Anglo-American Conference of Historians 2009: Cities
Institute of Historical Research, 2 - 3 July 2009
Capitals of Capital in Crisis
Chair: Richard Roberts (Centre for Contemporary British History, IHR)
This session brings together leading authorities on the historical development of financial centres. With the recent international banking and financial turmoil as background, the speakers review financial crises since the Second World War and their impact on individual financial centres in Europe, North America and Asia and on their relative standing. Reflections will also be offered on the current crisis in the light of historical experience.
Abstracts
From crisis to crunch: London and New York as global financial centres, 1945-2009
Ranald Michie (University of Durham)
At the beginning of the twenty-first century London and New York stood as the twin pillars of global capitalism. They had withstood the challenge of Tokyo to make the dynamic duo into a triumvirate and the attempt of Frankfurt to displace London. This was in complete contrast to the end of the Second World War when it was questionable whether the world required global financial centres of the type that had prevailed in the past. Such were the problems experienced by the world economy during the 1930s, beginning with the Wall Street Crash of 1929, that all operations conducted in and between major financial centres were discredited in the eyes of the public. Market crashes and bank collapses, and the havoc they caused, had created a general air of distrust in many countries. The result was an environment that favoured control and restriction rather than competition and freedom, whether exercised externally through restrictions on flows of finance and trade, or internally through state ownership or regulations. Compounding this attitude was the experience of a war economy, which acclimatised populations to a high degree of government direction and even management of economic activities. The result was a prolonged post-war era when markets and banks were either bypassed or highly regulated. This was the situation in both the USA and the UK after 1945.
Though London and New York continued to function as financial centres many of the roles that they had performed in the past were now the responsibility of central banks or circumscribed by direct or indirect government regulation in the interests of stability. This changed in the 1970s when the world economy experienced a major crisis. The regime of fixed exchange rates and managed currencies collapsed, to be replaced by markets that profited from volatility. Governments also intervened to create conditions in which banks and stock exchanges were forced to compete for business. Though national governments did attempt to regulate both markets and banks they were unable to restrain the forces that had been unleashed as they were increasingly global in scope and conducted by trans-national financial institutions. The outcome was a period of some 25 years in which the nature and composition of global finance was transformed through the internationalisation of securities markets, the creation of supra-national banks, and a torrent of innovation. Crises did occur but they appeared to be both brief and peripheral leaving the core of this new financial order, located in London and New York, untouched.
In retrospect, these crises were warnings that an element of control was necessary, but these went unheeded by the authorities in the USA and the UK. Governments in each country had a vested interest in perpetuating what was happening, given the tangible benefits found in the popularity brought by prosperity and the rising tax revenue it produced. Fuelled by cheap credit the consumer boom in the US and UK economies drove a huge expansion in international trade to the benefit of such economies as India, China and Japan in Asia as well as Germany and Russia in Europe. This came to an end in 2007/8 with bank and stock market collapses leading to state rescue. However, though it was possible for governments to support failed financial institutions, and so prevent further collapses, it was much more difficult to restore the confidence in markets and the trust in banks that underlay their operation. Hence the credit crunch as financial institutions became wary of lending to each other and their customers and investors lost their expectation that stock prices would rise for ever on the back of booming profits. As in the 1970s a crisis had destroyed belief in the existing financial system and left governments floundering in search of effective policies. The response in the 1970s was to turn to the market and this created the conditions in which both London and New York could flourish as global financial centres. In 2007/8 the response appears to be a return to the pre 1970s era of far greater government control, regulation and even ownership despite the fact that such policies failed in the past and led to the crisis of the 1970s. If that is the case it will usher in conditions that would undermine the position occupied by London and New York as the twin pillars of global capitalism. Instead, power would be given to governments, central banks and regulatory authorities and these would, inevitably foster a more national approach to finance.
Crises and Opportunities: International Financial Centres in Continental Europe since 1945
Youssef Cassis (University of Geneva)
Coping with crisis in East Asia: the case of Hong Kong's international financial centre
Catherine Schenk (University of Glasgow)
Hong Kong has long been viewed as a laissez-faire paradise where freedom from commercial and financial restrictions combined with a stable legal tradition and political system provided the basis for the rise of Asia’s premier international financial centre in the post-war period. While this is true for the foreign exchange market, intrusive controls on foreign banking activity meant that the financial centre arguably developed despite of rather than because of the regulatory environment. This paper examines how the regulatory system responded to crises that arose both from external and internal factors from the 1960s to the 2000s with some reflection on the response to the most recent crisis.
