The business world: Personal wealth will shape the business world

WALK AROUND any large British city and you will notice something odd is happening. People are moving back into the centre - and companies are moving out. In London the trend is particularly obvious, for large numbers of offices and warehouses are now dwellings - the original offices of this newspaper are now swish flats.

But the same pattern is evident through this country, and even in US and Canadian cities: the population of downtown Denver and downtown Toronto is soaring. When a trend is so strongly established and so universal something must be up. What is it?

Most of the comment focuses on broad socio-economic factors. These include the desire of many young professionals to live in more vibrant environments than the suburbs in which they grew up. Then there is the way de-industrialisation has made available large amounts of warehouse space near city centres, and the need of businesses to have high-technology offices, which must be purpose-built. Since more and more people are working in part from home, they need houses more like offices: centrally located and with space for the computers and other kit.

But that is only part of the story. There is, I suggest, something deeper happening: companies are getting relatively poorer and people are getting relatively richer.

That might, at first sight, seem absurd. After all, large companies rake in enormous profits and most people worry about meeting the monthly bills or paying for the summer holiday. It is certainly true that most of the people flying business class are on expenses, and the ones in the back are paying for themselves out of taxed income.

But in relative terms, a shift has taken place. Companies, even profitable and successful ones, are under grinding pressure to hold down costs. For every firm that builds a headquarters, another closes one. Every time two firms merge one headquarters is not needed.

Firms are under great pressure to create a comfortable and efficient working environment, for in an age of full employment they cannot retain good staff if they don't. But discretionary spending - costs that do not generate more revenue - is much more circumscribed. Some of the most lavish spending now in Europe is public spending on grand projects, such as offices for MPs in London and the new European parliament in Strasbourg.

By contrast, unlike companies, some people at least have a lot of money. A decade of lower top tax rates and a surge in the pay of knowledge workers have combined to give much more discretionary spending power to individuals. The ability of individuals to build large businesses in a quite short period has further boosted the ranks of the rich. This is not quite so evident in Britain as it is in the US and Germany; we score quite low among the world's league table of the mega-rich.

But the rise in the proportion of families with two professional incomes and the impact of inherited wealth have combined to give many more people considerable freedom in choosing how to spend their money. And unlike companies, people do not have to answer to shareholders.

This is having a profound effect on how businesses operate. The general rule 20 years ago was that companies made money by chasing corporate clients. Banks sought to build up their company accounts rather than their retail ones; car firms wanted to sell to the fleet operators.

Now the rule is the reverse. Of course, some businesses inevitably find themselves selling to other businesses: if you build aircraft engines your customers are going to be the airlines. But from choice, most find the greater margins can be sustained at the retail end of the trade. Commercial competition is too severe. So banks chase personal business rather than making loans to giant corporations, and car companies make their best profits on ordinary buyers. The closer you are to the final customer the easier it is to make a profit.

But nothing is for ever. Two forces will shape this relationship between producer and customer over the next few years. On the one hand, expect the shift in the balance of power away from the corporation and towards the individual to continue apace. There are several reasons for this, but perhaps the most important is the growing ability of talented people to charge fully for their services. The Internet changes the relationship because it enables individuals to create and deliver output without a large organisation. You don't need an economic research department if you can get the Financial Times library on the Internet.

At the same time, the new communications systems (the Net and whatever the Net evolves into) will compress margins on business with personal customers. Better information leads to a more perfect market. So companies which at present manage to charge wide margins to personal customers will tend to find those margins squeezed; or at least they will have to justify the margins by offering value-for-money service.

But that is all right. Every growth market attracts lots of companies seeking to serve it. The trick is to spot the trend early, understand it, respond to it - and then go for the next trend. But richer people and poorer companies is, I suspect, a trend that has still some way to run.