The High Cost of High Finance
There is a ring of plausibility to the argument that with finance, as with luxury goods, you can have too much of a good thing. Recent research suggests that a high degree of financialization of the economy may impede growth.
LONDON – As the United Kingdom’s Brexit negotiations stumble on, other European countries are using the period of uncertainty about the future regulation of the continent’s financial markets to tempt firms and activities away from London to rival centers. The French have been particularly active in support of Paris, but Frankfurt, despite lukewarm support from the government in Berlin, has not been far behind. And other cities like Luxembourg, Dublin, and Amsterdam have laid out their own welcome mats. Bankers have not been so popular for a decade or more.
But should other cities wish to emulate London and become a global financial center? Do they know what is good for them and the national economies of which they are a part?
The 2008 global financial crisis has prompted some rethinking about the pros and cons. Hosting a major financial center is, of course, unambiguously good for Porsche dealerships, upmarket champagne bars, and table dancing clubs. But some argue that the drawbacks in terms of the effect on the rest of the economy are too serious to ignore.
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