The Sunday Times November 28, 2021 11
BUSINESS
A
s you read this, more than
53 million Americans, 13 per
cent more than last year, will
be wending their way home
after celebrating a holiday
established by Abraham
Lincoln to give thanks for a
victory over the forces seeking
to preserve the institution of slavery in
the US. He could not have known that,
158 years later, the nation’s children
would be taught that America was
founded not in 1776 — to establish a more
perfect union guaranteeing a range of
individual freedoms — but in 1619, and
that the founders’ goal was to preserve
slavery. Or that San Francisco would
remove his name from a high school.
Most Americans took to the road,
95 per cent in petrol-powered vehicles,
while millions of masked Americans,
clutching proof of vaccination, poured
into the nation’s airports, creating
20 million screenings over the ten-day
period beginning the Friday before
Thanksgiving. Travel was well up on last
year, but about 10 per cent below pre-
pandemic levels.
Some hit the road merely to take a
break from the workplaces they once
just called home. Most, unable to Zoom
the aroma of roasted turkey, opted for
the in-person family reunions postponed
since China included the Covid virus
among its exports to the US. About two-
thirds said their celebrations would
mimic those in the good old days before
masks, shots, lockdowns and anti-
vaxxers were part of their vocabularies.
But half asked guests to provide proof of
vaccination, suggesting that happy days
are not quite here again.
The highlight was the traditional
turkey dinner. Some 46 million turkeys
were consumed, although none by the
3 per cent of Americans who consider
themselves vegans. President Biden,
taking time off from recreating America
in the image of a European welfare state,
pardoned two turkeys, Peanut Butter
and Jelly, deploying perhaps the only
presidential power not requiring
congressional or court approval.
Many gave thanks in their churches,
synagogues and other houses of
worship, while others worshipped at the
temple of the National Football League.
Then Black Friday — so named when it
was the day on which crazed bargain-
hunters stormed stores and turned the
red ink on retailers’ ledgers to black —
before the internet took hold.
Preliminary estimates have Friday sales
up 12 per cent over last year, 40 per cent
in stores, 5 per cent on line. Part of that
is down to the 6.2 per cent inflation that
is pushing up sales totals.
Savings and credit-rich consumers
accepted substitutes for items entombed
on vessels lolling off the coast of
California, although empty store shelves
— which Americans associate with the
defunct Soviet Union and socialist
countries such as Cuba and Venezuela —
come as a shock in a country in which
capitalism has always produced an
almost infinite range of choices.
For shoppers who did opt for malls
and shops, after being locked in with
kids, dogs and edgy spouses for some 18
months, it was the thrill of getting out to
hunt, as much as the foray’s result, thatcounted most. Friday’s announcement
of a new virus variant in Africa did not
induce many to stay at home.
Americans who chose to catch a bit of
news between football games would
have been wiser not to. Having toured
the wreckage of a Nordstrom
department store in Arizona after it was
looted during a “protest”, I found
looting of a Los Angeles Nordstrom by
80 masked thugs brandishing crowbars
unsettling, especially since a Black Lives
Matter organiser called similar incidents
“reparations”. And with a wife who
found a gun in her back at a New York
ATM, I was more than a little sensitive to
reports of rising murder rates in New
York, Chicago and other cities. Some
blamed that mayhem on calls to defund
the police, others on insufficiently
restrictive gun-control laws.Irwin Stelzer American Account
To the mix can be added a culture war
that has Americans uneasy. Religious
institutions are being forced to obey
rules that violate the consciences of their
followers, or, as others contend,
attempting to impede the onward march
of the gender revolution. Meanwhile,
millions of illegal immigrants, plausibly
believing themselves to be welcomed by
President Biden, are crossing the border,
many handed bus tickets to American
cities of their choice.
Little wonder that polls show 63 per
cent of Americans believe the country is
headed in the wrong direction, up from
50 per cent only six months ago, and
that the president’s approval rating
stands at 41.3 per cent, down from
55.5 per cent when he was inaugurated.
Joe Biden, preparing to pour about
$4 trillion into an economy that can’t
meet the demands already made upon
it, plunges on in his pursuit of history’s
vacant plinth next to that of Franklin
Delano Roosevelt.
Yet despite all these discontents, few,
if any, Americans are headed for other
countries, while millions of foreigners
see America as the land of hope,
opportunity and freedom. And
Americans by the millions chose last
week to give thanks.
As we say in New York, “Go figure.”
