Contents:
Duncan Wigan from Copenhagen Business School also discussed these ideas with us, leading to a joint paper in which we concluded:. The Finance Curse hypothesis overturns an entrenched orthodoxy that what is good for the City must be good for Britain. This line of research, known as the too-much-finance question, rests on econometric analysis which suggests that once the level of debt in an economy rises above a tipping point of between 90 to percent of GDP a number of potential harms to economic performance and overall growth are triggered.
These harms might arise from a variety of causes, including misallocation of investment into real estate and wealth extracting mergers and acquisitions; misallocation of skilled labour to financial services the BIS researchers refer to finance literally bidding rocket scientists away from the satellite industry ; and insufficient funding being allocated to research and develop new products and services.
The City likes to argue that it is the engine of the British economy, generating jobs and taxes to boost our prosperity. This research, which is the first of its kind, shows that these benefits are outweighed by the much larger costs imposed on the rest of the economy by hosting an oversized financial industry. Since at least part of this rent extraction stems from services provided to offshore clients, we do not include these sums in our estimate of the net cost to the UK economy. When compared with analysis of the costs imposed by hosting an oversized financial sector in the USA, this data suggests that the negative impacts on the UK might be two to three times greater than those imposed on the USA.
Our hope is that this research, and the broader narrative frame provided by the Finance Curse will stimulate a fresh conversation among academics, activists and a wider public about the many pitfalls of hosting an oversized financial industry. Much more research is needed to test our analysis and explore these ideas, but the initial findings support the view that London, a global financial centre, extracts wealth from the rest of the UK economy as well as from the rest of the world.
It is not the golden goose claimed by its vast public relations team: Read the new report here. Watch this short video explainer on the Finance Curse. It is good to see that serious empirical study is being made into its affairs.
Looking at the simpler resource curse, that can only be a net negative where it permits rent seeking rulers to live on rent from commodities, while ignoring and suppressing other industries. It is also available on the Kindle e-reader, for a nominal fee, here. Previously I have generally focused on the global impact of tax havens or secrecy jurisdictions: The Finance Curse, by contrast, looks at the domestic impacts of hosting an oversized financial centre: The book find that finance is obviously beneficial to an economy up to a point, but once it grows too large a range of harms start to emerge.
Much of the damage, and the underlying processes at work, are similar to those found with a Resource Curse that afflicts many countries that are overly dependent on natural resources. The graph below click on it to enlarge it provides a taster illustrating just one of many aspects of the problem. The press release is pasted below. A resource curse casts a shadow over certain mineral- and oil-rich nations damaging their economic growth and development.
Now a new e-book by Nicholas Shaxson, author of the acclaimed Treasure Islands, and John Christensen, Director of the Tax Justice Network, shows that countries with oversized financial services suffer similar fates. But The Finance Curse presents the first comprehensive analysis of the many harms that flow from hosting oversized financial centres.
Likewise, policymakers must disregard claims the UK finance sector employs two million people. The relevant figure is a fraction of that.
In larger jurisdictions like Britain or the U. S these issues are clouded by background noise from large, complex democracies.
But in small financial centres and tax havens like Jersey or the Cayman islands, the Finance Curse is much easier to understand because finance is more dominant, and the issues are easier to spot. Tax havens therefore carry strong lessons — and warnings — for Britain and the United States in particular. Alarmingly, the City of London is having similar effects on Britain. The Finance Curse presents a clear and present danger to social and economic development. Having an oversized financial centre in your neighbourhood is a bit like striking oil. It may well bring lots of money.
But it will bring huge problems. And the evidence is overwhelming: Britain, the United States and many other countries need to shrink their financial centres dramatically. This goes way beyond the damage caused by the latest global financial and economic crisis.
When the financiers cry: Thanks for telling us about the problem. Return to Book Page.
For many years economists have noted how countries rich in natural resources often fail to benefit from their unearned wealth. Indeed, sometimes the discovery of oil and gas can seem more like a curse than a blessing. The Finance Curse shows how countries with oversized financial sectors can suffer a similar fate. The easy money that comes from finance carries hidden costs, For many years economists have noted how countries rich in natural resources often fail to benefit from their unearned wealth.
The easy money that comes from finance carries hidden costs, in form of steepening inequality, political and intellectual corruption, industrial stagnation and periodic crisis and collapse. Nicholas Shaxson, the author of Treasure Islands, and John Christensen, the director of the Tax Justice Network, explore this new paradox of plenty, and show once and for all that there's no such thing as a free lunch, and that those who believe the stories told by bankers are liable to end up on the menu. Kindle Edition , pages. To see what your friends thought of this book, please sign up. To ask other readers questions about The Finance Curse , please sign up.
Lists with This Book. This book is not yet featured on Listopia. Nov 16, Jeff Kaye rated it really liked it. Nicholas Shaxson wrote Treasure Islands in , a book that was critical in the campaigns against tax havens. The Finance Curse has been seven years in the waiting, but its wider theme is well worth that wait. Capitalism has succeeded since the industrial revolution in England in the late eighteenth century in establishing wealth at least in the lower levels of Maslow's hierarchy that has freed the majority of the world's population from poverty and slavery.
Yet, as the growth in our wealth Nicholas Shaxson wrote Treasure Islands in , a book that was critical in the campaigns against tax havens. Yet, as the growth in our wealth at least the goods and services that money can buy continues, the twentieth century saw the development of capitalism away from the provision of satisfying customers the people that actually make up the marketplace for goods and services to a 'financialisation' of the marketplace that worships only financial returns, no matter how it is made.
This is the essence of The Finance Curse and Nicholas Shaxson lays out how the many snakes that emanate from the head of the financialisation Medusa have led us to a world of gross inequality, tax evasion, secrecy and corruption. Neoliberalism, the form of faux-economics that sprung up with those like Milton Freedman exactly the form of economics that I was taught at university by the likes of Laidler and Parkin back in the 's assumed that the market and its pricing mechanisms was always correct and that Government intervention was an anathema. The days of Galbraith's 'Social Balance' were numbered as anything that government did was bound to result in negative consequences.
Bankers were salvaged while the rest of the population has been allowed to drown in their wake. The political class, which Shaxson shows to good effect as crossing the boundaries of Blair and Brown's Labour as well as Cameron's Tories, was mesmerised by the idyll, misunderstanding the impact of the bankers' mantra so that quantity as in shareholder value overturned any concept of quality or service.
I never heard the word customer mentioned in those days, but the numbers of graphs showing shareholder return hypnotised the Board until the business went bust. I had fortunately left some time before. Whether the tax havens run out of London. The wide variety of financialised economic fissures is well described by Shaxson along with numerous anecdotes that show the reality behind the general theme. It is a book easy to read but troubling to consider. Those like the Tax Justice Network in which Shaxson has been involved are campaigning to right the wrongs of an economic system at micro and macro level in need of serious reform along with the accountants, managers, bankers, Board members, governments and those of the top 0.
If this book adds to the numbers rightfully agitating for an end to this numbers game, as I believe it should, then we might begin to see the re-emergence of an economics system that aims to serve the general population and an end to pure shareholder additives that place the price of everything even in the environment with its focus on natural capital above the value of anything.
Dec 15, catinca. The financial sector is inflicting a staggering cost on people - how exactly this happens is what Mr. Shaxson's book aims to explains. The title is a witty assimilation with the "resource curse", when resource-rich countries stop bargaining with their citizens because all the money comes from one or two corrupt places - democracy falls apart, living standards dive, lives are devastated.