For decades we have been told that Britain's prosperity depends upon the success of the City of London. Politicians celebrate financial services, economists praise the markets, and the media repeats the idea that finance is Britain's greatest economic strength.
But what if the opposite is true?
In this conversation, I am joined by John Christensen, co-founder of the Tax Justice Network and creator of The Spider's Web, to discuss his new documentary, The Finance Curse. Together we explore the evidence that countries with oversized financial sectors often perform worse, not better.
We discuss why excessive finance can reduce investment, weaken manufacturing, increase inequality, undermine productivity and distort democracy. We also examine the links between tax havens, financial power and political influence, and ask whether the City of London has become too powerful for Britain's own good.
This is not an argument against finance itself. Every modern economy needs an effective financial system. The question is whether finance should serve society or whether society has increasingly been organised to serve finance.
If you have ever wondered why Britain has experienced stagnant productivity, widening regional inequality and declining public investment despite having one of the world's largest financial centres, this conversation offers an alternative explanation that deserves serious attention.
This is the audio version:
There is no Debate Ammunition for this video. However, there is a related infographic here.
There is no transcript for this video, but this is my summary:
In this podcast, I was joined by my long-standing friend and colleague John Christensen to discuss his new documentary film, The Finance Curse.
John is well known to many readers and viewers through his work on tax justice and, of course, through The Spider's Web, his landmark documentary on tax havens, which has now been viewed millions of times.
His new film took the argument much further. Instead of looking only at tax havens, it asked a much bigger question: what happens when the financial sector becomes so large and politically powerful that it comes to dominate an economy?
John argued that this is what he and others have come to describe as the finance curse. It is an idea that emerged from years of research into the UK economy and the role of the City of London, but it has implications well beyond Britain. The same pattern can also be seen in countries such as the United States, where finance has become increasingly dominant over the last four decades.
The central claim is surprisingly simple. We are constantly told that finance is the goose that lays the golden eggs; that Britain's prosperity depends upon the success of the City of London. Politicians repeat the claim, the financial press reinforces it and most economists accept it as fact. But when the evidence is examined, a very different picture emerges.
John explained that countries with unusually large financial sectors consistently underperform in many respects. Productivity growth slows. Investment in productive business declines. Manufacturing weakens. Skills and education suffer. Regional inequality grows. Public infrastructure is neglected. Living standards stagnate for many people even while enormous fortunes are accumulated within finance itself.
The question, then, is obvious. If finance is supposedly creating so much wealth, why are so many of the indicators of national wellbeing moving in the wrong direction?
That contradiction lies at the heart of the finance curse.
John described how the concept developed from his experience working in Jersey and later from research undertaken with colleagues, including work carried out at Sheffield University. Looking carefully at the data revealed something that conventional economics had largely ignored. Finance is not simply another industry. Once it grows beyond a certain size, it begins to extract resources from the rest of the economy instead of serving it.
Instead of allocating capital efficiently, it increasingly attracts the country's brightest graduates into trading, tax planning and financial engineering rather than into science, engineering, medicine, education or productive business. Instead of funding innovation, it becomes preoccupied with speculation and asset inflation. Instead of supporting economic activity, it often profits from instability itself.
As John noted, this changes the nature of the economy. Finance ceases to be a servant and instead becomes the master.
That point led naturally into a discussion of the political consequences. A financial sector that controls enormous wealth also acquires enormous political influence. Governments become reluctant to regulate it. Ministers repeat its arguments. Public policy is increasingly designed around protecting financial markets rather than serving the wider economy.
This is not accidental. It reflects the extraordinary concentration of economic power that develops once finance becomes dominant.
The result is an economy that increasingly serves itself rather than society.
We discussed how this has affected Britain in particular. For decades governments have celebrated the City of London as one of the country's greatest successes. Meanwhile, manufacturing has steadily declined, regional inequalities have widened, and investment outside London has repeatedly lagged behind that in comparable economies.
These developments are often treated as unrelated problems. John argued that they are closely connected. The finance curse provides the framework that links them together.
The discussion also explored the relationship between the finance curse and tax havens. John's earlier work demonstrated how secrecy jurisdictions helped finance escape democratic control. The new film shows that these offshore centres are not separate from the mainstream financial system. They are an integral part of it.
