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Book Review

The Offshore Interface by Mark P. Hampton, Macmillan, 1996.

Mark Hampton says that he writes both as an observer and a participant in the Island’s story. He is aware that herein lies a major problem separating objectivity from bias. He is on public record as being critical of the management of the Island’s finance industry but, in terms of this particular book, he has made a herculean effort to retain objectivity. This is partly because it is an academic work and has been bound by the conventions of academic writing. Therefore, there is no polemic and much more emphasis upon a well documented piece of research.

The development of Jersey as an offshore financial centre ("OFC") is placed within a very broad context. First, there is a general review of how tax havens developed and then in several cases blossomed into OFCs.

The writer then looks at the issue of how international capital travels around the world and the degrees of freedom it is given in doing so by various major countries. It is evident that the movement of capital around the world is very much a reflection of the considerable globalisation of economies that has occurred over the last decade or so. Capital, like industrial investment, is much more footloose and is able to select from a number of centres.

Hampton considers the question of the nature of capital in Britain and by using the technical phrase "fractions of capital" he refers to the three kinds of capital that were vying for dominance in Britain - namely financial, agricultural and industrial. He argues that financial capital became dominant in the British context and that this, in large part, explains the subsequent dominance of the City of London.

Before we reach the section on Jersey there is a review of how the United States deals with OFCs. Clearly relationships between the U.S. and these centres are fraught because of the strong suspicion that they are used for, amongst other things, laundering drug money. They come under intense scrutiny from the United States authorities, as do the British OFCs in the Caribbean. This section begs the question of how and why the United States allows such centres to exist. Plainly it has the political and military power effectively to close them down and there are many instances cited of how it leans on countries, or on related metropolitan countries like Britain, to ensure that these OFCs fall into line.

By the time one reaches the nub of the book, (for the local reader,) that is the analysis of the growth of Jersey as an OFC, one is aware that the growth of such centres is a very sensitive matter. Clearly, OFCs are very dependent upon the continuing goodwill of neighbouring powers or powers whose money flows through them. It is with this kind of question in mind that the author poses the question of why Jersey has grown into such a large OFC. He sees several factors as being important - notably bank secrecy (in all but name), good communications, political stability and a good infrastructure in terms of skilled staff and I.T. But perhaps most important of all is the particular relationship of Jersey to the United Kingdom and the fact that we have been able to grow as a major OFC under, dare we say it, the benign umbrella of the United Kingdom. Hampton also refers to the Island’s history and its ability to seek opportunities by drawing a parallel between the pirateering background of the Island and the fact that we might well be latter day pirates seeking footloose capital.

For those who are interested in the internal development of the Island and find the high politics and the major ethical issues surrounding the growth of an OFC intimidating there is an excellent section on the post war growth of Jersey. Here he pulls together the history of the development of Jersey as an OFC and, in so doing, considers whether it has been able to mitigate some of the problems associated with the decline of the traditional industries like tourism and agriculture. He notes the enormous pressure on resources that occurred due to the rapid growth of the industry.

At the end of the book Hampton poses the question of whether Jersey can be replicated elsewhere or whether there is a unique combination of factors that makes Jersey not replicable.

Perhaps one of the valuable side benefits of the considerable political discussion and controversy surrounding the enactment of the Limited Liability Partnerships legislation has been that it has awoken islanders to the nature of the enormous industry that is now operating within their midst. Most were aware of the pressure it was placing upon resources. Far fewer were aware of the vulnerability of the industry to political whims and the fact that in a globalized world, where finance capital does move around much more easily because of electronic communication, the Island does indeed have an industry based, in part, upon decisions made elsewhere.

Those who have been arguing for a more diversified economy may have been doing so because they were aware of the vulnerability of the industry. However, Hampton’s book is not simply an attempt to prove how vulnerable we are. It demonstrates the nature of the industry and the resources which are required for it to operate effectively. His book is a valuable contribution to the debate which will hopefully ensue, now that some of the dust and heat from recent controversies has died down, on the future of the Island’s economy and indeed of its society. This is a complex book which requires a considerable degree of attention if one is to follow the various arguments. Nevertheless it is invaluable in that it places the Jersey finance industry in much broader context and should lead to a much more informed debate about its future.

Roy Le Hérissier, B.A. Ph.D.