Sarah Hall (University of Nottingham)
Some of the most enduring images of the 2007-8 financial crisis were pictures of newly redundant investment bankers, previously labeled as ‘masters of the universe’ in Tom Wolfe’s 1987 novel The bonfire of the vanities, carrying cardboard boxes containing their personal belongings out of offices in Canary Wharf in the heart of London’s financial services district. Following the collapse of the US investment bank Lehman Brothers in September 2008, and the wider criticisms leveled at investment banks for their role in causing the crisis, it seemed that the enduring power of financial elites in the UK may be challenged.
However, in the years of austerity and recession following the crisis, financial elites in London have shown a remarkable ability to reproduce themselves. Indeed, as part of a resurgence in interest in elites, social scientists and the media have become increasingly concerned with studying and understanding individuals working in wholesale financial services. In terms of wider debates concerning the role of the very wealthy in shaping contemporary economic, social and political life, these financial elites form an important component of what Piketty and Saez (2006: 204) term the ‘working rich’ – individuals whose wealth does not derive from familial dynastic wealth or inheritance but is accrued through large personal remuneration packages and associated bonus payments.
Understanding the (re)production of these financial elites, through an examination of those working in London’s financial district, is instructive in terms of better understanding what it means, economically, culturally and politically to be an ‘elite’ in twenty first century Britain and the implications of this for other members of society.
What happened to financial elites working in the core financial services of investment banking following the 2007-8 financial crisis? It is notoriously difficult to estimate how many people are employed within financial and related services (such as accountancy and corporate legal services) in London’s financial district since the occupational categories of official labour market statistics do not map neatly onto the City. That said, figures do show significant job losses in financial services following the financial crisis of 2007-8. For example ONS figures show that there were 50,000 financial and related professional services job losses between 2007 and 2010 and by 2012, employment in these sectors was still 3.7% lower than its peak in 2007.
However, from 2012 onwards in particular, the number of people working in financial and related professional services has recovered. Figures from the London Employment Survey show that in 2014, a record 703,900 people in London are employed in financial and related professional services, 11% higher than in 2010 and 2% higher than the pre-crisis employment peak in 2007. However, the numbers only tell us part of the story. It is through interrogating what these people are doing and how they understand their work – their socio-economic practices – that we start to gain real insights into the changing nature and role of the working rich in financial services in London’s financial district.
In this respect, the nature of financial services work has changed significantly and these changes reflect important changes in the operation of the international financial system and the role of London within it. Until the mid 1980s, London’s financial district was known for its relatively homogeneous socio-economic make up in which bankers typically fostered trust based relationships on the basis of shared educational backgrounds, or ‘old boys networks’ associated with a small number of public schools and Oxbridge.
Following the significant deregulatory reforms undertaken by the Thatcher Government in 1986, collectively known as Big Bang, the City of London began to internationalise with much of its activity becoming focused on the US investment banking model. US investment banks such as Merrill Lynch and Morgan Stanley opened UK operations and British and European merchant banks changed their business models to follow their US counterparts. This meant that banks moved beyond the relationship model that had dominated merchant banking in the City in which the emphasis was on offering advice to corporate clients and supporting their mergers and acquisitions activity to develop a range of new products and services, notably derivatives and securities that were at the heart of the cause of the financial crisis.
As a result, changing recruitment demands in terms of the need for more staff and a greater emphasis on quantitative financial skills led to banks hiring beyond their established connections with Oxbridge. In particular, a growing number of individuals were hired with higher degrees in mathematics and related subjects as the internal labour markets within banks became increasingly segregated between technical and client facing departments. Questions still remain as to whether these changes have led to a more meritocratic City since other markers of social and cultural capital, notably MBA degrees from leading business schools, have replaced those historically associated with school background and recruitment remains limited to a small number of elite universities. Nevertheless, the trend towards a greater diversification of roles has continued with private equity funds, hedge funds and private banking increasingly operating alongside the historically dominant investment banks in the contemporary City of London.
