Twenty-nine years ago today, on October 27, 1986, an event occurred that most people have probably never heard of but which had profound consequences for modern history and the shape of today’s world. The event was called the Big Bang, and while it doesn’t quite match the universe-shaking astronomical event for which it was named, it was actually pretty important. It happened in London, in the financial district, but if you happened to be walking around the streets that day you probably wouldn’t have seen or heard anything out of the ordinary. On that day a bunch of financial regulations went into effect in the United Kingdom, effectively restructuring and deregulating London’s stock exchange and financial markets. Sounds dull, boring and not very consequential, doesn’t it? You’d be wrong to think so. While I admit to being quite a neophyte when it comes to financial and economic history, I wouldn’t be surprised to see the Big Bang increasingly studied and identified in the coming years as a key moment in Western history.
As with most economic history, it’s difficult to explain what happened in the Big Bang without making it seem like dull, wonky policy stuff. Before 1986, the London Stock Exchange was quite small and insular. Rigid rules kept brokers (agents who buy and sell stock and financial instruments) separate from jobbers (“market makers,” or people who acted as the ultimate purchasers of all stock bought and sold on the Exchange). This and other regulations, especially one prohibiting foreigners from trading, had the effect of keeping London’s financial markets small, insular and dominated by a sort of clubby old boy’s network. Stock trades were made face to face and deals were done in London’s swanky mahogany-walled clubs, much as they had been a century earlier. London’s financial markets had tall walls meant to keep out anyone who wasn’t part of this network, which appears to have been as much social as a business group.
This was what the London Stock Exchange looked like in 1810. Today? Not so much!
Then Margaret Thatcher was elected Prime Minister in 1979 and reelected in 1983 on a conservative platform which included deregulation and privatization of many aspects of British society. The idea to restructure and deregulate the financial sectors was long in coming, but the impetus to rewrite the rules was the resolution of a long-simmering antitrust case against the London Stock Exchange that was working its way through the British courts. I’m sure the history of how the regulations were rewritten–a history I admit I do not know–is a very long and convoluted one, but suffice it to say that when the new rules kicked in on October 27, 1986, London was quite suddenly a financial boom town. Foreign companies, particularly American, rushed to do business there. The value of stocks traded on London’s exchanges exploded by an incredible 1500% by the first years of this century. London was wired into the world system of high-tech finance, and just in time for the globalization boom of the 1990s. In this sense the Big Bang was hugely consequential.
The Big Bang changed London not only financially and politically, but spatially and environmentally. Before 1986 London was not a city known for its skyscrapers; its skyline had long been dominated by Big Ben and Tower Bridge. After 1986, when big banks and financial companies moved into the central city, you started to see a lot more steel and glass going up. London, like New York and Tokyo, is now a city dominated by high finance, well-dressed brokers and CEOs, computer screens blinking with trades and tickers, and the smell of big money in the air. It was very, very different in 1986. The Independent ran an interesting article in 2006 on the 20th anniversary of the Big Bang explaining how it changed London and the UK forever; this article explains it better than I can. There’s no doubt, though, that the Big Bang had a huge effect.
Skyscrapers in London like this famous one–known as “The Gherkin”–are an indirect result of the Big Bang.
It may also have had some negative effects too. The trend toward deregulation of financial markets and especially banks, which became more marked especially in the United States in the 1990s and 2000s, led to a concentration of financial power in the hands of various super-large institutions with global reach. Many smaller London banks and companies were swallowed up or merged in the years after 1986. The exact same sort of changes that the Big Bang represented in London resulted in a worldwide financial system dominated by institutions that are “too big to fail.” This has made the global economy extraordinarily fragile–as we all saw in 2008 when the Great Recession, sparked by the collapse of a housing bubble in the United States, spilled over into the rest of the world. London’s money was now intermixed with everyone else’s. That’s the meaning of globalization.
The history of money and finance is a fascinating and complicated story; I admit I study very little economic history, so much of it is Greek to me, but its importance in our recent history can’t be underestimated. We’re still too close to the event, only 29 years, to see its full reach and potential. Future historians are going to have to study that, but I’m certain that the Big Bang will have an important place in economic history in years to come.