0:00:06 > 0:00:1060 years ago, we put on an exhibition
0:00:10 > 0:00:13to show off the best of Britain.
0:00:14 > 0:00:17CONTEMPORARY NARRATION This is the Festival of Britain
0:00:17 > 0:00:19in the city of London.
0:00:22 > 0:00:25In 1951,
0:00:25 > 0:00:29over eight million people visited the South Bank of the Thames
0:00:29 > 0:00:32to see for themselves where Britain stood,
0:00:32 > 0:00:36what we did and what we could be proud of.
0:00:36 > 0:00:38According to the organisers,
0:00:38 > 0:00:43the festival aimed to demonstrate firm confidence in our future.
0:00:43 > 0:00:45Under the constraints of post-war austerity,
0:00:45 > 0:00:49such confidence was in short supply.
0:00:53 > 0:00:57Today, as we recover from a financial crash,
0:00:57 > 0:00:59we're again anxious about our future,
0:00:59 > 0:01:02asking what should we be doing to pay our way in the world.
0:01:02 > 0:01:06What would a new Festival of Britain say about us now?
0:01:09 > 0:01:14For years, we thought the City could keep our economy growing.
0:01:15 > 0:01:17Then came the crash.
0:01:17 > 0:01:20Britain emerged burdened with debt,
0:01:20 > 0:01:24and unsure how to rebuild itself.
0:01:24 > 0:01:28In this series so far, we've seen how, over the last 60 years,
0:01:28 > 0:01:33we've focussed our manufacturing on leaner, higher-value sectors...
0:01:33 > 0:01:36- HE LAUGHS - Oh, God!
0:01:36 > 0:01:40..how our economy has become more creative,
0:01:40 > 0:01:42graduating from brawn to brain.
0:01:44 > 0:01:47But today we look at the biggest change in direction of all.
0:01:47 > 0:01:51We rely less on traditional manufactured exports.
0:01:52 > 0:01:56Instead, Britain has embarked on a unique experiment,
0:01:56 > 0:01:59developing new ways of paying its bills
0:01:59 > 0:02:01by selling services.
0:02:01 > 0:02:03Fantastic, isn't it?
0:02:05 > 0:02:08Rather than making things, we do things.
0:02:08 > 0:02:11We run things. We organise things.
0:02:12 > 0:02:16'Eight out of ten of us work in services,
0:02:16 > 0:02:18'and yet many still look down on them...'
0:02:18 > 0:02:21What about your TV? How does that go for you?
0:02:21 > 0:02:24'..even though they've helped make us far richer than we were
0:02:24 > 0:02:27'60 years ago.'
0:02:27 > 0:02:29Moving from manufacturing to services
0:02:29 > 0:02:32has changed Britain dramatically,
0:02:32 > 0:02:35far beyond anything that visitors to the Festival of Britain
0:02:35 > 0:02:38would have imagined. But this transition has had costs
0:02:38 > 0:02:42as well as benefits, leaving us a difficult question to answer -
0:02:42 > 0:02:46is the service-based economy that's grown since the '50s
0:02:46 > 0:02:50the right one to deliver us a prosperous future?
0:03:03 > 0:03:08This is where you might come to see how much we buy and sell
0:03:08 > 0:03:10as a nation.
0:03:11 > 0:03:14It's Felixstowe, our biggest container port.
0:03:18 > 0:03:21Ships from all over the world bring their cargo here.
0:03:21 > 0:03:25The overall figures for the port are astonishing.
0:03:25 > 0:03:30In an average year, they unload three million containers here,
0:03:30 > 0:03:33full of goods valued at £40 billion.
0:03:35 > 0:03:38Some of the ships that dock here are a quarter of a mile long,
0:03:38 > 0:03:41and carry 15,000 containers.
0:03:45 > 0:03:49'But what do ships like these take away from Britain?
0:03:51 > 0:03:54'What do we sell to the rest of the world?'
0:03:55 > 0:03:57We sell some goods.
0:03:57 > 0:04:00But of the containers the ships leave with,
0:04:00 > 0:04:02half will be empty.
0:04:02 > 0:04:04Many of the rest will be full of rubbish
0:04:04 > 0:04:07sent abroad for recycling.
0:04:07 > 0:04:10'Last year, the gap between the goods we bought in
0:04:10 > 0:04:13'and the goods we sold to the rest of the world
0:04:13 > 0:04:16'was almost £100 billion.'
0:04:16 > 0:04:20In fact, the last time we were consistently exporting more goods
0:04:20 > 0:04:24than we were importing was the early 1980s.
0:04:25 > 0:04:27Scary stuff!
0:04:27 > 0:04:30Or is it? It's not as bad as it looks,
0:04:30 > 0:04:34because here we've only been talking about trade you can see
0:04:34 > 0:04:36in physical goods -
0:04:36 > 0:04:41things you can touch, put in a box and transport across the world.
0:04:41 > 0:04:44And because you can see it all, many people assume
0:04:44 > 0:04:48that that's what any self-respecting economy should be all about.
0:04:48 > 0:04:50But it isn't - at least not any longer.
0:04:50 > 0:04:53More and more of us work in services.
0:04:53 > 0:04:57Far harder to get a sense of them than the objects round here.
0:04:57 > 0:05:02It's a slippery kind of activity, almost entirely intangible.
0:05:03 > 0:05:08'Services are everything you can't put in a box.
0:05:08 > 0:05:10'But contrary to popular belief,
0:05:10 > 0:05:13'that doesn't mean they're not valuable,
0:05:13 > 0:05:16'and it doesn't mean they can't pay for container-loads
0:05:16 > 0:05:18'of solid imports.'
0:05:18 > 0:05:21In Britain, more than most,
0:05:21 > 0:05:23we do services.
0:05:23 > 0:05:27Forget your picture of people just sitting at desks on the phone.
0:05:27 > 0:05:31'Our services come in all shapes and sizes.
0:05:33 > 0:05:36'And right here on the ship is an example of one.'
0:05:39 > 0:05:40- T minus five.- Five.
0:05:40 > 0:05:43Four. Three.
0:05:43 > 0:05:45- Two.- Engine ignition,
0:05:45 > 0:05:48and lift-off of the Atlas V rocket,
0:05:48 > 0:05:52carrying Inmarsat 4 F-1 satellite for Inmarsat Limited.
0:05:58 > 0:06:03You may not have heard of Inmarsat, but it's one British company
0:06:03 > 0:06:07that can reasonably claim to offer a service that's out of this world.
0:06:07 > 0:06:11Sometimes you just can't go around the weather.
0:06:11 > 0:06:14So it's vital to know what's on the horizon.
0:06:14 > 0:06:16Anybody, wherever they are on Earth,
0:06:16 > 0:06:19can use Inmarsat's satellite communications
0:06:19 > 0:06:21to stay in touch,
0:06:21 > 0:06:26and the entire network is run from their control centre in London.
0:06:26 > 0:06:29Chris McLaughlin is the company's vice president.
0:06:29 > 0:06:32We have an increasing number of users -
0:06:32 > 0:06:34it's grown to 63 just as we're talking -
0:06:34 > 0:06:38in Egypt. And then these two up here, cells 65 and 80,
0:06:38 > 0:06:42are Tunisia, which again is in a current political turmoil.
0:06:42 > 0:06:45The satellites are constantly adjusted
0:06:45 > 0:06:47to meet clients' needs.
0:06:47 > 0:06:50Here we're getting into the Afghanistan area.
0:06:50 > 0:06:55Obviously very serious, very dedicated...
0:06:55 > 0:06:57You get an idea of what's going on in the world
0:06:57 > 0:07:00by seeing where the satellites are being used.
0:07:00 > 0:07:03That's right. Often our engineers know before virtually anybody else.
0:07:03 > 0:07:07Inmarsat is worth £2.8 billion.
0:07:07 > 0:07:11It's a service used by over half a million subscribers worldwide.
0:07:11 > 0:07:17Everyone from aid agencies to news organisations rely on it
0:07:17 > 0:07:20for communications in remote locations.
0:07:20 > 0:07:24And, of course, the ships that bring us our imports
0:07:24 > 0:07:27depend on it too. The key thing about Inmarsat
0:07:27 > 0:07:31as a service company is, it makes nothing at all -
0:07:31 > 0:07:33not the phones nor the satellites.
0:07:35 > 0:07:38Instead, it buys them from manufacturers.
0:07:38 > 0:07:42All services need manufactured goods to operate -
0:07:42 > 0:07:46but remember, all manufacturers rely on services as well.
0:07:46 > 0:07:49Inmarsat has three I-4 satellites.
0:07:49 > 0:07:52Each one of them weighs about six tons
0:07:52 > 0:07:55and each is 60 times more powerful than our previous generation.
