The (Financial) World is Really Spiky

According to a fascinating new special report in the Economist:

In time, the early 21st century may come to be seen as a golden era for a different sort of globalised city-state. Its protagonists are found in London's Mayfair, lower Manhattan and Hong Kong's central business district. ... Technology, some predicted, would end this sort of clustering in city centres. Why would financiers want to live and work in pricey, jam-packed urban jungles? Armed with broadband, mobile phones and BlackBerries, they could work from almost anywhere. Yet as this summer's market turmoil showed, a BlackBerry operated from a beach is not always enough. Besides, those urban jungles have their compensations. So rather than dying out, financial centres are proliferating.

Today's financial centres—the cities where big financial transactions are done and a dizzying array of financial products are traded—include not only long-established places such as New York, London and Tokyo, but also a growing number of newer financial hubs in Asia, the Middle East and beyond. ... Unlike the walled medieval city-states, today's financial centres are increasingly dependent on their connections to one another. Technology, the mobility of capital and the spread of deregulation around the globe have created a vibrant and growing network. When one city is asleep, another is wide awake, so trading goes on round the clock. The number of transactions between financial centres has surged recently as investors have diversified across regions and asset types.

What do they have that others don't? They score well on a package of key criteria that global financial firms are looking for: plenty of skilled people, ready access to capital, good infrastructure, attractive regulatory and tax environments and low levels of corruption. Location and the use of English, the language of global finance, are also important.

Finding and retaining good people has become an ever more important factor. Steven Kaplan and Joshua Rauh, a pair of economists at the University of Chicago, reckon that capital deployed per employee (the amount of money firms have invested divided by the number of staff) at the top 50 American securities firms surged from an average of $136,000 in 1994 to $1.79m in 2004.

For many skilled professionals who can pick and choose their place of work, quality of life matters a lot.

 

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