Europe’s imagined financial centres III – financial agglomeration in Europe as cultural phenomenon*
* This is the third part of a shortened and revised version of a paper published as Centres of Finance, Centres of Imagination: On Collective Memory and Cultural Identity in European Financial Market Places, in: GaWC Research Bulletin 92, 20th August 2002. Part I gave a brief overview of the history of financial centres, part II was on collective memory and cultural identity, and part IV will provide a list of links and references.
How do financial centres evolve? Why are financial institutions and services unevenly spread across regions and worldwide? What determines the rise and fall of centres and why do some of them persist even under signs of declining competitiveness?
In economics there is a long tradition of explaining how an economy in general organises its use of space and how agglomeration and clustering occur. Location theory, as it is called, has its roots in Germany, in the works of von Thünen, Christaller, Lösch and others. In the 1990s, there has been a renaissance of this kind of research riding under the flag of the New Economic Geography. A well accessible example is the little book by Paul Krugman (1996) on The Self Organizing Economy.
The merit of the latter strand of literature is that it drew the attention to the complex and organic nature of economic agglomeration in general which also characterises financial markets (Reszat 1999): A financial place does not become an international centre from one day to the next. At first, slowly and perhaps imperceptibly an adaption process to the needs and demands of an internationally active financial community is taking place meeting more and more criteria of a global market place. Respective facilities grow, and norms, rules of conduct, attitudes and behaviour patterns emerge. At one point – to draw out the analogy to the natural sciences further – a kind of self-organized criticality is reached after which the place is not the same as before. When was it that Frankfurt became a serious international competitor to London? When did Hong Kong start to contest in earnest Tokyo’s predominance in Asia?
Can this process be influenced from outside or – to stay with the example – are China’s efforts to promote its regional centre futile? If the financial market is a truly emergent system the possibilities are probably limited. There are certain preconditions which must be met, and which can be designed as favourable as possible, but, in the end, whether the odds are in favour or against a place is determined by the interplay of countless influences of differing strength and direction as Krugman and others already indicated in their rudimentary models of centripetal and centrifugal forces.
This quality of complex emergent systems to amplify small effects beyond recognition provides a special rationale for studying the influence of collective memory and cultural identity on financial landscapes. True, cost considerations and other comparative economic advantages can be expected to strongly affect locational choices, but those are no lonely decisions. They depend on the views, actions and reactions of others.
Myths, rites, symbols, media and patterns matter in this context in a sometimes hardly perceptible way. Let us have a closer look at their manifestations (with definitions taken from The Oxford English Dictionary 1989, the dictionary’s latest, complete print edition).
Myth A purely fictitious narrative usually involving supernatural persons, actions, or events, and embodying some popular idea concerning natural or historical phenomena.
At all times, financial markets have lived on myths and created their own myths. Although they have their share of “commemorations and festivities” as well – one only has to think of the G8 summits, the annual meetings of IMF and World Bank or the World Economic Forum in Davos – myths are a constituent element of cultural identity in these markets.
Some myths relate to a particular financial centre, others to the profession as such. There are myths of people, places and institutions as well as of qualities and of what is so special about the financial services industry compared to others. Some myths concern daily life, the extraordinary efficiency, flexibility, mobility and speed with which financial decisions are made, the high degree of information and transparency in the markets, but also traders’ greed and willingness to take risks. Others refer to the grand narratives of the profession which are constantly retold and re-interpreted by traders and investors as well as the financial press and numerous other observers.
Financial market’s myths are populated by all kinds of people. There are fabulously rich clients such as monarchs and rulers, big industrial tycoons and wealthy persons of independent means, who sometimes have become big gamblers. There are the highly influential financiers which – at least in former times – were said to determine the fate of whole nations.
And, there are those hordes of nameless, mostly young people in the trading rooms of financial institutions and corporations all over the world who, as a group, nowadays have become a myth with their greed and energy, their high salaries and spending habits, and who, when the odds are against them, occasionally catch the headlines as “rogue traders”. There are other named and unnamed heroes and villains, individuals and groups, as well: The “Jews”, the “oil sheiks”, the “Chinese”, the “gnomes of Zurich”, high-frequency traders, hedge funds, George Soros, Warren Buffett and many more.