[email protected]Irwin Stelzer is a business adviserMost citizens
believe the US is
heading in the
wrong direction
These big regional
centres are
punching well
below their weight
P
eople, including the Labour
leader Sir Keir Starmer, have
taken to asking the prime
minister whether everything is
OK. I can’t answer that, though
after a sequence including
Kermit the frog references in a
speech to the United Nations’
General Assembly, and the Peppa Pig
interlude to a bemused CBI audience,
you do have to wonder.
I am more concerned about whether
the levelling-up agenda, the
government’s one signature policy, is
OK. The government’s integrated rail
plan for the north and the midlands,
which involved scrapping the eastern leg
of HS2, went down like a bus
replacement service on a wet
Wednesday in Wigan.
The “landmark” white paper on
levelling up, promised by Boris Johnson
a few months ago for this year, has yet to
appear. I asked the Department for
Levelling Up, Housing and Communities
— yes there really is a department called
that, under Michael Gove — when we
might see the white paper and was told it
is “forthcoming”. So far, we have had to
make do with a prime ministerial speech
that, while it did not contain any
references to children’s TV characters,
was also content-free in other respects.
We should get something. Gove has a
reputation for shaking things up, and he
turned to an expert, former Bank of
England chief economist Andy Haldane.
He, in his capacity as chairman of the
now-disbanded industrial strategy
council, threw himself into the levelling-
up agenda, which predated the Johnson
government.
So we wait. In the meantime, I have
become interested in one aspect of
levelling up that has probably not had
the attention it merits. We tend to think
the “left behind” problem is
concentrated in smaller communities
that have lost their livelihood, such as
former pit villages. Bringing prosperity
to these smaller, left-behind areas, which
are not all in the north, is important. But
as Paul Swinney, director of research and
policy at think tank the Centre for Cities,
argues, the nub of the problem is the
poor performance of UK regional cities.
In evidence a few days ago to the
Productivity Commission, which is
being jointly run by the National
Institute of Economic and Social
Research (Niesr) and the Productivity
Institute, he set out the position clearly.
“The UK’s largest cities outside the
greater southeast are principally
responsible for both the north-south
divide and the UK’s poor productivity,”
he said. “While the UK lags western
European countries in productivity, the
greater southeast is one of the most
productive parts of Europe.
“The UK’s low productivity is a result
of the poor performance of the rest of
the country. The principal driver is the
underperformance of large cities such as
Birmingham, Manchester and Glasgow.”
Analysis by the Centre for Cities shows
this clearly. The UK’s regional cities
compare very badly with counterparts
on the Continent. Even in France, which
like the UK is dominated by its capital,
regional cities contribute far more to the
economy and to productivity than theUK’s regional cities. Looking at those
with a population of between 600,000
and 3.5 million, the big regional cities of
the UK are at the wrong end of the
productivity table, competing for the
wooden spoon, compared with
European counterparts.
Their underperformance explains
almost 60 per cent of the economy’s lost
output, which the Centre for Cities
conservatively estimates at 4 per cent of
gross domestic product a year, or more
than £83 billion. It could be a lot more.
Some people will be puzzled by this.
Many of the UK’s regional cities have had
a makeover to what the planners call
their central business districts, and look
a lot better than they used to. Some have
diversified their economic bases.
The problem, however, persists. One
cause, according to the Centre for Cities,
is that cities have not been successful in
attracting high-productivity, exporting
businesses — firms in so-called tradable
sectors. “These are the businesses thatManchester’s productivity looks much
more like Cumbria’s than Bristol’s, and
trails far behind Munich’s.”
The good news is that if other
European countries can do it, we should
be able to do it in the UK. Regional cities
have to be made more attractive for the
private sector to invest in.
The Centre for Cities makes six
recommendations for fixing the
problem. They include: more spending
on skills; ending the austerity squeeze
on local government to improve day-to-
day public services; devolving more
powers over services and spending to
local areas; and improving transport
services, particularly buses, but also
focusing transport infrastructure
spending on big cities.
Government also needs to invest in
struggling city centres through a city
centre productivity fund to make them
more attractive places to do business,
and to target research and development
spending at places that are currently
underperforming, it says.
There is no magic wand to be waved
here and lifting the performance of the
UK’s regional cities will take time. But
there is no reason not to try; without it,
there will never be any meaningful
levelling up.
