Episode 3 Made in Britain

60 years ago, we put on an exhibition

to show off the best of Britain.

CONTEMPORARY NARRATION This is the Festival of Britain

in the city of London.

In 1951,

over eight million people visited the South Bank of the Thames

to see for themselves where Britain stood,

what we did and what we could be proud of.

According to the organisers,

the festival aimed to demonstrate firm confidence in our future.

Under the constraints of post-war austerity,

such confidence was in short supply.

Today, as we recover from a financial crash,

we're again anxious about our future,

asking what should we be doing to pay our way in the world.

What would a new Festival of Britain say about us now?

For years, we thought the City could keep our economy growing.

Then came the crash.

Britain emerged burdened with debt,

and unsure how to rebuild itself.

In this series so far, we've seen how, over the last 60 years,

we've focussed our manufacturing on leaner, higher-value sectors...

-HE LAUGHS

-Oh, God!

..how our economy has become more creative,

graduating from brawn to brain.

But today we look at the biggest change in direction of all.

We rely less on traditional manufactured exports.

Instead, Britain has embarked on a unique experiment,

developing new ways of paying its bills

by selling services.

Fantastic, isn't it?

Rather than making things, we do things.

We run things. We organise things.

'Eight out of ten of us work in services,

'and yet many still look down on them...'

What about your TV? How does that go for you?

'..even though they've helped make us far richer than we were

'60 years ago.'

Moving from manufacturing to services

has changed Britain dramatically,

far beyond anything that visitors to the Festival of Britain

would have imagined. But this transition has had costs

as well as benefits, leaving us a difficult question to answer -

is the service-based economy that's grown since the '50s

the right one to deliver us a prosperous future?

This is where you might come to see how much we buy and sell

as a nation.

It's Felixstowe, our biggest container port.

Ships from all over the world bring their cargo here.

The overall figures for the port are astonishing.

In an average year, they unload three million containers here,

full of goods valued at £40 billion.

Some of the ships that dock here are a quarter of a mile long,

and carry 15,000 containers.

'But what do ships like these take away from Britain?

'What do we sell to the rest of the world?'

We sell some goods.

But of the containers the ships leave with,

half will be empty.

Many of the rest will be full of rubbish

sent abroad for recycling.

'Last year, the gap between the goods we bought in

'and the goods we sold to the rest of the world

'was almost £100 billion.'

In fact, the last time we were consistently exporting more goods

than we were importing was the early 1980s.

Scary stuff!

Or is it? It's not as bad as it looks,

because here we've only been talking about trade you can see

in physical goods -

things you can touch, put in a box and transport across the world.

And because you can see it all, many people assume

that that's what any self-respecting economy should be all about.

But it isn't - at least not any longer.

More and more of us work in services.

Far harder to get a sense of them than the objects round here.

It's a slippery kind of activity, almost entirely intangible.

'Services are everything you can't put in a box.

'But contrary to popular belief,

'that doesn't mean they're not valuable,

'and it doesn't mean they can't pay for container-loads

'of solid imports.'

In Britain, more than most,

we do services.

Forget your picture of people just sitting at desks on the phone.

'Our services come in all shapes and sizes.

'And right here on the ship is an example of one.'

-T minus five.

-Five.

Four. Three.

-Two.

-Engine ignition,

and lift-off of the Atlas V rocket,

carrying Inmarsat 4 F-1 satellite for Inmarsat Limited.

You may not have heard of Inmarsat, but it's one British company

that can reasonably claim to offer a service that's out of this world.

Sometimes you just can't go around the weather.

So it's vital to know what's on the horizon.

Anybody, wherever they are on Earth,

can use Inmarsat's satellite communications

to stay in touch,

and the entire network is run from their control centre in London.

Chris McLaughlin is the company's vice president.

We have an increasing number of users -

it's grown to 63 just as we're talking -

in Egypt. And then these two up here, cells 65 and 80,

are Tunisia, which again is in a current political turmoil.

The satellites are constantly adjusted

to meet clients' needs.

Here we're getting into the Afghanistan area.

Obviously very serious, very dedicated...

You get an idea of what's going on in the world

by seeing where the satellites are being used.

That's right. Often our engineers know before virtually anybody else.

Inmarsat is worth £2.8 billion.

It's a service used by over half a million subscribers worldwide.

Everyone from aid agencies to news organisations rely on it

for communications in remote locations.

And, of course, the ships that bring us our imports

depend on it too. The key thing about Inmarsat

as a service company is, it makes nothing at all -

not the phones nor the satellites.

Instead, it buys them from manufacturers.

All services need manufactured goods to operate -

but remember, all manufacturers rely on services as well.

Inmarsat has three I-4 satellites.

Each one of them weighs about six tons

and each is 60 times more powerful than our previous generation.

We're very fond of them, because they cost us 1.5 billion to launch...

