Financial center crown no longer coveted
Three years ago, New York authorities worried that London might steal its crown as world financial capital. That title now looks much less desirable.
Back then, cities and countries vied with each other to lure the jobs and glamour of this fast-growing industry. The tools included regulation, taxes, language, education and infrastructure. The traditional contestants – New York and London – fought for the top spot. New and old centers, from Frankfurt to Dubai and Singapore to Zug, Switzerland, vied for leadership in the second tier.
But even before the financial crisis, there were some doubts. Finance produced lots of high-paying jobs, but much of the money seemed to come at the expense of the rest of the nation. And while banks accounted for a quarter of Britain’s corporation tax and also underpinned VAT and stamp duty receipts, sophisticated investment banks and hedge funds managed to minimize payments.
After the financial system led the world into recession, the City of London and its peers now elicit something more like a love-hate – or hate-love – relationship. Finance still has glamour, high pay and can be a good source of export income, but it’s clearly more dangerous than previously thought.
The UK put too many eggs in what proved to be a quite unstable basket. The direct financial bailout costs aren’t yet known, but the crisis has already tipped Britain into its longest post-war recession. Even on sunny Treasury forecasts, the economy will regain 2008 levels of output only in 2012.
Politicians have a great deal on influence on how where finance will concentrate. Right now, voters are telling them not to care. When bankers complained that the new UK supertax on bonus pools would drive them away from London, the prospect was greeted with enthusiasm in many quarters.
Finance could yet regain some of its luster. The industry does do something useful – gather and allocate capital, maintain liquid markets, spread risks. Skilled people are needed to that. But financial professionals have to show they can generate jobs and taxes – and much less risk.