Sabine Dörry (Luxembourg Institute of Socio-Economic Research (LISER) and University of Oxford, UK)

Report on the Membership Research Grant (MeRSA) funded research project “The role of the state in building sustainable financial centres: Comparing London, Luxembourg and Singapore”


This research is financially supported by an MeRSA Research Grant. It aims at systematising, conceptualising, and better comprehending the State and its role(s) as a key actor in building the financial centre of the future. Two factors informed this research project: 1) International financial centres (IFCs) as key ‘production sites’ of financial capitalism, and, 2) the State’s entrepreneurial actions to shape these production sites, especially, when finance is a key national industry. This project explores three case studies: Luxembourg, London, and Singapore.More profoundly, this research addresses the lack of a coherent discussion on the dynamics of and in financial centres more generally. Researchers have precious little understanding of how one of the world’s key industrial sectors alters spatio- and socio-financial patterns. Hence, this research takes a step back to understand some particular social fabrics of finance production.


Literature on cluster economies and spatial innovation systems assigns a range of crucial roles to States’ attempts to boost a cluster’s international competitiveness and to create enabling environments for economic activity. Conventional scholarship explores the State’s role in developing and sustaining its key economic sectors. States typically accomplish this through funding innovation, designing appropriate regulations and development policies, among other things. Like manufacturing, or technological clusters, IFCs are clusters of highly particular characteristics. Yet, they pose a number of challenges to the conventional cluster understanding. The paradox between value and wealth creation is, perhaps, the most significant:

  • Many financial activities, capital market and brokerage services of the investment banking, hardly create value but accumulate financial wealth.
  • If credit creation – which is at the heart of investment banking – employs principles of economically futile yet profitable intermediation and leverage, and if this kind of credit growth fuels financial bubbles and destabilises the global financial system, a State’s intention to pursue regional development based on the finance sectors’ income – as in Luxembourg’s, London’s, and Singapore’s financial centres – justifies more in-depth scrutiny.
  • Further, using the appropriate conceptual framework, this research also suggests to explore points of political intervention distinct for finance clusters.

Yet, how, then, can we make sense of the empirical results that not least reflect these three IFCs’ distinct histories? This project introduces a novel approach to classify, decompose and conceptualise the socio-economic relationships between key financial and state actors. Geographers labelled such relationships (the dark side of) ‘strategic coupling’. Yet, this concept lacks the necessary analytical detail to capture and explain the underlying social processes in wealth-creating finance, which inevitably de-/stabilises also the spatial composition of financial clusters. We therefore probe the sociologically informed approach of strategic action fields (SAFs) and specifically focus on the power relationship revolving around finance-related state policies between a number of (competing) state authorities and financial actors, on which, in turn, regional development in and through finance hinges.


So what are the State’s strategies in this perceived trade-off between promoting its financial industry to secure regional income and enforcing tight rules to protect consumers, while fearing to lose out on financial gains to global competitors? We employed an explorative research design and information from 13 interviews with representatives of the state, regulatory bodies, and the financial industries’ associations in Luxembourg (3), London (5) and Singapore (5) in addition to reviewing secondary sources, such as the grey literature, reports and work documents. Three major lines of inquiry regarding the state’s role/s informed the project’s initial research direction: 1) What is the state’s vision for its financial centre/s? 2) How does the state engage in regional institution building for financial economies? 3) To what extent does the state promote Schumpeterian entrepreneurial processes in finance?

Preliminary Findings

Only some key findings are discussed in the following. We started with the assumption that successful economic policies require a state’s strong vision/strategy regarding its finance sector. Singapore, specialised on the asset management industry, fundamentally altered its strategy and policies in this particular financial industry echoing the world’s changing institutional landscapes over the past years. Luxembourg, to the contrary, had been manoeuvring without vision and formal strategy for decades, which suggests the government’s long-standing lack in self-confidence towards a powerful international finance industry, on which Luxembourg’s economy has been depending so heavily. Initial findings suggest that there are significant changes underway in both places:

  • A massive, and quiet process of professionalisation of its key financial institutions helped Luxembourg to join the ranks of the world’s leading IFCs and to strive for attracting more sophisticated tasks in a Brexit-related financial environment in Europe.
  • One of Luxembourg’s successes can be clearly attributed to its innovative regulatory framing, which now contains a unique mix of common law and civil law elements. In contrast to London and Singapore who have always enjoyed the ‘advantages’ of a more financial innovation-oriented corporate common law.
  • A final emergent trend is for strategists to position the IFC of the future is the promotion of FinTech (the ‘disruptive’ force technology enters finance). London set a pioneering agenda that was later adopted – and profoundly adapted – by both Luxembourg and Singapore. Singapore’s set of economic policies in support of this new growth area, however, goes furthest by far compared to the policies and funding in London and Luxembourg.


Before concluding, we shall address an important research note here. The proposed research project had thoroughly assessed potential empirical obstacles for the three case studies. Yet, it failed to anticipate the Brexit-related shake-ups in London after June, 23, 2016. The event impacted heavily on a second round of scheduled interviews in the week following the Brexit-vote. A number of interviewees cancelled on shortest notice due to new job priorities; some of UK’s key finance bodies restructured instantly, which made some of our key informants redundant and inaccessible for an interview.

To sum up, although the effects of financial capitalism, financialisation, and financial crises (with the privatisation of profits and the socialisation of losses) are fiercely debated in social sciences, financial centres as the vital production sites of global finance remain little analysed and understood. IFCs will continue to exist and actively shape both global finance and related regional development. The purpose of this research has hence been to examine the (changing) roles and strategies of the state as a central actor in shaping the financial centre of the future. This research puts IFCs back on the regional studies research agenda, illustrates how a comparative approach can strengthen the conceptualisation of IFCs, and augments contentious debates in financial geography. Subsequently, we hope to address more profoundly how ‘sustainability’ can be incorporated in this ambitious IFC-focussed research programme.