-Right!

-..between 2005 and 2008.

-So they're big satellites!

-Each is the size of a London bus,

and the solar panel is the width of a football pitch,

so it gives you an idea of scale. Each one of them is a binary bet

when they launch. It's one of the most expensive bets you'll ever have.

-It works or it doesn't.

-Light the touch paper.

There's about a one-in-11 chance of a rocket blowing up,

so you've shifted around the rockets.

Granted, most jobs in services

don't involve firing rockets into space,

but I've picked this example

because I don't think we value services as much as we should.

There's no reason to believe services are second-best.

Many think the transition of our economy

towards services, like those of Inmarsat,

was some kind of deliberate choice, and the wrong choice at that.

But in fact it was more of a natural evolution.

The world changed, and our economy changed as a result.

It wasn't the decision of one person, and although it was painful,

politicians found it very hard to reverse when they tried.

So how did we get to where we are today?

As we all know, great manufacturing used to be spread

right across Britain. Sunderland was the dockyard to the world.

At its peak, 12,000 people worked in shipbuilding,

and during the war, one merchant ship a week

was sent down the slipway into the Wear.

APPLAUSE

I give you to the lads that built the ship.

Aye-aye! Here's to 'em!

But these shipyards had a problem.

Poorer countries found they could make ships too,

and more cheaply.

Where we had once led, others had caught up.

It was devastating for those involved.

-Is there a feeling in the yard that there might be redundancies?

-Yes.

-Oh, yes.

-What would this mean to Sunderland,

-if there were?

-I think the town would be dead.

-The town would be dead?

-Definitely.

In time, large-scale shipbuilding disappeared.

'Chris Mullin became MP for Sunderland South

'just in time to see it go.'

So what was actually on this site here?

This was the North Sands shipyard.

The last order was the Danish ferry order,

I think about 15 or 16 Danish ferries.

And that was in 1989, and if you stood on the bridge behind me,

and looked down at this site, you'd have seen all the ferries lined up

along here, waiting to have the tops put on and go off to Denmark.

It wasn't just ships.

In so many of our industries,

we found others could make what we had been making.

So naturally we had to move on.

Over the last 60 years, manufacturing had declined

from 46 percent of our economy to just 12,

whilst services have rocketed from 47 percent to 78.

Given the trauma of this upheaval, no wonder people have looked around

for someone to blame - usually Margaret Thatcher,

because she welcomed the shift towards services

that our economy was making.

So as we have redundancies in the declining industries,

so we are getting new jobs in the new industries

and new jobs in some of the service industries,

and they are being created by our dynamic economy of today.

But let us not belittle our achievements.

Many of her admirers and critics agreed on one thing -

that it was all down to her,

that politicians could entirely control the forces of economics.

In 1986,

chairman of ICI and TV business guru Sir John Harvey-Jones

addressed the nation.

The subject of my talk this evening is manufacturing -

the business of making tangible, useful objects

with the aim of selling them to people in the UK

who would otherwise buy an import, and selling them also

to people abroad, whom we want to choose a British product

instead of a product made in another country.

Manufacturing is fast becoming an endangered species.

It is becoming so undervalued in the country

that our decline could become irreversible,

with truly painful consequences for all of us.

Sir John Harvey-Jones spoke, right here in this room,

as though the change that was occurring in the economy

was the result of some kind of conscious decision.

And yet the inexorable rise of services

had started well before his speech,

and it's continued in the decades since.

Mrs Thatcher didn't cause it,

and most telling is the fact that politicians before her

made one serious attempt to strangle the growth of services at birth.

And it didn't end well.

SONG: "Taxman" by The Beatles

# Let me tell you how it will be

# Cos I'm the taxman #

It was the 1960s, the Labour government under Harold Wilson.

Jim Callaghan was chancellor.

He thought services would never earn enough export revenue

to help Britain pay its way in the world.

So in 1966, he introduced the selective employment tax,

or SET, to drive workers in the services sector

back into manufacturing jobs.

I think chancellors in many years to come...

They may not remember my name, but I'm sure they'll bless the tax.

It meant that every services business

had to pay an extra tax for employing staff.

The revenue could be used to subsidise workers in manufacturing.

Lloyd's brokers have to pay this selective employment tax,

and many other people, who contribute much less

to the balance-of-payments situation of this country

don't have to pay it. We want to continue

and to expand and build up our business,

and this is made more difficult by this tax,

which really doesn't make any sense at all.

It produced blatantly ridiculous results.

Candyfloss makers were not taxed.

The entire tourism sector, a big exporter, was.

In Brighton, the Metropole Hotel pays SET on 350 staff.

What does the director, Mr Webb, think of SET?

Well, it's shattering. It's an absolute calamity

as far as our industry is concerned,

because we feel we are a sort of Cinderella industry in this country.

This is absolutely ridiculous,

and it's due time we had proper recognition.

