This month, Z/Yen Group published the 22 nd edition of the Global Financial Centres Index. GFCI 22 showed almost all major financial centres following the downward lurch of London and New York in GFCI 21. Frankfurt was the only centre in the top 20 to rise, in part due to the number of London banks announcing headquarter moves.
Finance only exists to support the ‘real economy’ of commerce and trade. This telling tumble among financial centres is due to fears over trade, not finance. The likes of ‘America First’ isolationist rhetoric damages perceptions of future US trade, while the Brexit furore threatens to harm UK and European trade.
With so much changing, it is right to question whether London will forever be the premier global centre for professional, business and financial services. Financial centres do rise and fall, from Amsterdam to Izmir to Zanzibar. The 1375 Catalan Atlas of the known world by Abraham Cresques of Mallorca has an inscription: “This Lord is Musa Mali …so abundant is the gold which is found in his country that he is the richest and most noble king in all the land.” Musa hailed from Timbuktu in today’s Mali.
London’s five centuries of success are due to a sustained confluence of several factors, the ‘accidental’ ones being maritime location, early infrastructure, continental wars and the rise of the USA over the past century. Our index comprises well over 100 ‘intentional’ factors, but I would emphasise the business environment, a trading culture and the rule of law. However, people like simple answers, not statistics, and so this can be whittled down to two things — structural intensity and fair treatment.
All cities are intense, but structural intensity is special to the City of London. With only 9,000 residents and 450,000 commuting workers, there is a 98% chance anyone you meet on the street is working, and Crossrail’s success will raise that chance to 99%. A temperate climate, twisting alleyways and numerous drinking places has made the area a frequent meeting place for financial workers since the Tudors.
While the UK’s £61 billion trade surplus from financial services is exported via electronic pipes, deals need face-to- face trust to start, and often to complete. We need to keep raising that intensity of contact as the City of London Corporation is doing by planning for significantly more pedestrians. Video-conferencing supplements deals, but we still need to meet, often unplanned.
The belief that all comers will be treated fairly has been a London success factor since the 1290 mistake of expelling the Jews. London’s subsequent welcoming history needs no recounting, from Lombards of old to welcoming back the Jews in 1655 to today’s Syrians. All were increasingly treated with the same commercial rights as Englishmen. Rule of law is crucial, but long before anyone goes near a court, any nation that wishes to prosper must trade from an open and competitive environment. Competition needs a well-educated populace with a state sector preventing cartels, barriers-to- entry, information asymmetries, and agency problems, while also not crowding-out markets.
If we get our own house in order, trade will come. Brexit doesn’t change the basics. You can’t be an international centre without international people. Successful people want to live in successful places, and successful places are cosmopolitan. However, reputation is vital: financial centres can take 20 years to build and five minutes to ruin.
With or without Brexit, we need to stimulate investment in quality education and training, health, infrastructure, broadband; sort out the airports (plural), make the nation as ‘visa-less’ to get to as possible, make financial account-opening a one-minute process, create a competitive housing market, simplify the tax system, and so on. Brexit adds the complexity of ‘transition’ being woefully unclear, ‘trade’ structures breaking down, and welcoming ‘talent’ uncertain. So we need swift decisions on timing, on terms of trade and on talent, for example to stop prevaricating on EU nationals’ and students’ status.
Our reality must rise to meet our rhetoric, but it was ever thus. In the history of London we see the truth of Aldous Huxley’s comment: “The charm of history and its enigmatic lesson consist in the fact that, from age to age, nothing changes and yet everything is completely different.” Making London a great place to live solves most problems. We need to be honest about our faults and not let false rhetoric impede fixing them. We are deficient in some areas, but not desperate; in danger of having our Emperor’s clothes disrobed, but with time to knit some new garments.
We’ve been told for well over a year what we supposedly voted in a non-binding referendum. Whatever the case, the vote was certainly a cry for change. Quality guru W Edwards Deming sets a low bar for the lazy: “It is not necessary to change. Survival is not mandatory.” I am sceptical about claims that we businesspeople will find fabulous fortunes hitherto overlooked in far-flung foreign lands, but I am very positive the closest opportunity is change for the better at home, toward improved structural intensity and fair competition. Londoners are certainly not lazy.
Trade reaps economic benefits from specialisation and comparative advantage. Trade creates prosperity, shares success, and enriches our environment. Trust holds all trade relationships together. The clearest sign of trust is that people want to live and work in London and the UK. If we keep that, we keep everything, including the top spot a century from now in Global Financial Centres Index 222.
Written by Alderman Professor Michael Mainelli who is the Executive Chairman of Z/Yen Group and incoming Master of the Worshipful Company of World Traders.
Michael presented his thoughts on London at The Worshipful Company of Marketors and The Financial Services Group of Livery Companies inaugural lecture in memory of its Founding Convenor, Jeremy Goford, on Wednesday, 20 September at Mercers’ Hall.