0:07:55 > 0:07:59We're very fond of them, because they cost us 1.5 billion to launch...
0:07:59 > 0:08:01- Right!- ..between 2005 and 2008.
0:08:01 > 0:08:05- So they're big satellites! - Each is the size of a London bus,
0:08:05 > 0:08:08and the solar panel is the width of a football pitch,
0:08:08 > 0:08:11so it gives you an idea of scale. Each one of them is a binary bet
0:08:11 > 0:08:15when they launch. It's one of the most expensive bets you'll ever have.
0:08:15 > 0:08:18- It works or it doesn't. - Light the touch paper.
0:08:18 > 0:08:21There's about a one-in-11 chance of a rocket blowing up,
0:08:21 > 0:08:23so you've shifted around the rockets.
0:08:23 > 0:08:26Granted, most jobs in services
0:08:26 > 0:08:29don't involve firing rockets into space,
0:08:29 > 0:08:31but I've picked this example
0:08:31 > 0:08:34because I don't think we value services as much as we should.
0:08:34 > 0:08:40There's no reason to believe services are second-best.
0:08:41 > 0:08:44Many think the transition of our economy
0:08:44 > 0:08:46towards services, like those of Inmarsat,
0:08:46 > 0:08:51was some kind of deliberate choice, and the wrong choice at that.
0:08:51 > 0:08:54But in fact it was more of a natural evolution.
0:08:54 > 0:08:57The world changed, and our economy changed as a result.
0:08:57 > 0:09:01It wasn't the decision of one person, and although it was painful,
0:09:01 > 0:09:05politicians found it very hard to reverse when they tried.
0:09:05 > 0:09:08So how did we get to where we are today?
0:09:10 > 0:09:14As we all know, great manufacturing used to be spread
0:09:14 > 0:09:18right across Britain. Sunderland was the dockyard to the world.
0:09:18 > 0:09:23At its peak, 12,000 people worked in shipbuilding,
0:09:23 > 0:09:26and during the war, one merchant ship a week
0:09:26 > 0:09:29was sent down the slipway into the Wear.
0:09:30 > 0:09:32APPLAUSE
0:09:37 > 0:09:40I give you to the lads that built the ship.
0:09:40 > 0:09:43Aye-aye! Here's to 'em!
0:09:43 > 0:09:46But these shipyards had a problem.
0:09:46 > 0:09:49Poorer countries found they could make ships too,
0:09:49 > 0:09:51and more cheaply.
0:09:51 > 0:09:55Where we had once led, others had caught up.
0:09:55 > 0:09:58It was devastating for those involved.
0:09:58 > 0:10:02- Is there a feeling in the yard that there might be redundancies?- Yes.
0:10:02 > 0:10:04- Oh, yes. - What would this mean to Sunderland,
0:10:04 > 0:10:07- if there were? - I think the town would be dead.
0:10:07 > 0:10:09- The town would be dead?- Definitely.
0:10:09 > 0:10:14In time, large-scale shipbuilding disappeared.
0:10:15 > 0:10:18'Chris Mullin became MP for Sunderland South
0:10:18 > 0:10:21'just in time to see it go.'
0:10:22 > 0:10:24So what was actually on this site here?
0:10:24 > 0:10:27This was the North Sands shipyard.
0:10:27 > 0:10:29The last order was the Danish ferry order,
0:10:29 > 0:10:32I think about 15 or 16 Danish ferries.
0:10:32 > 0:10:36And that was in 1989, and if you stood on the bridge behind me,
0:10:36 > 0:10:40and looked down at this site, you'd have seen all the ferries lined up
0:10:40 > 0:10:45along here, waiting to have the tops put on and go off to Denmark.
0:10:47 > 0:10:50It wasn't just ships.
0:10:50 > 0:10:52In so many of our industries,
0:10:52 > 0:10:55we found others could make what we had been making.
0:10:55 > 0:10:59So naturally we had to move on.
0:10:59 > 0:11:03Over the last 60 years, manufacturing had declined
0:11:03 > 0:11:08from 46 percent of our economy to just 12,
0:11:08 > 0:11:13whilst services have rocketed from 47 percent to 78.
0:11:13 > 0:11:17Given the trauma of this upheaval, no wonder people have looked around
0:11:17 > 0:11:21for someone to blame - usually Margaret Thatcher,
0:11:21 > 0:11:23because she welcomed the shift towards services
0:11:23 > 0:11:25that our economy was making.
0:11:25 > 0:11:30So as we have redundancies in the declining industries,
0:11:30 > 0:11:33so we are getting new jobs in the new industries
0:11:33 > 0:11:36and new jobs in some of the service industries,
0:11:36 > 0:11:39and they are being created by our dynamic economy of today.
0:11:39 > 0:11:42But let us not belittle our achievements.
0:11:42 > 0:11:47Many of her admirers and critics agreed on one thing -
0:11:47 > 0:11:50that it was all down to her,
0:11:50 > 0:11:55that politicians could entirely control the forces of economics.
0:11:55 > 0:11:57In 1986,
0:11:57 > 0:12:01chairman of ICI and TV business guru Sir John Harvey-Jones
0:12:01 > 0:12:03addressed the nation.
0:12:03 > 0:12:07The subject of my talk this evening is manufacturing -
0:12:07 > 0:12:10the business of making tangible, useful objects
0:12:10 > 0:12:13with the aim of selling them to people in the UK
0:12:13 > 0:12:17who would otherwise buy an import, and selling them also
0:12:17 > 0:12:20to people abroad, whom we want to choose a British product
0:12:20 > 0:12:22instead of a product made in another country.
0:12:22 > 0:12:25Manufacturing is fast becoming an endangered species.
0:12:25 > 0:12:28It is becoming so undervalued in the country
0:12:28 > 0:12:31that our decline could become irreversible,
0:12:31 > 0:12:34with truly painful consequences for all of us.
0:12:34 > 0:12:38Sir John Harvey-Jones spoke, right here in this room,
0:12:38 > 0:12:42as though the change that was occurring in the economy
0:12:42 > 0:12:45was the result of some kind of conscious decision.
0:12:45 > 0:12:47And yet the inexorable rise of services
0:12:47 > 0:12:50had started well before his speech,
0:12:50 > 0:12:52and it's continued in the decades since.
0:12:52 > 0:12:54Mrs Thatcher didn't cause it,
0:12:54 > 0:12:58and most telling is the fact that politicians before her
0:12:58 > 0:13:03made one serious attempt to strangle the growth of services at birth.
0:13:03 > 0:13:05And it didn't end well.
0:13:05 > 0:13:06SONG: "Taxman" by The Beatles
0:13:08 > 0:13:11# Let me tell you how it will be
0:13:11 > 0:13:13# Cos I'm the taxman #
0:13:13 > 0:13:18It was the 1960s, the Labour government under Harold Wilson.
0:13:18 > 0:13:20Jim Callaghan was chancellor.
0:13:20 > 0:13:25He thought services would never earn enough export revenue
0:13:25 > 0:13:27to help Britain pay its way in the world.
0:13:27 > 0:13:33So in 1966, he introduced the selective employment tax,
0:13:33 > 0:13:37or SET, to drive workers in the services sector
0:13:37 > 0:13:39back into manufacturing jobs.
0:13:39 > 0:13:42I think chancellors in many years to come...
0:13:42 > 0:13:46They may not remember my name, but I'm sure they'll bless the tax.
0:13:46 > 0:13:49It meant that every services business
0:13:49 > 0:13:52had to pay an extra tax for employing staff.
0:13:52 > 0:13:56The revenue could be used to subsidise workers in manufacturing.
0:13:56 > 0:14:00Lloyd's brokers have to pay this selective employment tax,
0:14:00 > 0:14:04and many other people, who contribute much less
0:14:04 > 0:14:07to the balance-of-payments situation of this country
0:14:07 > 0:14:10don't have to pay it. We want to continue
0:14:10 > 0:14:13and to expand and build up our business,
0:14:13 > 0:14:17and this is made more difficult by this tax,
0:14:17 > 0:14:20which really doesn't make any sense at all.
0:14:21 > 0:14:25It produced blatantly ridiculous results.
0:14:25 > 0:14:28Candyfloss makers were not taxed.
0:14:28 > 0:14:32The entire tourism sector, a big exporter, was.
0:14:32 > 0:14:36In Brighton, the Metropole Hotel pays SET on 350 staff.
0:14:36 > 0:14:39What does the director, Mr Webb, think of SET?
0:14:39 > 0:14:42Well, it's shattering. It's an absolute calamity
0:14:42 > 0:14:44as far as our industry is concerned,
0:14:44 > 0:14:48because we feel we are a sort of Cinderella industry in this country.
0:14:48 > 0:14:50This is absolutely ridiculous,
0:14:50 > 0:14:53and it's due time we had proper recognition.