Unsurprisingly, the selective employment tax

couldn't thwart the forces of economics.

It was phased out, and then abolished altogether,

when VAT was introduced in 1973.

Since then, no-one has suggested reviving it.

'Economies seem to have a mind of their own.

'Even though Mr Callaghan and other critics of services

'didn't like them, there was little they could do about it.'

Now, one of the reasons they didn't like services

was they didn't think you could export enough of them

to pay the nation's bills.

But this is where it gets really interesting,

because Britain has embarked on something of an economic adventure

over the last few decades, doing just that.

We've found several novel ways of exporting services.

Each of these business models has its limitations,

but together, they've gone further than anyone in the '60s

might have imagined at helping the nation pay its way in the world.

To see one of the ways in which we sell services overseas,

I've come to Dubai.

Service providers from all over the world come here

to do their thing, and Britain is a key player.

We export almost £2 billion of services a year to Dubai

and the other United Arab Emirates.

People have a lot of different reactions to Dubai.

Some feel the excitement. Others think it's rather vulgar.

Some worry that it doesn't have as much money as it used to,

and some see it as obscene. There are terrible stories

of maltreatment of migrant workers. Whatever you think of it,

it's certainly a place that's changing very quickly.

It was only 40 years ago

that Dubai began its extraordinary transformation

from a quiet desert town into a futuristic metropolis.

Dubai is strikingly new. But that gives you a clue

as to why it's been such a great business opportunity

for British companies.

You see, one thing fusty old Britain really does have is experience.

We've been doing stuff for decades.

Now, if you're a young country and you want some of that experience,

it's our services you come shopping for.

And if you've got the money, this is what you can buy.

In 1993, Dubai wanted to announce its arrival

as a global destination. The sheikh commissioned the building of a hotel

that could make a statement to the world -

the Burj Al Arab.

Local talent wouldn't have been up to pulling off a project

of this scale, but a British consultant engineering firm,

called Atkins, was.

'Architect Simon Crispe was part of the original design team.

'What we sold was British service expertise

'in architecture, project management and engineering.'

Let's show you some of the drawings of the design.

-The old plans!

-The old plans.

-Dusted down.

-Absolutely.

-I bet this brings it all back.

It does indeed. Now, this one is the original sketch.

This was August '93,

and the client said, "Yes. Thanks, Atkins. We'll have it."

THEY LAUGH

And, er, away we went.

At a height of 321 metres,

it stands taller than the Eiffel Tower.

The other drawing is the external facade of the building,

and that shows the wind braces on either side.

And these are the primary elevational features that you see.

It's what gives it its character, that initial nautical feel.

So the clever thing has been to make engineering features

aesthetically very attractive. You haven't hidden them away.

-It's absolutely turning them into...

-That's right,

and it's the bringing together of architecture and engineering

to create a thing of beauty.

'Beautiful it may be, but how does it help us pay the bills?'

Atkins didn't just draw up the plans.

They project-managed the building's construction,

and they commissioned ten other British service companies

to work on everything from its safety features

to interior design.

'British services even helped build the artificial island

'on which the hotel stands.

'So how much does this all add up to?

'All the exact figures are commercially confidential.'

Now, help me out here. You've got a whole cost of the building.

What proportion of that total cost is the thinking bit,

-the sort of stuff that Atkins does?

-In broad terms,

because it's different for different projects,

you're talking probably... If the whole building costs 100 percent,

the overall thinking time, the management, the design,

the conceiving of the project and the delivering of that design

is roughly anywhere between five and ten percent.

Across Dubai, we've had a hand in designing and building

roads and railways, airports and harbours,

hotels and skyscrapers, and even fantasy islands.

British service exports are highly regarded around the world.

And it's not just grand construction projects -

the city is connected by the Dubai Metro,

operated by Serco, a British outsourcing specialist.

Around the world, they run trains, hospitals,

prisons, recycling centres,

air-traffic control systems and much else besides.

So you can go abroad and sell services

and earn real money for doing so.

'Britain has gone as far down this track as anyone.'

But of course we can't all go and live and work

in different countries.

So exporting services by going overseas has its limits.

Fortunately, where Britain has really made its mark

is in developing a second business model.

We can make good money by going abroad and selling services,

but in commercial terms, even better

is when foreigners come here to Britain to buy them.

'London is the epicentre.'

The British capital is like one huge factory

of commercial service exports.

This is where the world comes to do business.

Neatly positioned between America and Asia,

speaking the global language,

since the days of empire, London has embraced its role

as a global city. And it's this role

that helps Britain pay its way in the world.

We've encouraged people to come here,

whether on business or to see the sights,

and we've sold them services when they do.

Because they pay for things with money brought from overseas,

anything they buy is an export,

helps pay for our manufactured imports.

And it's all possible because Britain has carved a special role

as a host nation.

