by Michael Elliott
They tend to be an optimistic lot, the bankers and business leaders, politicians and pundits, who every year make their way to the annual meeting of the World Economic Forum in Davos, Switzerland. Those who have power and influence often have much to be optimistic about, to be programmed to lift up their eyes to the hills — of which Davos has plenty — and see more prosperity coming their way.
This year’s meeting, which starts on Jan. 23, might be a little different. Thoughts may be in the valley rather than the hills. A year ago, subprime had not entered the lexicon of the nightly news, and most Americans probably thought that "credit crunch" was a breakfast cereal. We all know better now. In the wake of the report that December’s U.S. unemployment rate had jumped to 5%, the highest level in two years, the Bush Administration and Congress, Republicans and Democrats, started falling over themselves trying to find a politically acceptable stimulus package. With a recession in the American economy looking to be imminent, the tireless locomotive of the global economy seems finally to have run out of puff.
How serious are the consequences likely to be? Much more could go wrong: a collapse of the dollar, or of U.S. consumer confidence as house prices continue their fall. But on balance, the denizens of Davos would be well advised to keep up their sunny spirits. Taking the long view, the global economy is at a remarkable moment. Whatever the chance of a recession this year, the U.S. has experienced what the economist and former Under Secretary of the Treasury for International Affairs John B. Taylor of Stanford University calls a "long boom" since the Fed started to squeeze inflation out of the system in 1979. For nearly 30 years, Taylor points out, the few downturns the U.S. has suffered have, in historical terms, been both short and shallow. Even more extraordinary is the tale outside the U.S. According to the World Bank’s recent Global Economic Prospects report, global growth in 2007 was 3.6%, down a little from 3.9% in 2006. But among developing economies, growth was a remarkable 7.4%, the fifth successive year of an expansion of more than 5%. This isn’t just the predictable tale of the rise of China and India; on the back of strong commodity prices (and relative peace), African economies, too, are performing better than they have for a generation.
How did the world come to this happy position? You can list the usual reasons: two decades of decent macroeconomic policymaking, the triumph of markets and the collapse of command economies, the dissemination of transforming technologies and tools such as the Internet, and open trading systems. All of these are the attributes that combine to form that much discussed phenomenon: globalization. But in this special report, we look at one overlooked aspect of a generation’s worth of global growth: the extent to which New York City, London, and Hong Kong, three cities linked by a shared economic culture, have come to be both examples and explanations of globalization. Connected by long-haul jets and fiber-optic cable, and spaced neatly around the globe, the three cities have (by accident — nobody planned this) created a financial network that has been able to lubricate the global economy, and, critically, ease the entry into the modern world of China, the giant child of our century. Understand this network of cities — Nylonkong, we call it — and you understand our time.
Go back nearly 30 years, and few would have thought that any of the three cities were about to remake the world for the better. In September of 1982, the Hong Kong stock exchange lost a quarter of its value after Margaret Thatcher, flush from her victory in the Falklands War, annoyed the rulers of communist China by foolishly seeming to suggest that Britain might be able to hold on to its colony — which prompted China to insist that it would do no such thing. At the same time, London and New York City were bywords of urban decay. In 1981, London had seen some of the most bitter riots in a century. The city was run by a hard-left political clique whose understanding of capitalism came straight from Marx. (Its leader was "Red" Ken Livingstone; some 25 years on, now mayor, he sings the praises of London’s financial-services industry and is pals with New York’s plutocratic leader, Michael Bloomberg.) New York almost went bankrupt in 1975; by the early 1980s, its streets were potholed, filthy and dangerous. The city routinely had nearly 2,000 homicides a year. Last year, the number was just 494, the lowest since consistent record-keeping began in 1963.
Challenge and Change
Yet even in the darkest times, the Nylonkong cities had the sort of hidden strengths that would be their salvation. All had a certain adaptability hardwired into their people. All were once centers of manufacturing, but all have been able to shift their economic focus to the service sector as factories moved from New York’s lower east side, or London’s Park Royal estate, or the thousands of tiny enterprises in Kowloon, to the American sunbelt or up the Pearl River delta from Hong Kong to Guangdong province. All are — or have been — great ports. Today, only Hong Kong of the three wears its seagoing character on its face, with tugs and barges chugging up and down the harbor a stone’s throw from the skyscrapers of the banks and trading houses. London and New York, by contrast, politely hide their tattooed seafarers’ muscle out of sight, downriver or on the Jersey shore. But the sense of being a blue-water place is vital to the cities’ success. It has made them open to trade, with all the transformative capacity that trade has to shake up established orders and make the exotic familiar.