0:14:53 > 0:14:56Unsurprisingly, the selective employment tax
0:14:56 > 0:14:59couldn't thwart the forces of economics.
0:14:59 > 0:15:02It was phased out, and then abolished altogether,
0:15:02 > 0:15:05when VAT was introduced in 1973.
0:15:05 > 0:15:09Since then, no-one has suggested reviving it.
0:15:11 > 0:15:14'Economies seem to have a mind of their own.
0:15:14 > 0:15:18'Even though Mr Callaghan and other critics of services
0:15:18 > 0:15:21'didn't like them, there was little they could do about it.'
0:15:22 > 0:15:25Now, one of the reasons they didn't like services
0:15:25 > 0:15:28was they didn't think you could export enough of them
0:15:28 > 0:15:30to pay the nation's bills.
0:15:30 > 0:15:32But this is where it gets really interesting,
0:15:32 > 0:15:36because Britain has embarked on something of an economic adventure
0:15:36 > 0:15:39over the last few decades, doing just that.
0:15:39 > 0:15:43We've found several novel ways of exporting services.
0:15:43 > 0:15:46Each of these business models has its limitations,
0:15:46 > 0:15:49but together, they've gone further than anyone in the '60s
0:15:49 > 0:15:53might have imagined at helping the nation pay its way in the world.
0:15:57 > 0:16:01To see one of the ways in which we sell services overseas,
0:16:01 > 0:16:03I've come to Dubai.
0:16:03 > 0:16:07Service providers from all over the world come here
0:16:07 > 0:16:10to do their thing, and Britain is a key player.
0:16:12 > 0:16:16We export almost £2 billion of services a year to Dubai
0:16:16 > 0:16:19and the other United Arab Emirates.
0:16:19 > 0:16:23People have a lot of different reactions to Dubai.
0:16:23 > 0:16:27Some feel the excitement. Others think it's rather vulgar.
0:16:27 > 0:16:30Some worry that it doesn't have as much money as it used to,
0:16:30 > 0:16:33and some see it as obscene. There are terrible stories
0:16:33 > 0:16:37of maltreatment of migrant workers. Whatever you think of it,
0:16:37 > 0:16:41it's certainly a place that's changing very quickly.
0:16:42 > 0:16:44It was only 40 years ago
0:16:44 > 0:16:48that Dubai began its extraordinary transformation
0:16:48 > 0:16:52from a quiet desert town into a futuristic metropolis.
0:16:52 > 0:16:57Dubai is strikingly new. But that gives you a clue
0:16:57 > 0:16:59as to why it's been such a great business opportunity
0:16:59 > 0:17:01for British companies.
0:17:01 > 0:17:06You see, one thing fusty old Britain really does have is experience.
0:17:06 > 0:17:08We've been doing stuff for decades.
0:17:08 > 0:17:12Now, if you're a young country and you want some of that experience,
0:17:12 > 0:17:15it's our services you come shopping for.
0:17:18 > 0:17:22And if you've got the money, this is what you can buy.
0:17:25 > 0:17:29In 1993, Dubai wanted to announce its arrival
0:17:29 > 0:17:33as a global destination. The sheikh commissioned the building of a hotel
0:17:33 > 0:17:36that could make a statement to the world -
0:17:36 > 0:17:38the Burj Al Arab.
0:17:38 > 0:17:41Local talent wouldn't have been up to pulling off a project
0:17:41 > 0:17:45of this scale, but a British consultant engineering firm,
0:17:45 > 0:17:48called Atkins, was.
0:17:50 > 0:17:55'Architect Simon Crispe was part of the original design team.
0:17:56 > 0:17:59'What we sold was British service expertise
0:17:59 > 0:18:03'in architecture, project management and engineering.'
0:18:05 > 0:18:11Let's show you some of the drawings of the design.
0:18:11 > 0:18:13- The old plans! - The old plans.- Dusted down.
0:18:13 > 0:18:16- Absolutely. - I bet this brings it all back.
0:18:16 > 0:18:21It does indeed. Now, this one is the original sketch.
0:18:21 > 0:18:23This was August '93,
0:18:23 > 0:18:27and the client said, "Yes. Thanks, Atkins. We'll have it."
0:18:27 > 0:18:29THEY LAUGH
0:18:29 > 0:18:31And, er, away we went.
0:18:31 > 0:18:34At a height of 321 metres,
0:18:34 > 0:18:36it stands taller than the Eiffel Tower.
0:18:36 > 0:18:40The other drawing is the external facade of the building,
0:18:40 > 0:18:43and that shows the wind braces on either side.
0:18:43 > 0:18:46And these are the primary elevational features that you see.
0:18:46 > 0:18:51It's what gives it its character, that initial nautical feel.
0:18:51 > 0:18:56So the clever thing has been to make engineering features
0:18:56 > 0:18:59aesthetically very attractive. You haven't hidden them away.
0:18:59 > 0:19:02- It's absolutely turning them into... - That's right,
0:19:02 > 0:19:06and it's the bringing together of architecture and engineering
0:19:06 > 0:19:08to create a thing of beauty.
0:19:08 > 0:19:12'Beautiful it may be, but how does it help us pay the bills?'
0:19:12 > 0:19:15Atkins didn't just draw up the plans.
0:19:15 > 0:19:18They project-managed the building's construction,
0:19:18 > 0:19:21and they commissioned ten other British service companies
0:19:21 > 0:19:23to work on everything from its safety features
0:19:23 > 0:19:26to interior design.
0:19:30 > 0:19:34'British services even helped build the artificial island
0:19:34 > 0:19:36'on which the hotel stands.
0:19:38 > 0:19:41'So how much does this all add up to?
0:19:42 > 0:19:45'All the exact figures are commercially confidential.'
0:19:45 > 0:19:49Now, help me out here. You've got a whole cost of the building.
0:19:49 > 0:19:53What proportion of that total cost is the thinking bit,
0:19:53 > 0:19:56- the sort of stuff that Atkins does? - In broad terms,
0:19:56 > 0:19:58because it's different for different projects,
0:19:58 > 0:20:03you're talking probably... If the whole building costs 100 percent,
0:20:03 > 0:20:07the overall thinking time, the management, the design,
0:20:07 > 0:20:11the conceiving of the project and the delivering of that design
0:20:11 > 0:20:14is roughly anywhere between five and ten percent.
0:20:16 > 0:20:20Across Dubai, we've had a hand in designing and building
0:20:20 > 0:20:23roads and railways, airports and harbours,
0:20:23 > 0:20:27hotels and skyscrapers, and even fantasy islands.
0:20:27 > 0:20:32British service exports are highly regarded around the world.
0:20:32 > 0:20:35And it's not just grand construction projects -
0:20:35 > 0:20:38the city is connected by the Dubai Metro,
0:20:38 > 0:20:43operated by Serco, a British outsourcing specialist.
0:20:46 > 0:20:50Around the world, they run trains, hospitals,
0:20:50 > 0:20:52prisons, recycling centres,
0:20:52 > 0:20:55air-traffic control systems and much else besides.
0:20:57 > 0:21:02So you can go abroad and sell services
0:21:02 > 0:21:05and earn real money for doing so.
0:21:05 > 0:21:08'Britain has gone as far down this track as anyone.'
0:21:09 > 0:21:12But of course we can't all go and live and work
0:21:12 > 0:21:15in different countries.
0:21:15 > 0:21:19So exporting services by going overseas has its limits.
0:21:19 > 0:21:23Fortunately, where Britain has really made its mark
0:21:23 > 0:21:26is in developing a second business model.
0:21:29 > 0:21:33We can make good money by going abroad and selling services,
0:21:33 > 0:21:36but in commercial terms, even better
0:21:36 > 0:21:40is when foreigners come here to Britain to buy them.
0:21:40 > 0:21:43'London is the epicentre.'
0:21:47 > 0:21:51The British capital is like one huge factory
0:21:51 > 0:21:54of commercial service exports.
0:21:57 > 0:22:01This is where the world comes to do business.
0:22:01 > 0:22:04Neatly positioned between America and Asia,
0:22:04 > 0:22:07speaking the global language,
0:22:07 > 0:22:12since the days of empire, London has embraced its role
0:22:12 > 0:22:14as a global city. And it's this role
0:22:14 > 0:22:18that helps Britain pay its way in the world.
0:22:20 > 0:22:22We've encouraged people to come here,
0:22:22 > 0:22:25whether on business or to see the sights,
0:22:25 > 0:22:27and we've sold them services when they do.
0:22:27 > 0:22:30Because they pay for things with money brought from overseas,
0:22:30 > 0:22:32anything they buy is an export,
0:22:32 > 0:22:35helps pay for our manufactured imports.
0:22:35 > 0:22:39And it's all possible because Britain has carved a special role
0:22:39 > 0:22:41as a host nation.
