London poised to pass New York as world's leading city

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07 December 2006


Indian steel tycoon Laskhmi Mittal and Russian oil baron Leonard Blavatnik are the new boys on the block at London's Kensington Palace Gardens, a street with houses so lavish it's known as billionaires' row.

Farther west in the suburb of Ealing, store fronts boast signs offering Polish delicacies to cater to an influx of less wealthy, but no less driven immigrants.

Come New Year's, Big Ben may be ringing in a new age of dominance for the capital of the United Kingdom.

In the same way immigrants flooded to the bright lights of New York last century, they are now drawn to London's galloping financial markets, inviting job market and high-octane lifestyle.

New York's attractions, meanwhile, are languishing as stringent post-9/11 travel restrictions throughout the United States, heavy-handed financial regulations, and intrusive Homeland Security policies combine to make it less welcoming or, at times, even somewhat parochial.

"When people decide to leave their own country, more and more they choose London," said Jonathan Faid, senior economist at the Centre for Economics and Business Research.

Along with record immigration levels, property prices are skyrocketing and employment remains robust. Financially, London dominates global foreign exchange trading, leads New York in new stock market listings and is pulling ahead on hedge fund management.

On the lifestyle front, the arts and party scenes are breaking new ground in innovation (and excess), tourists keep coming in droves despite terrorism fears and, to top it all off, the 2012 Olympics are coming to town.


Celebrities Give Thumbs-up

Woody Allen, the filmmaker perhaps most closely associated with New York, has recently made London his muse. International, non-British superstars like Madonna, Kevin Spacey and Gwyneth Paltrow make their home here, drawn to the mix of buzz and Old World elegance.

Behind the boom is money: thriving international financial markets underpin the capital. While New York remains the world's largest urban economy, its wealth is founded on domestic business; experts say London has already stolen back its crown as the premier international financial market.

It all started two decades ago, when then-Tory Prime Minister Margaret Thatcher implemented her 1986 Big Bang financial reforms that deregulated the London Stock Exchange virtually overnight. Long the exclusive preserve of the rich or well connected, the exchange became cheaper, faster and more transparent for foreigners and individual investors.

There was also a philosophical shift in Thatcher's vision of a "classless society" in which the best and the brightest of all races and backgrounds would be given the conditions to thrive - often, critics said, at the expense of the weakest.

Labor Prime Minister Tony Blair has continued that drive, using foreigner-friendly legislation to make the most of London's natural geographic advantage - it's in a convenient time zone to cut deals from New York to Shanghai - to straddle the business globe.


Few Barriers For Investors

Despite some public grumbling, Britain has put up few barriers to foreigners taking over some of its biggest businesses, not to mention treasured institutions. One of the most notable new faces is Roman Abramovich, the Russian oil tycoon who is now frequently spotted in the home stands of Chelsea, the venerable London-based soccer club he bought in 2003.

Attempts by foreign corporations to buy U.S. icons have been met with stronger protest, as with the sale of New York's Rockefeller Center to Mitsubishi Estate in the late 1980s. Mitsubishi later sold its 51 stake in favor of investments in Asia. And there is little talk of "economic patriotism" in Britain that has become a catchphrase in continental Europe, with governments in France and Germany blocking takeover bids by foreign companies.

The Enron scandal led the United States to introduce tough regulations including requirements that companies listing on U.S. exchanges invest in software and hire auditors to vet business processes - a move critics say has a stifling effect on investment and enterprise.

"U.S. regulation has certainly driven a lot of business over here and London has taken advantage of that by making sure that its own regulation is as attractive as it can manage," said David Lascelles, the director of the Centre for Study of Financial Innovation.


Holds An Open Door

Perhaps the most euro-skeptic European Union member, Britain has also embraced the bloc's open-border policy more warmly than any other country, welcoming workers from newcomer states after the last expansion in 2004 when most other EU nations kept the door closed.

The net inflow of people coming long-term into Britain last year was approximately 500 each day, according to figures from the National Statistics office. The rush of immigration has been so dramatic that the government is trying to cool it off, restricting entry from workers from Romania and Bulgaria when those countries join to form the EU-27 on 01 January 2007.

The hurdles to settling in the United States are often greater than those in Britain. The U.S. has been struggling with immigration reform efforts for over a year now, but has been in a political deadlock for all of 2006. While changes are on the horizon for 2007 with the U.S. congress now in Democratic control, it seems that the earliest expected changes to make it into law will be in mid-year, at best.

However, a person with a degree and documented experience can usually find one route or another to immigrate into the UK.

"The message is that we aren't just an historic financial center, we are a very dynamic, cultural city with lots of facets," said Diana Torres, the New-York based vice president for Think London, a not-for-profit organization that helps foreign businesses set up shop in London.

Seb Dovey of the London-based wealth management consultancy, Scorpio Partnership, said London has become so attractive for well-heeled travelers that he is seeing growing interest from Americans relocating from New York to London.

The new arrivals have pushed the price of London's luxury homes beyond those in New York, making them the most expensive in the world.

Prime residential property in London now costs around £1,200 ($2,300; €1,800) per square foot, compared to £1,000 ($1,900; €1,500) in New York, according to CB Richard Ellis Hamptons International.


Arts Scene Flourishing

London's Tate Modern museum is filled with cutting-edge contemporary art, making New York's Museum of Modern Art look a little old-fashioned by comparison. Even MOMA Director Glenn Lowry has warned that New York is in danger of losing its status as cultural capital of the world if it does not invest more in arts programs.

Ever since the emergence of Damien Hirst, Tracey Emin and the other headline-grabbing "Young British Artists" in the 1990s, London has been home to a vibrant arts scene that continues to spawn new talent. In just a few years, the graffiti artist Banksy has gone from stenciling walls and bridges around the city to selling work for tens of thousands of Great British Pounds to A-list clients including the likes of Angelina Jolie.

The major galleries are booming. Tate Modern attracts 4 million visitors a year and has announced a £215 million ($400 million, €315 million) expansion to double its exhibition space.

Overseas visitors made a record 30 million trips to the Britain in 2005, despite the 07 July bombings in London. In contrast, Euromonitor International warned that the United States is losing substantial numbers of business and leisure travelers to Europe because of the stringent security measures it has imposed on international visitors since the 9/11 terrorist attacks that make visas harder to obtain.


London's Rise Worries Key Figures In New York

A group of U.S. bankers, bosses, academics and investors under the banner of the Committee on capital Markets Regulation recently released a report lamenting the rise in regulatory compliance costs and calling for a reduction in red tape. Among the group's recommendations is a suggestion that the U.S. Securities and Exchange Commission rely on principles-based rules and guidance, rather than detailed prescriptive rules.

The New York Chamber of Commerce has held a series of "town hall meetings" and will publish another report next spring, while the city has hired consultants from McKinsey to develop a new strategy.

Mayor Michael Bloomberg joined Sen. Charles Schumer to pen an op-ed piece in The Wall Street Journal last month warning that New York could lose its position as the world's financial capital if steps aren't taken to reduce regulation. It seems, given the current situation, that loss of the title is inevitable, if not necessarily permanent.

The London Stock Exchange's popularity makes it a perennial takeover target for foreign exchanges. The LSE registered 78 initial public offerings by foreign corporations worth $10.8 billion last year, while U.S. IPOs the same year numbered 34 worth just $7 million - a large fall from the $41 billion worth in 1999.

"Unless we improve our corporate climate, we risk allowing New York to lose its pre-eminence in the global financial-services sector," Bloomberg and Schumer wrote. "This would be devastating both for our city and nation."


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