Waiting for Eliot

Dateline 08 November 2006

Barring the most astonishing electoral upset in history, Eliot Spitzer will, by the time you read this, be governor-elect of New York. History will come to view him as one of the most damaging figures in the history of the state. It is difficult to imagine that he will, as governor, do anything to counter the damage he has already done to American business, or even that he would wish to do so. As governor, he will probably continue to make things much worse.

The business climate in the US has become very frosty indeed for major corporations. So far, this has been disguised by the economic boom. Next time the economy takes a downturn it will be a disaster, and three people are responsible: Eliot Spitzer, Paul Sarbanes, and Mike Oxley. The latter two are retiring from Congress, but Spitzer is moving up in the world.

The Sarbanes-Oxley corporate compliance law has created a simply enormous burden of regulation that is damaging the New York financial sector to the tune of many billions of dollars. It was one of two, rather silly, reactions to the Enron scandal. Silly because the malfeasance exposed by Enron was already illegal and its perpetrators have been convicted under existing laws. The other silly reaction, of course, was Eliot Spitzer’s vindictive campaign against business. (See here for a previous article on the subject)

His campaign began in 2001, so let us examine what has happened to New York’s role as a financial center in that time.

Of the IPO’s (initial public offerings) which raised over $1 billion last year New York, once the world beating dynamo of financial markets, had just 6.5% of the market. London had 26.4%. Surely, though, London has always been a huge market? Typically it turns over more than all other European markets combined. This is true, but throughout the nineties London, on a world scale, was in a very poor third place behind New York and Tokyo. In 2001, London just 8.7% of the IPOs raising over $1 billion and New York a whopping 59.1%.

This does not mean, of course, that companies will not wish to sell things to Americans, or even residents specifically of New York State. But it means that businesses will relocate their corporate HQs outside the US.

There was a trend in the 90s of major foreign-owned businesses wishing to float some of their shares in New York. This is sure to diminish, and some companies quoted partly in New York and partly elsewhere may decide to eliminate their New York listing.

This means that major, high paying, jobs at corporate HQs will transfer to London, Frankfurt, Geneva, and Hong Kong. Every one of those billion dollar deals earned huge bonuses for financial traders. That money is being spent in London, not New York. It is small businesses around London who are installing swimming pools and renovating second homes for brokers and traders.

The benefits to ordinary Americans of the billion dollar deals are sometimes difficult to trace. But they are very real. They affect your IRAs and 401(k)s. Ultimately, they affect your retirement income. Losing those deals has taken out of the American economy sums of money in the many billions of dollars.

So thank your new governor for me. People in London are very grateful to him.


Quentin Langley is editor of http://www.quentinlangley.net an academic at the University of Cardiff and is a columnist with Campaigns & Elections. This article was first published in the Common Sense series for Lake Champlain Weekly.

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