Place and roles of financial centers in contemporary global geo-economic competition

Today, crisis dominates the world, as the situation in the global economy, according to different data, remains alarming, and even getting worse as indicated by several evaluation parameters. Indeed, all the experts’ projections are far from optimistic, because even the best case scenario expects the crisis to last for, at least, three-five years. 

Besides, recent history of global economic crises has taught people not to expect fast positive changes from the current economic downturn. Furthermore, there are serious reasons to believe that the situation will not improve even after the G20 Summit in London. This is because the world’s financial elite has so far failed to develop a united approach to resolving the current crisis, while the existing monetary system, seen as the main cause of the global economic downturn, will, after undergoing some ‘minor’ overhauls, likely remain intact. 

And, finally, there is no longer any doubt regarding the existence of serious rivalry among the key players on the international markets as a comprehensive analysis of the world’s leading financial centers’ development strategies has proved the presence of serious competition among key members of the global financial elite.

Financial centers as a key factor in geoeconomic competition  

The tension in key global financial centers’ competition for domination in the world economy had increased significantly several years before the current crisis entered its active phase. This was quite predictable, as the main motive for the exacerbation of this competition stemmed from a clear understanding of the inevitability of a global economic crisis and its fundamental consequences that would be capable of dramatically changing the current architecture of today’s financial world. Under such conditions, it was, therefore, only natural that the competition among the major global financial centers rose to a higher level as the operators of these centers tried to maintain the status in order to keep their places in the new emerging, global marketplace.

The exacerbation of the cutthroat competition was vividly illustrated in the development strategies of the existing global financial centers that were released by different countries throughout 2007. The first development strategy was released by New York, when at a hearing in the U.S. Senate in summer of 2007, the city officials presented a report on the role and place of New York as a global financial center and its future prospects in the global economy. One of the key aspects of the report was the recognition of the urgent necessity for the United States to retain its hegemony on the global financial services market. And, considering the importance of this industry, the report authors declared the preservation New York’s hegemony in this sector a national priority project, and called on the U.S. government to do everything at its disposal to retain the existing status quo on the global financial market.

Besides, another manifestation of the rising competition among financial centers was evident in the New York development strategy’s authors’ belief that London, the world’s oldest international financial center, had partially lost its leading positions, and thus ceded the market leadership to New York, a thinking that also underscored the rising tensions and instability of the global financial system. Furthermore, the authors also recommended the New York and U.S. authorities to do everything possible, under the prevailing circumstances, to take over the global leadership initiative from London and block all its efforts to restore its leading position in the financial world. 

Almost at the same time, a number of research institutions in London City were also working on the development of a vision for the future of the UK capital as the world’s leading financial center. A key point in the London Development Strategy was the authors’ recognition of the existence of stringent competition among global financial centers and the City’s loss of its leadership in a number of market positions. However, the authors did not believe that the center of global finance had finally moved to New York, a fact evident in their declared readiness to continue to fight for the retention of their leadership. Thus, according to the Global Financial Centers Index, the British rating of the World’s leading financial centers in 2007 that covered 46 evaluation parameters, the ranking of the Top-10 global financial centers was headed by London, followed by New York. Russia’s Moscow was 45th in this rating, with Greece’s Athens rounding up the list. 

It is interesting, however, to note that three of the Top-10 global financial centers, notably, London, Singapore and Hong Kong, are closely linked to the British Commonwealth of Nations, read the former British Empire. And, with regard to the rating itself, it was evident that the number and importance of different evaluation parameters that can potentially affect the ranking of a city as a financial center, have changed significantly, compared to 2003. Specifically, such evaluation parameters — such as living standards and level of state control over the private sector of its economy — have become more significant than before, as indicated by research studies conducted in 2007. Besides, a number of studies have, indeed, shown that state control of businesses, taxation of corporations and private individuals will over the next three years become very important indicators. 

Zurich as a case study for Russia

Switzerland also followed the ‘bandwagon’ effect, when it presented its own strategy for the development of Zurich as a global financial center in September 2007. Specifically, the strategy authors of the strategy announced by the the Swiss Stock Exchange, together with the Association of Swiss Banks and Association of Swiss Insurance Companies, liste

The stated goal of the Swiss Development Strategy was to turn Zurich into the third largest global financial center, out of the 17 identified in the document, by 2015. However, of particular interest to us, during our analysis of the Zurich’s development strategy, was the reasons, which, according the Swiss authorities, had led to the decrease of the city’s importance as a leading global financial center that it was several decades ago. Here, it is significant to note that the Swiss Stock Exchange management had taken a very conservative stance on issues relating to mergers and acquisitions that were very popular among the world's leading exchanges prior to the current crisis. Even today, the Swiss Stock Exchange management has yet to consider any of the lucrative merger proposals on the table, saying it was “more important for it to preserve the independence of the Swiss stock market in the prevailing circumstances.”  

Conclusions from the analysis of cities’ development strategies

A comprehensive analysis of all the development strategies for New York, London and Zurich has led us to the following conclusions: 1) that the global financial elite had clearly understood the complexity of the market situations and the inevitability of the financial and economic crisis long before the beginning of its active phases, a point that was also collaborated by the scheduled timetable of 2015 set for the executions of these cities’ development strategies, and 2) the analysis also showed that the following circumstances have contributed to the increased competition among the world’s leading financial centers. 3) and, with regard to the competition itself, the main tools and means of competition among the global financial centers are designated as follows. 

Besides, it is also equally significant to note that it is the period between 2010 and 2015 that both foreign and Russian experts have called ‘the most difficult phase’ in the development of the global financial system. This stems from the belief that during this period when fundamental transformation and shift in paradigm of world trade is expected to take place, most countries would like to retain the current ‘status quo’ in their economies so that their national financial centers could become the foundations for their economic revival at the dawn of the new, post-crisis business environment.