Among European financial places, London always played a special role in creating myths around people which at the same time both reflected and supported its position as Number One. It was in London where Nathan Rothschild built the family empire in the early 19th century winning fame as its “commanding general” although the Rothschilds had bases in Paris, Frankfurt, Vienna and Naples, too (Ferguson 1999). Nick Leeson, a British “rogue trader”, ruined one of the oldest European merchant banks (“the Queen’s bank”) within a couple of months. When George Soros and his Quantum Fund run their attack on the European Monetary System in September 1992, it was the British pound which was forced out of the system, establishing the special aura which surrounded him ever since – to name only a few examples.
Myths are also established around the places themselves. While Paris has long been known for being the world’s cultural metropolis which, above all, was rooted in its artists’ colonies of the 19th and early 20th centuries, London was considered the world capital of finance, a role that it had to hand over to New York in the 1920s which, despite its fluctuating factual importance, it managed to hold in many people’s views to this day. Furthermore, all financial centres are constantly trying to live up to the claim of being “world cities”. Besides, myths exist about special locations within cities, such as Wall Street or Lombard Street. In a sense, in London, “The City” or “The Square Mile” itself is a myth. In fact, it is neither square nor a mile.
Further, there are myths about institutions. For example, the Bundesbank is not simply one central bank among others. It always managed to keep up appearances of being a rule-based kind of monetarist purist, and its seemingly uncompromising attitude gained it an unrivalled credibility in- and outside Europe which added to Frankfurt’s reputation. Even now that its reign has ended formally, its directorate’s members at times have a remarkable influence on market moods and sentiments.
But, most important among all myths in and around international financial markets and activities are the grand narratives of the profession, the tales about the South Sea Bubble, Black Thursday (October 24, 1929), Black Monday (October 19, 1987), the Asian Crisis and many other “Manias, Panics and Crashes” (the title of a book by Charles P. Kindleberger which since its first edition in 1978 in a sense has become a record of the great narratives of the industry.) They resemble the tales of wars and battles people fought, and other major events in their lives, retold again and again thereby establishing and supporting the view that the financial industry, and its main centres of activity, are something special in the world economy.
Symbol Something that stands for, represents, or denotes something else (not by exact resemblance, but by vague suggestion, or by some accidental or conventional relation); esp. a material object representing or taken to represent something immaterial or abstract, as a being, idea, quality or condition; a representative or typical figure, sign or token.
Symbols are another key element in the construction of cultural identity in financial markets. Thinking of a material object as a representation of financial power and authority maybe the first image that comes to mind is the skyscraper (Zukin in Budd and Whimster 1992: 197).
A skyscraper is a special-purpose office building and, although the office building itself probably was invented in London, the skyscraper’s role in shaping North American towns in general, and the New York skyline in particular, has largely contributed to the significance it has for the built representation of cities’ financial districts in our times. The skyscraper represents the Central Business District (CBD), the heart of the city, and in the big financial centres this is the place where financial activity is concentrated.
Figure 2: A Symbol to the World
The first skyscrapers date back to the mid 1800s when new building technologies such as the steel-frame construction and the elevator, and transportation innovations like the commuter railroad, were developed. They became particularly successful in the New World where places were not restricted by medieval urban form and building types (Ford 1994).
With the growing economic importance of the United States, and the emergence of New York as a world financial centre, the Manhattan skyline became a symbol of capitalism to the world (figure 2). When competition in financial services between the Big Three, New York, London, and Tokyo, stiffened in the 1980s, in the latter two – as well as in many smaller centres worldwide – skyscrapers became the symbols of the cities’ prosperity as well as of the new way they earn their livings.
During those years, urban landscapes underwent radical changes. Manufacturing left the cities on a large scale and in the big centres finance became the dominant sector and often the main focus of city planners in their struggle to attract jobs or not to lose them to other places. (For example, between 1981 and 1984, London lost 97,000 jobs in manufacturing and gained 45,000 in financial services, see Sudjic 1992: 114). As a result, financial institutions, planners and developers often joined ranks in shaping the new image of their cities. One of their main instruments was the skyscraper.
