Future capital

London cannot afford to rest on its laurels if it wants to maintain its global status.

While London was the first global city, and remains one of the most important, London can't afford to take its position at the top of the league for granted. This summer's riots clearly make this truer than ever. Today, London is one of the most successful city economies. The foundations of this success are openness, access to markets and capital, and millions of energetic, highly educated people. Safeguarding these advantages in an increasingly globalised world, and tackling the growing social polarisation and accompanying alienation and disaffection that can be byproducts of success, will need strong leadership, improvements in governance, and investment.

London's success

Do claims that London is one of a handful of genuine "world cities", rather than simply the capital of a moderately successful European economy, really stack up, or are they dangerously hubristic? The answer appears to be clear. London's economy is worth £250bn, larger than that of Sweden. According to official statistics, central London is the most productive area in Europe, with GDP per head at 343 per cent of the EU average. Moreover, London tops many global surveys of cities. London is a global leader in banking and other financial services, and other service industries, such as architecture and design, law, accountancy, and medicine. In the arts, London dominates the UK and is one of very few highly influential global cultural centres, with more theatres than either Paris or New York. It is the most travelled-to destination in the world by international visitors. In short, in economic terms at least, London is the most important European city.

Openness to trade, foreign investment and foreigners were as much a signature feature of London's early success as they are now part of its modern economic dynamism. As Dr Iain Black of Cambridge University says of the medieval capital, "London's relative openness to foreigners underscored its success as a trading metropolis." This and its river and sea links led to its economic dominance of Britain and its prominence in Europe. In the nineteenth century, Britain's industrial might, its vast empire and strong Atlantic links combined to forge, in its capital, the greatest city of the age, and the first genuine "world city".

Major attractions

The annual Cushman and Wakefield business survey shows that the major attractions of locating in present-day London are its connectivity and large highly qualified population. River and sea matter less than they did, superseded by the efficiencies of road and air travel; in London, in spite of the congestion and age of some of the infrastructure, these are seen to be world class. London has attractive, leafy suburbs and vibrant central areas. It has 42 universities, with more world-class ones than any other city. Put these together with a benign regulatory regime and the English language, and it is easy to see why London is a popular location for business. For many global corporations, London is the unofficial capital of the Europe, Middle East and Africa super-region. But can it retain that position?

London's five key challenges

Although London's strengths are easy to identify, so too are its weaknesses. Some are byproducts of success, such as sky-high house prices and a growing population, whereas others reveal areas of neglect that, if unattended, will be detrimental to London's competitiveness. There are five key challenges.

Inequality

First, within and across London's 32 boroughs, there is extraordinary inequality, breeding tension and crime. According to the Sutton Trust, a sixth-form student in Hammersmith and Fulham is 50 times more likely to go to Oxbridge than one in Hackney. Life expectancy too declines dramatically in poorer parts of the city. In many areas, houses worth millions sit cheek by jowl with "sink" estates. Too many Londoners either don't get a chance to benefit from the generally buoyant underlying economic conditions, or choose not to. More than 1.7m Londoners are jobless and over 500,000 have no basic skills. As a result, child poverty is among the worst in the country. This social mix is one of the causes of London's "edge" and spark. However, as the riots of August show, a cocktail of conspicuous consumption, alienation and disaffection and a weak moral fabric can have disastrous consequences.

Nurturing business

Second, London must nurture its business environment. Many factors influence decisions to invest or locate in a city, so London and national governments need to keep a watchful eye. Regulation and tax are critical, a position perceived to have worsened over the last three years, as are hard infrastructure issues. Further, the factors that make the city an attractive place to live matter too, as this helps retain and attract talented staff.

In essence, an increasingly internationally footloose workforce gives indirect, more domestic factors, such as culture, schools and green space, a direct bearing on competitiveness.

Underfunding

Third, although London has the largest and most sophisticated public transport system in Europe, it can still seem woefully underfunded. London's commuters have to tolerate terrible overcrowding as a result. Add to this 1.3m more people - the growth projected over the next 20 years - and it becomes clear that vast additional investments are needed. Fortunately, the coalition government has backed the £16bn Crossrail scheme, which will add 10 per cent to capacity by 2017.

However, Crossrail alone will not suffice and attention to other major rail projects, such as Crossrail 2 is needed. The bus network has been transformed in the last decade but uses a road system still stifled by cars, in spite of the congestion charging in the city centre.
Aviation policy is deadlocked between the unstoppable force of the business case for more flying and immovable public opposition to the global and local environmental damage it causes.

Housing

Fourth, a rising population and decreasing average household size is putting pressure on already stretched housing stock. Insufficient housing to match demand has characterised recent decades, even though myriad new policies have tried to foster additional developments. The result is that, in spite of the recession, house prices in London remain excessively high. Unlocking investment in new homebuilding is a huge challenge.

Leadership

Finally, a city of London's size, importance and distinctiveness needs both good leaders and power at the appropriate scale. The current governance arrangements have many weaknesses, not least that the high profile of the mayor, against his relative lack of power, fuels a focus on personality. London has been fortunate with the two mayors so far but this luck may not hold, and the knee-jerk centralising tendency of the UK could easily undo some of the progress of recent times.

Deep-seated challenges

London is one of the major centres of the world economy, its position as the premier European city for business and culture seems unassailable. Further riots notwithstanding, this is likely to be strengthened by hosting the Olympics. But there are deep-seated challenges that need attention if this advantage is to be preserved. Businesses and people must continue to want to locate in London and so an enhanced transport system is a must, if only to keep up with a growing population.

Quality of life matters too, not just for the young and affluent, but also for the less well-off and those with families. ­Inequality and the need for calmer, more cohesive communities across London ­requires better access to jobs for young people, more effective policing and large numbers of new homes. To tackle these challenges the city needs more investment, more power to solve its own problems, and leaders effective at wielding it.

Rob Whitehead is deputy director of the Centre for London at Demos

This article first appeared in the New Statesman supplement 'Competition in a New Society: Cities and Regions'