0:22:41 > 0:22:44In order to understand how it happened,
0:22:44 > 0:22:47let's consider London's answer to the Burj Al Arab -
0:22:47 > 0:22:50the Shard.
0:22:52 > 0:22:55Well, I'm on the 37th floor of the Shard.
0:22:55 > 0:23:00That's not even halfway up to the top of the finished building.
0:23:00 > 0:23:03This is undoubtedly going to be a symbol of our capital,
0:23:03 > 0:23:06given its height, but it's also an interesting symbol
0:23:06 > 0:23:10of the internationalisation of the nation and of London.
0:23:10 > 0:23:14When completed, the Shard will be the tallest building
0:23:14 > 0:23:16in the European Union.
0:23:16 > 0:23:19But despite being built on London soil,
0:23:19 > 0:23:24that's little that's particularly British about it.
0:23:24 > 0:23:26This has been financed by money from Qatar,
0:23:26 > 0:23:28the architect Italian,
0:23:28 > 0:23:31the workforce building it from everywhere.
0:23:31 > 0:23:36The glass is Dutch, and this floor, like another 17,
0:23:36 > 0:23:39has been taken by the first tenant, a Hong Kong-based hotel.
0:23:41 > 0:23:45Many of the tenants in this building won't be British,
0:23:45 > 0:23:48and that's the clever part.
0:23:48 > 0:23:51While they're here, we can make money from them.
0:23:52 > 0:23:55So, what do we get out of being a host nation?
0:23:55 > 0:23:58Well, imagine when this building is finished,
0:23:58 > 0:24:02in an extreme case, no British people work or live here.
0:24:02 > 0:24:04The foreigners who work and live here,
0:24:04 > 0:24:07they'll be paying some taxes to the UK government.
0:24:07 > 0:24:10They'll go shopping in the streets nearby.
0:24:10 > 0:24:13They'll use British accountants and insurance companies.
0:24:13 > 0:24:16The Russians living upstairs, when they get divorced,
0:24:16 > 0:24:20will perhaps use a British lawyer. All these services will earn money.
0:24:20 > 0:24:24Because they'll be earning money from foreigners, they're exports -
0:24:24 > 0:24:28exports right here in the centre of London.
0:24:28 > 0:24:32The Shard is testament to our continued willingness and ability
0:24:32 > 0:24:36to attract the super-rich from around the world to London.
0:24:36 > 0:24:39And once we've got them here, anything we can sell them
0:24:39 > 0:24:43while they're in town counts as an export.
0:24:43 > 0:24:46That's because everything they buy has effectively been paid for
0:24:46 > 0:24:49with income derived from abroad.
0:24:51 > 0:24:54It's very hard to put a precise figure
0:24:54 > 0:24:56on how much this is all worth to Britain,
0:24:56 > 0:25:00but it easily runs into billions of pounds.
0:25:00 > 0:25:03You might think it odd for a country like Britain
0:25:03 > 0:25:07to thrive by collecting the small change of the global super-rich.
0:25:07 > 0:25:11So how does it work in practice?
0:25:11 > 0:25:15'Tim Wright works for estate agents Knight Frank.'
0:25:15 > 0:25:17- Hello.- Nice to meet you. Come on in.
0:25:17 > 0:25:20'They've built a tidy business servicing this market.'
0:25:20 > 0:25:22Nice place!
0:25:22 > 0:25:25- 'The hall is as big as my flat.' - Come on in, please.
0:25:25 > 0:25:29- If you wouldn't mind putting those shoe covers on.- Put my foot in here?
0:25:29 > 0:25:31- Yeah.- Wow!- That'll be brilliant.
0:25:33 > 0:25:37If you'd like to come upstairs, I'll show you the formal drawing room,
0:25:37 > 0:25:41which is a phenomenal space overlooking the park.
0:25:41 > 0:25:46'Last year, nearly 100 £10-million-plus properties
0:25:46 > 0:25:50'were sold in London, almost all of them to foreigners.'
0:25:50 > 0:25:54- It's fantastic, isn't it? - We're lucky to have a day like this,
0:25:54 > 0:25:58but even on a dull day, it's still a joy to look at.
0:25:58 > 0:26:01OK. So, break the bad news. How much is it?
0:26:01 > 0:26:06Well, Evan, for circa 45 million, you get the entire package.
0:26:06 > 0:26:09So everything that you see is included in the price.
0:26:09 > 0:26:12You can pick up the key, walk in and live...
0:26:12 > 0:26:14- pretty comfortably, because... - Of course.
0:26:14 > 0:26:17The target market for a house like this
0:26:17 > 0:26:21is the ultra-high-net-worth overseas buyer.
0:26:21 > 0:26:25And what they want and what they attach value to is convenience.
0:26:25 > 0:26:29They don't want to buy a building that will take two years to do up.
0:26:29 > 0:26:32- OK.- Come on through here, Evan.
0:26:32 > 0:26:35'While we marvel at the house, remember the economic benefits
0:26:35 > 0:26:37'to Britain are the things you can't see,
0:26:37 > 0:26:39'such as the estate agent's commission,
0:26:39 > 0:26:42'likely to be over half a million pounds.
0:26:42 > 0:26:44'With the other services involved,
0:26:44 > 0:26:47'we could be earning a couple of million in exports here,
0:26:47 > 0:26:50'equivalent to a factory with scores of workers.
0:26:50 > 0:26:53'Multiply this by all the other houses,
0:26:53 > 0:26:55'and it's a good business model.'
0:26:55 > 0:26:58Is this a bedroom or a lounge? It is a bedroom.
0:26:58 > 0:27:01It is a master-bedroom suite like you've never seen.
0:27:01 > 0:27:03- Fantastic.- Isn't it wonderful?
0:27:03 > 0:27:06Are there different national tastes from the foreign buyers?
0:27:06 > 0:27:09Do the Russians go for one style, the Chinese for a different style?
0:27:09 > 0:27:13The Middle Eastern buyer tends to want more staff accommodation,
0:27:13 > 0:27:16for example, than a Russian buyer.
0:27:16 > 0:27:19The Russian will be very happy with one housekeeper
0:27:19 > 0:27:22living in the basement full-time.
0:27:22 > 0:27:24Middle Eastern clients tend to want four or five staff
0:27:24 > 0:27:28full-time in the house, even though they might only be here
0:27:28 > 0:27:31two or three weeks of the year, if they come over for Ascot
0:27:31 > 0:27:33or for Wimbledon.
0:27:33 > 0:27:37- You must come and see the bathrooms. - More than one bathroom.
0:27:37 > 0:27:40There's a his and hers bathroom.
0:27:40 > 0:27:43You would be very surprised if a British person
0:27:43 > 0:27:46- came and bought this place. - I would be surprised, yeah.
0:27:46 > 0:27:48Definitely. And if you look at...
0:27:48 > 0:27:52On average, if you look at, across the price sectors
0:27:52 > 0:27:55in central London, then,
0:27:55 > 0:27:59it's about 50/50 domestic to overseas buyers.
0:27:59 > 0:28:02But once you start getting up the price scale,
0:28:02 > 0:28:07so if you're looking at the sector which is the super-prime market,
0:28:07 > 0:28:09say, ten million plus,
0:28:09 > 0:28:13then, it's much more weighted in favour of the overseas buyer,
0:28:13 > 0:28:18so it's probably more like 75, 80 percent to 20 percent domestic.
0:28:18 > 0:28:20Come through to his dressing room.
0:28:20 > 0:28:23'I can see how this is a big earner.
0:28:23 > 0:28:26'But I do have some concerns about the sustainability
0:28:26 > 0:28:28'of the business coming our way.'
0:28:28 > 0:28:30Now...
0:28:30 > 0:28:32will it all just go away?
0:28:32 > 0:28:35Because when we've sold the last house
0:28:35 > 0:28:38to a rich Russian, and we're all squashed, incidentally,
0:28:38 > 0:28:42out in the 'burbs because we can't afford anywhere in London
0:28:42 > 0:28:45because we've been priced out by foreigners...
0:28:45 > 0:28:49When we've sold the last house, your industry dies, doesn't it?
0:28:49 > 0:28:51Potentially I suppose it does, yes.
0:28:51 > 0:28:54I mean, one of the big fears that we have
0:28:54 > 0:28:58is that the people who buy houses like this
0:28:58 > 0:29:01will hold on to them forever, but the reality is
0:29:01 > 0:29:05that actually it's a relatively transient community.
0:29:05 > 0:29:09People will stay here for maybe five years, maybe ten years, maybe 15,
0:29:09 > 0:29:12possibly even longer, but ultimately they do either move,
0:29:12 > 0:29:16or they die, they downsize, they get divorced,
0:29:16 > 0:29:19and every time that happens,
0:29:19 > 0:29:21it releases a big house.