Meanwhile, office rents in all places have become too high even for large financial institutions to keep all their activities in the CBD and some of them have started to shift at least part of their business to suburbia. Nevertheless, ever new skyscrapers are constructed. In Europe, London and Frankfurt are competing openly for the highest buildings and the most impressive skyline. The 259m-high tower of the Commerzbank headquarters in Frankfurt (with antenna 300m) built by Foster and Partners, is the tallest in Western Europe.
Figure 3 : London: tall buildings old and new
When in early 1999 the Frankfurt authorities came up with plans for up to 20 new skyscrapers over the following ten years, the Corporation of London, the municipal authority for the City of London, reacted by announcing to facilitate the development of new sites for financial firms in the City as well. However its most spectacular move was the development of an 85-acre site to the east of the City in London’s Docklands, Canary Wharf, which, after an unsuccessful first start and bankruptcy in the early 1990s, became a second home to London’s financial sector.
Cities’ efforts to develop a skyline can partly be interpreted as image-building campaigns, in parts they reflect the need to offer the financial community an attractive infrastructure. Among other things, the new skyscrapers have the function “to lift urban identity from the modern to the spectacular” (Zukin in Budd and Whimster 1992: 196). A comparison of the urban landscape of European financial centres now and 30 years ago demonstrates that the skyline as a determinant of financial market competition in Europe is quite a new phenomenon. In the early 1980s none of the big European centres had an accumulation of buildings worth calling a “skyline”. “Mainhattan” is a product of the new millennium (figure 4). As the name indicates, the model is New York. The same holds for London: One of Canary Wharf’s early advertisements read: “It feels like Manhattan without the mayhem”(figure 5).
Figure 4: “Mainhattan”
These days, architecture has become one element in the increasing competition not only between European financial centres but worldwide. This has two consequences. On the one hand, buildings are regarded as means to establish identity both for corporations and for cities. On the other, the tendency to culturally distance themselves from their national context in reaction to the twofold challenges of postmodernism and globalisation made financial centres become more and more uniform in sight:
“… the landscapes of power that are emerging in New York and London are strikingly similar. This is hardly surprising, for redevelopment of the centre in both cities is commissioned and designed by the same worldly superstars, including developers, architects and private-sector financial institutions. Just as skyscrapers have become the sine qua non of place in the global hierarchy of cities, so do US, Japanese and Canadian builders and bankers represent the basis of a global market rank. A city that aims to be a world financial centre makes deals with Olympia & York and Kumagai Gumi (Canadian and Japanese developers), welcomes Citibank and Dai-Ichi Kangyo (a US and a Japanese bank), and transplants Cesar Pelli as well as Skidmore, Owings and Merrill and Kohn Pederson Fox (architects).” (Zukin in Budd and Whimster 1992: 203 f.)
Figure 5: The new “skyline” of London – Canary Wharf
author Dave Pape
Apparently, this holds for Frankfurt and other continental European cities as well. The focus here is less on symbolising a town’s vernacular identity to the world but on constructing the identity of a “Global City” as seen by financial and other circles. However, cities do not only compete by planning and re-designing their financial districts. Nowadays, official authorities throw themselves into the construction of museums, city halls, airports and other buildings (Sudjic 1992). Seen as a whole, in interaction with the private sector, they search to provide, a supply of asthetic variety and cultural amenities in trying to attract, above all, the class of single-person and dual-income households which make up for a high and growing share of workers in financial and related services.
This way of town planning is met with fierce criticism:
“For policy-makers, encouragement of real estate development seems to offer a way of dealing with otherwise intractable economic and social problems. Governments have promoted physical change with the expectations that better-looking cities are also better cities … and that property development equals economic development. The quandary for local political officials is that they must depend on the private sector to finance most economic expansion, and that they have only very limited tools for attracting expansion to their jurisdictions. Their heavy reliance on the property sector partly results from their greater ability to influence it than other industries.” (Fainstein 1994: 2)
At times, planners’ aspirations reach far beyond that. One example is France. In the 1980s the French government was said not only to aim at creating Paris’s image as a global city but as a capital of Europe. President Mitterand allegedly considered it the duty of the French state to build museums, not only for the enlightment of its citizens, but also and above all as part of its undeclared mission to make Paris the unchallenged centre of European culture (Sudjic 1992: 136). The plans meant city planning at large as is demonstrated by the axis built under Mitterand’s presidency which defines the heart of Paris, running from the courtyard of the Louvre with its glass pyramid through the Tuileries, across the Place d’Etoile, along the Champs Elysées and through l’Arc de Triomphe culminating at La Défense with its monumental arch.
