Last year there was a huge hew and cry from bankers and politicians that the United States (read "New York") is losing its competitive advantage in financial services to London. Treasury Secretary Paulson blamed overregulation for our (supposed) decline -- (is that ancient history). Mayor Bloomberg and Senator Schumer commissioned a study by McKinsey which showed how the US is falling behind. By October, the frenzy had slackened somewhat - with Mayor Bloomberg telling a London audience that he was not worried.
And the financial crisis of this year has put a complete damper on issue. Right now Wall Street is more interested in surviving its own miscues than on London's supposed competitive advantage.
So this item in today's Financial Times is especially interesting -- London fears loss of financial edge:
London has appointed McKinsey, the management consultants, to study its financial services industry, amid fears that the British capital may be losing its competitive edge.
But London's fear isn't New York; it’s Dubai, Moscow and Luxembourg. In other words, the regional and up and coming exchanges.
London may be right to fear such new competitors. In the I-Cubed Economy, it is not clear that financial services need to be concentrated in a couple of big hubs (New York, London, and Tokyo). More regional centers may be able to match the economies of scale and scope that that large centers once had an advantage in. More importantly, regional centers may be much better at the specialization and local knowledge that is becoming a much more important advantage. The old "major money centers" will need to find their place in this new system. With all the talk about stock exchanges acquiring one another, they have realized that the sands have shifted and are searching for new strategies. Local and national political leaders are trying to do the same. Unfortunately, they often seem to hit on the race-to-the-bottom form of competition - such as the anti-regulation movement in place before the financial crisis broke.
Let us hope that we can do better than that as we work through the crisis - and improve our competitiveness at the same time.