Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic. He is a university professor in the University of Toronto’s School of Cities and Rotman School of Management, and a distinguished fellow at New York University’s Schack Institute of Real Estate.
A first in the seven-year history of the Global Financial Centres list.
The global financial system is undergoing subtle but significant changes, according to the latest edition of the Global Financial Centres Index, a measure of the overall competitiveness of the world's leading cities for finance.
The list, assembled biannually, is produced by Z/Yen Group. And for the first time in its seven-year history, New York City has overtaken London as the world's leading financial center (though only by two points, which the authors do note is "statistically insignificant"). It also edged out competitors like Hong Kong, Singapore, Zurich, and Frankfurt by far wider margins.
There are other small but important shifts in the geography of global finance (see table below).
The GFCI is based on a combination of two metrics: an online survey on factors of competitiveness, including business environment and taxation; and an aggregation of several independent assessments, on business environment, financial development, infrastructure, human capital, and reputation, from organizations like the U.N. and the World Economic Forum. The GFCI ranges from a low of zero to a high of 1,000.
The report attributes London's fall to a combination of "uncertainty over European Union membership, uncertainty over Scottish independence, regulatory creep and conservatism," as well as "uncertainty over taxation," and an "increasingly restrictive and unwelcome environment for foreign workers and visitors."
London's decline likely also reflects more general economic problems across Europe and the E.U., as parts of Europe have been slower to recover from the crisis than the U.S.
But the city suffers from self-inflicted issues, too. London has become the world's preferred location for the global super-rich, which has put tremendous pressure on its housing market and priced out talent. Some have even described London as a "parasitic city," where real estate interests garner exorbitant, unproductive rents from their properties.
For better or worse, the global financial crisis appears to have strengthened New York’s hand. The city has benefited from efforts to improve quality of life and attract talent. As former Mayor Michael Bloomberg pointed out in the Financial Times, "a city that wants to attract creators must offer a fertile breeding ground for new ideas and innovations."
And it's not just New York. The three major cities of the Acela corridor all rank highly. Boston is 8th and D.C. is 13th, putting both ahead of America’s historic "second city" Chicago. The San Francisco Bay Area’s strength in technology has clearly undergirded its rise as another American global financial center, as it ranks 10th worldwide.
Beyond the jostling at the very top, the latest GFCI rankings show other subtle yet important shifts. The formerly large gaps between London and New York and the next two global financial centers on the list, Hong Kong and Singapore, appear to be closing somewhat. In 2007, nearly 100 points separated London and New York from these two Asian financial centers (PDF). But that gap has now shrunk to less than 30 points (as the graph below illustrates).
And it is not the only gap that is closing. The report notes that "the top four centres are being chased." A gap of more than 100 points separated the first and tenth place financial centers just three years ago; now it's narrowed by more than 50 points. As Z/Yen’s Executive Chairman Michael Manelli writes, this is a "landmark change in perception: … the top places are vulnerable."
While London, Zurich, and Geneva continue to rank among the top ten, the report notes that across the board European centers are struggling to hold onto their rankings: Twenty-three of the 27 European cities have declined in rank.
Asian financial centers have risen substantially. While Hong Kong and Singapore have always done well, and are catching up to New York and London, others are climbing the ranks as well. Tokyo and Seoul also rank among the top ten, and China's Shenzhen and Shanghai number among the top 20. And even though the report notes that a "shakeout" has begun to separate the top four Asian centers from the rest, Asia still lacks a single dominant financial center on the order of New York or London. It remains to be seen whether one will emerge.
For a country roughly one-tenth the size of the United States, Canada has four cities – Toronto, Montreal, Vancouver, and Calgary – among the world's 25 leading financial centers, compared to five for the U.S. – New York, Boston, San Francisco, Washington, D.C., and Chicago. Canada has benefited from its well-regulated banks, overall economic stability, openness to foreign talent, and highly rated quality of life.
These trends suggest that the global financial system may be entering a period of substantial shifting and transformation. As economic historian Youssef Cassis notes, leading financial centers tend to have "remarkable longevity in spite of the phases of boom and bust in the course of their existence." But, he adds, "Great crises can and do set in motion… great shifts." This latest edition of the GFCI suggests that such a shift may be starting to happen today.
Top Image: The charging bull, a symbol of Wall Street optimism, in lower Manhattan (AP/Mary Altaffer).