In France, city planning has a long tradition. Even under changing political administration the French government never lost its enthusiasm for directly orchestrating the town’s urban re-design as in the days of Haussmann’s transformation of Paris in the 19th century. The reason why this aspect is emphasised here is that, by some observers, it is put in a wider context explaining it as part of a Rhine-Alpine-Scandinavian tradition of “managed capitalism” – traced back even to the system of urban administration in Rome two millenia ago – which stands in strong contrast to the Anglo-American laissez-faire model (Hall 1999: Chapter 22).
Rite 1) A formal procedure or act in a religious or other solemn observance. 2) The general or usual custom, habit or practice of a country, people, class of persons etc.; now spec. in religion or worship.
The financial services sector in European cities differs from other parts of society not only by its myths and symbols but also by the variety of rites it has established over the years. Financial markets, although considered as a global phenomenon, more than others depend on highly localised cultures of work. More than other sectors in the economy they rely on mutual trust. Personal appearance, presentation and image matter both in face-to-face contacts with clients and investors and in competition with other traders. In this business, success depends on performances (Crang 1998: 156).
Rites are a vital part of these performances. Just like Antwerp and Amsterdam determined the customs and practices in European finance in the Middle Ages, in recent history, London became dominant. But, “the rules of the game” did not hold unchanged. Since World War II, there have been at least two distinct eras. The first is the one of “the old gentlemanly discourse” (Thrift in Corbridge, Martin and Thrift 1994: 350) as it was, for example, represented by a dress code based on dark suits, life in quiet, wood-panelled dining rooms and the ritualised operation of the London Stock Exchange:
Until the Big Bang of 1986 the City of London was a highly stratified culture with licensed traders relying on mutual trust – “a dealer’s word is his bond” (Crang 1998: 155) – and the stock exchange resembling more a club than a global market. It was characterised by dense social networks and recruitments of ‘old boys’ from private schools and Oxbridge. Further, it was a male society. The first female stockbrokers were admitted in 1973.
With the arrival of foreign financial institutions in the 1980s market culture became a mixture of old English and new, largely, American rites. The more “cut-throat” habits prevailing in New York dealing rooms now began to show up in London as well. Part of this culture is dealers’ aggressive masculinity which, for example, is demonstrated by the fact that in many market segments they are explicitly encouraged to demonstrate their willingness to take risks and “move for the kill” (Crang 1998).
The entrance of new competitors from other countries in Europe and Asia, a growing female workforce and an increasing role of virtual business are changing this culture once again. One result is the – albeit slowly – vanishing of old, and the emergence of new, rites as, for example, a rising public awareness of sexual harrassment in financial institutions demonstrates. Another is the fact that with increasing importance of electronic trades, and a shrinking share of face-to-face contacts in the market, the role of rites for the construction of cultural identity is in overall decline. As a result, myths and symbols become ever more important for the financial community’s collective memory. The same holds for the role of media.
Media Newspapers, radio, television, etc., collectively, as vehicles of mass communication.
Since Nathan Mayer Rothschild established his first private courier service in the early 19th century media have played an overwhelming role not only for the dissemination of financial news but also for the construction of cultural identity in the market. In Europe, London is in a privileged position.
The City is the centre of the global financial press – Euromoney, The Banker, The Economist and the Financial Times are all located there. The Financial Times, today the by far most authoritative financial newspaper which probably has influenced European views of business and culture in international finance in general, and in the City in particular, more than any of its competitors, has a long tradition. Founded in the 19th century, it started a European edition in 1979, with a New York edition following in 1985. By 1993, 40 per cent of the paper’s circulation was abroad (Thrift in Corbridge, Martin and Thrift 1994: 350). Since March 2000, there is a German-language edition.
