City of London: bane of the country

What's the point of the City?

It might be a curse for Britain, not a blessing
November 14, 2018

“The mainstream narrative in Britain is that the City of London is the goose that lays the golden eggs.” In The Finance Curse, Nicholas Shaxson says this myth needs to be debunked. Drawing parallels with “the resource curse”—the idea that countries with large mineral reserves suffer from corruption and underdevelopment—Shaxson suggests that countries that are over-reliant on their finance sector actually become worse off. In the UK’s case, with the finance sector’s overall worth being five times the total annual GDP, Shaxson estimates the cost of the finance curse to be £4.5 trillion over 30 years. That adds up to a bill of £170,000 for every household in Britain.

This is a timely argument: might a Brexit deal that weakens the City of London actually strengthen the UK economy? Alas, Shaxson does not explore this question directly. In fact, rather than constructing the case for a “finance curse” in individual countries, Shaxson provides a general overview of the innovations of unfettered capitalism since the 1970s. Documenting bizarre forms of financial engineering in dogged detail, Shaxson asks: “What is it for?”

While addressing an international phenomenon, Shaxson has no trouble identifying the UK as the villain of the piece. Successive governments have protected the City in the hope of securing a comparative advantage for the UK; in turn, the City has grown by bidding down regulatory standards and using offshore tax havens. Shaxson rightly blames New Labour—though here, and throughout, his analysis would have been strengthened by interviewing the key players.

Indeed, its dismissal of counter-narratives and over-reliance on anecdotes undercuts this book’s authority as a comprehensive guide to its subject. As a campaigning work against the pretensions of financialisation, however, it is compelling.

The Finance Curse: How Global Finance is Making Us all Poorer by Nicholas Shaxson (Bodley Head, £20)