In order to understand how it happened,

let's consider London's answer to the Burj Al Arab -

the Shard.

Well, I'm on the 37th floor of the Shard.

That's not even halfway up to the top of the finished building.

This is undoubtedly going to be a symbol of our capital,

given its height, but it's also an interesting symbol

of the internationalisation of the nation and of London.

When completed, the Shard will be the tallest building

in the European Union.

But despite being built on London soil,

that's little that's particularly British about it.

This has been financed by money from Qatar,

the architect Italian,

the workforce building it from everywhere.

The glass is Dutch, and this floor, like another 17,

has been taken by the first tenant, a Hong Kong-based hotel.

Many of the tenants in this building won't be British,

and that's the clever part.

While they're here, we can make money from them.

So, what do we get out of being a host nation?

Well, imagine when this building is finished,

in an extreme case, no British people work or live here.

The foreigners who work and live here,

they'll be paying some taxes to the UK government.

They'll go shopping in the streets nearby.

They'll use British accountants and insurance companies.

The Russians living upstairs, when they get divorced,

will perhaps use a British lawyer. All these services will earn money.

Because they'll be earning money from foreigners, they're exports -

exports right here in the centre of London.

The Shard is testament to our continued willingness and ability

to attract the super-rich from around the world to London.

And once we've got them here, anything we can sell them

while they're in town counts as an export.

That's because everything they buy has effectively been paid for

with income derived from abroad.

It's very hard to put a precise figure

on how much this is all worth to Britain,

but it easily runs into billions of pounds.

You might think it odd for a country like Britain

to thrive by collecting the small change of the global super-rich.

So how does it work in practice?

'Tim Wright works for estate agents Knight Frank.'

-Hello.

-Nice to meet you. Come on in.

'They've built a tidy business servicing this market.'

Nice place!

-'The hall is as big as my flat.'

-Come on in, please.

-If you wouldn't mind putting those shoe covers on.

-Put my foot in here?

-Yeah.

-Wow!

-That'll be brilliant.

If you'd like to come upstairs, I'll show you the formal drawing room,

which is a phenomenal space overlooking the park.

'Last year, nearly 100 £10-million-plus properties

'were sold in London, almost all of them to foreigners.'

-It's fantastic, isn't it?

-We're lucky to have a day like this,

but even on a dull day, it's still a joy to look at.

OK. So, break the bad news. How much is it?

Well, Evan, for circa 45 million, you get the entire package.

So everything that you see is included in the price.

You can pick up the key, walk in and live...

-pretty comfortably, because...

-Of course.

The target market for a house like this

is the ultra-high-net-worth overseas buyer.

And what they want and what they attach value to is convenience.

They don't want to buy a building that will take two years to do up.

-OK.

-Come on through here, Evan.

'While we marvel at the house, remember the economic benefits

'to Britain are the things you can't see,

'such as the estate agent's commission,

'likely to be over half a million pounds.

'With the other services involved,

'we could be earning a couple of million in exports here,

'equivalent to a factory with scores of workers.

'Multiply this by all the other houses,

'and it's a good business model.'

Is this a bedroom or a lounge? It is a bedroom.

It is a master-bedroom suite like you've never seen.

-Fantastic.

-Isn't it wonderful?

Are there different national tastes from the foreign buyers?

Do the Russians go for one style, the Chinese for a different style?

The Middle Eastern buyer tends to want more staff accommodation,

for example, than a Russian buyer.

The Russian will be very happy with one housekeeper

living in the basement full-time.

Middle Eastern clients tend to want four or five staff

full-time in the house, even though they might only be here

two or three weeks of the year, if they come over for Ascot

or for Wimbledon.

-You must come and see the bathrooms.

-More than one bathroom.

There's a his and hers bathroom.

You would be very surprised if a British person

-came and bought this place.

-I would be surprised, yeah.

Definitely. And if you look at...

On average, if you look at, across the price sectors

in central London, then,

it's about 50/50 domestic to overseas buyers.

But once you start getting up the price scale,

so if you're looking at the sector which is the super-prime market,

say, ten million plus,

then, it's much more weighted in favour of the overseas buyer,

so it's probably more like 75, 80 percent to 20 percent domestic.

Come through to his dressing room.

'I can see how this is a big earner.

'But I do have some concerns about the sustainability

'of the business coming our way.'

Now...

will it all just go away?

Because when we've sold the last house

to a rich Russian, and we're all squashed, incidentally,

out in the 'burbs because we can't afford anywhere in London

because we've been priced out by foreigners...

When we've sold the last house, your industry dies, doesn't it?

Potentially I suppose it does, yes.

I mean, one of the big fears that we have

is that the people who buy houses like this

will hold on to them forever, but the reality is

that actually it's a relatively transient community.

