An article published in New York Times a couple of months ago went by the title, 'London is eating New York's Lunch.' The article went on to explain how London was fast becoming the financial center of the world. It wasn't as if this article was revealing anything breathtakingly sensational; a report by McKinsey in 2007 had warned the then Mayor of New York, Michael Bloomberg, that London was treading on its way to become the global capital of the world. Today, there is a wide consensus among analysts that London has the upper hand over New York when it comes to being the global financial center of the world. Beijing, Tokyo, and Shanghai - the other economically powerful cities of the world may need another couple of decades before they can be considered as serious contenders for the title.
London has traditionally been the global capital of the world. It was the city which controlled half the world in the imperial days. It was the place of inventions and innovations, and the famous Industrial Revolution. In short, London was an economic powerhouse until Britain took part in the First World War. In the ensuing period of 1914 to 1945, which saw the world fight two wars, Britain's economy weakened, and London lost its premiership to New York. But, in the early 1980s, it worked in the right direction steadily to once again become one of the preferred destinations for trade and finance.
New York, on the other hand, emerged on the global scene notably after World War II. From thereon, Moscow rivaled New York for a bit, but it would be apt to say that the Cold War era was more about America Vs the Soviet than New York Vs Moscow. After the disintegration of the Soviet Union, America became the lone superpower of the world, and New York went on to reap the benefits of this new-found status. But, over the last decade or so, New York has had to face stiff challenges from other global cities of the world, and London has emerged as a credible alternate for foreign investors.
Financial Powerhouse - London or New York?
If we go by recent reports, the news isn't all that great for New Yorkers. A city which was once unanimously the preferred choice for banking and investment companies, now finds itself competing with London in wooing foreign investors. Companies are listing themselves up on London Stock Exchange, taking a lion's share away from the New York Stock Exchange, and hedge fund investors and oil-rich Sheikhs from the Middle East are giving JFK a miss by descending upon proximal Heathrow for investment and partnerships.
The World Economic Forum's Financial Development Index named London as the world's top financial center in 2009. The city outdid 55 other countries to claim the top spot. In 2011, UK had dropped to be placed second after Hong Kong. The index takes into account the financial structure and gains on a yearly basis, something which fluctuates with economies over a period of time. In the longer run, London still is the preferred destination for conducting business, something which has been substantiated by the Global Financial Centers Index. The study observed that London is ahead of other rival cities on the basis of 'regulation, tax and lifestyle'.
Analysts point out that London is gaining on New York because of several factors. First, there is a widespread perception that regulatory scrutiny is more stringent in New York vis-a-vis London. The post-Enron economic structure definitely calls for a tighter regulation, but, it also ends up putting potential investors off. Second is the growing economic might of the Asian and Middle East countries. Hong Kong, Beijing, Mumbai, and Tokyo are some cities who have started to have a say in world economics, and being geographically closer to these economic centers helps London in grabbing deals which otherwise might have gone to New York.
Summing up, London is at the top of the table right now, be it financial exports or revenue generation from its financial institutions. It leads the international bank lending, and issues the largest number of international bonds, year in and year out. The volume of global currency traded is the highest in London with an approximate 35% market share. London has the most number of foreign banks and 65% of Fortune 500 companies are based in London. These statistics tilt the balance in its favor. New York City is not too far behind, and there is every possibility of a shift in paradigm in the years to come.