The theme of ‘national competitiveness’ is widely misunderstood, but it is a central part of the finance curse analysis, and of The Finance Curse book.
In a nutshell, countries with large financial centres often focus on maintaining ‘competitiveness’ and keeping up in the global ‘competitiveness’ rankings. Words like ‘competitive’ sound wonderful, and for this simple reason the pursuit of a ‘competitive’ financial centre is widely taken to be a good thing for the local economy. The more finance, the better. This simple idea has been used as an ideological battering ram to open up economies to financial deregulation, tax cuts for multinationals and big banks, turning a blind eye to dirty money, and plenty more.
But the finance curse analysis turns all this on its head. More finance means lower economic growth, higher inequality, more frequent crises, more global crime, the undermining of democracy, and more. These ‘competitive’ policies may bring in wealth to a relative few — yet it will deliver a payload of extra damage that will overwhelm any jobs or tax benefits, to create a net cost to the economy. This is particularly so for large economies: in Britain’s case, the costs amount to several trillions.
So the pursuit of a “competitive” financial centre — at least defined in the way it has been in so many finance-dependent countries — is exactly the opposite of what any country should be pursuing.
This is a complex area, full of nuance. To see what some leading thinkers say, click here.
For a list of posts on this topic, click here.