Neil Irwin, in commenting on the fact that the per-capita income in London is now 90 percent higher than the rest of Britain (which means it’s twenty percentage points higher than it was in the late-1990s), suggests a modified version of Dutch Disease:
Britain’s Dutch Disease isn’t driven by the export of oil or natural gas, but of something more ephemeral: A safe place for the global elite to park their money. When a Russian oligarch pays $80 million for a house in Knightsbridge, or shifts a billion dollars worth of his assets into British banks, the economic effect is similar to what would happen if he were buying exported oil.
And when Mark Carney and the Bank of England Monetary Policy Committee get together each month to set interest rate policy for the UK, they see a rosier economic picture by looking at the whole of Britain than they would if London were not part of the equation.
Just last week, the bank signaled that interest rate increases may come sooner than it had thought, which pushed up the pound on global currency markets. Surely if Carney & Co. were setting monetary policy only for the UK excluding Britain, they would not be so eager to raise rates.
The result of all this is that businesses across the countryside of Britain have a more challenging competitive environment than they would otherwise, leaving them less able to compete with German or French or American competitors.
Of course, the United States has its own version. It’s called New York City.