Last night, watching Goldmans’ explain carefully that a UK exit from the EU would be one of the things they would consider in locating their HQ, it struck me that we have seen many such interviews, and all of them seem to miss the obvious point. That being: the biggest factor weighing on where to locate such an HQ (or on related decisions) is where other similar firms are going to locate theirs. Being near others has many advantages. You can steal their staff more easily because they don’t have to worry about relocating. You can bank on a parrallel network of suppliers coordinating on being in the same place. If you are a top executive you can more credibly threaten to leave yourself if you happen to be located close to a competitor, etc. Once you see this, then the biggest factor in how to respond to an exit from the EU is how you think others will respond. And once you recognise that, then it’s clear that that means that the key factor is how you think others will think you will think they will respond. And so on. Ad infinitum. In situations like this, it could be quite possible for everyone to up and leave even if there were a whiff of an exit, even if the ‘fundamentals’ of location [business rates, schooling, regulation, etc] were not much different from one place to another. For a similar reason depositors can run on a healthy bank, financial firms could pull out of London, simply because they think others will too.
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