Is a Large Finance Sector a “Curse”?

Over at Open Democracy, Nicholas Shaxson from the Tax Justice Network argues provocatively that:

Countries rich in minerals are often poverty-stricken, corrupt and violent. A relatively small rent-seeking elite captures vast wealth while the dominant sector crowds out the rest of the economy. The parallels with countries ‘blessed’ with large and powerful financial sectors are becoming too obvious to ignore.


How do we explain this ‘curse?’ The explanations fall into three main categories. First is the so-called “Dutch Disease.” Large export revenues from oil, say, cause the real exchange rate to appreciate: that is, either the local currency gets stronger against other currencies, or local price levels rise, or both. Either way, this makes local manufactures or agriculture more expensive in foreign-currency terms, and so they lose competitiveness and wither. Much higher salaries in the dominant sector also suck the best skills and talent out of other sectors, out of government, and out of civil society, to the detriment of all. Overall, the booming natural resource sector ‘crowds out’ these other sectors, as happened when many oil producers saw devastating falls in agricultural output during the 1970s oil price booms.

Finance-dependent economies, it turns out, suffer a rather similar Dutch Disease-like phenomenon, as large financial services export revenues in places like the United Kingdom or the tax haven of Jersey raise the cost of housing, of hiring educated professionals, and the general cost of living. A Bank for International Settlements (BIS) study last year found that finance-dependent economies tend to grow more slowly over time than more balanced ones, and noted that, by way of partial explanation, ’finance literally bids rocket scientists away from the satellite industry’. My short Finance Curse e-book, co-authored with John Christensen, provides plenty of detail on this.

A second standard explanation for the Resource Curse is revenue volatility. Booms and busts in world commodity prices and revenues can destabilise the economies of countries that depend on them, further worsening the crowding-out of alternative sectors…Again, there are close parallels with the financial sector, a source of great volatility, as the latest global financial crisis shows. Britain’s industrial base, decimated by (among many other things) over-dependence on the financial sector, is proving slow to recover, post-boom.

The third category for explaining the Resource Curse – the biggest, most problematic, and the most complex – falls under the headline ‘governance’.


When easy rents are available, rulers lose interest in the difficult challenges of state-building, or the need for a skilled, educated workforce, and instead spend their energies competing with each other for access to a slice of the mineral ‘cake’…[this]…can also lead to great corruption as each player or faction in a government knows that if it does not act fast to snaffle a particular mineral-sourced financial flow, another faction will. This is the recipe for an unseemly, corrupting scramble.

The financial sector…contains a multitude of potential sources of easy ‘rents’. A secrecy law, for instance, has long been a source of rents for Swiss bankers, who haven’t needed to do much else apart from watch the money roll in. More grandly, the network of British-linked secrecy jurisdictions scattered around the world, serving as ‘feeders’ for all kinds of questionable and dirty money into the City of London, is another big source of rents for the financial sector


Another source of the trouble in resource-rich states is that when rulers have easy rents available, they don’t need their citizens so much to raise tax revenues. This top-down flow of money undermines the ‘no taxation without representation’ bargain that has underpinned the rise of modern, accountable states through the rise of a social contract based on bargaining around tax, and through the role that tax-gathering plays in stimulating the construction of effective state institutions. If the citizens complain, those resource rents pay for the armed force necessary to keep a lid on protests…we…see some surprisingly repressive responses to criticisms of the financial sector and the finance-dominated establishment, particularly in small tax havens like Jersey, as Mike Dun’s article in this edition – along with the main Finance Curse e-book and my book Treasure Islands – repeatedly illustrate.

All these processes – the economic crowding-out of alternative economic sectors such as agriculture or tourism, plus the ‘capture’ of rulers and government by the dominant mineral sector, who become apathetic to the challenges posed by trying to stimulate other sectors – add up to a mortal threat not just to democracy, but also to the long-term prospects for a vibrant economy.

Dumb reasons people have had their benefits docked

This Tumblr collects some of the worst reasons. For example:

You get a job that starts in two weeks time. You don’t look for work while you are waiting for the job to start. You’re sanctioned.

You are forced to retire due to a heart condition, and you claim Employment and Support Allowance. During your assessment you have a heart attack. You are sanctioned for not completing your assessment.

I’m all for the idea that those claiming benefits but in our pursuit of a small number of ‘scroungers’ we do seem to lost all sense of proportion when it comes to welfare.

Hat tip: Tom Wein

Was Galileo offered a job at Harvard University?


One of my holiday snaps of Harvard yard

The Right Nation by John Micklethwait and Adrian Wooldridge includes this impressive passage explaining why the notion of America as young country is nonsense that also includes this impressive fact:

Start with the idea that the United States can no longer really be regarded as a “new nation.”  There is no doubt that America is singularly lacking in ancient chateaux and schlossen…But this scarcely constitutes evidence of youth.  The first settlers arrived when James I was on the throne and England was not yet Britain.  Galileo was offered a chair at Harvard University, which was founded in 1636, before Charles I had his head cut off.  The Declaration of Independence was signed a century before the unification of both German and Italy…Many of the traditions which define Britain as an old country in the minds of admiring Americans — the pomp and circumstance of empire, the rituals of Charles Dickens’s Christmas, Sherlock Holmes’s deer-stalker hat – were invented a century after the American constitution.  “The youth of America is their oldest tradition,” Oscar Wilde quipped more than a century ago. “It has been going on for three hundred years.”

