown, London saw even more loosening of regulatory grip as the Bank of England relegated its supervisory power to the FSP.
According to Patrick Inform from The Telegraph, “This was a disastrous decision for the effectiveness of supervision. The FSP (let alone the Treasury) did not have the information the Bank had, which was crucial to do the Job. “6 The deregulation, although it boosted I-J economic performance and aided government budgets, placed many big bank Coos in a precarious position of trying to attain results that were difficult to achieve without high levels of risk. This appetite for risk resulted in he collapse of financial markets, most notably the 37 GAP bailout of Royal Bank of Scotland in 20087.
The run of financial services as the top dog in the UK economic power structure was seriously questioned for the first time since its rise two decades prior. However, the questionably of the City as Auk’s biggest economic driver was short lived as financial services have mounted an impressive comeback. This has been reflected in London real estate prices and by employment in the sector. Ironically, the segment of the economy that was responsible for the late sass and early sass recessions was the first one to recover. The economy of the capital grew by 12. 5% and property prices rose by 15% between 2007 and 2011.
The economic growth of the rest of the I-J was only Just over 6% while property prices declined rapidly in the analogous time periods. This has led some to question whether London is actually good for the United Kingdom. Stephanie Flanders from BBC addresses this issue, “Whether it’s the “spare room subsidy” or the government’s “new homes bonus”, every politician you talk to, outside London, will have their pet example of a “one-size-fits-all” policy dreamed up in Whitehall which fits the priorities of London ND the south east a lot better than the rest of the I-J. 8 It appears that other areas feel slighted by the overshadowing political and economic power that emanates from London. The statistics certainly point to the conclusion that the economy of the UK has, to some degree, destabilize following the love affair between the City and Parliament. The average Londoner contributes 70% more to the SVGA than his non- London I-J counterparts. This difference is largely accounted for by the financial services sector as London accounts for 46%2 of total I-J financial services SVGA.
Flanders strongly adheres to this theory , “Without London, the I-J would look like a rather different economy – one less focused on financial services, more reliant on manufacturing. That could make a difference in the macro-economic performance. “8 wages have risen 25% and 17% respectively which starkly contrasts to the situation in other parts of the economy. As I write this, the FETES 100 has grown 6% since the beginning of the year. This has been a huge boost to businesses such as I-JIM, which has added 8 new positions in the last year (keeping in mind the company only employs 20) despite uncertainty in the real economy.
Without doubt, the government support of London is a major factor when considering why financial services, and subsequently London itself, have grown so steadily during a time when the I-J faces such hardships as a whole. However, one cannot ignore the fact that this sector enjoys the enhanced productivity of higher paid employees and a well-developed infrastructure that have made London the investment Mecca that it is. It would be hard to imagine the I-J government withdrawing support from something that has created so much growth and tax revenue in the past.
An overlooked part of the success of financial services is that the sector is rapidly evolving along with output boosting trends. An example of this is the flexible work landscape that is quickly gaining in popularity. Dories Clarke from Forbes describes this phenomenon, “the future of work is flexible and customized – responsive both to individual learning styles, and the unique needs of customers. A factory-era, hierarchical mentality is rapidly becoming obsolete. 10 The British have a reputation for paying attention a lot to class but I have not noticed this at I-JIM, perhaps because the relatively young management is buying into the above mentioned theory. The CEO is very laid back and the rest of the workers reflect his disposition. He sits in a trading row right alongside the rest of the traders and frequently banters, often about topics that a stereotypical high-class elite would probably frown upon. The relationship between the senior and Junior traders resembles more of a coach-player attitude than a boss- employer one.
Furthermore, the company does not have a transparent hierarchy since everyone works in the same room at similar-sized desks. Only after working there for a few days does one attain an idea of who is higher up and who is a run-of- the-mill worker. I-JIM strays from putting extra stress on its workers in terms of hierarchical arrangement because it sees the benefit in productivity of a relaxed work environment. Financial services have experienced uncontested expansion in the I-J. This growth has been ridden by investment houses and fund management companies such as I-JIM.
The dominance of this sector has seriously unbalanced the economy and created a social divide between London and the rest. This situation can be attributed to excellent productivity derived from motivated and efficient workers capable of sacrificing long hours due to the wage incentive. The sector supports retreat approaches to enhanced productivity as the proverbial “bottom line” appears to be the only thing that counts. Clearly, government policy has played no small role in the development the City as an economic giant with great political influence.