Tax havens allow wealth to be hidden, regulation to be avoided and profits to be shifted. They strengthen financial power while weakening democratic accountability. In other words, they reinforce every feature of the finance curse.
An important part of our discussion concerned the way these ideas have entered public debate. When John first began making these arguments, they were regarded as highly controversial. Today they are increasingly supported by academic research from a wide range of disciplines. Economists, political scientists and development specialists have all found evidence that excessively large financial sectors can reduce rather than increase economic performance.
That shift matters because it changes the conversation. The issue is no longer whether finance contributes to economic prosperity. Of course it does. Every successful economy requires an effective financial system. The real question is how large that system should become and who it should serve.
John was very clear on this point. The objective is not to abolish finance but to restore it to its proper role.
Finance should support productive investment. It should help businesses grow. It should enable households to save safely. It should facilitate trade and innovation. It should not become an industry whose primary purpose is generating wealth for itself through speculation, rent extraction and political influence.
Towards the end of the conversation, we reflected on why this argument matters now more than ever. Britain faces stagnant productivity, crumbling public services, regional inequalities and persistently weak investment. Conventional economic policy offers few convincing explanations for why these problems continue despite repeated promises that growth will eventually return.
The finance curse offers a different way of understanding what has happened. It suggests that many of these problems are symptoms of the same underlying disease: an economy that has become unbalanced because finance has acquired far too much power.
John's new documentary seeks to make that case in a way that reaches audiences well beyond academic journals and policy papers. Like The Spider's Web before it, the aim is to explain complex economic ideas through compelling storytelling and accessible evidence.
That matters because understanding the finance curse changes the questions we ask. Instead of assuming that whatever benefits finance must automatically benefit the country, we begin to ask who actually gains, who loses and whether finance is fulfilling the purpose it ought to serve.
Those are questions that every democracy should be asking. John's film will make a persuasive case that they can no longer be ignored.
The film will launch on 8 September, and I will provide further information before then.
It will be available online, free of charge, thereafter, but copies will also be available for private and public screenings.
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If the City of London makes £1-million, I would want to know:
1. Who has lost that £1-million, can they afford to do so, and is there a net benefit?
2. What goods are produced, if any, and where is the net benefit?
3. How do I benefit from the success of the City of London.
Good questions
If the “finance curse” arises partly because financial capital has become detached from the long-term needs of society, then we must reconnect it with those needs.
As I’ve argued before, we should develop public-private partnering and alliancing models in which public bodies, private investors, communities and other stakeholders combine their resources around clearly defined, long-term social and economic objectives. Investors would receive fair and sustainable returns, but those returns would arise from creating enduring social value rather than simply extracting financial value.
Such arrangements could bring together public funding, institutional investment, community capital and private expertise, with risks and rewards shared according to the contribution and responsibilities of each participant. Long-term objectives, social outcomes, environmental sustainability and financial returns would be agreed from the outset and monitored transparently.
To make this possible, society needs to:
develop standard legal and financial frameworks for public-private-community partnerships;
create investment vehicles capable of combining different sources of capital;
establish clear measures of social, environmental and economic value alongside conventional financial returns;
encourage pension funds and other long-term investors to invest in productive, place-based projects;
develop professional skills in collaborative project management, rather than relying solely on conventional procurement;
use public policy and regulation to reward long-term value creation and discourage purely extractive financial behaviour; and
demonstrate the approach through practical pilot projects at local and national level, for example by rescuing local amenities declared to be Assets of Community Value.
The objective should be to make finance serve society again: mobilising capital not simply to generate financial returns, but to build the productive capacity, infrastructure, communities and environment on which those returns ultimately depend.
Thanks
We share economic goals.
And thank you for giving us all the opportunity to save the World before breakfast! Hitherto, partnering and alliancing have been used particularly for major engineering and construction projects because the received wisdom has been that only big organisations can muster the resources to deal with the extra management tasks involved. I’ve always doubted this, but with the increasing use of AI to automate many of the processes used in project management there is now no justification for restricting this kind of collaborative working to major projects. Local communities now have access to the tools to make their case for collaboration with investors, and not submit to exploitation.
