City & Business: Beware the spectre of a car-boot economy

MY FRIENDS who work freelance are all doing well. One who recently quit her job on a business magazine is now developing internet websites for City clients. Another who took redundancy from a publisher is putting together a science series for an American educational publisher that jumped at her British rates - although she, like British Steel, has been hit by the strong pound. A third who quit his squillion- a-year job in fund management now deals for his own account in the mornings then goes to his painting class in the afternoon after ringing me to tell me the latest on orange juice futures.

These and other friends, none of whom live in a city any more, are using new technology to make me feel like a 19th-century wage slave. But I wonder how our comparative positions will look a year from now. Partly, this depends on the great question of the day. Will the markets crash, plunging us all into a 1930s-style depression? If there is a crash, of course, everyone will be hurt - even those able to cling to their jobs. But the self-employed operate at the bottom of the food chain and it's a fair guess they will be hurt first and hardest.

Less dramatically, my position relative to that of my self-employed friends will depend on New Labour's programme for modernising the economy. The Blair-Brown programme is dressed up in rhetoric or economic abstraction. But it is possible to see what the Government wants: a core of old-fashioned multinationals like Shell and Unilever generating foreign income and jobs. A strong City. Rapid growth in the creative and IT industries. A booming market in the outsourcing of services like the ones my freelance friends provide. A proliferation of jobs at the bottom of the labour market which the welfare-to-work graduates can grab hold of and build their lives from there.

The key to making this happen is the small company sector. It is this sector rather than the large company sector - focused ruthlessly on reducing labour - that holds the greatest potential for growth. So I went along last week to a breakfast presentation by the small companies investment team at Legal & General.

L&G thinks Britain's 500-600 publicly-owned small companies are strong and getting stronger. Investment director David Rough argued that small manufacturing companies can survive the strong pound because virtually all with at least pounds 30m in annual turnover have shifted enough of their costs offshore. Small service companies, meanwhile, are raking it in.

The question is what kinds of jobs are being created in the small company sector. One growth area has been "call centres" - the places from which your double-glazing and cable TV sales pitches emanate. There are now 7,000 call centres employing 200,000 "agents", according to the Centre for Economic Performance. At the other end of the spectrum are my friends in the website, educational publishing and dealing-for- their-own-accounts lines of work.

Which is the model for Britain's future? The rational answer is both. Call centre agents and self-employed professionals - men and women in control of their destinies, using entre- preneurial skills to build businesses and create attractive, high-value jobs - will co-exist.

In moments of doubt, however, I fear that government rhetoric about modernising Britain is an unintended ruse. The effect of this rhetoric could be to get the middle class to casualise itself under the false prompting of temporary prosperity. The nightmare scenario is that, crash or no crash, the boom will end, and when it does, all but a tiny minority of us will end up in call centres working for distant bosses.

Call it the work-to-no-welfare programme - the reality of which can be glimpsed in the people with bloated or shrunken bodies and pinched faces trading tat at car-boot sales.

The race for Rolls

AN E-MAIL arrives from David Brierley who has been covering the Rolls- Royce story for us: the sale of Rolls-Royce motor cars is threatening to descend into farce, if not worse. While the bidding and counter-bidding from BMW and Volkswagen make for amusing copy, the interests of Britain's most prestigious car maker are not served by further uncertainty.

BMW has won the auction, and deservedly so. It is already the engine supplier of the latest model, the well-received Silver Seraph. Its pounds 340m offer beat the competition and is broadly seen as fair by Vickers' institutional shareholders and analysts in the City. Its long-term commitment both to the British motor industry and to Rolls-Royce is beyond doubt.

Moreover, the exclusive Bentley and Rolls-Royce marques sit well inside the Anglo-German stable belonging to BMW-Rover. And Bernd Pischetsrieder, the BMW chairman, has portrayed a very alluring picture of expansion and improvement which would bring very many more jobs to Crewe, while ensuring the image of Rolls-Royce remains pre-eminent.

Of the three great German car makers interested in Rolls-Royce, Volkswagen is clearly the least attractive partner. Unlike Mercedes-Benz or BMW, it is emphatically a mass-market car maker, even if it has successfully moved Audi upmarket in recent years. Volkswagen means "the people's car".

According to Handelsblatt, Volkswagen is now offering between Dm1.2bn and Dm1.3bn (pounds 400m) for Rolls-Royce. This would make its bid worth around pounds 60m more than BMW's offer. Sources close to the company suggest a lower figure.

Vickers is obliged to protect shareholders' interests. They are the arbiters and it is to them that Volkswagen is addressing its new bid. However, switching to Volkswagen afteraccepting BMW would be damaging.

Mr Pischetsrieder would be fully entitled to annul BMW's supply contracts. This would leave the Silver Seraph without an engine in one year's time. Although Volkswagen has a 12-cylinder engine in development, there is no certainty it will match the existing BMW engine or slip neatly behind the famous grille. The risks of technical problems, interrupted production and a less refined car are grave and unnecessary. They are not outweighed by Volkswagen's higher bid. BMW should raise its offer slightly to end the uncertainty.