People will stay here for maybe five years, maybe ten years, maybe 15,

possibly even longer, but ultimately they do either move,

or they die, they downsize, they get divorced,

and every time that happens,

it releases a big house.

So I don't think it'll ever stop, in those terms.

Thank you, Tim.

'So service companies got a slice of the £3 billion of foreign money

'that came into London's property market last year.'

It's an interesting old set-up, that, isn't it?

But a lot of people are in on the game, earning a living out of it,

and they then spend the money they've earned,

and it permeates its way through the whole economy.

But what an odd place for our economy to have ended up!

We're the support staff, the butler, to the world's elite.

'Not all our services exports within the UK

'depend on the whims of the global super-rich,

'and not all of them are based in London.'

Spread throughout the country are institutions

that are often characterised as a drain on our resources.

But I want to show you they're one of our leading export industries,

bringing in an estimated £5 billion annually.

'British universities attract 250,000 foreign students a year,

'far outstripping all of our neighbours.'

A fifth of students at the University of Birmingham

are fee-paying foreigners. It's a similar story

at many of our other leading universities.

What some people see when they come to a place like this

is a centre for learning.

Others see an institution that engages in research

and advances human knowledge.

What I see is a thriving business that's employing thousands of people

and earning tens of millions of pounds of export revenues.

'Birmingham's medical school sells its services

'to budding doctors from over 150 different countries.

'The product they come here to buy is a five-year course in medicine,

'involving two years in the lecture theatre

'and then three more years of hands-on training.'

Here they all are. Hi, gang. Hi. I'm Evan.

-Hello. My name's Himarshi.

-Himarshi?

-I'm Tala.

-Tala. Nice to meet you. Rahini?

-Hi. Nice to meet you. Tristan.

-Tristan. Good to see you.

And you're the consultant, obviously.

-Hello.

-Andy.

-Nice to see you.

'The students on today's ward round

'come from Sri Lanka, India, Trinidad and Jordan.'

Hi. My name's Tala. Is it OK if I ask you a few questions?

-Do. Carry on.

-So, what brought you into hospital?

I was shaking, hot and cold, everything.

'The great thing for Britain

'is that not only do we earn the money from these students' fees -

'any money they spend on rent and other services while they're here

'is an export too. And then on top of that,

'they're happy to lend us their labour as apprentice doctors.'

Do you mind if I just take a look at your hands?

OK, everyone. Happy? Thank you, sir. Thank you very much. See you again.

Let's move on.

'These discerning customers, or students if you prefer,

'have chosen us from a world of competition.'

So what's the reputation, then, of the British universities?

When you go back... This isn't Oxford or Cambridge.

People have heard of the city of Birmingham.

They may not have heard of the university.

Is it going to hold... Is it a good brand to have?

In Jordan, I think, just the fact that you've graduated from England

with a degree in medicine is quite impressive on its own,

regardless of the name of the university,

regardless of the brand.

I think so, as well. It's quite similar.

Carrying a UK education in general still holds a great value.

Do you get a good deal out of... How much are your fees?

That depends. The first few years,

-it's roughly about £12,000.

-A year?

-And the clinical years, it goes up another £10,000.

-It goes up?

-So what is it in the clinical years?

-It's about 22,000, 23,000.

'Britain has a valuable product to sell.

'But if we want to sell more of it, we're going to have to make choices

'about how open we're prepared to be.'

I've got to ask you about visa and immigration requirements,

because obviously governments have become worried

about the sorts of people that are coming in, and the numbers.

How have you felt

in terms of the welcoming advance of the Home Office

when you've applied for your student visas?

I applied three years ago, and it was relatively straightforward.

All I needed to get was a letter from the university

and all the accompanying documents, and they just gave me my visa

for the length of the course. But I've heard from friends

that it's progressively getting harder.

A couple of my friends from Trinidad haven't got visas in time.

The process is taking so much longer and so much more difficult.

It is getting to be a bit more red tape.

There are no clear rights and wrongs to any of this.

But if Britain really does choose to open up to the world,

there's a lot of money to be made.

'Edward Harcourt is the university's director

'of international relations.'

It's becoming increasingly competitive,

but it is still a seller's market.

There's something over three million international students now.

Britain is the second most popular destination.

-After the United States?

-After the States.

It's very difficult to do any kind of sensible projections

as to future demands. If you think that there are....

something like 220 million Indians in primary school,

and given the GDP growth rate in India,

um,

many of those families will have the wherewithal

to pay for their tertiary education,

and the Indian HE system is going to have a major capacity constraint.

So many of those families will be looking overseas

for a quality education.

And quality education is exactly what we sell here in Britain.

'This is our nation playing to its strengths.

'Emerging economies around the world

'simply can't match the services we can offer.'

When you hear people say we don't make anything in this country

any more, well, now you have an answer.

We make foreign doctors, foreign engineers,

foreign chemists, lawyers, business people.

And just think of all the good that our universities do

around the world.

