Business | Opinion
Do not write off New York, London
The current global crisis mirrors 1973 and as then, international financial markets will remain the same.
- By Michael Skapinker, Financial Times
- Published: 00:07 October 2, 2008
You can forgive Peer Steinbrück, Germany's finance minister, for his schadenfreude. You can understand French president Nicolas Sarkozy's triumphalism.
Laisser-faire was "as simplistic as it was dangerous", Steinbrück declared last week. "The all-powerful market which is always right is finished," Sarkozy said.
Who could deny it when the US and UK nationalise one financial institution after another and a Republican administration throws $700 billion (DH2.57 trillion) at a problem? Three decades of untrammelled free markets and minimal government are over.
It is fascinating to look back at the Financial Times of 30 years ago, just before the US and the UK embarked on their years of liberalisation and deregulation. The similarities between 1978 and 2008 are striking, as if the two years are bookends to the fantastic stories in between.
Britain in 1978 was presided over by a prime minister mocked for his failure to call a general election. James Callaghan had "lost the auth-ority to govern", Margaret Thatcher, the opposition leader, said after Callaghan announced that he would not, as expected, go to the country in the autumn.
There was an unpopular and apparently ineffectual president in the White House, although, 1978 not being an election year, Jimmy Carter still had more than two years in office. The leader of Zimbabwe was squabbling with the opposition about forming a coalition government, although the country was called Rhodesia then and the two protagonists, Ian Smith and Joshua Nkomo, were eventually eclipsed by Robert Mugabe.
It was not all gloomy, then as now. The FT reported "euphoria in the fine arts salerooms", with record auctions at Sotheby's and Christie's, and told women that the look at the Paris fashion shows that year was "straight and narrow".
Bleak future
The difference then was that no one realised how bad things were about to get. Thirty years ago Tuesday, the FT's editorial was headlined "A brighter background", saying that UK prospects looked reasonable, provided "we get through the winter without too much economic bloodshed".
A little over three months later, Britain was plunged into its icy winter of discontent, with half-empty supermarket shelves and rubbish piled in the streets, as road hauliers, hospital workers, school caretakers and others went on strike.
A few months after that, President Carter delivered his famous "malaise speech". He never actually used the word "malaise", just as Callaghan did not say "Crisis? What crisis?"
But Carter did say the US was undergoing an ordeal "deeper than gasoline lines or energy shortages, deeper even than inflation or recession". It was a crisis of confidence that is "threatening to destroy the social and the political fabric of America".
It was an extraordinary speech. What US president today could get away with saying "we've learnt that piling up material goods cannot fill the emptiness of lives which have no confidence or purpose"? Carter did not get away with it either. The US was soon headed by Ronald Reagan, Britain by Mrs Thatcher, and the Anglo-American revolution was under way.
People were assured there was nothing wrong with piling up material goods, or homes, and they set about it using borrowed money.
New York and London, exuberant, creative and open, sucked in the world's brightest, creating financial instruments so sophisticated that few outside Wall Street and the City could understand them. We now know that many of those inside the banks did not understand them either. Steinbrück said last week: "The US will lose its status as the superpower of the world financial system." Is he right? I do not think so. The locus of business power may shift. It already had before this crisis, with Lenovo of China buying IBM's personal computer business and Tata of India taking over Jaguar.
But one day, with new regulations in place, companies will return to raising funds, banks to lending and financiers to making money. New York and London will remain the best places to do this because they retain the advantages they had before.
The first is language. Lehman Brothers may have gone overnight, but it takes centuries for a language to disappear. A global generation has invested years learning English, which has no ready challenger.
The two cities' second advantage is law. The US may be excessively litigious and lawyers may charge outrageous fees in both cities, but where else would you look to the law to defend your corporate rights? Shanghai? Moscow?
The third advantage is collective brain power. This may seem laughable, given where bankers' supposed intelligence has landed us now, but the solutions to this crisis will come in cities most open to raucous debate from whoever has anything to contribute. The next 30 years will be different, but New York and London will rise again.
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