The Finance Curse. Nicholas Shaxson

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СКАЧАТЬ City’s core principle underpinning these imperial adventures was freedom—specifically, freedom for finance and trade to flow unmolested across borders. “It is the business of government,” one British prime minister declared in 1841, “to open and secure the roads for the merchant.” The City’s devotion to this principle was so extreme, in fact, that it became the unofficial religion of empire. “Free trade is Jesus Christ, and Jesus Christ is free trade,” declared Sir John Bowring, a former City trader who became governor of the British territory of Hong Kong, as Britain sought to bludgeon open the mouthwateringly large Chinese market for its goods and services. Britain fought and won the two Opium Wars, in 1839–42 and 1856–60, enabling it (and other European powers) to impose on China its drug-dealing system of free trade.¹

      As with everything in finance, the City’s imperial role was not a simple tale of good and evil. Alongside all the militarized predation, the City financed railways, roads, and many other beneficial projects in the empire and far beyond, lending to France, Russia, Prussia, Greece, and the new South American republics. London was, as the financier Nathan Rothschild put it, “the bank for the whole world.” Its relentlessly international outlook was also the bedrock of Britain’s relatively tolerant multiculturalism, which has for centuries made London one of the most diverse and exciting cities on the planet and contributed to Britain’s decision to send out its warships in support of policies to end the international slave trade. “[In London] the Jew, the Mahometan, and the Christian transact together,” the French writer Voltaire declared in 1733, “as though they all professed the same religion, and give the name of infidel to none but bankrupts.” The American Revolution, which ended in 1783, drastically curbed the City of London’s presence in the United States, which rapidly developed its own financial system interests, so much so that by the mid-nineteenth century the North American colonies held their reserves not in London but in New York City. Yet the London banks continued to lend and trade heavily with the countries around the United States. “In a very real sense,” explains one classic historical account, “the colonies became part of the invisible financial and commercial empire which had its centre in the City of London.”²

      Yet all these riches flowing into the City of London didn’t necessarily benefit Britain as a whole; they benefited certain interest groups in Britain, often at the expense of others. Clashes and tensions between finance and the other parts of the economy happened again and again over the centuries. For instance, free trade benefits financial interests that profit from servicing both imports and exports, but it potentially harms local manufacturers, who benefit from protective barriers against cheaper foreign imports. For all the free-trade rhetoric, protectionism was central to the successful industrializing strategies of the United States, Britain, Japan, South Korea, and many others. The outward focus also meant that while the City was great at serving colonies, it often severely neglected British domestic industrialists outside London, something that continues today.³

      The sinews of empire—British cunning, diplomacy, money, and violence—were finally broken by World War II, as Britain spent its national strength and treasure defending itself against Nazi Germany. So when the world’s leading nations put together the Bretton Woods architecture at the end of the war, curbing speculative flows of capital across borders to give governments the space to put in place policies their war-weary populations demanded, power had shifted decisively across the Atlantic to Washington, DC, and Keynes and the British establishment failed in their attempts to fashion the new system in a way that would restore Britain to its self-appointed place at the center of world economic affairs. The empire staggered on for a few years, but by then it was an empty shell, ready to crack.

      It may seem counterintuitive, but Britain and the United States entered their greatest period of broad-based prosperity and economic growth at precisely the moment the City of London and Wall Street were at their lowest, most heavily regulated ebb. This was no coincidence, for it was a reflection of the age-old clash between finance and other parts of the economy. The Bretton Woods restrictions on speculative financial flows across borders and the remarkable set of New Deal regulations inherited from the 1930s brought this clash into sharp relief.

      An old and profitable set of relationships between Wall Street and London had been decisively interrupted. The City, looking with envy at the giant, fragmented, yet fast-growing global marketplace that the Bretton Woods controls had now mostly placed out of its reach, was bottled up inside Britain’s war-shattered domestic economy, plus a few remaining British territories and outposts that still used the pound sterling. Heavily constrained and highly taxed, the City was suffused with lethargy. Oliver Franks, the chairman of Lloyds Bank, lamented that his daily job was “like dragging a sleeping elephant to its feet with your own two hands.” For the next couple of decades Britain and the countries participating in the Bretton Woods system would collectively enjoy the strongest, most broad-based, and most crisis-free economic expansion in history, with growth running at nearly 4 percent in the advanced economies and 3 percent in developing nations, more than twice the rate that had been attained in a thousand years of history.⁴

      British elites, still basking in old imperial and financial glories, dreamed of remaking their system with the City of London at its heart. As Britain’s future prime minister Harold Macmillan put it in 1952, “This is the choice—the slide into a shoddy and slushy Socialism … or the march to the third British Empire.”⁵

      Yet these elites were due for another set of shocks. The British Empire was crumbling. India became independent in 1947. Then, in 1956, everything changed. Egypt’s feisty president, Gamal Abdel Nasser, took over the Suez Canal. Britain and France joined Israel in an invasion of the canal zone, but the United States, which had lost patience with European imperialism and fretted that the escapade would inflame pro-Soviet passions in the Arab world, forced the invaders to withdraw. The colonies realized how weak Britain now was and that it was possible at last to break free. Ghana gained its independence in 1957, followed by Nigeria in 1960, then Uganda, Kenya, Northern and Southern Rhodesia, Bechuanaland (now Botswana), Nyasaland (now Malawi, where I was born), Basutoland (now Lesotho), and a host of others.⁶ Those last streams of easy profit from the colonies, backed by British gunboats, were now permanently out of reach—or so the newly independent countries thought.

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      Nobody could guess it then, but in 1956, the year of Britain’s greatest imperial humiliation, a new financial market was born in London that would nurture itself on the City’s old religion of freedom, and also reinvent the City as a global financial center. This market would grow so spectacularly that it would come to replace and even surpass the empire as a source of wealth and prestige for the City establishment. And this market in London would also create a new offshore playground that would in the decades to come play a central role in Wall Street’s quest to reassert its own dominance over the US government and establishment and the rise of an all-American finance curse.

      A few months before the Suez Crisis, some officials at the Bank of England noticed that the Midland Bank (now part of HSBC) was taking US dollar deposits unrelated to any commercial or trade deals. Under Bretton Woods this was classified as speculative cross-border activity, breaches between the separate national safety compartments of the global oil tanker, and this wasn’t allowed. The City of London in those days was an old boys’ network of elaborate rituals and agreement by gentleman’s handshake. Financial regulation was achieved, often quite effectively, by the Bank of England governor inviting people in for tea and using raised eyebrows and other discreetly English signals to let them know if they were out of line. Midland’s chief foreign manager was called in, and whether throats were politely cleared in his direction, a subsequent Bank of England memo noted that Midland “appreciates that a warning light has been shown.” Yet Midland’s new cross-border business was unusually profitable, so it pressed quietly on.⁷

      Any central bank trying to implement the Bretton Woods system needed enough foreign exchange or gold reserves on hand to defend its currency at the fixed level against the US dollar. The Bank of England was constantly СКАЧАТЬ