London contra New York
I’ve noticed a bit of news buzz lately about London’s rise to preeminence as the world capital of, well, capital — presumably at the expense of New York City. London’s advantages are reckoned to include:
1) Time zone — much easier, it appears, for Europeans and Asians to do business with London because of the smaller time difference.
2) Immigration — much easier, it appears, to get valued employees transferred to London than in post-911 America, with its onerous visa regulations.
3) London’s “lighter touch”, less heavy-handed approach to financial regulation.
New York’s disadvantages are the opposite of London’s advantages. In a post 911 world, it’s apparently a hassle for New York-based firms to transfer in human capital from overseas. And the Elliot Spitzeresque, Sarbanes-Oxleyesque, post Enron/WorldComesque U.S. regulatory environment (complete with quarter century prison terms for white collar criminals!) really makes London the increasing no-brainer for global plutocrats.
Now, I think a lot of this may be overdone. New York remains a larger metropolis than London (at least a third again as large), and packs a more powerful economic punch in terms of overall output (I’d guesstimate the NYC region’s gross output somewhere north of 1 trillion USD, and the London region’s at no more than 700 billion USD). Moreover, the national economy it anchors is a lot bigger than Britain’s — and the economies of nation states still count for at least something.
Still, New York surely has slipped relative to its across-the-pond neighbor.
Now, there’s not much New York can do about the time zone in which it finds itself. And I suspect the gradually growing cries for reform of Sarbanes-Oxley will ultimately result in legislation friendly to the U.S. financial industry — and this should provide relief to New York.
But there’s one other factor that New York can’t do anything about, and that undoubtedly hurts it in the long run: New York’s place in America, while lofty and important, will never rival London’s place in the United Kingdom. To a very considerable degree, U.S. policy makers must necessarily concern themselves with the country’s overall well-being — not just Manhattan’s. The New York region accounts for less than 10% of America’s output, and its people make up only 7% of the country’s population. For the London region, the corresponding figures are more like 40% and 25%. To British policy makers, insuring the vigor of London’s financial services sector is largely synonymous with insuring the vigor of the British financial services sector as a whole. Britain, after all, possesses nothing quite like America’s second tier of financial services centers (Chicago, LA, Miami, Boston — all of which are financial centers of global importance.)
As long as the U.S. as a whole retains a vibrant and productive financial sector vis-à-vis that of other nations, the fact that New York is a bit behind London will be more of a concern to Manhattan restaurateurs and BMW dealers than it will be to housewives in Fresno — or indeed to Congressmen from Texas. After all, a Dallas entrepreneur can benefit from London’s strength by availing himself of the services of a London-based financial wizard to raise capital (or from the lower fees he’ll be charged by a Manhattan financial wizard because of all that annoying British competition!). It’s a bit of a stretch to argue that a strong London financial sector really hurts Americans. Indeed, to the extent that New York City faces fierce competition for world financial services dominance, it’s undoubtedly a good thing for capitalists, consumers, and just plain folks — all over the planet.