The City of London has always (and not accidentally) baffled outsiders. But Brexit has draped a new question over its age-old mystique: is London’s financial sector the UK’s trump card, or its Achilles’s heel, in the negotiations over leaving the EU?
What a difference four hours makes.
At six in the evening last Sunday, the champagne corks were popping in Brussels. Norbert Hofer, the candidate of the far-Right Freedom Party, had just conceded defeat in the Austrian presidential election.
By ten o’clock, however, the bubbles were going flat. The exit polls showed that in Italy, Prime Minister Matteo Renzi was going down to a heavy defeat in the referendum he had called and championed on constitutional change.
Together, these two results revealed a critically important truth about the rise of populism in Europe and its relationship to its troubled economic model.
Donald Trump has won the US presidency with a campaign that broke all the rules. Is the stage therefore set for America’s economic policy to take off in an equally unprecedented direction – and should the rest of us be fearful or elated?
These questions cannot yet be answered with any certainty: so far, not much is known about who will take the most important economic posts in the new administration, nor what detailed policies they and the president-elect advocate. But we know enough from Trump’s campaign pledges and the Republican Party’s better-known conventional platform to make some educated guesses.
On April 2016, the International Consortium of Investigative Journalists published a vast cache of information leaked from Mossack Fonseca, a little-known corporate law firm based in Panama City. The “Panama Papers” revealed that this firm had for many decades specialised in devising schemes to enable clients from all over the world to hold their financial assets, often anonymously, in jurisdictions outside their home countries. In doing so, they shone a rare light on the secretive industry that is the topic of Brooke Harrington’s valuable new book, Capital Without Borders: the lawyers, accountants, tax advisers and professional trustees who collectively constitute the world of wealth management.
That world is, by definition, difficult to research. Previous studies have focused on the legal and constitutional anomalies represented by the so-called offshore jurisdictions where the corporate structures they build are incorporated: the British Virgin Islands, Mauritius, the Cayman Islands, and so on. What makes Harrington’s book unusual is that she chose instead to investigate the wealth management industry itself. There were no short cuts to doing so. Harrington went undercover as a trainee wealth manager for two years, living and breathing the profession. The result is an insight unlike any other into how wealth management works.
As far as the economic consequences of the Brexit vote are concerned, the Bank of England has seen enough. Having held fire at its meeting in July in the immediate aftermath of the EU referendum, the Bank’s Monetary Policy Committee voted unanimously on 3 August to fire a three-barrelled stimulus bazooka.
I was not in the City that day but in the Lakes, holidaying with a brilliant scientist friend who is a director of the European Bioinformatics Institute (EBI) in Cambridgeshire – one of the world’s leading centres for genomics research. I came away convinced that the true economic impact of Brexit has less to do with the short-term gyrations of interest rates and the financial markets and more to do with our long-term ability to maintain our position at the technological frontier. When it comes to Brexit, we should be worrying less about institutions such as the Bank and more about institutions such as the EBI.
In my latest Real Money column for the New Statesman, I discuss why the UK’s long term economic future depends not on the monetary tonics of the BOE but on maintaining our justified reputation as a tolerant society that is open to foreign trade, foreign capital, foreign ideas and the foreign people who come up with them. You can read it here.
In early 2016, Oxford University’s Department of Politics and International Relations, in co-operation with the New Economics Foundation and Positive Money, organised a series of seminars to discuss the need for innovation in the management of sovereign wealth, entitled Rethinking Public Assets.
I was a participant in the first of these seminars, which also featured presentations from Stefan Fölster, Director of the Stockholm Reform Institute and author of The Public Wealth of Nations, and Angela Cummine of New College, Oxford, whose marvellous book Citizens’ Wealth: Why (and How) Sovereign Funds Should be Managed by the People, for the People was published in August, 2016.
I discussed what really constitutes sovereign wealth in the modern age, and whether the UK government should revisit the idea of a National Investment Bank as a means of capitalising on its assets, drawing heavily on the ideas of John Maynard Keynes on both counts.
You can listen to a podcast of the seminar here (my own contribution starts at 47:00).
If you believe Mark Rutte, the prime minister of the Netherlands, the Brexit vote has plunged Britain into chaos. The UK, he concluded a few days after the referendum, “has collapsed politically, monetarily, constitutionally and economically”.
I can’t speak to politics or the constitution; but monetarily and economically, this view is wrong (or at least incomplete) in one crucial respect. It fails to see that no country’s economic fate is determined unilaterally. What happens next elsewhere – and in the eurozone especially – will be just as important as what happens in the UK.