The balkanisation of Markets
Arguably the end of the globalisation of markets was called by McKinsey a few years after the Lehman crisis. In a report entitled Financial Globalization: Retreat or Reset? (March 2013), the authors argued that globalisation was being replaced by a greater focus on regions, termed Balkanisation. The report spoke of research into several key measures of market activity including asset appreciation slowing, activity slow-down and cross-border flows declining.
Slightly over 5 years later, in the UK we are exploring the prospect of leaving one regional market and the chances of joining another.
The vision of the EU single market and the pursuit of the legal, regulatory and behavioral changes to bring it into reality by EU authorities have had a significant effect on UK markets. It may be that the UK’s exit will serve to accelerate this development.
However, success of this vision must come at the explicit cost of the disappearance of national markets and their domestic, traditional practices in favour of harmonised, standardised and, above all, centralised market structures.
A quick visit to the ECB headquarters in Frankfurt confirms that “Market Zentral” resides here, coincidentally in the old Wholesale Market building (Großmarkthalle), plus a bit.
The real questions for the UK markets may be: Is there another regional, balkanised market in which we can develop our traditional strengths? Or, will we have to create a new one?
There are candidates for the former option. EFTA and EEA groupings provide many of the characteristics required. The Commonwealth may not have the commercial context to be a realistic, regional candidate.
Yet successful markets by themselves may provide a sufficient catalyst for the development of a viable alternative region. The formal structure created by markets provides the codes, norms and accepted practices to bring interests of supply, demand and intermediation together in a coherent and active regional community. Markets have governance, rules and the means to reject harmful practices.
With technology replacing the need for physical interaction, a market-driven network could well act as the effective borders of such a region.
And there is precedent as the Hanseatic League proved over many years, ignoring the inconvenience of geographic borders.