I like that
This is a description of the collaborative institutional architecture involved in the “Investing in Ourselves” proposition which is being advocated in Scotland by me and the Scottish Currency Group in collaboration with William Thomson and Scotonomics/Resilient Economy
Glad to hear that. I wasn’t aware. I thought I was shouting in the dark. I wish you well with it, and I hope an equivalent initiative gathers pace in England. It’s “politics of care” in action, if it takes off.
So, to summarise:
“Once [finance] grows beyond a certain size, it begins to extract resources from the rest of the economy instead of serving it.” It becomes a cancerous parasite.
That’s where we are.
[…] To support this morning's podcast, I have written this infographic: […]
Do we have any distribution/availability details on John’s documentary yet please?
It is launched on 8 September.
It will then be available on YouTube.
I will keep you posted on how to get showings.
Thx.
Thanks for a pressingly important article
Might it be of interest/ use to know the amounts of money given by the City of London and other financial entities, directly and indirectly, to politicians and political parties?
Might it be of interest/use to juxtapose any increase in the size/powers of the U K financial sector with the increase in the proportion of U K children who lack consistent health sustaining food, which has now risen to some 27% of the child population?
P S Where is chronic child hunger on Mr Burnham’s list of priorities?
132nd
Agreed.
All the City has done under the abuse of the English language is not ‘make money’; all they have done is move money already made by real work around – and increasingly away from the many to the few. That has resulted in the un-functioning economy that we have. The GDP they make is other people’s output they have stolen.
Think of all the big fat fees they have charged for privatisations and buy-outs, the acquisitions; then all the ‘efficiency savings’ (jobs lost, wage reductions, monopolies, asset stripping created etc).
I wish John well and felt as good to be in his presence in Cambridge as I was yours with his new film and look forward to seeing it – somewhere, somehow in a country that seems to have already made its mind up what the problems are (immigration, too many benefits and other ‘bollocks’).
A curse? Absolutely – but there is nothing mythical or magical about what how this has come about OK? What there has been is sustained collusion and corruption with and of the state and bodies such as the legal and accounting services who have a lot to answer for. This curse can be broken, for sure if there is a desire to do so – there no spells or incantations needed. Just an application of justice and the rule of law.
Much to agree with
Thanks for this Richard. Very good explanation – hope it gets widely publicised – but fear BBC and MSM wont touch it with a barge pole. Piketty summarises it this way:<p>
” Piketty’s View on Finance Capital<p>
Thomas Piketty argues that finance capital plays a significant role in the concentration of wealth. He posits that when the rate of return on capital (r) is greater than the rate of economic growth (g), wealth tends to accumulate more rapidly among the top earners. This dynamic leads to increasing inequality over time, as the wealth generated from capital outpaces income growth from labor. ” <p>
The beauty of the Christiansen account is the precise detail of how over- developed finance capital executes Marx’s ‘capitalism destroying itself”
Thanks
I worked in the finance sector for a few years, but have found it more rewarding working in other sectors.
There are good parts – regulatory teams held at arms length, investment in staff learning, good pay, and many genuinely trying to create systems that are useful and not just about value extraction. Having said that, when mathematicians and physicists can get 5-10x as much in finance compared to other sectors, it’s hard to dispute that they will tend to be able to pick and choose from the best graduates.
The sector does have issues with elitism, and with promoting money over social responsibility. It tends to increase inequality as most of the boost to GDP benefits the wealthy.
Where it delivers wider value is where it reduces borrowing costs, liquidity concerns, foreign exchange risk, and so on. However, even there you see consequences. For example, making it easier to borrow to buy property led to a generation benefiting from accelerating house price rises and unearned wealth while the generations after see prices so high they still struggle to buy property. Foreign exchange hedging to allow business planning has also supported rampant speculation on prices. Some people have become exposed to excessive borrowing and vulnerable to any increase in interest rates.
It is therefore necessary that there is suitable legislation to protect people from abuses by the system. For example, cheap borrowing enabled right to buy to eliminate most social housing, and that needs to be rolled back by increasing social housing. This could include house-building, but it could also include other thinking like bona vacantia properties being reassigned for social housing (directly or selling to buy other properties).
Might the 1986 deregulation of the London Stock Market have significantly harmed the U K industrial sector and advanced U K financialisation?
Yes. That was the moment the Finance Curse was set in deliberate motion.