What Works: Success in Stressful Times. Hamish McRae

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СКАЧАТЬ and dealing in bonds and shares-remained a parochial business. There was a set of interwoven restrictive practices that kept foreign companies from taking part in British business. For one thing they could not in practice become members of the London Stock Exchange, and for another, London operated on a different trading system from the rest of the world, splitting all trading in domestic securities into two separate types of company. There were brokers, who could only act on behalf of customers buying and selling shares and could not deal on their own account. And there were jobbers, who were only allowed to deal with brokers. Commissions were fixed. The Bank of England issued government securities, or gilts, only through a handful of specialist banks called discount houses. And so on.

      Meanwhile, other parts of the City were busy trading in international shares and bonds, where these restrictions did not apply. On one day, 27 October 1986, all the barriers were blown away-hence the expression Big Bang.⁶ London shifted to the global system of share trading.

      What then happened was that foreign financial institutions took over the British-owned ones. Nearly all the larger brokers and jobbers sold out, and after a few years most of the City’s famous merchant banks disappeared too.

      In essence, this was a deal: Britain traded national ownership of its investment banking business⁷ for dominance of international securities trading. It was not planned this way; most people expected that British-owned businesses would succeed in keeping a decent proportion of trading, and there were in the early days several large British groups. But they all disappeared, selling out to foreign competitors or simply shutting up shop. London retained even less control over investment banking than it had over commercial banking. It created the marketplace and cared little as to who might play on it.

      The most recent example of the City’s pragmatism has been the way in which it has jumped into the gap and gained ground on New York post the terrorist attacks of 11 September 2001 and after the collapse of the energy group Enron⁸ in a whirlwind of financial scandal. Since 2001 the USA has introduced a number of restrictions, some designed to improve security, some to improve financial regulation. Among these are simple measures such as visa restrictions, making it harder to employ non-Americans in New York. Others are more complex-the interplay of the Sarbanes-Oxley⁹ corporate legislation, which puts onerous restrictions on companies listing their shares in the USA, and various other financial regulations.

      There was no specific plan for London to use all this as an opportunity to increase its share of financial business, but that was the outcome. In 2006, for the first time, more money was raised for businesses in London than New York. US businesses found it easier to expand in London; it was not hard to hire non-national staff and they found the regulation more pragmatic. Meanwhile, international companies preferred to list their shares in London because that avoided Sarbanes-Oxley. And international investors, particularly those from the Middle East and Russia, preferred to deal through the UK rather than the USA, partly for political reasons, partly for timezone reasons, and partly because of the social and other attractions that London offered.

      The result: London becoming once again, as it had been 100 years earlier, the centre of the earth for finance. The difference is that this time it is foreigners as much as Britons, and foreign money rather than British money, that have driven it to this position.¹⁰ This has led some to suggest it has been a Faustian bargain. The benefits may be obvious-not just the wealth and employment the industry generates but the intangible advantages of being the most important single place choreographing the process we call globalization. The costs-the loss of national control of a key industry and the heavy reliance on a single industry-must raise concerns.

      The downside of the Faustian bargain became particularly evident after the collapse of confidence in international financial markets in the autumn of 2008. London was as hard hit as anywhere, though it is worth noting that the principal problems arose in the USA rather than the UK and that within the UK it was the two banks headquartered in Edinburgh, not London, that were hardest hit.

      The damage to the global financial services industry was severe and it will take the best part of a decade to reconstruct the industry. As far as the UK is concerned the globalization of financial services has enabled the country to gain international influence in exchange for the loss of national power. Until the autumn of 2008 London’s financial services industry had been one of the great beneficiaries of this phenomenon as well as a driver of it. I am pretty confident that in the medium term it will retain that role, as it has done in the past when faced with equally severe challenges. But, as we have seen, the interaction between globalization and finance does mean that while there are lessons in the City’s success story, there can be dark twists to it too.

      2. WHAT ARE THE LESSONS?

      The lessons come at three levels. The simplest, and the one most closely studied in places as diverse as Dublin and Dubai, is how to create an international financial services industry. The second is how people interact to create a lasting marketplace that is flexible to new demands yet carries on a set of core values that are passed like a baton to the next generation. And finally there is the broader impact of the financial services industry and in particular how, in the case of London, it is associated with other aspects of the economic success story in the south-east of England.

      As far as the first is concerned, consider the parallel with the motor industry. If a country wants to start a motor sector from scratch, it either encourages some of its existing industrial companies to set one up or it goes and gets in foreign companies to do it instead. South Korea took the first path; Slovakia the second. You just need expertise, which you can buy, and reasonably cheap labour. But with finance things are more complicated. Why should international financial organizations come to a new place to set up a business? How do you develop the pool of talent? It is much easier to build a motor industry or indeed lose one to foreign competition, than it is to build and retain financial services. A car factory is a car factory; a financial centre is a complex web of different skill-based businesses that takes years to develop. That is one reason why London has fought off challenges from other European centres, such as Frankfurt and Paris.

      So the base of skills in London is deeply embedded. But the City has done something more: it has become a magnet for skills too. Indeed had London financial institutions just managed on the available pool of British workers, the City could never have succeeded in the way it has. It has imported talent at the highest level from all over the world. How? Well, of course, the answer is partly about money:¹¹ an international financial post in London pays, as a rough average, double the rate for the equivalent role in Paris or Frankfurt. At the top skill levels the disparity is even greater. In some specializations, though not all, the London pay package is larger than the New York one.

      But it is also culture-the open attitude to foreign talent. This goes back centuries: most of the top merchant banks of the nineteenth and twentieth centuries-the Rothschilds, Schroders, Kleinworts and Warburgs-were founded by people from the Continent. Go to the huge Reebok health club at Canary Wharf and listen to the cacophony of foreign languages and accents.

      The City is also open to Britons of modest background and education-there is no ‘credentialism’. Even now, many high-earners in the dealing rooms and insurance markets have not been to university. There is a long tradition of that open attitude. For example, both my grandfathers had modest starts in life: one was the son of a Highland Scottish shepherd, the other came from a poor family in the East End of London.

      The first question, then, for any budding financial centre is how to attract the people. Getting financial capital СКАЧАТЬ