Whether Scotland votes Yes or No to independence, we are witnessing the beginning of London’s decline as a global financial centre. And in a strange way, Australia may benefit from the fallout.
If there is a Yes vote, then London is clearly greatly weakened. But even if there is a No vote the repercussions will cast a doubt over London as a financial centre. London is surrounded by the European morass and has lost its manufacturing base. North Sea oil is running down and if Scotland votes to go independent, it will have the job of cleaning it up.
And for the Scots, there is a double tragedy. Just as the Quebec separatist movement many decades ago ended Montreal’s dream of being a major financial centre, even if there is a No vote, Edinburgh will decline as a financial centre.
The simple fact for London and Edinburgh is that the centre of the business world is shifting either to the US and, with even more momentum, to Asia. And so the beneficiaries from the decline in London will be both America and Asia.
Australia has the chance to have an increased slice of the Asian action. We are already seeing unprecedented Chinese and Asian money pour into our two largest cities, Sydney and Melbourne. The Chinese investment in Melbourne has been much greater than anyone thought possible.
Part of London’s problem is that the British capital is becoming much more insular. It does not understand that the tide is moving against it.
When BHP told the London institutions that it was planning to float Newco, the institutions turned up their noses, saying that they would only invest in BHP asset spin-off if Newco was on the index.
So when the London institutions said they were not interested in the stock, BHP decided not to list London, as it had originally planned. That caused much gnashing of teeth by the institutions, which then changed their mind and declared that they were now prepared to invest in Newco even though it would be listed on the secondary market and not be an index stock.
BHP then reverted to its original plan: Newco will be listed in London. However, the indecision in London is symptom of much deeper malaise— the index rules should have changed, had London been alert.
At some point in time, Rio Tinto will realise that while it is nice for its executives to have an inner-London head office, it is not productive to be so far away from the action.
Indeed it can be dangerous, because as we saw with Newco, London is no longer a centre of mining expertise.
Meanwhile on a wider stage, the fact that there is a Scottish vote is a precursor as to what may well happen in Europe.
If Scotland does break away (my guess is that it won’t), then it will have to change currency and incur the inevitable financial misery that will go with such a move. That is what is likely to happen in Europe, because a common currency does not suit a broad tapestry of countries.
Scotland may peg itself to the pound in the short term but the inevitable Scottish decline that will come with independence makes such a link unsustainable. But in these difficult times we are likely to see more European communities want to establish their own identity, even though it will result in a lower standard of living. The mere fact that there was a Scottish vote will encourage separatists in other European countries.