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One view of political organisation 1. We live in a nation, and want to reconcile our wish to be free individuals and our hope that we can live together in peace. There may be conflicts between us.

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one view of political organisation 1
One view of political organisation 1.
  • We live in a nation, and want to reconcile our wish to be free individuals and our hope that we can live together in peace. There may be conflicts between us.
  • We will live under ‘the rule of law’, with mutual recognition of each others’ property rights.
  • The sovereign’s task is to provide statements of ‘the law’ and a framework of law enforcement.
  • The law may change from time to time, partly because of judge-made precedent and partly because of decisions made ‘the sovereign’, perhaps in ‘a parliament’ (‘our leaders’, politicians, etc.).
one view of political organisation 2
One view of political organisation 2.
  • In a society of this sort ‘our leaders’ need meet only sporadically. Their job is sometimes to alter the law, but the essence of law is that it is stable. When it does change, it largely regenerates itself because of precedent.
  • Citizens will occasionally want to buy and sell property, and these transactions may become complex and give rise to opportunities for fraud, embezzlement, etc..
  • Property-owners need i. a reliable, predictable and comprehensive legal system, and ii. recognised market-places, which must be under the law but can be self-regulated. High-quality regulation is in the interests of market participants, as it reduces transactions risks and raises the value of the assets being traded.
one view of political organisation 3
One view of political organisation 3.
  • This vision of political organisation – which we might call Anglo-American (or English-speaking) – arose from the 17th century struggles between the English crown and the other interests in the English state.
  • Hobbes on the need for a single sovereign power, Locke on the justification on property rights, Coke and Blackstone on the supremacy and independence of the law, Adam Smith on the state’s duty to protect property rights, Hayek on the distinction between law and legislation, etc.
  • In a phrase, overarching idea is that of ‘civil association’ (Oakeshott).
another view of political organisation 1
Another view of political organisation 1.
  • We live in a nation, and we want our nation – a collection of individuals, in which the collectivity matters above all – to be successful.
  • Success can be defined in several ways – the Glory of God (the Habsburgs), or racial exclusion and/or military conquest (Hitler), or ‘economic competitiveness’.
  • The state is to harness the nation’s resources for the achievement of success; the state’s job is managerial and organisational, to ensure that the resources are deployed most effectively to the nation’s achievement.
another view of political organisation 2
Another view of political organisation 2.
  • Political leaders are very important in nations like this (or at any rate have a high opinion of their own importance) and are constantly active. They see themselves as like generals in military campaigns or chief executives running a business.
  • The political leaders – whose role may be endorsed by democratic election – are aided and abetted by a bureaucracy, which shares the same notion of ‘success’ as the political leadership, and is similarly managerial.
  • This vision of the state proposed typically by Continental – and especially German – political philosophers. Oakeshott’s ‘enterprise association’ – or, in more extreme form, Talmon’s ‘totalitarian democracy’.
another view of political organisation 3
Another view of political organisation 3.
  • Mercifully, people holding this second view – may I call it the Continental view? – of political organisation no longer want to dominate other nations militarily, racially, etc. (Or so it seems.) But they are concerned about ‘Europe’s competitiveness’.
  • The purposes of public policy in the financial sphere are to increase efficiency and to make ‘Europe’ more competitive.
  • Change is to come ‘from above’, to be initiated and managed by the political leadership with help from the bureaucracy; it is not to come ‘from below’, arising from market pressures in the financial sector. (In fact, change comes from both ‘above’ and ‘below’. Practitioners often lobby politicians and bureaucrats.)
two different philosophies of the state s role in financial services

practitioner- and customer-driven, to serve their individual ends,

under the law, esp. common law and precedent,

tradition of self-regulation, and

change comes from below.


to serve the state’s larger ends (‘competitiveness’),

laws exist, but they can be changed to serve bureaucracy and state’s larger ends,

tradition of state intervention and ownership, and

change comes from above.

