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It’s some timing for a new book on the City of London, with a quarrel over the status of the Square Mile tearing the UK apart from the rest of the European Union – and opening up deep fault lines in the country’s governing coalition. Author David Kynaston has elsewhere expressed his desire that the past should not be viewed through the prism of the present, arguing that his subject is interesting enough to stand on its own right. That may be, but City of London: The history – a condensation of a four-part history that took seven years to write – offers endless parallels with the events swirling around now.
Two lessons stand out. The first, that the relationship between the financial institutions clustered around the Royal Exchange and the rest of the country has often been a troubled one. Sometimes their interests coincided; often not. Calls for banks to forgo speculation to serve the honest businessmen of Manchester and Birmingham are nothing new.
The second constant: the international reach of the City has often entangled it in events beyond its borders, be it wars or political intrigue. The supercharged nature of late-20th-century international finance has merely upped the odds.
This book starts in 1815 and ends in 2000, with a City transformed by the ‘big bang’ of 1987. That series of reforms, of course, broke down artificial barriers between guilds such as brokers and jobbers. In doing so, it attracted astonishing amounts of foreign money to London, allowing the decayed inheritors of once-proud names to cash in their chips and kick start a boom in English country houses that has not stopped.
That was the shift that caught the headlines. As throughout the book, Kynaston here deploys a human touch, teasing many, often humorous, anecdotes out of this transfer of wealth.
However, where the author serves best is by delineating the more fundamental reorientation of capital flows that transformed the role of the City. From the 1960s onwards, London-based banks seized control of offshore dollar accounts, creating a new market – the Eurobond market. This magazine was created in 1969 to chart those changes.
KYNASTON IS DILIGENT IN USING secondary sources, such as Euromoney (and competitors), to tell the story of what economist Timothy Congdon calls the bigger bang. Share trading boomed, as did other asset classes, such as foreign exchange. However, it was the remarkable growth of the international bond markets that above all powered the City of London to international prominence at the end of the last century – and allowed financial services to become such a cuckoo in the nest.
Consider this: if the City was in the same proportion to the rest of the UK economy as Wall Street is to Main Street, it would be a sixth of its current size.
That honey pot naturally drew talented foreigners, eager to throw down established practices and introduce new ideas. German refugee Siegmund Warburg was central in drawing the City out of its post-war torpor. Swiss national Hans-Joerg Rudloff has as much right as anyone to be called the creator of the modern Euromarket. Barclays is famously led by an American, Bob Diamond.
However, that process intensified a perceived divorce between the interests of postcodes EC4 and E14 and the rest of the UK. This writer remembers sharing a platform with then UK Chancellor Alistair Darling at a Euromoney conference in 2008 when he announced important concessions to a declared policy to levy extra taxes on non-doms, or overseas citizens plying their trade in London. It seemed like a high point then; it looks even more so now.
That was a wrinkle in one Faustian pact that the City made, this one with the UK government: You pay (some of) the taxes on your flourishing businesses, allow us to pump up our cherished spending programmes and we will keep regulation light.
The other deal was with the countries of the new single European currency. Despite sporadic attempts to anchor capital flows in centres such as Paris and Frankfurt, the rapidly expanding market in euro-denominated bonds was overwhelmingly channelled through the trading floors of London. It is a supreme irony that the one undisputed success of the eurozone project – the creation of deep, liquid bond markets for government debt – was exactly what allowed Greece, Ireland and Spain to achieve the parlous state in which they now find themselves.
Both those pacts are now unravelling in spectacular fashion. Faced with public anger over bailing out bankers, UK prime minister David Cameron castigates them at home while claiming to defend their interests abroad. Eurozone politicians aim to rein in speculators in London, declining to recognize themselves as architects of their own misfortune.
How will the City emerge from this cauldron? A sadder, shrunken place, as it weans itself off a crack-house diet of debt? Or a set of institutions that manages, as so often through its history, to pick itself up from the floor, dust itself off and reinvent itself anew? Kynaston offers few answers – indeed, he has declined to update this synthesis from its end-date of 2000. He says that journalism should be the first draft of history.
However, few can emerge from reading this fine book without a deeper understanding of what made the City of London what it is – for good or for bad.