A Tale of the City — London’s Rise and Rise
It was the best of times; it was the worst of times. But that’s the boom-bust cycle for you.
London has long been the financial control-centre of the UK, sprawling out bank branches nationally and globally. But how did it become a global financial centre?
We’ve got our old friends (or enemies, depending on whose side you’re on) Margaret Thatcher and Ronald Reagan to thank for that.
Following the economic mess of the 1970s, where the UK was disrupted by union action, economic stagnation coupled with inflation, skyrocketing oil prices, and terrible haircuts, the leader of the free world and our own ‘Iron Lady’ joined together with shared free-market economic principles.
American firms moved in; UK and US firms merged in the Law and Finance sectors amid a loosening of protectionist competition laws, designed to protect London but probably reducing their international competitiveness. North Sea oil came on stream. BP, British Airways and BT were listed on the London Stock Exchange.
The implementation of electronic trading in 1986 meant the volume of trade increased from $4.5bn to $7.4bn almost overnight. London became much more competitive than its nearest European rivals.
Deregulation of the City set the path for the globalisation that yoked western economies together for the next 30 years, resulting in the kind of domino-effect banking crises that culminated in the 2008 global financial crash in which Lehman Brothers collapsed.
The first systemic crash occurred on October 19th 1987 — ‘Black Monday’. The Dow Jones fell 22.6%. All of the 23 largest economies worldwide experienced some kind of decline, and the estimated global losses stood at $1.4trillion. The media continued its annoying but dearly-held tradition of calling financial crashes ‘black’.
It is a mark of the risky game global economies play in the markets, with real-life consequences resulting from each systematic crash.
While the growth in global economies appears to have improved life over the past 35 years or so, wealth inequality in the UK is far higher than than in the 1960s and 1970s.
This graph (from The Guardian) shows how wealth for the richest 1% has almost tripled since the late 1970s.
The square-mile within the old Roman City walls, still called the ‘City of London’, currently accounts for around 2.5% of the UK’s total GDP, and 10% of the employment of Greater London.
As of September 2019, New York overtook London as the largest global financial hub (according to the Global Financial Centres Index), though the London Stock Exchange remains the largest in Europe. Uncertainty following Brexit, however, has seen many firms plan to relocate their headquarters to within the EU, with Paris and Frankfurt providing major threats.
While the strife of recent weeks has left markets rocked, we can have faith that current economic pessimism is of a slightly less sinister ilk than the systematic boom-bust cycles that we have grown so accustomed to. And for now, the City remains the promised land of milk and honey for aspiring graduates.
