The consensus that an “oversized financial centre is indispensible” is strong and at times brutally in-your-face in many countries with oversized financial centres. But this consensus can also be sophisticated and subtle, when needs be. Here’s an example of one of the more subtle bits of lobbying by the City of London, helpfully carried by the Financial Times. The headline reads:
“Banks plot to withdraw repo trading from London.”
And the first paragraph is similarly blood-curdling:
“Foreign banks operating from the City of London are plotting a managed retreat from operations that expose them to the UK bank levy, according to senior figures within the industry.”
The subtext here, of course, is that the bank levy is a terrible idea: it will make the UK, in the parlance “uncompetitive”. And there’s nothing in this story to question this subtext, bar an iffy last paragraph. We at TJN are huge fans of the Financial Times in general terms: it is so often a source of good sense and balance in its reporting. This seems to be one of those unfortunate exceptions.
Now let’s look at the actual details of what is being said.
“banks have stepped up their examination of options to shift operations abroad.”
Our emphasis added. These global behemoths are always examining options. What’s new here? A couple of others look similar.
“have made no secret of plans to look at shifting headquarters, probably to Asia.”
Plans to shift headquarters are one thing. Plans to look at shifting headquarters are quite another.
Of course they’ve made no secret of such plans. Talk of this kind costs nothing! It’s essentially a free investment of a few minutes (talking to a journalist) – but the eventual payoff, in terms of financial deregulation, can be immense. OK, there is a minor cost, in terms of one’s credibility, if one’s bluff is called — but still, this cost only applies if you go on the record as saying these things. So:
“No bankers were prepared to talk publicly about the initiatives. . . the banks declined to comment.”
What brave bankers they are.
Perhaps more Orwellian still:
“The levy is seen as a “swing factor” by some bankers.”
cudgel term routinely brandished by the bankers is ‘tipping point‘ – and that point is always just around the corner.)
Blood will flow in the streets of London, of course, unless this latest “frustrating” tax or piece of financial regulation is removed, and bankers are free once more to take profitable risks at the taxpayers’ expense.
As with all these bits of lobbying by Big Finance, the costs of oversized finance are never mentioned. We are presented with a cost-benefit analysis, with all the costs airbrushed out!
Once you start to scale down the contribution appropriately, and incorporate the costs, it becomes apparent that the gross contributions of oversized finance to the UK in this case, (and we stress the word ‘oversized’ here) is almost certainly outweighed by the costs — as we have been saying for some time (and as The Economist magazine recently said.)
For more on the general theme of national ‘competitiveness’, see the recent Fools’ Gold article Optimistic About the State: Martin Wolf’s searing attack on the Competitiveness Agenda.