Market culture is influenced by all kind of media and their presentation of spaces and places. In general, place as symbol, the city both in its real and imaginary form and modern urban experience – of which financial activities and markets are an important part – is a frequently exploited theme in literature and the arts, film and television. They do not simply portray or describe a city or a market place but, in a sense construct it in different ways allowing to gather a feeling for life in a “modern” or “postmodern” society.
Often cited examples of those “literary landscapes” are T.S. Eliot’s The Waste Land, John Dos Passos’s Manhattan Transfer, but also for the imaginary city Italo Calvino’s Le Città Invisible (the invisible city), Georges Perec’s Espèces d’Espaces (species of spaces) or Jonathan Raban’s Soft City. One example from the arts was the exhibition of the Museum of Modern Art, New York (MOMA) on ModernStarts: People, Places, and Things which included an exploration of particular parts of space, represented and real, at the beginnings of modernism. In the film industry no other single work has probably influenced ideas of the modern city as much as Fritz Lang’s Metropolis produced in 1926.
Nowadays, spatial phenomena are mostly understood and interpreted by the impression gained from mass media. They strongly influence the subjective human experience of a place and the affective and emotional relationship people develop to it. “Most people’s knowledge of most places comes through media of various sorts, so that for most people the representation comes before the ‘reality’” (Crang 1998: 44) This holds for actors in financial markets as well. Knowing to live in a “World City” with all its amenities does not necessarily mean that its citizens constantly use the cultural supply offered, that they visit its touristic sites or enjoy shopping in its malls and eat out in fancy restaurants. For them the way the place is described and “constructed” in the media, and thus possibly seen by others, may shape their view of it and contribute to make it worth living there. People’s image of Paris and London is probably as much influenced by the works of Victor Hugo and Charles Dickens as by modern fiction and mysteries as well as press and television reports and the internet. In this world, a city which is not constantly present in the media has the serious disadvantage not to matter in people’s mind.
With respect to the competitiveness of financial places in Europe, two aspects are worth mentioning in this context. First, how many books, articles, songs, films and other things have been written and produced about, or playing in, London and Paris over the centuries – and which of both cities is the dominant here – is probably an open question. But, there are few doubts that, in contrast, for example, to Frankfurt or Zurich, these two were and are among those attracting the most attention in Europe. Second, in the same way in which culture and the arts matter for Paris, media focus on London often explicitly or implicitly refers to the City´s financial expertise thereby emphasising the importance of this facet of life in Britain and its relevance for the world.
Pattern An arrangement or order of things or activity in abstract senses; order or form discernible in things, actions, ideas, situations, etc.
While media have an indirect effect on cultural identity and the relation between people and financial and other places, the built environment, and the spatial order given by the interplay of movement and urban structure, exert a direct – although not always consciously felt – influence on this relation. In Europe, despite all their variety, towns in their development in history, have several elements in common (Benevolo 1993: 61 ff):
First, there is a functional arrangement of public and private buildings. Together they form a complex organism whose different roles are highly intelligible. Streets and places build an interconnected public space which is individually shaped and with which the community identifies. Streets vary in their fulfilment of collective tasks offering room for pedestrians and transport facilities to move as well as places to linger. As a rule, buildings are multistoried and open into this complex space system. In a sense, their facades represent the outer walls of the public space. In such a system, the individual feels obliged to contribute to the design of this space. The facade of the house becomes “a gift to the street”.
A second common element of European towns which emerged in the Middle Ages is spatial concentration. The town covers as few space as possible with the centre having the strongest attraction. Here are the highest buildings. While in earlier times, the centre’s contours were dominated by churches and public buildings, nowadays, they are often characterised by the skyscrapers of the Central Business District. This stands in strong contrast to the historical experiences in other world regions and, for example, differs markedly from the chequerboard pattern of early American cities or the city landscape of “hard shells and soft yolks” in Japan (Shelton 1999: 11) where traditionally lower buildings and relatively quiet streets lie between high buildings on busy thoroughfares over a wide area.