These changes raise important questions about the nature of financial elite power. Questions of power have long dominated the study of elites. Indeed, power is often used as a way of defining elites. For example, in Sklair’s (2001) work on the transnational capitalist class, he argues that this group of transnational elites derives their power from their ability to control significant economic resources. However, in a detailed treatment of the different forms and geographies of power, Allen (2003) makes an important distinction between this form of power, which is held by one group and then exercised over others, and what he terms ‘power through mobilization’ in which power only emerges through social practices and interaction. Drawing on Allen’s work, a distinction can be made between the old boys networks that dominated financial services in the City up until at least the 1980s in which power was a form of capacity to act that was held by individuals working in financial services by virtue of their shared social and economic backgrounds, and the contemporary financial services labour markets in London in which the power of financial elites emerges through their role in choreographing the international networks of finance associated with the derivative based financial products that were at the heart of the 2007-8 financial crisis.
The role of financial elites in choreographing these international financial networks has had important implications for their reproduction in the wake of the financial crisis. At one level, the networked form of power has prevented financiers in London singling out key individuals as scapegoats for more systemic regulatory failures as happened in previous crises such as the role of Nick Leeson in Barings Bank in the late 1990s. At another level, the international reach of these networks has also prevented the crisis being framed as a geographically distant problem, as happened in the Asian financial crisis of 1997. However, simultaneously, the networked form of power that has emerged amongst the working rich in the City following the crisis has also been central to their ability to reinvent themselves as new forms of financial intermediaries in the wake of the crisis – a reinvention that is self-consciously less conspicuous in its external presentation than finance was in the boom years of the 2000s.
For example, one of the most significant changes in the financial sector within the City of London has been the transformation of ‘private banking’ into a ‘wealth management’ industry. Private banking has a long history in London. Private banks typically provided bank accounts and limited investment advice to individuals who had accrued their wealth through inheritance, land and property ownership. However, following the deregulation of international finance from the 1970s onwards, the sources of private wealth have increased substantially and a financialised business model has developed within what has become known as the ‘wealth management industry’. This industry involves historic private banks, who have changed their business models, but also includes law and accountancy firms and hedge funds and private equity partnership who seek to offer advice and investment opportunities to the most wealthy in society in order to protect and increase the value of their private wealth.
In so doing, the industry makes considerable use of offshore financial centres, notably Switzerland and Singapore, but it is also reworking the fabric of London’s financial district. For example, whilst the 1980s and 1990s saw the expansion of the historic City of London eastwards to the now iconic skyscrapers of Canary Wharf, the City is currently expanding westwards into Mayfair. However, this time, the expansion is deliberately taking place into buildings that show no external branding or signs of being part of the world of high finance as both clients and service providers seek to actively downplay their activities to the outside world. However, this expansion is significant and has led to the designation of Mayfair as London’s luxury quarter in a recent report by the property consultants Jones Lang LaSalle.
Developments such as this signal the ways in which suggestions that the power of financiers would decline within the UK’s political and cultural economy following the 2007-8 financial crisis were premature. Instead we have witnessed the (re)production of this elite group through the development of new financial services and practices that are characterized by a different modality of power in which power emerges through financial services practice rather than being primarily held by virtue of socio-economic background. The resulting networks of financial elites are frequently being developed in ways that try to escape the regulatory, public and political spotlight. However, these networks of financial elites need to be studied and better understood if we are to enhance our understandings of an important group of elites – the ‘working rich’ in financial services in the contemporary UK economy.
Allen, J. (2003) Lost Geographies of Power (Oxford: Blackwell).
Piketty, T. and Saez, E. 2006. The evolution of top incomes: A historical and international perspectives. AEA Papers and Proceedings 96: 200-205.
Sklair, L. (2001) The Transnational Capitalist Class (Oxford: Blackwell).
Sarah Hall is Reader in Economic Geography at the University of Nottingham. She previously taught at Loughborough University and studied at the Universities of Cambridge and Bristol. She has published research on the changing nature of work and elite labour markets within London’s financial district. In 2015, she will take up a British Academy Mid-Career Fellowship to undertake research into RMB internationalization in the City.