Floyd Norris has a good column out in the New York Times today. He asserts that the era of financial globalization is over, at least for now. I've argued for some time that New York City's status as a major financial center may be one of the causalities of the financial crisis. Even if Washington doesn't manage to over-regulate the financial industry and drive away global business, global financiers might be wary of doing business in the U.S. again after incurring huge losses. This, combined with Norris' argument produces a potential location for the new financial capital of the world: everywhere.
First, Norris says:
Virtually universal revulsion at the errors and excesses of the financial giants, and the global recession that resulted, has not led to any real consensus what to do about it, at either national or international levels.
Instead, countries are looking out for themselves, or simply quarreling. Recriminations are in fashion, whether against regulators who allowed bailed-out bankers to get big pay packages or against financial institutions that were unpopular in some countries long before the financial crisis.
He goes on to explain some specific examples of ways countries seem to be keeping more to themselves. I think his argument is a good one, and I think it makes his point broader than mine about New York -- lots of people lost lots of money in lots of markets. As a result, they don't really trust anyone but themselves. A heap of new regulation is also likely to be imposed all over the place.
The result might be that no specific metropolitan center may be more conducive to finance or more trusted than any other. As a result, in the near future, there may be no super-dominant financial center of the world. Instead, there may be many scattered centers in each country. In Great Britain maybe it will be London; in Italy maybe it will be Milan; in China maybe it will be Shanghai; in Japan maybe it will be Tokyo; etc.
In time, once nations again become comfortable with each other and whatever new regulation imposed gets toned down in some places, a new capital may emerge. In the near-term, however, I think the capital will be everywhere.