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January 23, 2007
Financial competitiveness
Yesterday, Mayor Bloomberg and Senator Schumer released their McKInsey report on the competitiveness of New York as a financial center.
The report is a mix of national and local policies. As the New York Times reports - U.S. Financial Sector Is Losing Its Edge, Report Says, the national policies focused on regulation, legal litigation and talent:
The committee’s primary recommendations echo those of a similar report released in November, focusing on easing or eliminating provisions of the Sarbanes-Oxley Act for small and foreign companies — some steps that the Securities and Exchange Commission is currently undertaking — and curbing securities-related litigation. The latest report is one in a series commissioned in the public and private sectors voicing concern that the United States is falling behind because of a burdensome legal and regulatory environment.
The report adds some new dimensions to the debate, however, making recommendations to ease immigration restrictions facing skilled professionals from other countries, urging convergence on international accounting standards and recommending the adoption of Basel II, an international accord on capital standards, without increasing capital requirements as some United States banking regulators have suggested.
The local agenda was more traditionally economic development oriented. The main recommendation was to establish a public/private joint venture with highly visible leaders focused exclusively on financial services competitiveness, with the agenda of:
• More actively managing attraction and retention for financial services.
• Establishing a world-class center for applied global finance.
• Potentially creating a special international financial services zone.
• Enhancing New York’s ability to promote its financial services profile and its agenda as a leading financial center.
This last suggestion goes to the health of New York's financial cluster. Part of the report's analysis addresses the innovation aspects of the cluster. It comes to an interesting finding:
The senior executives surveyed felt that, broadly speaking, New York was significantly more innovative than London. Considering innovation across all industries, 47 percent of respondents thought New York was more innovative than London, whereas only 15 percent viewed London more favorably. Clearly, innovation is a key advantage for New York in attracting a talented workforce.
However, as addressed in the previous chapter, London’s leadership in derivatives has helped promote innovation there and, when combined with the ease with which talent can move to the UK, it’s easy to see why London might be catching up to New York.
Survey data support this supposition: when asked about innovation in financial services specifically, 49 percent of respondents thought New York was more innovative, but 25 percent put London ahead, suggesting that London might be closing the gap with New York this sector. Some interviewees suggested another important reason why London might be catching up: the legal risks associated with being a business trailblazer are starting to undermine America’s entrepreneurial culture, which in turn damages its traditional leadership innovation. Given the risks associated with experimentation financial services, it would make sense for some of the more cutting-edge activity to move overseas.
One area was missing - what the private sector should do to help itself. The focus of the report was on government action. It did include rhetoric about the need for business to lead -- and the call for a public-private partnership was in keeping with the spirit of that rhetoric. But clearly the firms themselves need to confront these challenges. As I have noted before, fees in New York are apparently higher than in London.
Some, as the Washington Post reports:
are skeptical of the notion that the United States is losing its financial edge. "Financial regulation may scare some businesses away, but for many investors, it offers an extra measure of protection that makes it a competitive plus," said Amy Borrus, deputy director of the Council of Institutional Investors. "At a time when Wall Street firms are doling out platinum-plated bonuses, it's hard to believe New York could be losing its ability to attract and keep skilled financial professionals."
And I will note that the section on talent was focused on getting people to come to New York (and the US) i.e. immigration - not on how to discover and nurture home grown talent.
All in all a good start to the process - but not the end point. These recommendations should be the beginning of further discussion and analysis.
Posted by Ken Jarboe at January 23, 2007 08:27 AM
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