So this is the new British economy.

Rather than just selling the world goods,

we sell our expertise through services.

And we're world-class at doing it.

It all earns export revenue

on a scale no-one would have imagined

at the time of the Festival of Britain.

So far, so good. Our great national experiment

in building a service-exporting economy

has worked, up to a point. We've seen services sold abroad,

services sold to foreigners in London

and elsewhere in the country.

But each of these sales channels has its limitations.

These services are best sold face-to-face,

and that means they rely on people coming into the country

or leaving it. And there are severe practical limitations

as to how many people can do that.

'So for Britain's experiment to really work,

'we've needed one other trick up our sleeve -

'the way of exporting services that, of course, we all know about,

'the one with the unrivalled ability to earn money

'but also to lose it - the City.'

For most of the last two decades,

it looked like we'd discovered a national champion.

Barclays Bank has announced record annual profits

of more than £5.25 billion.

The HSBC banking group has announced record profits

of almost £7 million, the largest ever by a British bank.

Something we did better than anyone else.

The RBS looks set to complete

the world's biggest company takeover,

worth almost £50 billion.

The flow of profits was unimaginable.

Here's where you want to work if you're young, brainy

and keen to make loads of money.

It collected plaudit after plaudit.

This is an era that history will record

as the beginning of a new golden age for the City of London.

It's remarkable to think that in recent years,

official data suggests this small corner of England,

just a few square miles, earns more in export revenue

than the whole of Wales or Northern Ireland

or the northeast of England.

The first thing to understand about the City

is that it makes its money in remarkably varied ways.

And here's one part of it you might not have heard much about.

-BABBLE OF VOICES

-'ICAP is a British service company

'that makes its money not by trading

'but by helping global finance operate.

'Michael Spencer is its chief executive.'

Let's just start by, perhaps, you explaining just what ICAP does.

It's not nearly as difficult as people think.

The world's financial markets are enormous.

They are global. They are interconnected.

There's a huge amount of business to financial institutions

in Japan, deal with financial institutions in Singapore,

in London, in New York.

And we are the biggest global intermediary

between these transactions.

Is it export revenue for the UK?

Is it foreigners buying services from ICAP?

We have 50 offices around the world,

of which only one is in the UK, in London.

London is our biggest office, but we have big offices

in many, many other financial centres.

Overwhelmingly, our revenue is export earnings to the UK.

Our financial services yield exports worth 30 times those of France.

They're even more valuable than America's.

At ICAP, they don't take risks.

They offer a service to others, who do.

Clearly banks are in the business of risk-taking,

because lending money to customers or dealing in foreign exchange,

that is what their business is, to take risk in various forms

in order to facilitate their customers' business.

But businesses like ours are not in the risk-taking business.

We're in the facilitation business. We will stay there.

We're happy in that space, and that's our expertise.

Alongside you in the City, in facilitation rather than risk,

you've got the lawyers, who are a huge part of the City...

The insurance-broking firms, all the equity-broking firms...

-The accountants as well.

-Of course.

There's no denying the enormous economic contribution

companies like ICAP make.

No risk, real income - just what we want.

It's a really interesting business model.

You charge a tiny commission on a huge number of transactions,

and it adds up to a pretty good business.

In a way it's an analogy for a lot of what the City does

and the services it provides.

They don't bake cakes here.

They provide services to other people who bake cakes,

and they pick up the crumbs. And if you provide enough services

to enough cake-bakers, you can pick up a lot of crumbs

and you can have a nice cake of your own.

OK. Now here's the bad news.

You've got the parts of the City that don't take risks,

but just as big are the parts that do.

And we've needed them to do some baking as well.

We've needed them to earn a lot of money.

And you don't need me to tell you those are the parts

that have gone terribly wrong.

The British government has now agreed terms of a rescue package

to stabilise the banking system.

It has been another extraordinary day of fast-moving developments

for Britain's financial world.

We all know that the bailouts were expensive.

But there are reasons to think that the City might be costing us money

in good times too.

There is a radical new critique taking shape -

that although the City earns a lot and contributes,

paradoxically, a large part of it is also a burden on the economy.

It gives with one hand, takes away with the other.

And that's no way to build a good export industry.

It may be a good business model for the City,

but not for the country as a whole.

So how can a successful City not be successful for the nation?

'Former City high-flyer turned academic, Paul Woolley,

'thinks many of its profits have come at the expense

'of the rest of us.'

In finance, it's only too easy for the banks

and the middle men generally to appropriate the gains.

They do so by making things complex and confusing.

They don't even understand them themselves in some cases.

So there are ways in which they can feather their nests.

They create the demand for their own products

by making the product complicated and saying, "This is what you need."

-What's the effect of it in the end?

-More new financial instruments

are introduced, which are often complex,

difficult to understand. The fees are going up

with this complexity, and that's what happened.

