Wednesday, 11 July 2012

London: Never had it so good?

It is only a couple of weeks left until the London Olympics kicks off and city is putting finishing touches on what should be a great sporting event. Usually such events attract a great deal of attention to host cities and countries, as well as create opportunities to develop city's infrastructure and to improve its image in the eyes of global public. Not that London needs much publicity about what it has to offer to the world though. On the other hand its deprived East End and infrastructure definitely will benefit from Olympic preparations (though I suspect London tube will remain a weak link throughout the games).

It is also a good opportunity for expert community to look at the city's assets, its position in the global economy and its prospects for the future. In one of the latest Economists (30 June 2012) such analysis if presented in the special report on London "On a high" (you can download it for free). Concentrating on the key elements of city life - human capital, economy, housing and transport - the report looks on the factors that have led to tremendous success of London as a global financial centre and world city over the last three decades. It also analyses the challenges London faces due to recent public policy measures designed in response to the global economic crisis.

Authors underline that London's amazing growth and attraction for world's richest and poorest is due to its diversity and openness to the world on the one hand and solid yet liberal legal and financial regulations, that nurture London's status as the world financial centre on the other. Yet since 2008, when trust in financial institutions and its CEOs has tumbled and public attitudes towards immigrants have worsened considerably London is at risk of losing its edge. The UK Government is in the process of introducing significant reforms in regulatory, taxation and immigration spheres, which will make city less attractive for international capital and foreigners. Higher taxes on rich, stricter financial regulations and draconian immigration rules, including for students and highly qualified professionals, might tip the balance for the benefit of new financial centres in Asia.

Also despite having vocal mayor with authorities in the spheres of transport and housing London exists in a highly centralised political system, where all major decisions are taken by the central government without much regard to the local authorities.

At the same time London's global magnetism often causes domestic grudge when other parts of the country are displeased with too much wealth and power being concentrated in the capital. Growing regional disparities are indeed a reason for concern, however forced decentralisation has not brought any good in the past and unlikely to do it in the future.

There is an irony in the dynamics of London development. Global economic crisis, which emerged in London in 2007 (with the demise of Northern Rock bank) did not have as negative effect on London economy as it did on other parts of the UK and European countries. Despite its significant dependence on financial sector London is thriving. However policy measures which are aimed at addressing some of the worst imbalances caused by the recession (state debt, budget deficit, high levels of unemployment, overstretched public sector and cash-hungry private sector) might undermine competitiveness on the city and cause outflow of capital and talented individuals.

So all in all it is a very good read for those who are interested in capital cities development. Also while we are talking about London last week The Centre for London published interesting report on the development of emerging cluster of technological companies in the city - 'A Tale of Tech City'. If you are interested you can download it for free here.

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