The problem is I don’t think the bit about Galileo is true. Galileo died six years after Harvard was founded, so it’s not wholly implausible. However, the sources I’ve been able to find saying it is, lead back to Mickelwait and Wooldridge and they don’t cite a source for their claim. And a commenter in this forum discussing the claim raises the following seemingly pretty convincing objections:

the early Harvard College’s emphasis was on producing “literate [Protestant] ministers,” so they probably had no interest in bringing someone like Galileo on board…[and]….at its founding in 1636, Harvard College had “nine students with a single master,” so they probably weren’t looking to spend money on recruiting foreign professors from abroad.

Still as it would be such a great fact if it was true, I’m not abandoning hope altogether. Anyone know the truth one way or the other?

Another Reason Not To Fear Amazon

The Dish


Sorry Franzen, indie booksellers are actually doing quite well in the Amazon age. The real victims are the chain bookstores:

Borders is long gone. Barnes and Noble isn’t in the best health. And Waterstones in Britain has started selling Kindles. The reason? There is very little difference between big, impersonal chain stores selling books and a big, impersonal website selling books. Independent retailers, on the other hand, have a lot to offer that Amazon cannot: niche coffee, atmosphere, serendipitous discoverability of new titles and authors, recommendations from knowledgable staff, signings and events, to name a few.

Similar to what live shows still offer to indie musicians that iTunes can’t. Publishers’ Weekly found that this past summer was “one of the best” for many non-chain bookstores, especially family-friendly ones:

According to PW’s informal post-Labor Day survey of summer sales, even without the Hunger Games trilogy, most independent bookstores…

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James Hunt and Niki Lauda were ‘good friends’


At least according to the Guardian’s resident debunker of historically dodgy films, who compares Rush‘s version of events with the reality.

Hunt meets Niki Lauda (Daniel Brühl) when they’re both racing Formula Three. Hunt is all hunky blond entitlement, champagne-swigging and recklessness; Lauda is disciplined, obsessive and – as everyone keeps reminding him – kind of ratty-looking. They’re also both supremely arrogant alpha males, and loathe each other on sight. In fact, judging by Gerald Donaldson’s biography of Hunt, their rivalry was quite friendly. Hunt won a Formula Two race against Lauda at Oulton Park in 1972; Donaldson notes that Lauda and another driver, Ronnie Peterson, congratulated him and “were genuinely happy to see James finally get a share of the success they felt he deserved”. Hunt – who was not in the habit of sugar-coating anything he said to the press – said: “I got on very well with Niki and always had done since we first met in Formula Three and gypsied around Europe together. We raced against each other but we also teamed up as mates, not just casual acquaintances.” To be fair, accuracy on this point would make for a much duller film.

Philip Marlowe was named after a house at Dulwich College


The quintessential hard boiled detective was the creation of Raymond Chandler. Despite being born in Nebraska, Chandler was educated at Dulwich College and was a civil servant before he started writing noir stories.  When he had to choose a name for what would become his most famous creation, he opted for the name of one of the houses at Dulwich. I can’t be alone in finding that rather incongruous.

Why are comics such an effective way to explain depression?


This wonderful collection of comics about depression brought together by Buzzfeed has been doing the rounds on facebook for a number of days now. It includes this classic post from Hyperbole and a Half on depression, which is the best thing I have ever seen online.


Despite being so prevalent that it is described as ‘the common cold’ of mental illnesses, depression seems to rarely show up on screen. I’m also underwhelmed by most of the written accounts of the condition. My guess would be that these mediums struggle because at a given moment the experience of someone with or without depression are not that different. Feeling sad, tired, apathetic or lacking in self esteem are a regular occurrence for ‘healthy’ people too. The distinction is that a depressed person faces these emotions with stultifying monotony.

That makes for terrible TV or cinema. While somebody suffering from hallucinations or a panic attack is unusual and therefore dramatic, somebody doing ordinary things with less energy and joy is not. Nor does writing tend to be an adequate tool for capturing the numbing normality of depression.

Comics, however, are ideal. The world of comics is often weird and so is having depression. They also thrive on making the abstract real. They make the metaphorical representations of the illness as real for others, as they are for the sufferers who devised them: a figurative black dog becomes real and we can understand what it is like to constantly be pursued by a spectre bent on disrupting your life.

Comics are often thought of as a trivial medium but in discussing depression they are doing serious work. They allow the authors a way to express their pain. They let fellow sufferers know they are not alone. And most importantly it gives ‘healthy’ people a way to decode the bewildering experiences of those with the illness.

Incredibly fast and extremely loud – how Rush shreds the sports film rulebook


Watching F1 in reality is like being a spectator for hours of someone else playing scalextric. By contrast, watching F1 in Rush is such a visceral experience that in the cinema I was in virtually the whole audience was flinching and gasping at every bend on the track.

Director Ron Howard has managed to break what is close to an iron rule of cinema: sports films can never really be about the sport. It’s always been a problem for anyone making such a film that watching actors play a sport will almost invariably be less impressive than when professional athletes do it. So films have to minimise the amount of time they show the sport in question actually being played.  My favourite sport’s film the Damned United is notable for the fact that throughout it’s running time a ball is barely ever kicked in anger. And generally this is all to the good. Had the Damned United been about football it would have bored me but it’s about characters and their struggles.

Rush sticks with the character element. It is first and foremost about the personal and professional clash between James Hunt and Niki Lauda. But rather than having to work around the race scenes, these are integral to Rush. In fact, the extended reconstructions of the disastrous race at the Nurburgring and the finale at the Tokyo Grand Prix are probably the best scenes. They are certainly the most exciting.

Howard turns the rule on its head: making film sport better than the real, and turning what is in most hands a weakness into the great strength of his film.