In October 2018 the Sheffield Political Economy Research Institute (SPERI) published a study on the impact of the financial sector of Great Britain and the City of London on the British economy.
The study by Andrew Baker, Gerald Epstein and Juan Montecino is titled "The UK's Finance Curse - Costs and Processes".
In it some impressive findings were published.
The study indicates that the UK economy would have performed much better if the financial sector would be smaller and be focused more on other productive sectors of the economy.
According to the SPERI study the financial sector has caused additional costs for Britain's economy. And with the study of SPERI such a quantitative evaluation was created for the first time. These costs are expected to amount to 4,500 billion British pounds for the period from 1995 to 2015. This is an average of 225 billion British pounds a year but it should be noted that the actual value has increased over time. [1] [1,p.1] [1,p.3]
Of the 4,500 billion British pounds 2,700 are attributable to the misallocation of resources. Investments and resources have been diverted from the real economy by the financial sector. And 1,800 billion of the 4,500 billion British pounds was accounted for by the 2008 global financial crisis after which governments poured large amounts of money into the financial sector. As a consequence it is stated that the GDP of Great Britain with a correspondingly lower financial sector would be 14% higher. [1] [1,p.1] [1,p.8]
The financial sector and the City of London are often described as profitable for the real economy. There is the narrative that the financial sector provides for investment, higher tax revenues and profits from exports. However as the SPERI study shows the UK financial sector and the City of London have ultimately caused more costs than benefits. [1,p.16]
For example the financial sector has also influenced the exchange rate of the British pound with its trade. And if the exchange rate develops incorrectly then the foreign trade balance of a country changes. In the case of an export surplus or an import deficit the work of the local employees is sold below value. And with an import surplus or export deficit the local workers are replaced by imports and end up unemployed.
The study suggests that Britain has a serious problem with the local financial sector and the City of London. Add to that the nominal costs and their share of the GDP which is growing. However governments independent of their party have demonstrably failed to reverse or at least stop this trend.
Despite these findings the UK continues to be listed as one of Transparency International's top countries. In the annual report the country reaches 80 out of 100 possible points. This puts Britain in 11th place among the least corrupt countries. [2] [1] New SPERI report: The UK’s Finance Curse? Costs and Processes 2018-10-05
http://speri.dept.shef.ac.uk/2018/10/05/uk-finance-curse-report/
http://speri.dept.shef.ac.uk/wp-content/uploads/2019/01/SPERI-The-UKs-Finance-Curse-Costs-and-Processes.pdf
http://speri.dept.shef.ac.uk/wp-content/uploads/2019/01/Appendix-FC.pdf
[2] CORRUPTION PERCEPTIONS INDEX 2018
https://www.transparency.org/cpi2018
According to the SPERI study the financial sector has caused additional costs for Britain's economy. And with the study of SPERI such a quantitative evaluation was created for the first time. These costs are expected to amount to 4,500 billion British pounds for the period from 1995 to 2015. This is an average of 225 billion British pounds a year but it should be noted that the actual value has increased over time. [1] [1,p.1] [1,p.3]
Of the 4,500 billion British pounds 2,700 are attributable to the misallocation of resources. Investments and resources have been diverted from the real economy by the financial sector. And 1,800 billion of the 4,500 billion British pounds was accounted for by the 2008 global financial crisis after which governments poured large amounts of money into the financial sector. As a consequence it is stated that the GDP of Great Britain with a correspondingly lower financial sector would be 14% higher. [1] [1,p.1] [1,p.8]
The financial sector and the City of London are often described as profitable for the real economy. There is the narrative that the financial sector provides for investment, higher tax revenues and profits from exports. However as the SPERI study shows the UK financial sector and the City of London have ultimately caused more costs than benefits. [1,p.16]
For example the financial sector has also influenced the exchange rate of the British pound with its trade. And if the exchange rate develops incorrectly then the foreign trade balance of a country changes. In the case of an export surplus or an import deficit the work of the local employees is sold below value. And with an import surplus or export deficit the local workers are replaced by imports and end up unemployed.
The study suggests that Britain has a serious problem with the local financial sector and the City of London. Add to that the nominal costs and their share of the GDP which is growing. However governments independent of their party have demonstrably failed to reverse or at least stop this trend.
Despite these findings the UK continues to be listed as one of Transparency International's top countries. In the annual report the country reaches 80 out of 100 possible points. This puts Britain in 11th place among the least corrupt countries. [2] [1] New SPERI report: The UK’s Finance Curse? Costs and Processes 2018-10-05
http://speri.dept.shef.ac.uk/2018/10/05/uk-finance-curse-report/
http://speri.dept.shef.ac.uk/wp-content/uploads/2019/01/SPERI-The-UKs-Finance-Curse-Costs-and-Processes.pdf
http://speri.dept.shef.ac.uk/wp-content/uploads/2019/01/Appendix-FC.pdf
[2] CORRUPTION PERCEPTIONS INDEX 2018
https://www.transparency.org/cpi2018
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