Predictions of London’s demise as a financial centre come along almost as regularly as its red double-deckers. Earlier this week, the Centre for Economics and Business Research announced that London would lose its number one status by 2015. The number of ‘City type financial services’ jobs is already falling below that of New York, says the CEBR. It predicts that, by 2015, London will have been overtaken by Hong Kong, which will then go on to become the world’s main international financial centre.
Felix Salmon of Reuters is not impressed. “It’s amazing how much coverage a thinly-sourced press release can elicit,” he snorts, before going on to poke holes in the CEBR report. The number of financial sector jobs, he says, is not necessarily an indication of how important a city is as a financial centre:
This of course says basically nothing about which city if any is the financial capital of the world. If there were more wholesale finance jobs in Tampa than there are in London, that wouldn’t make Tampa an international financial capital.
London could be an international financial capital even if it had only 50,000 people working in wholesale finance, rather than 250,000. When you’re dealing with trillions of dollars of capital flows, it’s never headcount which matters. Follow the actual money, not the paychecks.
I don’t share Salmon’s view that it would be a Good Thing if banking activity did move away from London but that’s an argument for another day. However, his conclusion that it won’t is probably right. There has been a lot of talk in the last few years about London’s decline. The Independent ran a whole series about it last month, only to conclude that the doom-mongers were over-stating their case.
The latest World Financial Centres Index, published in September, still rates London as number one, while also noting that the progress of Asian financial centres has stalled. To counter that, the World Economic Forum ranked Britain third in its Financial Development Index, down from having been first in 2009. But, if you look at a number of different financial league tables, you’ll find London, New York, Hong Kong, Singapore and Tokyo swapping places, depending on the criteria and the questions asked.
This is probably an indication of the way things will go. Given the shift of economic activity to Asia it would be unreasonable to expect global finance to continue to revolve around a London and New York axis. Some of the business is bound to go elsewhere. But that doesn’t necessarily mean that somewhere else will be ‘number one’ – just that we will probably end up with a number of financial capitals. And even the tilt in the economic balance of power towards China could bring opportunities for London.
Furthermore, a lot of bankers of all nationalities like London. Financiers, like any other professional group, like to flock together. Even in an age of near-instantaneous global communication, the geographical cluster effect is still important. Networks and a critical mass of skills and knowledge attract people to London and keep them here.
For all they moan about the taxes, the regulations and the weather, their threats of an exodus never seem to come to much. After all, relocation is hard work and other countries have taxes, regulations and horrid weather too. Just about everywhere is worried about an exodus of financiers at the moment, though the talk is often just that.
Perhaps it’s our post-imperial malaise that makes us so obsessed with having the world’s leading financial centre in London. It’s the last vestige of Britain’s global power and it gives politicians something to boast about. Any suggestion that London might be about to ‘lose its crown‘ is therefore bound to get lots of coverage. To stretch the analogy to breaking point, though, in all likelihood, the crown will be replaced by an oligarchy, with lots of leading financial centres in different places and no clear leader. That is not as apocalyptic a scenario as one the CEBR paints. London is likely to be a significant financial centre for some time to come.
Only last year, the folk at Citibank predicted that London would be the world’s boomiest mega city over the next decade. There’s still plenty of life in the Great Wen yet.