0:29:21 > 0:29:25So I don't think it'll ever stop, in those terms.
0:29:26 > 0:29:28Thank you, Tim.
0:29:28 > 0:29:32'So service companies got a slice of the £3 billion of foreign money
0:29:32 > 0:29:35'that came into London's property market last year.'
0:29:38 > 0:29:40It's an interesting old set-up, that, isn't it?
0:29:40 > 0:29:44But a lot of people are in on the game, earning a living out of it,
0:29:44 > 0:29:47and they then spend the money they've earned,
0:29:47 > 0:29:50and it permeates its way through the whole economy.
0:29:50 > 0:29:54But what an odd place for our economy to have ended up!
0:29:54 > 0:29:59We're the support staff, the butler, to the world's elite.
0:30:03 > 0:30:07'Not all our services exports within the UK
0:30:07 > 0:30:11'depend on the whims of the global super-rich,
0:30:11 > 0:30:13'and not all of them are based in London.'
0:30:16 > 0:30:19Spread throughout the country are institutions
0:30:19 > 0:30:23that are often characterised as a drain on our resources.
0:30:23 > 0:30:26But I want to show you they're one of our leading export industries,
0:30:26 > 0:30:30bringing in an estimated £5 billion annually.
0:30:33 > 0:30:37'British universities attract 250,000 foreign students a year,
0:30:37 > 0:30:40'far outstripping all of our neighbours.'
0:30:40 > 0:30:44A fifth of students at the University of Birmingham
0:30:44 > 0:30:47are fee-paying foreigners. It's a similar story
0:30:47 > 0:30:50at many of our other leading universities.
0:30:51 > 0:30:54What some people see when they come to a place like this
0:30:54 > 0:30:57is a centre for learning.
0:30:57 > 0:31:01Others see an institution that engages in research
0:31:01 > 0:31:03and advances human knowledge.
0:31:03 > 0:31:08What I see is a thriving business that's employing thousands of people
0:31:08 > 0:31:12and earning tens of millions of pounds of export revenues.
0:31:24 > 0:31:27'Birmingham's medical school sells its services
0:31:27 > 0:31:31'to budding doctors from over 150 different countries.
0:31:31 > 0:31:36'The product they come here to buy is a five-year course in medicine,
0:31:36 > 0:31:38'involving two years in the lecture theatre
0:31:38 > 0:31:42'and then three more years of hands-on training.'
0:31:43 > 0:31:46Here they all are. Hi, gang. Hi. I'm Evan.
0:31:46 > 0:31:48- Hello. My name's Himarshi.- Himarshi?
0:31:48 > 0:31:52- I'm Tala. - Tala. Nice to meet you. Rahini?
0:31:52 > 0:31:55- Hi. Nice to meet you. Tristan. - Tristan. Good to see you.
0:31:55 > 0:31:57And you're the consultant, obviously.
0:31:57 > 0:31:59- Hello.- Andy.- Nice to see you.
0:31:59 > 0:32:02'The students on today's ward round
0:32:02 > 0:32:06'come from Sri Lanka, India, Trinidad and Jordan.'
0:32:06 > 0:32:10Hi. My name's Tala. Is it OK if I ask you a few questions?
0:32:10 > 0:32:13- Do. Carry on. - So, what brought you into hospital?
0:32:13 > 0:32:16I was shaking, hot and cold, everything.
0:32:16 > 0:32:18'The great thing for Britain
0:32:18 > 0:32:21'is that not only do we earn the money from these students' fees -
0:32:21 > 0:32:26'any money they spend on rent and other services while they're here
0:32:26 > 0:32:29'is an export too. And then on top of that,
0:32:29 > 0:32:32'they're happy to lend us their labour as apprentice doctors.'
0:32:32 > 0:32:35Do you mind if I just take a look at your hands?
0:32:37 > 0:32:41OK, everyone. Happy? Thank you, sir. Thank you very much. See you again.
0:32:41 > 0:32:43Let's move on.
0:32:43 > 0:32:46'These discerning customers, or students if you prefer,
0:32:46 > 0:32:49'have chosen us from a world of competition.'
0:32:49 > 0:32:52So what's the reputation, then, of the British universities?
0:32:52 > 0:32:55When you go back... This isn't Oxford or Cambridge.
0:32:55 > 0:32:58People have heard of the city of Birmingham.
0:32:58 > 0:33:01They may not have heard of the university.
0:33:01 > 0:33:04Is it going to hold... Is it a good brand to have?
0:33:04 > 0:33:08In Jordan, I think, just the fact that you've graduated from England
0:33:08 > 0:33:11with a degree in medicine is quite impressive on its own,
0:33:11 > 0:33:14regardless of the name of the university,
0:33:14 > 0:33:16regardless of the brand.
0:33:16 > 0:33:18I think so, as well. It's quite similar.
0:33:18 > 0:33:22Carrying a UK education in general still holds a great value.
0:33:22 > 0:33:25Do you get a good deal out of... How much are your fees?
0:33:25 > 0:33:28That depends. The first few years,
0:33:28 > 0:33:31- it's roughly about £12,000.- A year?
0:33:31 > 0:33:34- And the clinical years, it goes up another £10,000.- It goes up?
0:33:34 > 0:33:39- So what is it in the clinical years? - It's about 22,000, 23,000.
0:33:39 > 0:33:42'Britain has a valuable product to sell.
0:33:42 > 0:33:46'But if we want to sell more of it, we're going to have to make choices
0:33:46 > 0:33:50'about how open we're prepared to be.'
0:33:50 > 0:33:54I've got to ask you about visa and immigration requirements,
0:33:54 > 0:33:58because obviously governments have become worried
0:33:58 > 0:34:01about the sorts of people that are coming in, and the numbers.
0:34:01 > 0:34:04How have you felt
0:34:04 > 0:34:07in terms of the welcoming advance of the Home Office
0:34:07 > 0:34:10when you've applied for your student visas?
0:34:10 > 0:34:13I applied three years ago, and it was relatively straightforward.
0:34:13 > 0:34:16All I needed to get was a letter from the university
0:34:16 > 0:34:19and all the accompanying documents, and they just gave me my visa
0:34:19 > 0:34:22for the length of the course. But I've heard from friends
0:34:22 > 0:34:25that it's progressively getting harder.
0:34:25 > 0:34:28A couple of my friends from Trinidad haven't got visas in time.
0:34:28 > 0:34:32The process is taking so much longer and so much more difficult.
0:34:32 > 0:34:34It is getting to be a bit more red tape.
0:34:36 > 0:34:39There are no clear rights and wrongs to any of this.
0:34:39 > 0:34:42But if Britain really does choose to open up to the world,
0:34:42 > 0:34:45there's a lot of money to be made.
0:34:45 > 0:34:48'Edward Harcourt is the university's director
0:34:48 > 0:34:50'of international relations.'
0:34:50 > 0:34:53It's becoming increasingly competitive,
0:34:53 > 0:34:55but it is still a seller's market.
0:34:55 > 0:34:59There's something over three million international students now.
0:34:59 > 0:35:02Britain is the second most popular destination.
0:35:02 > 0:35:04- After the United States? - After the States.
0:35:04 > 0:35:08It's very difficult to do any kind of sensible projections
0:35:08 > 0:35:12as to future demands. If you think that there are....
0:35:12 > 0:35:15something like 220 million Indians in primary school,
0:35:15 > 0:35:19and given the GDP growth rate in India,
0:35:19 > 0:35:21um,
0:35:21 > 0:35:24many of those families will have the wherewithal
0:35:24 > 0:35:27to pay for their tertiary education,
0:35:27 > 0:35:31and the Indian HE system is going to have a major capacity constraint.
0:35:31 > 0:35:35So many of those families will be looking overseas
0:35:35 > 0:35:38for a quality education.
0:35:38 > 0:35:42And quality education is exactly what we sell here in Britain.
0:35:42 > 0:35:45'This is our nation playing to its strengths.
0:35:45 > 0:35:48'Emerging economies around the world
0:35:48 > 0:35:51'simply can't match the services we can offer.'
0:35:51 > 0:35:55When you hear people say we don't make anything in this country
0:35:55 > 0:35:57any more, well, now you have an answer.
0:35:57 > 0:36:00We make foreign doctors, foreign engineers,
0:36:00 > 0:36:03foreign chemists, lawyers, business people.
0:36:03 > 0:36:07And just think of all the good that our universities do
0:36:07 > 0:36:09around the world.
0:36:17 > 0:36:20So this is the new British economy.
0:36:20 > 0:36:23Rather than just selling the world goods,
0:36:23 > 0:36:26we sell our expertise through services.
0:36:26 > 0:36:29And we're world-class at doing it.