Two different philosophies of the state’s role in financial services
characteristics of financial business 1
Characteristics offinancial business 1.
  • Wealth-owners are very concerned that their property rights be protected, but – as a crude generalisation – they are not necessarily patriotic.
  • Wealth-owners – and so financial business – seek locations in which registration and transfer of assets is cheap and safe, and where taxes are low and regulation light.
  • Over the last 200 years financial business has tended to migrate towards and flourish in English-speaking jurisdictions, not those with a Continental philosophy of government.
characteristics of financial business 2
Characteristics offinancial business 2.
  • This pattern has been conditioned by, among other things, exchange controls and the internationalisation of regulation.
  • In the last 50 years a central feature in the location of financial business has been the drive ‘to go offshore’, with assets typically registered (and so taxed or untaxed) in small political entities (i.e., city states, island tax havens).
  • Nevertheless, much of the value-added – in terms of investment advice and management, loan arrangement, insurance underwriting, securities underwriting – continues to be done in ‘metropolitan centres’, esp. London.
when will the offshore bond market overtake the domestic
When will the ‘offshore’ bond market overtake the domestic?
  • Stock of ‘offshore’ bonds now heading towards $20 trillion, about 40% of world GDP and six times the UK’s own GDP.
  • If government debt were excluded, ‘offshore’ corporate debt would be similar to onshore debt – and, given the difference in growth rates, will soon much exceed it.
  • Arranging, issuing, underwriting and trading of such bonds is ‘value added’ – and may now amount to ½% - ¾% of UK’s GDP. The international/offshore bond market did not exist in the early 1960s.
the uk the eu and the international bond market
The UK, the EU and the international bond market
  • The EU’s MIFID and FSAP are a threat to the UK’s continued heavy involvement in the international bond market.
  • Tax harmonisation – including withholding tax on bond interest – is integral to the process of which MIFID and FSAP are part.
  • But the bond market’s move offshore is motivated by the wish to avoid tax and, to some extent, regulation.
ownership pattern of uk equities
‘Ownership’ pattern of UK equities
  • In 1945 the overwhelming majority of quoted equities issued by UK companies would have been held within the UK, by clearly British entities, mostly individuals. By 1990 ‘overseas’ held was above 10%, now above 40%.
  • Some of these ‘overseas’ entities are bona fide foreign, e.g., American, German, Swedish individuals and pension funds. But UK beneficial ownership persists via hedge funds (registered in BVI), private banks (Switzerland, etc.), nominee accounts (various, many in Channel Islands), etc.
the uk the eu and international fund management
The UK, the EU andinternational fund management
  • A dominant theme in international fund management over past 30 years has again been the move ‘offshore’, with asset registration typically in English-speaking so-called ‘Crown dependencies’, esp. Channel Islands and islands in Caribbean.
  • The EU, in association with the OECD (including the USA), is now trying to bully these jurisdictions, so that they are subject to EU rules etc., including MIFID and FSAP.
what are the purposes of mifid and fsap
What are the purposes of MIFID and FSAP?

If bogus objectives like ‘tax harmonisation’ (i.e., attacking low tax or no tax jurisdictions, and move of assets to such jurisdictions) are excluded, key aim is the ‘common passport’ for domestic, retail financial services businesses across the EU. This supposed to lead to more competition and choice, and economies of scale in financial services ‘production’.

does the uk gain or lose from fsap and mifid 1
Does the UK gain or lose from FSAP and MIFID? 1.
  • UK has become the world’s leading creator of ‘value added’ in offshore, wholesale financial services. Its financial services industries have nothing to gain from FSAP and MIFID, which are about domestic,retail financial business in the EU.
  • Indeed, domestic, retail business necessarily involves national tax arrangements. So-called harmonisation of tax and regulation may damage UK’s ability to add value in offshore, wholesale business.
does the uk gain or lose from fsap and mifid 2
Does the UK gain or lose from FSAP and MIFID? 2.
  • For some businesses (e.g., retail banking, retail fund management) the opportunities created by MIFID and FSAP may exceed the threats. Creation of common platform for equities trading and settlement is a possible example, although note that the USA has the NYSE, the American Stock Exchange and NASDAQ.
  • But UK companies can tap into such opportunities by purchasing a business in another EU country. Expansion can occur by acquisition, combined with recognition of local laws, rules, etc., and other European companies can expand in UK in same way.
the larger point
The larger point
  • Has the success of Anglo-American civilization in the last 300 years been due to the Anglo-American view of the state, with its emphasis on the freedom of the individual?
  • If so, why are we surrendering control of our nation – and, more specifically, the determination of laws, tax and regulation in the financial sphere – to an inter-governmental bureaucracy with a different and less successful philosophy of the state?