Jospin jumps on to anti-globalisation bandwagon

CityReach collapse; M&S child's play
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The Independent Online

It is hard to see Lionel Jospin's public support for the idea of a "Tobin" tax on currency speculation, made on French TV this week, as anything other than cynical electioneering. It costs France's socialist prime minister nothing to pay lip service to the anti-globalisation initiative, since he knows as well as anyone that as things stand there is no chance of it gaining wider support among European policy makers. But with parliamentary and presidential elections looming, it might just win him a few votes, so why not?

Well, here's why not. Mr Jospin may not be about to succeed with utopian silliness like the Tobin tax, but his constant pandering to anti-globalisation ideology and thinking lends it a dangerous legitimacy which might eventually inflict real damage on the present free trade consensus.

But first things first. What on earth is the Tobin tax? If you go to the War on Want website it tells you to write to Gordon Brown, the Chancellor, urging him to adopt the tax and force it on to the European Ecofin agenda. Don't be misled, the initiative has an impressive array of support among humanitarian, environmental, and religious lobby groups, and it would be unwise to dismiss it as wholly frivolous.

Its inventor, James Tobin, is no stereotypical, Old Left whacko either. In fact, he's a Nobel prize winning economist who earned his accolade, in part, for his work on portfolio management. The idea is that all currency trades across borders would be taxed at a rate of say 0.1 to 0.25 per cent of their value. According to supporters, the effect would be greatly to discourage speculative trading, which forms the vast bulk of the estimated $1.5 trillion worth of currency trades that take place every day, while leaving long-term productive cross border investment largely intact.

An added bonus is that it would raise billions – possibly as much as $300bn a year – which could then be applied to Third World development, environmental improvement, and other deserving causes. It all sounds wonderful in theory, but like most utopian ideas, it is also totally impractical. It's proving hard enough to agree a treaty on global warming. Can you imagine the extent of brotherly love that would need to break out among nations to get this one up and running, let alone the problems of enforcement in a world where the moment capital is taxed, it simply up sticks and moves offshore?

As for the problem of allocating the revenues so raised, it would make the scandal of World Bank lending to tin pot dictators and environmentally disastrous development projects look like a vicar's tea party by comparison. The market may not be perfect, but it is likely to prove a better judge of how to invest other people's money than any government or multi-national group of politicians is ever going to be.

The overwhelming majority of currency speculation occurs in the major currencies of the developed world, where its effect is usually beneficial in providing a corrective mechanism for economic imbalances. In Britain, there's a tangential benefit too, since London is the biggest forex centre in the world. Occasionally, speculators also wreak havoc with currencies in the developing and Third World, which is unfortunate but again can trigger necessary and beneficial economic reform. Attempting to interfere with the free flow of capital around the world, which would be the effect of the Tobin tax, would not only be impractical, it would also be undesirable.

The solution to what George Soros, the master speculator, once called the "wrecking ball" of financial markets, is not to curtail them, but to tame them through free market economic reform and progress. Mr Jospin must know the Tobin tax is a non starter, but he helps no one by so vocally giving it public support.

CityReach collapse

First the dot.coms started dropping like flies; now, logically, the infrastructure companies that supported them are heading for the knacker's yard as well. CityReach International is the first big internet hotels business to close up shop, but given the way all things web based are heading south, others could soon follow.

It's hard to credit now, but little more than a year ago the press was still excitedly writing about how the burgeoning number of internet hotels around London and the South-east, with their insatiable appetite for energy, might eventually cause power shortages and Californian-style brown outs. Not much chance of that now, as more and more of them are allowed to lie dormant.

In another age, the internet hotels business would have been categorised as just property by another name. An internet hotel is merely a big warehouse filled with humming computers and servers. In many cases, the web hosting equipment doesn't even belong to the "hotel"; it just rents out air-conditioned, secure space into which others put their so called "cages". Somehow or other, CityReach and others none the less managed to market themselves to investors as high-flying tech stocks with valuations to match.

Having gobbled up a staggering £249m in just two years, CityReach is today worth no more than its hotels will fetch as common or garden warehouse space, which is probably not much at all in these markets. No one is going to buy the sites as internet hotels, given the amount of overcapacity that exists. One day, demand for internet hotels will revive, but even when it does, web hosting is unlikely to be regarded as any more than a commodity business, not unlike most other forms of commercial property. In the meantime, web hosting companies not linked to a major telecoms player offering the hotels as an add-on service to established telecom clients, will struggle to survive.

M&S child's play

Marks & Spencer has got its knickers in a twist over so many parts of its business over the last couple of years that the decline in its childrenswear division has gone almost unnoticed. As is so often the case, we are only finding out just how hopeless the position is after its owner finally decides to do something about it.

M&S makes much of still being number one in childrenswear. This is true in terms of the value of goods sold, but in terms of volume M&S lost its crown to Woolworths last year. Not only that but rivals such as George at Asda, Tesco, Matalan and Next have been catching up. These competitors are both cheaper and faster on their feet. It seems astonishing but if a "teenie icon" like Geri Halliwell steps out in some new, cropped-top, minimalist fashion number, it takes M&S nearly six months to get similar ranges in its shelves. Rivals manage it in six to eight weeks.

Under the new joint venture with its long-time supplier Desmond & Sons, M&S will combine its childrenswear operation with Desmond's. If all goes to plan, prices should fall and speed to market should improve dramatically. Luc Vandevelde and Roger Holmes seem to be gradually working their way around this arthritic business seeing how each division can work better. The approach is not dissimilar to the one taken by Sir Peter Davis at J Sainsbury where he has been contracting out almost everything not connected to food. M&S has already contracted out its women fashion ranges to George Davies. Another candidate for treatment might be home furnishings, where M&S's charges high prices for mass-produced basics. We can expect more deals like this.