Douglas and the City of London: A Modern Economic Penny-Farthing

Remember this icon of the Victorian era which took its name from the old British penny and quarter penny?

Popular on both sides of the Atlantic this fore-runner to the modern ‘safety’ bicycle was capable of reaching speeds of 38km/h while carrying its rider almost 2 meters off the ground.

Its image is a useful metaphor to illustrate the modern economic relationship that exists between international financial centres and their larger onshore counterparts.

Douglas is the capital town of the Isle of Man, a self-governing crown dependency of the United Kingdom (UK) located in the Irish Sea; and home to a population of under a 100,000 living on an island of 221 square miles.

It is neither a member of the Commonwealth nor the European Union but its goods (not services or capital) can be traded freely within the UK and the rest of the European Union.

In contrast the UK has a population of 2.26 trillion including 14 million Londoners and covers over 94,000 square miles of which less that 2% is water.

The country was the world’s first industrialised nation; is the seventh-largest economy by nominal gross domestic product (GDP); and the eighth-largest by purchasing-power parity.

Interesting then is a recent report by Ernst and Young which concluded that according to 2011 second quarter figures from the Bank of England, the UK, in particular the City of London, is the beneficiary of USD38.9Bn in net financing from the Island of Mann.

Commenting on the Report, John Hopes, Partner at Ernst and Young said:

“The report demonstrates how the Isle of Man supports the UK economy’s growth and its financial sector. This should not be underestimated. Our report clearly demonstrates the mutually beneficial relationship which exists between the Isle of Man and the UK. The strong economic partnerships between the Isle of Man and the North West, in particular, show the important role the island plays in stimulating growth. At a time when the UK is trying to rebalance its economy… these partnerships are of great importance to the UK’s growth prospects.”

Speaking more generally however the report also found evidence to support the now widely accepted view, even if not publicly acknowledged, that:

“International Business Centres (IBCs) play a key role in contributing to investment, employment and growth in neighbouring countries in particular, and the global economy in general.”

The report, a timely addition to the increasing body of authoritative and credible work on how the global economic actually works, illustrates the old adage that “it take two hands to clap”.

However as the penny-farthling reminds us to be effective, the ‘hands’ need not be of equal size.



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