if finance continues to take a disproportionate number of the best and the brightest…

Howard Davies (Prof at Sciences Po in Paris) reflects on the continued growth in jobs at finance sector in UK.

Despite the crisis, policymakers continue to expect London to grow as a financial centre and absorb more jobs:

 

Bank of England Governor Mark Carney surprised his audience at a conference late last year by speculating that banking assets in London could grow to more than nine times Britain’s GDP by 2050. His forecast represented a simple extrapolation of two trends: continued financial deepening worldwide (that is, faster growth of financial assets than of the real economy), and London’s maintenance of its share of the global financial business.

These may be reasonable assumptions, but the estimate was deeply unsettling to many. Hosting a huge financial center, with outsize domestic banks, can be costly to taxpayers. In Iceland and Ireland, banks outgrew their governments’ ability to support them when needed. The result was disastrous.

Quite apart from the potential bailout costs, some argue that financial hypertrophy harms the real economy by syphoning off talent and resources that could better be deployed elsewhere. But Carney argues that, on the contrary, the rest of the British economy benefits from having a global financial center in its midst. “Being at the heart of the global financial system,” he said, “broadens the investment opportunities for the institutions that look after British savings, and reinforces the ability of UK manufacturing and creative industries to compete globally.”

That is certainly the assumption on which the London market has been built and the line that successive governments have peddled. But it is coming under fire.

He points to recent research which show how finance has cornered much of the jobs and the impact it has had on real economy.

Finally:

So, should Britons look forward with enthusiasm to the future sketched by Carney? Aspiring derivatives traders certainly will be more confident of their career prospects. And other parts of the economy that provide services to the financial sector – Porsche dealers and strip clubs, for example – will be similarly encouraged.

But if finance continues to take a disproportionate number of the best and the brightest, there could be little British manufacturing left by 2050, and even fewer hi-tech firms than today. Anyone concerned about economic imbalances, and about excessive reliance on a volatile financial sector, will certainly hope that this aspect of the BoE’s “forward guidance” proves as unreliable as its forecasts of unemployment have been.

Well the problem is not limited to UK alone but hitting quite a few economies like India too. The hype around how many jobs banking sector will create is worrying. There are already concerns over lack of quality labor in real economy jobs. A CEO running both basic business and financial service business, gets plenty of job applications for latter with hardly anything for former. So much so, people having education and work -ex or both in real sector want to love to financial sector. The idea that finance leads to quick money has not died down. And why will it dies down? People who have suffered from the financial crisis are not people who work in the financial industry, but people who gave their savings to the sector.

The sympathies towards financial sector continues. Most central bankers/regulators in the financial space across the world have huge interests in making sure the sector continues to grow. The value of a regulator/central banker is seen as how it can keep the markets growing and is ranked accordingly. Either these guys have been the ones responsible for propelling financial sector over real economy in the past or have served the sector. Even post their jobs, they look forward to gains from the industry wither via direct employment or indirectly getting favors..

The media hype around finance wizzies is huge which keeps the game going and growing..

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