That's why the finance sector is so big.

The complexity has become so extraordinary

and, er, costly to the economy.

Now, if you have a strong export sector

that is as costly to the economy as Paul Woolley suggests,

well, that's not going to work at all.

There's no point in exporting £100 if it's cost the rest of us 105.

No - what Britain needs

is sustainable, value-creating businesses.

'The new critique levels another charge against the City.

'The banks, it says, are propped up by subsidies,

'not just in crises but every year.

'This argument comes from the very heart of the city -

'the Bank of England.

'How does this subsidy work?

'Because the taxpayer stands squarely behind the banks,

'they can borrow more cheaply from around the world

'and make bigger profits than they otherwise would.

'Andy Haldane is the executive director

'of financial stability at the bank.'

Your contention is that if the banks had no government subsidy,

they couldn't take risks underpinned by taxpayers,

and found it harder to borrow money because of that,

they would be a little smaller than they are.

Well, certainly the banks would have been somewhat less profitable

than was the case, than has been the case,

during the course of much of this century.

There would still have been profits out there,

but on a somewhat lesser scale,

had the risk been borne by investors and banks

rather than implicitly by the government.

You've done the maths, tried to add it all up.

How much do you think the implicit subsidy is?

I think you'd measure it in terms of tens of billions.

-Really? That much?

-I think so.

The cheaper cost of funding for banks

was a phenomenon well ahead of the crisis.

How ironic it is!

So many in the City were critical of the state

pumping billions of pounds

into those old, much-loved manufacturing industries -

and now we've come full circle with a new critique,

arguing that the City itself is in fact propped up by the taxpayer

and the rest of the economy.

'The City was the ace in the pack of business models.

'But the crash forced us to reappraise our entire experiment

'of trying to pay our way with services.

'They did better than many critics thought possible,

'but they didn't do well enough.'

'Even though we exported £160 billion of services last year,

'we still had an overall deficit of about 36 billion.

'Time to get out of London, with its billionaires and bankers,

to explore one last hugely important challenge

'left by our shift to a service economy.'

You see, the export model Britain's followed may not quite have worked,

but its weakness isn't going to be felt in the capital.

'No - London has always had a strong service economy.'

But what about the rest of the country?

The worry is that services have made for a more lopsided economy,

with the most lucrative jobs clustering in London

and a few other select centres,

with less well paid work for other parts of Britain.

'Where better to test that than back in Sunderland,

'a city that had to rise to the challenge of industrial decline

'when its great shipbuilding industry disappeared?'

Sunderland, of course, has an economy

that's had to reinvent itself more than once, hasn't it?

Sunderland has done a remarkable job of reinventing itself.

Even 25 years ago when I first came here,

the big industries were still shipbuilding,

coal-mining, glass... We had a brewery,

and textiles. I had a thousand textile workers

in my constituency as late as 1997. And all of that's gone. All of it.

And in its place has come a large number of jobs,

some of them manufacturing, some of them service jobs.

Of course he's right. Sunderland has manufacturing.

But in terms of new service jobs, many think that what Sunderland got

were low grade and low paid -

the much-derided call-centre jobs.

'Is that justified? Here at Doxford International Business Park,

'thousands of people work in call centres,

'or contact centres as they're now known.'

The closest connection it has to shipbuilding

is a prizewinning sculpture of a ship's hull.

So this is the new Sunderland economy.

I say Sunderland. It could be anywhere really, couldn't it -

these business parks are all over the country.

No grime, no belching chimneys. Wonderful landscaping.

Perhaps...a tiny little bit bland?

Maybe.

'One of the biggest employers at Doxford is 2Touch.

'Here the staff receive, and, more often, make calls

'on behalf of utilities, telephone companies,

'you name it. You might even have spoken to one of them.

'There's a real buzz about the place -

'more than in many factories I've visited.'

Right. Sure. How are you finding your service with them,

ie, like, speed and reliability?

I was calling to see if we could hopefully save some money

-on your phone bills.

-So you're getting £23 on there.

What about your TV? How's that going for you?

Workers can make 250 calls a day.

Usually only two or three of these will result in a sale.

'It's hard work. But are these jobs as bad as the critics maintain?'

Just to let you know our calls are recorded

for quality assurance and training purposes. Is that OK?

There are some former industrial workers here.

Robert Carr used to make refrigerators.

A lot of people don't think these are real jobs.

They don't compare to the old job you would have had.

What did you think when you first came here?

It's a totally different world to me.

When I first came, I was alienated. I was struggling.

The first few weeks I thought, "This is not for me."

Quite a lot of people would be exactly the same.

I had a few start with me. They're not here any longer.

They were here three weeks.

But it's an environment you've either got to cope with,

make the best of it...

64,000 question - which do you prefer,

this work or the previous work?

I prefer this work, honestly, because it's not hard work.

