It's a city whose time has come and gone and come again, but for how long this time?
This is London's year. In June the city put on damp, but impeccably organized, Diamond Jubilee celebrations; in July it hosts the Olympics. Barring terrorist attacks and transport disasters (not a small risk, given that the organizers are relying on public transport) the games should reinforce the city's sense that it is on top of the world.
Yet London's position is more precarious than it feels. The city's success over the past quarter-century has been the consequence of historical accident and good policy. Now history is moving on, and the policymakers are messing up. They could tip the city into decline without even noticing.
London has resisted Britain's relative decline. While the country has slipped to seventh place in the league of world GDP, the capital is first, or second to New York, in most of the rankings of great cities. If it were not for London, Britain would be off the map for both business executives and tourists.
It wasn't always thus. After a boom in Victorian times, the city went into a decline from the beginning of World War II. Bombing, the waning of manufacturing, the closure of the docks and government policies designed to reduce the city's dominance were responsible. By the late 1980s the population had shrunk by a quarter.
Then things turned around again. It was probably in part the gravitational pull of a great city reasserting itself, but also it was the replacement of daft policies with good ones. In the 1970s the government stopped trying to push growth elsewhere. In the 1980s the financial-services industry was deregulated and drew in workers and money from around the world. A convenient time zone and a language that imperialism had spread around the globe made it easy for foreigners to operate in the city. Excellent universities and private schools attracted young people and parents.
Thus globalization, distilled and concentrated in London, turned the place into the world's most international city. New York has as many foreign-born people as London -- a bit more than a third -- but its businesses look to America, whereas London's look out to the world. London attracts the smart professionals and the stinking rich as well.
For Londoners, this has a downside. Per square foot, property in London is more expensive than anywhere except Monaco. While property prices in other capitals, and in the rest of Britain, have fallen during the economic crisis, demand for central-London property has pushed prices up still further.
There is a larger upside. Partly because foreigners are better-qualified, younger and -- according to surveys of employers -- harder-working than the locals, and because of the flow of foreign money into the city, London's economy has done much better than Britain's in recent years.
But there is a hitch. Although Britain lives off London, and London lives off foreigners, Britain does not much like foreigners. Out of people from six rich countries recently polled, Britons were the most hostile to immigration. And that is not because they see so many immigrants. London, which is one-third foreign-born, is far warmer towards them than the rest of the country, where only 8 percent like them.
This is a great time for London, but its moment will inevitably pass. The accumulation of capital from the empire and the industrial revolution made the place prosper; and now, with the rise of the emerging markets, capital is accumulating elsewhere. Europe's traumas, however they are resolved, will shape its future, either because it is bound more tightly into the continent, or, more likely, because it floats away from it.
Yet although the government cannot prevent the city's relative decline, it can affect its speed. The cost of housing is not just a problem for Londoners, but also a tax on business. Higher property taxes, which are desirable on wider economic grounds, would cut demand for property as an investment or a second home. Allowing more development both on brownfield sites in the city and on the Green Belt encircling it would increase supply. Transport needs to be improved by investing in rail, widening congestion-charging and expanding airport capacity.
Most of all, Britain needs to stop discouraging foreigners from coming. London's prosperity is built on its ability to attract the rich, the clever and the hardworking from all over the world. Anything that jeopardizes the city's internationalism endangers its future, and anything that jeopardizes London endangers the country.