20 September 2007

Golf and whiskey – pomegranates and lemons

By Eric Jansson
Published by Financial Times, 20 September 2007

Perhaps golf and whisky should not mix with business. That they frequently do is a boon to Scotland’s business tourism industry.

Business trips, many of them international, yield more than a fifth of overall tourism receipts north of the border, according to a survey commissioned collectively by Britain’s national tourist boards. The published figure for 2006 was £911m, but because business trips so often generate leisure tourism activity the real total is almost certainly higher.

Fabled courses to play, legendary distilleries to tour and “exclusive use” castles that can be rented for corporate events help keep demand high, official promoters say.

Accordingly, Scotland punches well above its weight in this area. Edinburgh last year hosted more international association meetings than any other small city in the world, according to the International Congress and Convention Association (ICCA). Such meetings are the tourism industry’s biggest money spinners, luring delegates by the thousand, typically outspending leisure tourists by more than a factor of two.

Yet in a sector that witnessed 11 per cent growth last year worldwide, Scotland conspicuously lacks capacity, and the market shows signs of strain. Higher capacity markets such as Vienna and Paris, Europe’s top destinations for association meetings, ably absorb extra volume; they registered growth of 12 per cent and 30 per cent respectively in 2006. Scotland and other British markets saw comparatively minor increases.

“A lot of markets are growing faster. We cannot afford to be complacent,” says Caroline Packman, head of the business tourism unit at the national tourist board, VisitScotland. Author of a rebranding effort under the slogan “Scotland means business”, she adds that a long-term effort to preserve and boost competitiveness is underway.

A £1bn wave of private and public investment currently underway should help. Scotland’s leading conference and exhibition centres, the city-owned Edinburgh International Conference Centre (EICC) and Scottish Exhibition and Conference Centre (SECC) in Glasgow, plan dramatic additions worth a combined £142m. Other prime venues such as Gleneagles, the Perthshire hotel and golf resort that hosted the G8 Summit in 2005, and the Old Course Hotel in St Andrews are expanding or upgrading, too.

The EICC’s plans carry a particular sense of urgency. Opened in 1995, the innovative space plugged a gap in the capital’s conferencing market, where previously “the only places to go were hotel ballrooms,” says Sandy Pearson, marketing manager. Twelve years later, after counting 1.5m delegate days – the conferencing industry’s equivalent of hotel overnights – the 1,200-seat centre sees loyal clients outgrowing its space.

Expanding in the middle of Edinburgh’s financial district has proved difficult. Plans to break ground earlier this year broke down when Cala-AWG, a construction company, suddenly backed out citing higher than expected costs. Ms Pearson says the move came “totally out of the blue”, frustrating EICC executives. Last week, they sent fresh recommendations to Edinburgh city council, requesting consent for essentially identical expansion plans.

By contrast, nearby Glasgow boasts ample capacity for big events. The facility’s five big halls and iconic 3000-seat Clyde Auditorium, known locally as “the Armadillo”, generate reliable profits. Yet with the SECC operating at 70 per cent capacity, Mr Closier sees room to grow, as demand spills over from crowded markets elsewhere.

“We get people who have tried to put on a conference in London. They come up here and say it is a breath of fresh air,” Mr Closier says.

His planned addition – with designs by architects Foster & Partners, funding and planning consent all in hand – will be Scotland’s largest arena. Due for completion by 2011, it promises to offset demand for concert space in existing SECC buildings while providing a new sporting venue for the Commonwealth Games in 2014, for which Glasgow is a candidate city.

The Commonwealth Games, though not directly impacting business tourism, could also help the industry by adding hotel rooms, Mr Closier says. For big events, scarce accommodation has sometimes caused problems, as in 2005 when 14,000 members of the European Respiratory Society descended upon Glasgow. Some participants required bussing to and from hotels in St Andrews, 82 miles away, says Mrs Packman.

Additional flexibility could be provided in the form of a high-speed rail line between Glasgow and Edinburgh. Such a link would cut travel time from the current 50 minutes to as few as 12, says Laura Gordon, director of the publicly-funded Glasgow-Edinburgh Collaboration Project.

Sceptics of collaboration include Mr Closier, who notes the contrasting natures of medieval Edinburgh and modern, “rebellious” Glasgow. He warns against “trying to make a pomegranate out of an apple and a lemon”.

But Ms Gordon argues that Scotland’s distinctive markets must embrace intercity collaboration as an internationally proven model for the industry. Successes in Copenhagen and Malmö, Germany’s Rhine-Ruhr region and other markets could show the way forward for Edinburgh and Glasgow, she says.

17 September 2007

The first post-modern bank run

There is a reason why people do not paint landscapes in a hurricane. The next gust is too likely to change the scene. Also, one gets wet. For the same reason, there is little purpose in describing in detail the ongoing run on Northern Rock, the British bank suffering most from the great credit crunch of 2007.

