Globalised Financial Services

Philip Booth says this today:

Let us go back to 1913 when financial markets were, arguably, at least as globalised as they are today. The main sources of regulation in financial markets were private - administered through the stock exchange. Even the Bank of England, though given special powers in the middle of the 19th century, was a private body. Markets generated their own regulatory systems, which evolved to meet changing circumstances. Booms and busts happened, but rarely, and were often preceded by monetary policy mistakes.

Leave aside the regulation part and think only of the globalisation part. I think it would be fair to argue that the global financial markets were more integrated in 1913 than they are now.

Indeed, there's a paper being offered at this coming weekend's Economic History Society meetin which states exactly that:

Britain dominated European services such as finance, banking, cables (the contemporary world wide web of business communication) and ship transport, while Germany was becoming more dominant in older industries such as coal and steel. Both in traditional industries (like cotton, silk or watches) and new industries (like electricity, rayon, chemicals, aluminium, automobiles, high-tech ships and branded goods) trade and production statistics suggest European markets were then more fully integrated around 1900 than under the modern European Union.

And the thing that really amuses me about how it all worked out last time we had a (more) integrated global economy is that the same places specialised in the same things. Germany in heavy industry and manufacturing, Britain in finance.

Quite why this should be might be interesting to find out. What is it about the differences between the two places that provide them with their comparative advantage? Language perhaps? The legal system? I wouldn't buy that nebulous "cultural differences" thing because German banks, staffed by Germans, arrive in London and act like London banks.

But it would be fascinating to find out why the system repeats itself in this manner, wouldn't it?

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