One way to look at the effects the built environment has on people’s collective memory in creating patterns of movement is to analyse a town’s or a (financial) district’s street network and the way in which streets and places are interconnected:
The basic idea is that under normal circumstances - which refers, above all, to the homogeneity of built forms – the spatial configuration of the urban grid is in itself a consistent factor in determining movement flows. Drawing an axial map of a big city like London, even taking into account only the least set, the “fewest and longest”, of straight lines, normally will give no clues to an underlying order whatsoever. But, the computer may disclose what by the naked eye cannot be seen. Analysing the interrelationship between streets and places using graph theory unveils how people make use of the existing space and how they move within and through cities. This is what Space Syntax is about, an analytical method developed to identify areas which lend themselves naturally to becoming centres of commercial and residential activity and thereby points of attraction for the financial community and any other businesses (a presentation introducing to the theory, technology and practice of Space Syntax can be found here. See also Hillier 1996, Space is the Machine).
Space Syntax, developed at the school of architecture and urban planning at University College London, tries to explain why one area, such as a town’s financial district, becomes a successful city-within-a-city while another will not. In principle, there are two possible explanations. One is that the area under consideration itself has an acceptable social infrastructure – schools, churches, playgrounds and the like – which is rendering its residential housing most suitable for people. Another is that, although it may not contain any residential elements, as is characteristic for so many towns’ financial districts nowadays, it may be well connected with the surrounding space and the community around it.
The key word is integration. In general, there are different groups of space users in a city - travellers, residents, office workers, tourists and many others – which use space in different ways and on different scales moving in and through a city on largely separate routes. Highly integrated areas bring them together and, thus, for each of those, in a sense, generate “more by-product” (Hillier 1996, Space is the Machine: 169). These areas tend to have higher intensities of development accompanied by multiplier effects which, in turn, attract other activities and uses. It is this kind of positive feedback loop which Paul Krugman may have had in mind developing his idea of “centripetal forces”. However, here, the dynamics result from the relation between a city’s grid structure and movement and not from scale economies or the closeness of businesses as in New Economic Geography concepts.
Again, what matters is accessibility and intelligibility on different scales. For example, the City of London has often been criticised as “haphazard” and “labyrinthian”. A closer look at the square mile reveals that it would not appear so to a person moving at ground level. Although the space structure is highly broken up into “convex spaces” there are always lines linking them usually showing where you have come from as well as where you might go to reach your destination, which is quite the opposite of a labyrinth.
Figure 6: In the “Heart of the Empire”
Another effect becomes obvious in studying an old map of the City. Entering one of the old City gates and proceeding by following a simple rule which says: always take the longest line available (without going back on yourself), one will very soon quasi-automatically end up at a line from which the Bank interchange, the old City centre, can be seen. In this system, any stranger is led right to the heart of the city. Actually, in former times, this was a highly symbolic place, usually regarded as synonymous to the “Heart of the Empire” (there is a painting of the site by Niels M. Lund with the same title with Saint Paul’s Cathedral (figure 6) in the centre). Among the European cities London was probably unique in its centre not being the seat of some worldly political or religious power but of money and finance.
Would the introduction of a Financial Transaction Tax or stronger financial regulation in the UK mark the end of London’s predominance? Is the announcement of major banks that in these cases they might shift activities from London to places outside Europe a credible threat? How are the prospects for Frankfurt and other financial places to take the lead in Europe?
This first analysis of the key elements of cultural identity in financial markets gives no clear answer but some clues. From history, there are two kinds of lessons to be learned. One emphasises the importance of unforeseeable events and developments, of what economists call “historic accident”. In the past, a big storm, or a war could easily change the course of events and condemn a financial centre to future meaninglessness and oblivion. These days, in the age of electronic trading from every place in the world, highly complex financial products and relations, and regulatory competition between nations and regions the challenges may lie elsewhere.
Another lesson from history which at first glance is in contradiction to the first one is persistence. The British Empire is long gone, weights in world politics have shifted, but the structure of financial centres and peripheries in Europe has seen few changes – at least at the top of the hierarchy – and London’s position as Number One regional and worldwide is in many respects uncontested. Maurice Halbwachs’ work on collective memory may offer an explanation for this observation which concerns the role of time in the construction of social facts. Many influences on the attractiveness of a financial centre are long-term, perpetuating themselves through rites, myths and other elements of the construction of cultural identity. They are self-reinforcing, easily leading to lock-in effects which give the place at the top of the hierarchy a sort of “first-mover advantage”. This makes for a lasting strong position – which is certainly not endangered by a new tax or another skyscraper elsewhere.