Know this, and you know enough: when “the Rock” – now nicknamed “the Crock” by wags in Britain’s financial press – unveiled its deal last week with the Bank of England over access to emergency funds, it effectively announced its own demise.

Will anyone catch Britain’s fifth largest mortgage lender, currently in freefall? The Rock’s share price fell by more than 30% last Friday. As of this moment on Monday morning, fewer than three hours into trading, we already see an equivalent drop.

Depositors are lining up to withdraw funds from branches across the country, just as they did on Friday and Saturday. Invisibly, holders of “Internet savings accounts” are doing the same online, and confusing queues in cyberspace force frustrating waits there, too.

A secondary question is, if no one is prepared to catch this bank in free fall, what will the mess look like later, for whom? Watch the herd. Analysts have gone from describing this last week as a potential “one-bank-collapse” to describing it today as a “systemic threat”.

Efforts by executives and policymakers to renew confidence among depositors so far seem to be falling on deaf ears. This is the nature of any bank run, but we have some novel ingredients, too.

Alistair Darling, the Chancellor, went on BBC Radio 4 this morning to reassure depositors that, because of the Bank of England’s pledge of emergency funds, the Rock really did have enough money for them, and their deposits were secure. In theory, this kind of reassurance persuades depositors that they need not withdraw.

However, in practice, the reaction has so far been the exact opposite. The Bank of England’s pledge and Darling’s reassurances, as received by depositors in a highly competitive market, imply no reason not to withdraw.

Add to this the fact that online depositors, since their relationships with the bank exist solely in the “virtual” realm of cyberspace, evidently feel no customer loyalty whatsoever.

The crisis at Northern Rock is therefore neither merely a matter of one bank’s potential fall, nor merely a source of systemic risk. It is Britain’s first post-modern bank run, with individuals showing how very little interest they have in their relationships with institutions, public and private. Institutions therefore fail utterly to speak effectively to disinterested individuals.

So while many people now say that trust in the system is breaking, it would be more accurate to say that trust was already broken, over years, in advance of this crisis. An erosion of trust created the conditions for today’s scene. The risk was foreseeable but remained invisible as long as the financial markets’ liquidity boom continued.

By anchoring its operations in the fickle wholesale credit market, the Rock showed how shallow its commitments really were. Today, by withdrawing funds so rapidly even when the risk of non-collection is zero, depositors are showing equally shallow loyalty to the bank.

It shall be interesting to see where else, in the current credit squeeze, real market values get forced downward by the glaring commitment deficit in post-modern society’s moral balance sheet.

07 September 2007

Picking bones with Bono

Gideon Rachman, the Financial Times' chief foreign affairs columnist, wonders aloud why Bono the pop singer and global aid campaigner is so maddening. He proposes that it has something to do with Bono's embrace of the "mainstream NGO view of poverty", but he finds the problem difficult to disentangle. I write back here:

Gideon, surely you are onto it with your "mainstream NGO view of poverty" point.

The view is very peculiar: it is a sort of corporatised or perhaps collectivised version of the moral argument that sacrifice is required. It says that, yes, the vice president of a London bank is the neighbour of the starving herdsman in Darfur, and that neighbours must love each other as themselves. However, as a solution to bridging the gap in power and means between such neighbours, it proposes neither the immediate lowering of the banker nor the immediate ascent of the herdsman. Instead, it proposes a systemic fix, with governments and corporations acting as proxies for the morally compromised banker. The proposed fix is paradoxical. It implies guilt on the part of the fortunate individual but mitigates the need for reaction by the individual, since reaction is ultimately worked out through taxation or adjustments in sales prices. It also implies that material/circumstantial equality (or at least similarity) is morally required of all people; in other words its content is at very least neo-Marxian even if its form is globalist and pro-market. These paradoxes grate.

However, they grate much more coming from Bono, who embodies corporate bohemianism. He has sung many songs well and communicated important messages through them. But in his political role he sells a brand of moral imperative which is paradoxical -- and yet he sells it as the real thing.

But it gets worse. Bono escapes criticism, because he is neither stupid nor naive. Pressed, I expect he would acknowledge that his branded morality is not the real thing. However, it may be the best try that existing systems of corporate and collective power can manage, in terms of effectiveness and popular marketability. His personal defense would be that politics is the art of the possible, and that terrible suffering and need in much of the world are real -- an effective defense.

All this frustrates the critic. The quarry has got away, and the problem remains unsolved. The problem is that the critic is struggling to reckon with his own failure, perhaps like Bono's, to differenciate and correspond between the mechanics of collective responsibility and the imperatives of individual morality. It is a frustrating position. But don't blame Bono for it. He only appears to be the personification of a problem we all share. Moreover, he is trying to do something about it.

That he falls short is unextraordinary.