The Capitalist Embrace

No sooner had news broken of the New York Stock Exchange’s bid for the European stock exhange Euronext than our friends at the Manhattan Institute’s City Journal issued an article painting the situation as bad news for New York City. The piece, by one of City Journal’s finest writers, Nicole Gelinas, was published on the City Journal Web site, and reported, “In 2005, the NYSE and the Nasdaq won only 28 new international listings, a modest 16 percent increase from the year before; by contrast, the two major European exchanges, the London and the Luxembourg Stock Exchanges, won 50 listings between them, more than double their new listings in 2004. The NYSE is reaching across the Atlantic just to stay competitive.”Ms. Gelinas went on, “The NYSE may be trying to buy Euronext in part to encourage smaller and mid-sized American companies to go public in Europe if it’s financially prohibitive for them to do so here. American companies could list their shares abroad to raise capital in euros, and still do business in the U.S. But then they’d need bankers, stock underwriters, and financial advisers in Europe, not in New York. “Ms. Gelinas attributes this to the baleful effect of Sarbanes Oxley, the legislation Congress passed and President Bush signed to tighten accounting standards after the Enron fiasco.We are as opposed to Sarbanes Oxley as anyone, and by all means it’s important for America to stay competitive with Europe. But in this case, with this proposed deal, we see another possible way of looking at it. We have the feeling – it may be only a feeling – that the doomsayers would be reading an American defeat into this deal even if it were configured the other way around, with Euronext trying to buy the New York Stock Exchange. Our take on the attempted deal is that it is as an example of the dynamism of New York capitalism. No matter how wrongheaded are the regulatory attempts from Washington or Albany, American business manages, with amazing resilience, to find a way around them.Hedge funds were in part a way to get around disclosure rules imposed on mutual funds. The explosion of private equity funds has been a way around the Sarbanes Oxley regulations. The flight to Europe is a way around Sarbanes Oxley. But it’s an error to see this entirely as a zero-sum game. Just as European banks like Britain’s HSBC, Switzerland’s UBS and CSFB, and France’s Credit Lyonnais have huge offices in New York, so New York banks have big presences in Europe.In the case of New York-based Goldman Sachs, of the firm’s $24.8 billion in net revenues last year, $6.8 billion came from Europe and $3.4 billion came from Asia. Goldman has offices in Bangalore, Auckland, Bangkok, Beijing, Buenos Aires, Calgary, Dublin, Frankfurt, Geneva, Hong Kong, Johannesburg, London, Melbourne, Mexico City, Milan, Moscow, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Stockholm, Sidney, Taipai, Tokyo, Toronto, and Zurich.And after a European businessman takes his company public in Europe with the help of bankers from Goldman or some other “European” company, one of the first things the businessman may do with his newly liquid assets is buy a Manhattan condominium. Or to expand his firm’s operations to America. An entrepreneurial, capitalist, financially powerful Europe is in America’s, and New York’s interest. So is a financially strong Asia. It’s the failing state-dominated economies such as Sudan, Egypt, and Saddam Hussein’s Iraq that are the real threats to America. Economic and regulatory competition is healthy. A rising tide lifts all boats.So rather than spend too much time fretting about the threat to New York of a NYSE-Euronext deal, let us use the opportunity, on the eve of Prime Minister Blair’s visit and in the context of Democrats wailing about the damage President Bush has supposedly wrought on the Atlantic alliance, to celebrate the prospect of a commercial alliance that would strengthen New York and Europe in a capitalist embrace. It’s not a substitute for a political alliance but it is a sound beginning.Keeping New York competitive does matter. Senator Sarbanes and Congressman Oxley have not been good for America’s business climate. They need to hear that New Yorkers would prefer to see job creation and the tax base here rather than in Europe. But given the advantages that America and New York, for all their problems, still have over Europe – more flexible employment laws, lower marginal tax rates for individuals, a private health-care system with all the innovation that comes with it, more social mobility, better universities, more diversity – somehow, we think there’s plenty of upside in this deal on both sides of the Atlantic.

The Capitalist Embrace

The Capitalist Embrace

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