0:36:29 > 0:36:33It all earns export revenue
0:36:33 > 0:36:35on a scale no-one would have imagined
0:36:35 > 0:36:38at the time of the Festival of Britain.
0:36:38 > 0:36:41So far, so good. Our great national experiment
0:36:41 > 0:36:44in building a service-exporting economy
0:36:44 > 0:36:48has worked, up to a point. We've seen services sold abroad,
0:36:48 > 0:36:50services sold to foreigners in London
0:36:50 > 0:36:52and elsewhere in the country.
0:36:52 > 0:36:56But each of these sales channels has its limitations.
0:36:56 > 0:36:59These services are best sold face-to-face,
0:36:59 > 0:37:03and that means they rely on people coming into the country
0:37:03 > 0:37:07or leaving it. And there are severe practical limitations
0:37:07 > 0:37:09as to how many people can do that.
0:37:10 > 0:37:14'So for Britain's experiment to really work,
0:37:14 > 0:37:17'we've needed one other trick up our sleeve -
0:37:17 > 0:37:20'the way of exporting services that, of course, we all know about,
0:37:20 > 0:37:24'the one with the unrivalled ability to earn money
0:37:24 > 0:37:27'but also to lose it - the City.'
0:37:29 > 0:37:31For most of the last two decades,
0:37:31 > 0:37:35it looked like we'd discovered a national champion.
0:37:35 > 0:37:38Barclays Bank has announced record annual profits
0:37:38 > 0:37:40of more than £5.25 billion.
0:37:40 > 0:37:43The HSBC banking group has announced record profits
0:37:43 > 0:37:47of almost £7 million, the largest ever by a British bank.
0:37:47 > 0:37:50Something we did better than anyone else.
0:37:50 > 0:37:52The RBS looks set to complete
0:37:52 > 0:37:54the world's biggest company takeover,
0:37:54 > 0:37:56worth almost £50 billion.
0:37:56 > 0:37:59The flow of profits was unimaginable.
0:37:59 > 0:38:02Here's where you want to work if you're young, brainy
0:38:02 > 0:38:05and keen to make loads of money.
0:38:05 > 0:38:08It collected plaudit after plaudit.
0:38:08 > 0:38:10This is an era that history will record
0:38:10 > 0:38:14as the beginning of a new golden age for the City of London.
0:38:14 > 0:38:17It's remarkable to think that in recent years,
0:38:17 > 0:38:21official data suggests this small corner of England,
0:38:21 > 0:38:25just a few square miles, earns more in export revenue
0:38:25 > 0:38:27than the whole of Wales or Northern Ireland
0:38:27 > 0:38:29or the northeast of England.
0:38:33 > 0:38:35The first thing to understand about the City
0:38:35 > 0:38:39is that it makes its money in remarkably varied ways.
0:38:40 > 0:38:44And here's one part of it you might not have heard much about.
0:38:44 > 0:38:48- BABBLE OF VOICES - 'ICAP is a British service company
0:38:48 > 0:38:50'that makes its money not by trading
0:38:50 > 0:38:52'but by helping global finance operate.
0:38:52 > 0:38:56'Michael Spencer is its chief executive.'
0:38:56 > 0:39:00Let's just start by, perhaps, you explaining just what ICAP does.
0:39:01 > 0:39:04It's not nearly as difficult as people think.
0:39:04 > 0:39:07The world's financial markets are enormous.
0:39:07 > 0:39:11They are global. They are interconnected.
0:39:11 > 0:39:14There's a huge amount of business to financial institutions
0:39:14 > 0:39:18in Japan, deal with financial institutions in Singapore,
0:39:18 > 0:39:20in London, in New York.
0:39:20 > 0:39:23And we are the biggest global intermediary
0:39:23 > 0:39:25between these transactions.
0:39:25 > 0:39:28Is it export revenue for the UK?
0:39:28 > 0:39:31Is it foreigners buying services from ICAP?
0:39:31 > 0:39:33We have 50 offices around the world,
0:39:33 > 0:39:36of which only one is in the UK, in London.
0:39:36 > 0:39:39London is our biggest office, but we have big offices
0:39:39 > 0:39:42in many, many other financial centres.
0:39:42 > 0:39:45Overwhelmingly, our revenue is export earnings to the UK.
0:39:47 > 0:39:52Our financial services yield exports worth 30 times those of France.
0:39:52 > 0:39:55They're even more valuable than America's.
0:39:55 > 0:39:58At ICAP, they don't take risks.
0:39:58 > 0:40:01They offer a service to others, who do.
0:40:01 > 0:40:04Clearly banks are in the business of risk-taking,
0:40:04 > 0:40:08because lending money to customers or dealing in foreign exchange,
0:40:08 > 0:40:11that is what their business is, to take risk in various forms
0:40:11 > 0:40:14in order to facilitate their customers' business.
0:40:14 > 0:40:17But businesses like ours are not in the risk-taking business.
0:40:17 > 0:40:20We're in the facilitation business. We will stay there.
0:40:20 > 0:40:23We're happy in that space, and that's our expertise.
0:40:23 > 0:40:26Alongside you in the City, in facilitation rather than risk,
0:40:26 > 0:40:29you've got the lawyers, who are a huge part of the City...
0:40:29 > 0:40:33The insurance-broking firms, all the equity-broking firms...
0:40:33 > 0:40:36- The accountants as well.- Of course.
0:40:37 > 0:40:41There's no denying the enormous economic contribution
0:40:41 > 0:40:43companies like ICAP make.
0:40:43 > 0:40:47No risk, real income - just what we want.
0:40:48 > 0:40:51It's a really interesting business model.
0:40:51 > 0:40:54You charge a tiny commission on a huge number of transactions,
0:40:54 > 0:40:57and it adds up to a pretty good business.
0:40:57 > 0:41:00In a way it's an analogy for a lot of what the City does
0:41:00 > 0:41:02and the services it provides.
0:41:02 > 0:41:04They don't bake cakes here.
0:41:04 > 0:41:07They provide services to other people who bake cakes,
0:41:07 > 0:41:11and they pick up the crumbs. And if you provide enough services
0:41:11 > 0:41:15to enough cake-bakers, you can pick up a lot of crumbs
0:41:15 > 0:41:17and you can have a nice cake of your own.
0:41:22 > 0:41:25OK. Now here's the bad news.
0:41:25 > 0:41:28You've got the parts of the City that don't take risks,
0:41:28 > 0:41:30but just as big are the parts that do.
0:41:30 > 0:41:33And we've needed them to do some baking as well.
0:41:33 > 0:41:36We've needed them to earn a lot of money.
0:41:36 > 0:41:39And you don't need me to tell you those are the parts
0:41:39 > 0:41:41that have gone terribly wrong.
0:41:45 > 0:41:49The British government has now agreed terms of a rescue package
0:41:49 > 0:41:51to stabilise the banking system.
0:41:51 > 0:41:54It has been another extraordinary day of fast-moving developments
0:41:54 > 0:41:57for Britain's financial world.
0:41:57 > 0:42:00We all know that the bailouts were expensive.
0:42:00 > 0:42:04But there are reasons to think that the City might be costing us money
0:42:04 > 0:42:06in good times too.
0:42:06 > 0:42:09There is a radical new critique taking shape -
0:42:09 > 0:42:12that although the City earns a lot and contributes,
0:42:12 > 0:42:17paradoxically, a large part of it is also a burden on the economy.
0:42:17 > 0:42:19It gives with one hand, takes away with the other.
0:42:19 > 0:42:22And that's no way to build a good export industry.
0:42:22 > 0:42:25It may be a good business model for the City,
0:42:25 > 0:42:28but not for the country as a whole.
0:42:28 > 0:42:33So how can a successful City not be successful for the nation?
0:42:33 > 0:42:37'Former City high-flyer turned academic, Paul Woolley,
0:42:37 > 0:42:41'thinks many of its profits have come at the expense
0:42:41 > 0:42:43'of the rest of us.'
0:42:43 > 0:42:46In finance, it's only too easy for the banks
0:42:46 > 0:42:50and the middle men generally to appropriate the gains.
0:42:50 > 0:42:55They do so by making things complex and confusing.
0:42:55 > 0:42:59They don't even understand them themselves in some cases.
0:42:59 > 0:43:05So there are ways in which they can feather their nests.
0:43:05 > 0:43:08They create the demand for their own products
0:43:08 > 0:43:12by making the product complicated and saying, "This is what you need."
0:43:12 > 0:43:16- What's the effect of it in the end? - More new financial instruments
0:43:16 > 0:43:19are introduced, which are often complex,
0:43:19 > 0:43:22difficult to understand. The fees are going up
0:43:22 > 0:43:25with this complexity, and that's what happened.
0:43:25 > 0:43:27That's why the finance sector is so big.
