What the events of 7/7 say about Britain’s capital

London's reaction - at www.moneyweek.com - the best of the international financial media

It is an honour London could have done without. There is no surer sign of a city's standing in the world than to be chosen as a target for a terrorist speculator. When the twin towers were attacked, they were chosen as a target because they were one of the most prominent landmarks in the world's leading city. Washington may be the leading global city for politics, but New York is the leading international city for almost everything else, including finance.

Within a week London's position in this global league was emphasised by the choice of London for the Olympic Games of 2012 and by the Al Qaeda inspired bombing of the London underground. It was a horrible act, which has left a trail of casualties and bereavement. Even that demonstrated how international London has become. The casualty list, like that of the twin towers, spoke of an international community, not of a purely Anglo-Saxon one.

It is still true, as it was during the German blitz in the Second World War, that, in the wartime phrase, "London can take it". I can remember the London of the wartime bombing, and its spirit was summed up in another wartime phrase, "business as usual". On Thursday, July 7th, people reacted by continuing to go about their business, though they had to walk because, in the centre, the buses and trains had all stopped.

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At lunchtime, I walked with my wife to the Savoy Hotel for a political lunch, a fundraiser for the Conservative Association of the Westminster constituency. There were a few empty tables, reflecting the cancelled trains, but more than half the audience were present. There had been a proposal to cancel the lunch, but the local leaders vetoed that. This was the general mood.

In this, London in 2005 was very similar to London in 1944. I noticed one intriguing difference. In 1944 the German bombing was high tech, with pilotless planes and early rockets. Their loads of explosives were 500 or 1,000 pounds. The Al Qaeda bombers used 10 pounds of explosive and distributed it in person. On the whole, Londoners had more reason to be afraid of the Luftwaffe, though rockets were less accurate agents of death than they are now.

The world seems to be returning to the mediaeval pattern of trade, a pattern based on great trading cities. In 1500, European trade, and banking, was organised around the chief trading cities, whose merchants could become immensely rich. There were the Italian cities, Venice, with an Empire, Florence, with the Medicis, Milan, Genoa and so on. There were the great trading cities of Germany, including the Hanseatic ports of Hamburg and Bremen. There was Antwerp in the low countries. There was London.

These merchant cities took an international view, and lived by international trade. They had a considerable investment capacity. The City of Bristol financed the second voyage of exploration to America, that of Sebastian Cabot. Columbus had been financed by the King of Spain. There is even a theory that America was named after a Bristol merchant, called Ameryk, rather than after Amerigo Vespucci. There certainly was a Bristol merchant of that name, and Bristol merchants did finance Cabot. If one looks at the economy of Britain, it seems increasingly to be the economy of London, plus its hinterland. The map of house prices gives the pattern, with London a glowing hot spot, an outer ring of very high prices in the counties adjoining London, and then a gradual decline as one goes further West or North. The most important factor in determining price of an ordinary house is the number of hours it takes to get to Piccadilly Circus. The important thing is that all the higher house prices are determined by London or London related incomes.

There seem to be two types of big city the global city, with its emphasis on international trade, and the continental city with its dependence on the continental economy. The United States has two leading global cities, the Pacific Coast city of Los Angeles and the Atlantic city of New York. Chicago and Atlanta are continental cities, as is Toronto. Europe has the global city of London and the continental cities of Frankfurt and Paris. Russia has the continental city of Moscow. China has the continental and political city of Beijing and the global cities of Shanghai and Hong Kong. India has the global city of Mumbai. Singapore is a smaller global city state, a brilliant invention of its first great leader, Lee Kuan Yew. Japan has a global city of Tokyo.

New York, London, Los Angeles, Tokyo, Shanghai, Hong Kong, Mumbai, Singapore, are the global cities of the modern age. Cairo is a global city of Arab politics, but not of wealth. Baghdad was a global city under the Ottoman Empire, but lost that role seventy years ago. The great Jewish trading family of the Sassoons had branches in Baghdad and Shanghai in 1914, just as the Rothschilds had branches in Frankfurt and London in 1815. Great merchants flourish in great citiesInterestingly, the merchants do not need to belong to the nationality of the global city. That was true even in the London of 1500, a city in which foreign merchants had their businesses just as they do today. These were not the Jewish merchants, who had been expelled by King Edward I and were to return under Oliver Cromwell. They were merchants form other European trading cities.

The people whose names appeared on the casualty lists were not great merchants indeed great merchants seldom appear early in the morning on the London underground in July. They mostly had technical jobs of one sort or another, and they belonged to many nationalities. Yet they provided the essential infrastructure on which the wealth of a global city is based.

I think there has been a shift back towards the trading city and away from the nation state as the economic unit. All my life I have made my living in London, but in financial or political journalism and in international business, occupations which I could have followed in New York, or the other global cities, but not in my rural home country of Somerset. I could, at any time, have rearranged my affairs and transferred my business life to Hong Kong or Los Angeles without undue difficulty. I could not have done my own work where I was born though now, in the electronic age, I probably could.

I believe this trend is likely to continue. We are not going to have global government. The great cities do not break away from their national links. But that is where the money is to be made and a cosmopolitan group of people are attracted to these great focal points of world trade.

By William Rees-Mogg, for The Fleet Street LetteFor more from the Fleet Street Letter Britain's longest-running investment newsletter, founded on the eve of WWII see the team's latest report: