Some cities, such as Brasília and Washington, are the political capitals of their countries but not their business and financial centres. For others, such as Istanbul and Milan, the reverse is true. London performs both roles. London leads and shapes the nation of which it forms part in a way that only Moscow and Paris, among large European capitals, come close to matching.
But London’s significance to Britain, Europe and the world extends further than that. More than in any other European city, London life is seamlessly woven into the global economy, global population movements and global culture.
This brings both advantages and disadvantages. On the positive side, London generates much of the wealth that helps to protect and raise living standards elsewhere in Britain. According to the Centre for Economics and Business Research, a British-based independent forecaster, London will record economic growth next year of 3.8 per cent, accounting for almost a third of Britain’s entire economic expansion. By 2018 the capital’s output will be 16 per cent higher than it was before the financial crash of 2008, the CEBR says.
On the other hand, London’s dominance means that other British cities, including once great imperial commercial and manufacturing centres such as Birmingham, Bristol and Liverpool, struggle to emerge from the capital’s shadow. This is not true in Germany, where Berlin is the nation’s political nerve centre but Frankfurt is the financial capital, Hamburg is the media capital and other cities, such as Düsseldorf and Munich, compete with Berlin as dynamic business hubs. Neither is it true in Italy, where the glorious artistic heritage and local identities of Florence, Naples and Venice place them beside rather than below Rome in importance.
London’s centrality to British economic performance, and its role as the nation’s chief gateway for trade and investment, will not change in the foreseeable future. But in transport, education and housing, this will present policy makers with great challenges as well as opportunities, as is being discovered by Britain’s Conservative-Liberal Democrat coalition government and Boris Johnson, the Conservative mayor of Greater London since 2008.
The debate over whether to construct a new airport for London, or just to add a third runway at Heathrow airport west of the capital, is a good example. European cities such as Berlin, Istanbul, Milan and Moscow have responded to the boom in international demand for business and leisure travel either by upgrading old airports or by making plans for new ones.
British politicians recognise that new investment in airport capacity is essential to London’s future, but they seem unable to make up their minds about which option to take. The cost of a new airport, plus the necessary transport links to London, would run into tens of billions of pounds. It would be an expensive choice for a country whose public finances are stretched and which is already investing very large sums in modernising the capital’s creaking overground and underground rail networks.
In education and housing, the task is to maintain London’s attractiveness and reputation for quality, while not crowding out native Britons. Many Americans, Arabs, Chinese and Russians, not to mention French, Germans, Italians and Scandinavians, want their children to study at top-ranked universities and schools. The wealthiest revel in their sumptuous properties in Kensington, Mayfair and at Tower Bridge.
But the impact on Londoners has been enormous. Non-Britons now account for more than one in two students at the London School of Economics, one in three at University College London, and lesser but still sizeable numbers at the finest private schools such as St Paul’s and Westminster. High tuition fees and accommodation costs, not easily affordable for many British families, are driving this trend.
Meanwhile, London house prices, especially in the most exclusive districts, are soaring thanks to what appears to be the insatiable appetite of the world’s most affluent people for a property in the British capital. On the website of Berkeley Homes, the developers who built One Tower Bridge, a luxury complex due to open in 2014, buyers are wooed in Arabic, Chinese, French, Hindi, Russian and Turkish as well as English.
London politicians such as Simon Hughes, the MP for Bermondsey and Old Southwark, on the south bank of the Thames, want restrictions on foreigners’ property investments in order to free up homes for local buyers, many of whom cannot possibly afford today’s prices. Eric Pickles, the UK minister for local government, points out the legal drawbacks: “You certainly couldn’t do it for EU citizens, and it would be dubious in terms of anyone else … I’m more concerned about getting affordable housing into London.”
In certain respects, expensive housing and living costs are the price Londoners pay for hosting one of the world’s largest financial industries and displaying an open attitude to globalisation in all its forms, including foreign investment. The beneficial effects are considerable, as demonstrated in a report by Startup Genome, a private sector project that sought out the world’s most favourable locations for innovative entrepreneurship. Top of its list was Silicon Valley. Then came Tel Aviv, Los Angeles, Seattle, New York, Boston and London. Paris, Moscow and Berlin were the only other European cities in the top 20, each well below the UK capital.
Berlin is these days the EU’s most important capital in terms of political weight. But it will not match London as a business and finance hub as long as Frankfurt remains Germany’s financial centre. Arguably, London will face more serious competition over the medium term from rising cities such as Dubai, Shanghai and Singapore than from Europe. New York and Tokyo will still be alive and strong.
London will have to keep raising its game to stay at the heart of the world economy.