0:43:27 > 0:43:30The complexity has become so extraordinary
0:43:30 > 0:43:35and, er, costly to the economy.
0:43:37 > 0:43:40Now, if you have a strong export sector
0:43:40 > 0:43:43that is as costly to the economy as Paul Woolley suggests,
0:43:43 > 0:43:46well, that's not going to work at all.
0:43:46 > 0:43:51There's no point in exporting £100 if it's cost the rest of us 105.
0:43:51 > 0:43:53No - what Britain needs
0:43:53 > 0:43:56is sustainable, value-creating businesses.
0:43:58 > 0:44:02'The new critique levels another charge against the City.
0:44:02 > 0:44:06'The banks, it says, are propped up by subsidies,
0:44:06 > 0:44:08'not just in crises but every year.
0:44:08 > 0:44:11'This argument comes from the very heart of the city -
0:44:11 > 0:44:14'the Bank of England.
0:44:14 > 0:44:16'How does this subsidy work?
0:44:16 > 0:44:19'Because the taxpayer stands squarely behind the banks,
0:44:19 > 0:44:22'they can borrow more cheaply from around the world
0:44:22 > 0:44:26'and make bigger profits than they otherwise would.
0:44:26 > 0:44:29'Andy Haldane is the executive director
0:44:29 > 0:44:31'of financial stability at the bank.'
0:44:31 > 0:44:35Your contention is that if the banks had no government subsidy,
0:44:35 > 0:44:39they couldn't take risks underpinned by taxpayers,
0:44:39 > 0:44:42and found it harder to borrow money because of that,
0:44:42 > 0:44:44they would be a little smaller than they are.
0:44:44 > 0:44:48Well, certainly the banks would have been somewhat less profitable
0:44:48 > 0:44:51than was the case, than has been the case,
0:44:51 > 0:44:54during the course of much of this century.
0:44:54 > 0:44:56There would still have been profits out there,
0:44:56 > 0:44:58but on a somewhat lesser scale,
0:44:58 > 0:45:02had the risk been borne by investors and banks
0:45:02 > 0:45:05rather than implicitly by the government.
0:45:05 > 0:45:07You've done the maths, tried to add it all up.
0:45:07 > 0:45:10How much do you think the implicit subsidy is?
0:45:10 > 0:45:13I think you'd measure it in terms of tens of billions.
0:45:13 > 0:45:15- Really? That much?- I think so.
0:45:15 > 0:45:17The cheaper cost of funding for banks
0:45:17 > 0:45:21was a phenomenon well ahead of the crisis.
0:45:25 > 0:45:27How ironic it is!
0:45:27 > 0:45:30So many in the City were critical of the state
0:45:30 > 0:45:32pumping billions of pounds
0:45:32 > 0:45:35into those old, much-loved manufacturing industries -
0:45:35 > 0:45:38and now we've come full circle with a new critique,
0:45:38 > 0:45:43arguing that the City itself is in fact propped up by the taxpayer
0:45:43 > 0:45:45and the rest of the economy.
0:45:46 > 0:45:50'The City was the ace in the pack of business models.
0:45:50 > 0:45:55'But the crash forced us to reappraise our entire experiment
0:45:55 > 0:45:58'of trying to pay our way with services.
0:45:58 > 0:46:01'They did better than many critics thought possible,
0:46:01 > 0:46:04'but they didn't do well enough.'
0:46:04 > 0:46:09'Even though we exported £160 billion of services last year,
0:46:09 > 0:46:14'we still had an overall deficit of about 36 billion.
0:46:19 > 0:46:23'Time to get out of London, with its billionaires and bankers,
0:46:23 > 0:46:27to explore one last hugely important challenge
0:46:27 > 0:46:30'left by our shift to a service economy.'
0:46:32 > 0:46:36You see, the export model Britain's followed may not quite have worked,
0:46:36 > 0:46:40but its weakness isn't going to be felt in the capital.
0:46:45 > 0:46:50'No - London has always had a strong service economy.'
0:46:52 > 0:46:54But what about the rest of the country?
0:47:03 > 0:47:08The worry is that services have made for a more lopsided economy,
0:47:08 > 0:47:11with the most lucrative jobs clustering in London
0:47:11 > 0:47:13and a few other select centres,
0:47:13 > 0:47:16with less well paid work for other parts of Britain.
0:47:20 > 0:47:23'Where better to test that than back in Sunderland,
0:47:23 > 0:47:27'a city that had to rise to the challenge of industrial decline
0:47:27 > 0:47:31'when its great shipbuilding industry disappeared?'
0:47:32 > 0:47:34Sunderland, of course, has an economy
0:47:34 > 0:47:38that's had to reinvent itself more than once, hasn't it?
0:47:38 > 0:47:42Sunderland has done a remarkable job of reinventing itself.
0:47:42 > 0:47:44Even 25 years ago when I first came here,
0:47:44 > 0:47:48the big industries were still shipbuilding,
0:47:48 > 0:47:52coal-mining, glass... We had a brewery,
0:47:52 > 0:47:55and textiles. I had a thousand textile workers
0:47:55 > 0:47:59in my constituency as late as 1997. And all of that's gone. All of it.
0:47:59 > 0:48:03And in its place has come a large number of jobs,
0:48:03 > 0:48:07some of them manufacturing, some of them service jobs.
0:48:08 > 0:48:12Of course he's right. Sunderland has manufacturing.
0:48:12 > 0:48:16But in terms of new service jobs, many think that what Sunderland got
0:48:16 > 0:48:19were low grade and low paid -
0:48:19 > 0:48:22the much-derided call-centre jobs.
0:48:24 > 0:48:28'Is that justified? Here at Doxford International Business Park,
0:48:28 > 0:48:31'thousands of people work in call centres,
0:48:31 > 0:48:33'or contact centres as they're now known.'
0:48:35 > 0:48:37The closest connection it has to shipbuilding
0:48:37 > 0:48:40is a prizewinning sculpture of a ship's hull.
0:48:41 > 0:48:44So this is the new Sunderland economy.
0:48:44 > 0:48:47I say Sunderland. It could be anywhere really, couldn't it -
0:48:47 > 0:48:49these business parks are all over the country.
0:48:49 > 0:48:54No grime, no belching chimneys. Wonderful landscaping.
0:48:54 > 0:48:57Perhaps...a tiny little bit bland?
0:48:57 > 0:48:59Maybe.
0:49:01 > 0:49:05'One of the biggest employers at Doxford is 2Touch.
0:49:05 > 0:49:09'Here the staff receive, and, more often, make calls
0:49:09 > 0:49:12'on behalf of utilities, telephone companies,
0:49:12 > 0:49:15'you name it. You might even have spoken to one of them.
0:49:15 > 0:49:18'There's a real buzz about the place -
0:49:18 > 0:49:20'more than in many factories I've visited.'
0:49:20 > 0:49:23Right. Sure. How are you finding your service with them,
0:49:23 > 0:49:26ie, like, speed and reliability?
0:49:26 > 0:49:30I was calling to see if we could hopefully save some money
0:49:30 > 0:49:33- on your phone bills. - So you're getting £23 on there.
0:49:33 > 0:49:36What about your TV? How's that going for you?
0:49:36 > 0:49:39Workers can make 250 calls a day.
0:49:39 > 0:49:43Usually only two or three of these will result in a sale.
0:49:43 > 0:49:47'It's hard work. But are these jobs as bad as the critics maintain?'
0:49:47 > 0:49:50Just to let you know our calls are recorded
0:49:50 > 0:49:54for quality assurance and training purposes. Is that OK?
0:49:54 > 0:49:58There are some former industrial workers here.
0:49:58 > 0:50:01Robert Carr used to make refrigerators.
0:50:01 > 0:50:04A lot of people don't think these are real jobs.
0:50:04 > 0:50:07They don't compare to the old job you would have had.
0:50:07 > 0:50:09What did you think when you first came here?
0:50:09 > 0:50:11It's a totally different world to me.
0:50:11 > 0:50:14When I first came, I was alienated. I was struggling.
0:50:14 > 0:50:17The first few weeks I thought, "This is not for me."
0:50:17 > 0:50:20Quite a lot of people would be exactly the same.
0:50:20 > 0:50:22I had a few start with me. They're not here any longer.
0:50:22 > 0:50:25They were here three weeks.
0:50:25 > 0:50:28But it's an environment you've either got to cope with,
0:50:28 > 0:50:30make the best of it...
0:50:30 > 0:50:3364,000 question - which do you prefer,
0:50:33 > 0:50:35this work or the previous work?
0:50:35 > 0:50:39I prefer this work, honestly, because it's not hard work.
0:50:39 > 0:50:42It's stressful work, but it's not hard work.
0:50:43 > 0:50:48'However, this is a long way from the jobs-for-life culture
0:50:48 > 0:50:52'of the old industries. Most employees are young,
0:50:52 > 0:50:55'and on average, those making calls stay for less than a year.
