Hamish McRae: They're young, overpaid and over here. And that's why London is thriving

So, the average pay for men working in Canary Wharf and its environs in London's Docklands - the new centre for the capital's financial service industry - is now more than £101,000 a year.

I'm looking out from The Independent on Sunday's offices just south of the complex and I am sad to have to tell you that we pull the average down a bit. It gets better - or worse depending on your point of view - for the top 10 per cent of men in the area earn more than £200,000 a year. Average pay for women is much lower, a bit over £43,000 a year, leading to concern about the gender gap. That reflects the fact that there are many fewer women than men earning in the millions. But, for most people outside finance, even that would seem not too insulting an income.

Averages are averages and these numbers are pulled up by the few very high earners. Nevertheless, the median income - that is, the middle person on the scale - is still the highest in the land: over £39,000 a year.

These figures are of course a reflection of the pay in Britain's most successful industry, for though there are other employers, including three newspaper groups, financial services are the driver. This leads to a string of questions of which, from the economist's perspective, two stand out. Why are people paid so much? And how securely is this industry rooted in the UK?

The best way to get a handle on both questions is to look how well London does in this global business. The broad-brush answer is that as far as international finance is concerned it seems to be either level-pegging with its only real rival, New York, or pulling a little ahead of it. Both New York and London are increasing their lead over Tokyo, Frankfurt and Paris. The graph shows the national share of seven categories of international financial business, collated in a new paper this month from International Financial Services. The UK is ahead on four, the US on three and no other country is there at all.

The UK's leading four are: international banking, foreign equity trading, foreign exchange and one of the two types of derivative trading that's done outside organised exchanges. The three the US is ahead in are: exchange-traded derivatives, fund management and hedge funds.

These comparisons are a bit arbitrary, for some sectors are much larger than others: international banking is much larger than foreign exchange for example. They are also based on where the business is actually done, rather than on who owns the companies doing it. Thus the prime reason why London scores so high is that foreign commercial and investment banks do their international business out of London. That gives part of the explanation for the salary levels. These are global salaries, paid to attract the best people in the world.

Those of us who work here can see this at lunchtime. Walk around the Canary Wharf complex and two things strike you about your fellow workers. One is that they are very multi- national. I have not found any statistics on this but would guess from the restaurants, the health club and my occasional trip round an office that perhaps one-third of the workers are non-nationals. One of the reasons why US banks report they do business out of London rather than New York is that is hard to get enough visas for Europeans to work in the US, whereas in Britain any EU citizen can work freely.

The other is that the workforce is pretty young: I would guess a median age of early 30s. This is not a trade for grey-beards. This makes the pay levels all the more remarkable. Finance attracts youth and seems to need it.

So why are people paid so much? Well, finance seems to require a rare combination of youth and quite specialised skills. It sucks in young people from all over the world who have these skills, with London paying in some areas, such as foreign exchange, more than New York. Of course, the salaries in finance have long included a bonus system so that these exceptionally high earnings only accrue in good years - but last year was clearly a good year and it looks as though this one will be even better. So I suppose the answer to the "why are people paid so much?" question is that finance is a global growth industry, that this is one of the two most important centres for it, and that the combination of talents needed to run it is quite rare.

Will it stay in London? There has, over the years, been a string of claims that the business might shift to the Continent, if, for example, Britain did not join the euro or if Brussels were to have a larger role in City regulation. While it is right to be vigilant, I think we can be a little more relaxed about this. The euro argument was always a bit silly. The case that the City would gain from membership was the only one of the Treasury's five tests that the euro passed, but that says more than one would want to know about the Treasury's knowledge of the City.

Regulation is an issue and there has been some leakage of fund management to Dublin. Zurich and Geneva could well gain vis-à-vis EU centres. But people who make these arguments simply don't understand the scale of the business in London. For a bank to move a significant amount of business would mean trying to move thousands of people, many of whom would choose to stay and work for a competitor.

We have seen physical industries disappear or at least be radically scaled down in the face of foreign competition: steel, coal mining, shipbuilding, textiles. You might imagine that people are easier to move than plant. But, paradoxically, human capital businesses may be more resilient when faced with foreign competition than physical capital ones.

So we can be reasonably confident that the goose of London's financial services will continue to lay its golden eggs awhile yet. Expect the average salary next year to be even higher. But there is a further point to ponder. There seems to be room for only one dominant financial centre in each time zone. There will at some stage be a challenge to London not from New York, or Frankfurt but from the Asian time zone. That crown is still to play for.

Twenty years ago I thought the dominant centre would be Tokyo but I was wrong. Japan could not develop or retain the human capital to project a successful international role - or maybe didn't want to. So will it be Hong Kong, Singapore, Sydney or Shanghai?

The Corporation of London has just produced a study of London's competitiveness, which asked people for their perceptions of this for the main centres. The conclusions were pretty much the same as those outlined above, but there was a further twist. They thought the Asian challenge would be from Shanghai. I think they are right - but not for another decade.

These business risks are under control

Risks are falling. No, not financial risks or economic risks, for you could make a good case that these are rising as oil prices climb and growth slows. But according to Control Risks, the specialist consultancy on such matters, both political and security risks are falling for the second year running.

Its argument is that while there is no single reason for this trend, several hot spots are becoming more stable. For example, following elections in Liberia, Burundi, the Central African Republic and Guinea-Bissau, all these countries are moving on from conflicts. In the Middle East, despite Iraq, high oil prices have helped the Gulf States and Saudi Arabia to improve law enforcement. Eastern Europe is more stable since many countries joined the EU. And in Latin America and China, while there has been unrest, foreign businesses have continued to invest.

All this is encouraging, though both political and security risks remain considerably higher than they were a decade ago and many countries, particularly in Africa, remain very high.

The study also looks at key global risks, starting with the clash within civilizations, rather than between them. It concludes that extremism will not collapse swiftly, as did communism, and that we should focus on contradictions within our societies, rather than an external threat.

But suppose you just want to be safe. Where do you go? Control Risks supplies a handy guide, country by country. This is a bit arbitrary, and some might quarrel with its conclusions. It ranks for example the security risks in Northern Ireland as higher than those in Jordan. Anyway, the safest places in the world, taking both political and security risks together are, in Europe: Andorra, Iceland, Liechtenstein, Norway and San Marino. In the Americas Anguilla, Bermuda, the British Virgin Islands, and Dominica all get top marks.

The common factor in Europe seems to be that these are usually places where you can ski - at least cross-country. The common factor for the Americas is that these are without exception places where you can scuba-dive. Clearly time for an activity holiday.