There is also, without wanting to end
on a downer, a sting in the tail. We have
got used to London’s productivity
performance being superior to the rest
of the country. But London’s
productivity growth, as for the rest of
the economy, has been dismal since the
financial crisis. Let us hope that is not a
harbinger of levelling down.PS
Winter is almost upon us — in
meteorological terms, it will start on
Wednesday — and parts of Europe are
reeling from a fresh wave of Covid-19 —
even before the new variant.
Restrictions, lockdowns and compulsory
vaccinations have been unveiled.
As everybody knows, the UK has run
higher infection numbers than most
European countries for months and,
even now, case numbers relative to
population are higher than in the EU and
successful vaccinators such as France.
But it is the suddenness of the
increase in some European countries
that has taken them to what the World
Health Organisation has described as the
epicentre of the pandemic. Austria’s
case rate has gone from 40 per cent of
the UK’s to more than 220 per cent in
two months, with similar increases in
Belgium and the Netherlands.
Will restrictions introduced in
response stop the European recovery in
its tracks, with knock-on effects for
Britain? There are three reasons to
expect that for the Continent and the UK,
recovery will persist. Surveys, notably
purchasing managers’ surveys,
suggested most eurozone economies
were quite strong this month.
Not only that, but the restrictions
introduced so far, while kicking up a
political storm, are less severe than in
earlier stages of the pandemic. Finally,
economies have got better at growing
through restrictions. That was the case
in the UK. It should be true of Europe.
[email protected]bring money into an economy by selling
beyond its borders, and are able to
absorb new innovations,” the think tank
notes.
Instead, these cities have attracted
low- productivity “non-tradable”
activities, such as hospitality, the arts,
entertainment and leisure. These bring a
liveliness to city centres but they do not
bring innovation and lasting prosperity.
Other countries in Europe do better
because there is more genuine regional
autonomy, as opposed to the UK
government’s branch-office mentality to
relocating bits of central government to
regions. This applies to the private
sector, too: banks locate high-value-
added investment banking in London,
where the skills and knowledge are, but
put their lower-productivity data-
processing and call-centre operations in
regional cities.
The underperformance of regional
cities is frustrating because it should be
easier to fix than achieving catch-up for
thousands of smaller places. Many of
these places, which are quite close to
cities, would in any case be lifted if their
local cities did better.
Cities exist to accrue the benefits of
“agglomeration” — bringing people and
businesses together to foster innovation,
skills and economies of scale — but too
many of the UK’s cities are not doing this
enough. As Swinney pointed out: “These
large cities are punching well below their
weight and aren’t playing the role that
the likes of Munich and Lyon play in
their respective national economies ...UK REGIONAL CITIES LAG BEHIND THOSE IN EUROPE ...
Sources: Centre for Cities, Eurostat, ONSGross value added (GVA) per worker relative to big city average
Large UK cities Other large western European citiesDublin
Brussels
Amsterdam
Munich
Frankfurt
Stuttgart
Hamburg
Stockholm
Lyon
Rotterdam
Madrid
Copenhagen
Bilbao
Cologne
Toulous e
Marseille
Zaragoza
Bordeaux
Barcelona
Lille
Valencia
Berlin
Bristol
Sevilla
Leeds
Liverpool
Manchester
Birmingham
Glasgow
Newcastle
Sheffield
Nottingham-30% -20 -10 0 10 20 30 40 50... AND EXPLAIN MOST
OF THE PROBLEMLost potential outputCities57%
Towns23%
20%
Rural areas
Sources: Centre for Cities, ONSDavid Smith Economic Outlook
Americans give
thanks. For what?
Fix our cities first, or we’ll
never level up this country
This is a prime example of a well-
intentioned movement straying beyond
the bounds of what it should be doing.
Other investors should torpedo the ESG
nuclear flotilla before it gathers pace.Tricky time for easyJet
Sales of easyJet’s “Advent(ure)
calendar”, which includes four pairs of
return flights and various other goodies
for £695, won’t be helped by this
weekend’s news. The spread of the
omicron Covid variant and the UK’s red-
listing of six African countries raises the
prospect of more travel chaos. We’re
approaching the peak season for
summer bookings, but you wouldn’t
blame families for sitting on their hands
and waiting to see how things play out.
EasyJet, which reports full-year
results on Tuesday, looks wise to have
raised a bumper £1.2 billion in its
September rights issue. Chief executive
Johan Lundgren was making bullish
noises last month, saying a recovery in
aviation was “under way” and easyJet
was ready to “seize opportunities”.