0:50:57 > 0:51:00'Stuart Gray is the managing director.'
0:51:01 > 0:51:03- This isn't a job for everybody.- No.
0:51:03 > 0:51:06Who doesn't make it? What personality type does it take?
0:51:06 > 0:51:09You've got to be a good communicator.
0:51:09 > 0:51:11You've got to be able to listen.
0:51:11 > 0:51:14You've got to have a sales mentality,
0:51:14 > 0:51:17because that's what the job is. Technically nothing too much.
0:51:17 > 0:51:19We can train all the technicals in.
0:51:19 > 0:51:24It's an ability to bounce back. We call it bounceback-ability.
0:51:24 > 0:51:26There's a lot of rejection with it.
0:51:26 > 0:51:32But the good ones just keep going at a good, solid pace.
0:51:32 > 0:51:35You never ask yourself, "Is this really a good thing to do,
0:51:35 > 0:51:39to sell people these things, utilities or phone packages?"
0:51:39 > 0:51:43I mean, would the world miss it if it wasn't here?
0:51:43 > 0:51:45Um, yes, it would,
0:51:45 > 0:51:49because what we're doing is playing our part
0:51:49 > 0:51:53in giving people opportunities.
0:51:53 > 0:51:55They're getting choice,
0:51:55 > 0:51:59so they have a choice to switch supplier of a product.
0:51:59 > 0:52:03They have a choice to take an additional product from somebody.
0:52:03 > 0:52:05And a lot of what we sell is essential.
0:52:05 > 0:52:10We're big in utility sales. Everybody needs a utility.
0:52:10 > 0:52:12TVs, broadband products...
0:52:12 > 0:52:15People have them, and they enjoy having them.
0:52:15 > 0:52:18So we're not selling anything that's worthless.
0:52:18 > 0:52:21We're selling something that has a value.
0:52:21 > 0:52:25That may be, and services have undoubtedly provided work
0:52:25 > 0:52:28where manufacturing couldn't. But here's the thing.
0:52:28 > 0:52:32Over the last 20 years, inequality between British regions
0:52:32 > 0:52:34has increased.
0:52:34 > 0:52:37BABBLE OF VOICES
0:52:37 > 0:52:40Just look at this place!
0:52:40 > 0:52:43Thousands of jobs, lovely warm offices.
0:52:43 > 0:52:47I'm definitely not one who is scornful
0:52:47 > 0:52:50of this part of our services economy.
0:52:50 > 0:52:53But I do have a certain ambivalence.
0:52:53 > 0:52:56It's clear that all the top-end service jobs,
0:52:56 > 0:52:59the ones paying 50,000 a year rather than 15,
0:52:59 > 0:53:03tend to concentrate in a few big centres.
0:53:03 > 0:53:07It's... It's really hard for a city like Sunderland
0:53:07 > 0:53:09to get itself into the first-class compartment
0:53:09 > 0:53:13of the services train.
0:53:14 > 0:53:18In short, it's the same for Sunderland as it is for Britain.
0:53:18 > 0:53:21Services have been good, but only up to a point.
0:53:21 > 0:53:25They're necessary, but aren't sufficient on their own.
0:53:25 > 0:53:28I wonder whether Sunderland could survive
0:53:28 > 0:53:31as an entirely service-based city,
0:53:31 > 0:53:35or whether it has to have some manufacturing to flourish.
0:53:35 > 0:53:37I'd be very nervous about saying
0:53:37 > 0:53:40we could do without manufacturing industry.
0:53:40 > 0:53:44My gut feeling is that the world of the call centre,
0:53:44 > 0:53:46and even of some of the high-tech industries
0:53:46 > 0:53:52is very short-term. It's very mobile, and could easily disappear overnight.
0:53:52 > 0:53:54Manufacturing lasted a couple of hundred years,
0:53:54 > 0:53:58and we're not completely confident the new generation of industry
0:53:58 > 0:54:01will last so long, so we may have to reinvent ourselves
0:54:01 > 0:54:03every generation or two.
0:54:03 > 0:54:06And that's a bit scary.
0:54:09 > 0:54:12Go back to 1951,
0:54:12 > 0:54:18to the hopes and fears people had at the time of the Festival of Britain.
0:54:18 > 0:54:21You'll see that our economy has reinvented itself
0:54:21 > 0:54:24more than anyone back then would have imagined.
0:54:24 > 0:54:28In the sixth decade since that festival was held here,
0:54:28 > 0:54:31Britain's economy has taken a sharp turn.
0:54:31 > 0:54:35Services have just been one part of a really big shift.
0:54:35 > 0:54:38Across the programmes in this series,
0:54:38 > 0:54:43we've seen how our economy has moved upmarket.
0:54:43 > 0:54:47'We didn't want to compete in low-wage sectors
0:54:47 > 0:54:51'with countries like China. They could make many things as well as us
0:54:51 > 0:54:53'but for a lot less money.'
0:54:53 > 0:54:56So we've discarded some activities,
0:54:56 > 0:54:58and become expert in others.
0:54:58 > 0:55:01We've focussed on areas where we're still in front,
0:55:01 > 0:55:07specialising in products that involve sophisticated engineering,
0:55:07 > 0:55:10small numbers, and high prices.
0:55:11 > 0:55:17The change is symbolised by the humble bicycle.
0:55:17 > 0:55:19'The everyday bikes we used to churn out
0:55:19 > 0:55:22'have been replaced by niche bikes that are harder to design
0:55:22 > 0:55:25'and manufacture, and more expensive to buy.'
0:55:26 > 0:55:29We've also gone upmarket in another way,
0:55:29 > 0:55:32focussing on industries that rely on intellectual property,
0:55:32 > 0:55:36like pharmaceuticals
0:55:36 > 0:55:38or microprocessors.
0:55:38 > 0:55:40'It's British know-how that designs the chips
0:55:40 > 0:55:43'that help power many of the world's mobile phones,
0:55:43 > 0:55:45'a lucrative business.'
0:55:46 > 0:55:49The change in our economy has been painful
0:55:49 > 0:55:53and at times scary, but remember, it has basically worked.
0:55:53 > 0:55:56Even after the financial crash and the setbacks of recent years,
0:55:56 > 0:55:59we're living on incomes three times those
0:55:59 > 0:56:02of the folks of the Festival of Britain.
0:56:02 > 0:56:06But the crash has shown us that, although we've got a lot right,
0:56:06 > 0:56:09it hasn't been perfect. Banking has been exposed
0:56:09 > 0:56:12as not being quite the great money-making enterprise
0:56:12 > 0:56:14that we thought.
0:56:14 > 0:56:16It's been a time to take stock
0:56:16 > 0:56:19of what our nation should and shouldn't be doing.
0:56:19 > 0:56:23Despite all the clever upmarket stuff we do,
0:56:23 > 0:56:27the fact is, we don't quite pay our way in the world.
0:56:27 > 0:56:29We need to export more to pay the bills,
0:56:29 > 0:56:33and we've learned that services can't do it all.
0:56:34 > 0:56:39So if our economy is going to find its way over the next few years,
0:56:39 > 0:56:42we're going to have to rediscover some of the things we've lost.
0:56:42 > 0:56:46It's solid, export-oriented manufacturing
0:56:46 > 0:56:48that needs to grow most quickly.
0:56:48 > 0:56:51And since the crash, there are some signs
0:56:51 > 0:56:53that it's doing just that.
0:56:56 > 0:57:00There's one conclusion I'd draw from everything I've seen -
0:57:00 > 0:57:05that we can't allow our economy to be supported by just one pillar.
0:57:05 > 0:57:09You'll hear people say it's all about manufacturing,
0:57:09 > 0:57:13or all about services or the knowledge economy.
0:57:13 > 0:57:16Well, that's not true. It's about all three
0:57:16 > 0:57:19creating a well balanced economy.
0:57:19 > 0:57:24Now, of course, it may well be grim for the next few years.
0:57:24 > 0:57:26My goodness, we've a lot of problems to solve.
0:57:26 > 0:57:30But long term, I reckon we've every reason to believe
0:57:30 > 0:57:34that the forces that have made so many people so much better off
0:57:34 > 0:57:36over the last few decades
0:57:36 > 0:57:40will carry on making us better off over the next few.
0:57:48 > 0:57:52To discover more about how Britain pays its way in the world,
0:57:52 > 0:57:54and to contribute your experiences
0:57:54 > 0:57:57to the Open University's online toolkit, visit...
0:58:01 > 0:58:04..and follow the link to the Open University.
0:58:07 > 0:58:11Subtitles by Red Bee Media Ltd
0:58:11 > 0:58:15E-mail subtitling@bbc.co.uk
0:58:15 > 0:58:15.