It's stressful work, but it's not hard work.

'However, this is a long way from the jobs-for-life culture

'of the old industries. Most employees are young,

'and on average, those making calls stay for less than a year.

'Stuart Gray is the managing director.'

-This isn't a job for everybody.

-No.

Who doesn't make it? What personality type does it take?

You've got to be a good communicator.

You've got to be able to listen.

You've got to have a sales mentality,

because that's what the job is. Technically nothing too much.

We can train all the technicals in.

It's an ability to bounce back. We call it bounceback-ability.

There's a lot of rejection with it.

But the good ones just keep going at a good, solid pace.

You never ask yourself, "Is this really a good thing to do,

to sell people these things, utilities or phone packages?"

I mean, would the world miss it if it wasn't here?

Um, yes, it would,

because what we're doing is playing our part

in giving people opportunities.

They're getting choice,

so they have a choice to switch supplier of a product.

They have a choice to take an additional product from somebody.

And a lot of what we sell is essential.

We're big in utility sales. Everybody needs a utility.

TVs, broadband products...

People have them, and they enjoy having them.

So we're not selling anything that's worthless.

We're selling something that has a value.

That may be, and services have undoubtedly provided work

where manufacturing couldn't. But here's the thing.

Over the last 20 years, inequality between British regions

has increased.

BABBLE OF VOICES

Just look at this place!

Thousands of jobs, lovely warm offices.

I'm definitely not one who is scornful

of this part of our services economy.

But I do have a certain ambivalence.

It's clear that all the top-end service jobs,

the ones paying 50,000 a year rather than 15,

tend to concentrate in a few big centres.

It's... It's really hard for a city like Sunderland

to get itself into the first-class compartment

of the services train.

In short, it's the same for Sunderland as it is for Britain.

Services have been good, but only up to a point.

They're necessary, but aren't sufficient on their own.

I wonder whether Sunderland could survive

as an entirely service-based city,

or whether it has to have some manufacturing to flourish.

I'd be very nervous about saying

we could do without manufacturing industry.

My gut feeling is that the world of the call centre,

and even of some of the high-tech industries

is very short-term. It's very mobile, and could easily disappear overnight.

Manufacturing lasted a couple of hundred years,

and we're not completely confident the new generation of industry

will last so long, so we may have to reinvent ourselves

every generation or two.

And that's a bit scary.

Go back to 1951,

to the hopes and fears people had at the time of the Festival of Britain.

You'll see that our economy has reinvented itself

more than anyone back then would have imagined.

In the sixth decade since that festival was held here,

Britain's economy has taken a sharp turn.

Services have just been one part of a really big shift.

Across the programmes in this series,

we've seen how our economy has moved upmarket.

'We didn't want to compete in low-wage sectors

'with countries like China. They could make many things as well as us

'but for a lot less money.'

So we've discarded some activities,

and become expert in others.

We've focussed on areas where we're still in front,

specialising in products that involve sophisticated engineering,

small numbers, and high prices.

The change is symbolised by the humble bicycle.

'The everyday bikes we used to churn out

'have been replaced by niche bikes that are harder to design

'and manufacture, and more expensive to buy.'

We've also gone upmarket in another way,

focussing on industries that rely on intellectual property,

like pharmaceuticals

or microprocessors.

'It's British know-how that designs the chips

'that help power many of the world's mobile phones,

'a lucrative business.'

The change in our economy has been painful

and at times scary, but remember, it has basically worked.

Even after the financial crash and the setbacks of recent years,

we're living on incomes three times those

of the folks of the Festival of Britain.

But the crash has shown us that, although we've got a lot right,

it hasn't been perfect. Banking has been exposed

as not being quite the great money-making enterprise

that we thought.

It's been a time to take stock

of what our nation should and shouldn't be doing.

Despite all the clever upmarket stuff we do,

the fact is, we don't quite pay our way in the world.

We need to export more to pay the bills,

and we've learned that services can't do it all.

So if our economy is going to find its way over the next few years,

we're going to have to rediscover some of the things we've lost.

It's solid, export-oriented manufacturing

that needs to grow most quickly.

And since the crash, there are some signs

that it's doing just that.

There's one conclusion I'd draw from everything I've seen -

that we can't allow our economy to be supported by just one pillar.

You'll hear people say it's all about manufacturing,

or all about services or the knowledge economy.

Well, that's not true. It's about all three

creating a well balanced economy.

Now, of course, it may well be grim for the next few years.

My goodness, we've a lot of problems to solve.

But long term, I reckon we've every reason to believe

that the forces that have made so many people so much better off

over the last few decades

will carry on making us better off over the next few.

To discover more about how Britain pays its way in the world,

and to contribute your experiences

to the Open University's online toolkit, visit...

..and follow the link to the Open University.

Subtitles by Red Bee Media Ltd

E-mail [email protected]

.