The airline was expecting to fly 70 per
cent of its 2019 levels in the final quarterof this year — below where rivals such as
Ryanair have been performing. All eyes
will now be on forecasts for next year.
While its customers won’t have been too
bothered by the lockdowns in Austria
and Belgium, any hint of a threat to
summer destinations such as Portugal or
Spain could have a big impact.
Meanwhile, costs are still high and the
mid-market — between true budget
carriers such as Ryanair and Wizz and
the more premium British Airways —
looks like a tricky place to fly.Last chance for Ned nominations
In these turbulent times, it is more
important than ever to recognise the
positive contribution boards can make.
Nominations for The Sunday Times
2022 Non-Executive Director Awards,
organised by the investment bank Peel
Hunt, have been extended until
December 5. There are six categories:
FTSE 100; FTSE All-Share; FTSE AIM;
private/private equity-backed; not-for-
profit/public service organisation; and
Dame Helen Alexander Ned to Watch.
To enter, go to nedawards.co.uk.
[email protected]at its shipyard in Barrow-in-Furness. It is
increasingly questioned by investors
over this work. State Street, the
American investment giant, has BAE on
its ESG exclusion list. It refuses to invest
in companies involved with nuclear
weapons on the basis that they have an
“indiscriminate and disproportionate
impact on civilians” — never mind the
fact they haven’t been used since 1945.
Investors are often under pressure
from campaign groups and their own
clients. When it comes to ESG, theyS
omething curious happened
this time last year when Serco
lost its deal to run the Atomic
Weapons Establishment,
which manages Britain’s
nuclear warheads. The
outsourcer’s shares crashed.
But after the news, its rating on
several ESG indices — which measure
compliance with environmental, social
and governance metrics — shot up.
The message was clear. While
financial investors were worried about
the loss of some £17 million a year in
underlying trading profits, ESG analysts
were delighted that Serco would no
longer have anything to do with making
the missiles carried on the Royal Navy’s
four Vanguard-class submarines.
ESG investors have shaken up the oil
and gas and tobacco industries, and now
they’re coming for defence. Concerns
that weapons manufacturing could
become unpalatable for a broad swathe
of shareholders are weighing on share
prices. In April, analysts at BNP Paribas
pointed out that defence valuations had
fallen in line with those for tobacco
companies since 2018 — even though,unlike with cigarettes, victims of war are
unlikely to sue for damages, and sales of
planes and tanks aren’t going to end.
As ever with ESG, everyone wants
slightly different things. It’s difficult to
argue with the emerging consensus that
blue-chip defence companies shouldn’t
sell controversial weapons such as
cluster bombs, landmines and white
phosphorus. But we should be alert to
the perils of what BNP describes as the
“race to restriction” — one-upmanship
among ESG investors eager to exclude
ever more nasties from their portfolios.
It is already leading some to target
nuclear weapons. The Franco-German
combine Airbus, which has a subsidiary
that makes launchers for French nuclear
missiles, recently narrowly avoided
being screened out of Germany’s MDAX
index on those grounds. This month, the
Norwegian pension fund KLP dumped
shares in 14 companies including Rolls-
Royce, whose propulsion systems are
used in Britain’s nuclear submarines,
and Babcock, which maintains the fleet.
FTSE 100 defence champion BAE
Systems is making Dreadnought, the
next generation of Trident-armed subs,BAE Systems2017 2018 2019 2020 2021
Source: Thomson Reuters Eikon400450500550600650psometimes make demands without fully
thinking through the consequences.
In the case of nuclear weapons, they
are seriously misguided. Whether or not
to maintain a deterrent is a decision for
countries, not companies. Britain and
the Nato alliance believe that keeping a
nuclear arsenal sends a strong message
to potentially dangerous states such as
Russia and North Korea, both of which
have aggressively built up stockpiles.
The geopolitical calculations behind
this are complicated and go beyond the
remit of fund managers. They are, in
effect, endorsed by voters — in the UK, a
party campaigning for unilateral
disarmament would never win an
election. While Labour’s 2017 and 2019
manifestos pledged to support the
renewal of Trident, suspicions that these
were compromises accepted by Jeremy
Corbyn did not help with swing voters.
A sustained ESG push against nuclear
weapons would not get rid of them. It
would simply put a strain on companies
in the supply chain, making their equity
less valuable and raising their cost of
capital. Thousands of high-quality jobs
depend on these operations.Oliver Shah
Nuclear weapons are the next
battleground for ESG warriors