When cool Britannia meets hard-headed economics

Britain's Brain gain

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Two little snapshots from the past week. First, I was walking across Canary Wharf station when a youngish City economist I know bounded up to me. I have seldom seen anyone quite as cheerful. "I've just been sacked this morning," he beamed. "What do you reckon my chances are of doing some writing in the newspapers?"

Knowing the fragile state of most newspapers' finances I replied warily that, provided he didn't mind not being paid very much, I was sure the papers would love to have him on board. "Oh, I'm not worried about the money," he said - and of course I then realised why he was going around like a dog with two tails. He had made enough money, so he didn't really need to work again. Now he could do what he wanted.

The second insight came in the weekend papers where there was a spate of stories about the magnetic effect that Britain, and London in particular, is having on young continental European professionals. The jobs are here. This is partly a City phenomenon, for many of those jobs are in financial services. It is partly a tax phenomenon, for this is the only place in Europe where highly paid workers can legally keep most of their earnings. (The "legally" is important - the German banks are losing swathes of their top directors who are forced to resign following the exposure of their tax fiddles.) As a result London is the only place in Europe where ordinary professional people can become rich through salary - the only place where thirtysomethings such as that City economist can make enough to be free to do what they like for the rest of their careers.

But according to the recruitment consultants, the lure is not just the City or tax. Other professionals - foreign doctors and lawyers, for example - are flocking here. And further down the pay scales young foreigners are working in the great mass of service industry jobs, in hotels, hairdressing salons, shops and the like. Why?

It is too new a phenomenon for us to be clear quite what is really happening. Part of the draw must be cyclical. We are up; they are down. The high unemployment levels in continental Europe bear particularly hard on the young. Whereas young people just out of university here can usually get some sort of job, though maybe not the sort they would ideally like, there simply are no such opportunities in many parts of the Continent. This is particularly evident in professions there which have, so to speak, "over-trained" - pumped out too many trained people for the jobs available. Medicine is a good example.

Part of the phenomenon is a function of the freeing of the EU labour market. This affects continental Europeans much more than us. While our young might want to spend a year or two in Paris or Rome, the move would be mainly for fun. Scandinavia would be fun too, for no one is going to go there to make money. (Ericsson recently mooted that it might move its headquarters out of Sweden because it could not get foreign nationals to work at its HQ.)

Even leaving the money aside, a Briton seeking career development would probably find it most useful to spend time in the US, if he or she can get around the visa restrictions, rather than go to France or Germany. From a continental European perspective, on the other hand, Britain is an effective career option. The States might be even better, but since many US firms use the UK as their regional base, coming here is a useful building block of a professional career.

All these factors would be sufficient to account for the pull, but I think there is something more: the cultural and media buzz. No one should take their own publicity too seriously, particular when that publicity is fostered by politicians, but there may actually be something in the "cool Britannia" image projected by Mr Blair and his colleagues.

There is a two-way link between money and culture. This country has now completed six years in which growth, every single year, has been higher than that of France or Germany (and in every year but one, higher than Italy too). As a result a lot of people have made a lot of money. Thousands will have made enough to retire on, but even people who have not made the big piles will have some surplus to devote to enjoying themselves. And for many people that means spending money on culture. There is a practical limit to the amount of restaurant meals you can consume, and when people have had their fill, the surplus often goes on cultural activities of all sorts.

Not everyone wants their art to be a plain white canvas, a pile of rubbish, or a pickled animal; but some do. Not everyone wants their theatre to be experimental; but some do. Not everyone enjoys the club scene; but some do. The great engine of economic growth is generating demand for a variety of fun activities, and the market is creating products to meet that demand. The explosion of culture is a response to the money; but the existence of cultural activities reinforces the sense of excitement, which in turn generates more economic activity.

The result is a series of virtuous circles. Growth generates wealth which improves services which generate yet more wealth. Foreign talent coming to Britain makes the country more interesting, which in turn attracts more foreign talent. The more international the economy becomes the larger the pool of talent, and the larger the pool the more attractive Britain becomes as a place to invest. We are reaping the benefits of a brain gain - the opposite of the brain drain of the 1950s and 1960s.

Will it last? No, of course it won't. You can see little patches of weakness at the moment - the job losses in the City, for example. Those patches will grow. Meanwhile the present levels of unemployment on the Continent will not last - those societies cannot function with year after year of 12 per cent unemployment. So the extreme imbalance that exists at the moment, where the UK is the only big jobs engine in Europe, will disappear. There will, nevertheless, be a lasting benefit.

We are lucky to be enjoying the benefits of the work of talented and energetic young people from elsewhere in Europe. We should recognise our good fortune and hope that we are giving these people something useful and lasting in return.

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