Their history as ports has made Nylonkong open to the world in other ways, too. New York, of course, has long been thought of as a city of immigrants — of the Irish and the Italians, the Dominicans in Washington Heights, and the scores of other ethnicities that make up Gotham’s mosaic. But increasingly, so is London. In 2006, according to the London Labour Force Survey, 31% of the city’s residents had been born outside Britain; that compared with 34% of New Yorkers who hailed from outside the U.S. that year. Hong Kong, which barely existed 150 years ago, has always been a haven for migrants fleeing trouble in China. Even in these prosperous times for the mainland, it still has pull. (Visitors from the West may find Hong Kong polluted; locals know it has cleaner air than almost all Chinese cities.) And increasingly, it is a magnet also for Chinese whose families have lived for generations in Canada, the U.S. and the U.K., as well as for other Asians. Between 1996 and 2006, for example, the number of South Asians in Hong Kong leapt by 43%.
The network of international trading and personal contacts that shape New York, London and Hong Kong facilitate their key industry. If the 19th century was the age of empire and the 20th one of war, so the 21st century, to date, is an age of finance. It is the banks and investment houses, the mutual funds and money managers, taking in their clients’ cash and spreading it around the world, who have made today’s global economy what it is. In Victorian times, London alone could fulfill this function. (The city funded enterprises all over the world, including much of the industrial development of the U.S. after the Civil War.) But the job has become too big for one place to handle. Now Nylonkong, that interconnected tripartite city, greases the wheels of trade and development. This is where the great banks — Citigroup and HSBC, Goldman Sachs and JP Morgan — have their headquarters and their key regional offices; this is where ambitious companies go to seek financing or go public. Hong Kong — whose stock market’s capitalization jumped almost fourfold in the 10 years from 1996 — has especially been able to benefit from the business of the hundreds of Chinese companies that want to raise money in global markets. Its bankers and brokers are continuing an old story. As they circle the globe — there are no less than 187 direct flights that leave London for New York every week and 28 weekly flights from Hong Kong to New York — staying in their favorite hotels and dining at their favorite private clubs, Nylonkong’s financial-services executives are heirs to the Tuscan moneylenders who first stretched the sinews of capitalism 700 years ago.
Great cities, of course, are about more than money and finance. They are messy agglomerations of talent and culture. That is how they attract men and women in the financial sector who could choose to live anywhere. (Granted, nobody yet would argue that Hong Kong was London or New York’s cultural equal, but it’s a younger place.) That’s a reason why Nylonkong needs to be careful not to kill the goose that laid its golden egg. These places are not cheap. According to the consultancy ECA International, Hong Kong’s high-end apartments last year had the most expensive rents in the world, with New York third and London sixth.
The sheer expense of living in Nylonkong is but one of the challenges facing it — as the next three stories demonstrate. In the case of New York, high real estate prices may squeeze out of town the very people that make a city fun and livable. Globalization may have brought many benefits to those who live in London, New York and Hong Kong, but it has at the same time made the familiar strange, and turned the known world upside down. As they see London property prices bid to the skies by an influx of foreigners, native Cockneys may one day wonder what the new world has to offer them. Hong Kong, for its part, has gotten rich on the back of China. But it is a city of just 6.9 million people. China’s largest metropolis, Shanghai, holds 18 million, and the mainland has scores of other rising cities, all ambitious for their moment on the world stage. Hong Kong must continually raise its game to maintain its relevance to the burgeoning Chinese economy.
Yet these are places that know how to meet a challenge. They’ve done it before. From being dismissed as long past their prime a quarter of a century ago, New York, London and Hong Kong have gone on to extraordinary heights. Tying themselves together, they have also knitted the world into a seamless fabric, financing and transporting the container vessels and the streams of data that have made today’s global economy a phenomenon that has increased the life chances of countless millions. Welcome to Nylonkong, and the world it made.
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