A year after the Leave vote, Britain’s capital is scheming to dominate global finance, Europe be damned.
Thirty years ago, London’s Isle of Dogs was a barren expanse of abandoned wharves and crumbling warehouses, never recovered from the wartime attentions of the Luftwaffe. Even the names of nearby boat basins were reminders of Britain’s lost empire and postwar decline: the West and East India docks.
George Iacobescu arrived in 1988, sent to oversee what at the time seemed like a bold, verging-on-insane idea: the creation of a financial district that would supplant the winding lanes and low-slung stone of the City, London’s traditional banking hub. Maintaining the City’s historical character and its views of St. Paul’s Cathedral made building skyscrapers there all but impossible then. Canary Wharf, as the development would be called, would offer bright, modern office towers and cutting-edge telecommunications, allowing London to compete with New York as a center of global finance.
For the first few years, Canary Wharf looked like a colossal failure. Then, in the late 1990s, it began taking off, slowly at first and soon with dizzying speed—transformed, like London as a whole, by the power of international finance.
On the 30th floor of its tallest skyscraper, Romanian-born Iacobescu, now the chief executive officer of Canary Wharf Group Plc, beams with pride as he surveys his domain, where 100,000 workers arrive every weekday at Chevron, HSBC, Intel, and JPMorgan Chase, among others. In an adjacent room, a forest of architectural models the size of small children shows its 16 million square feet of towers, malls, and underground rail links. Iacobescu gravitates to one in particular, illustrating the plans for a new district under construction east of the original site. Canary Wharf has changed so much that now people want to live there, and its tallest building will be residential.
“The Chinese look at Canary Wharf and they say, ‘This is how cities should work,’ ” Iacobescu boasts. “The world wants to come here.”
Perhaps, though, not as much as it did a little more than a year ago. The city that breathed life into Canary Wharf faces a fight for its future. Last June pollsters and investors confidently ruled out the possibility that British voters would decide to leave the European Union. The morning after 52 percent of them rebuked everything Canary Wharf stands for by voting to leave, the pound plunged to its lowest level in 30 years. By 9 a.m., Prime Minister David Cameron had announced his resignation. Within weeks, banks such as Goldman Sachs Group and JPMorgan were weighing how many staff they would have to relocate to Frankfurt or Dublin, threatening the engine of London’s $490 billion economy. Airlines slashed flights, universities reported plunging European applications, and—truly shocking—house prices slid.
Its economic foundations under assault, the idea that London could ever, as then-Mayor Boris Johnson suggested in 2012, be the “capital of the world” sounded suddenly like a bad joke. At the rate things were going, the city would be lucky to even stay the capital of the United Kingdom if the Scots made good on renewed threats to secede. And that was before a pair of recent terror attacks—a March vehicle assault on Westminster Bridge and a suicide bomb on May 22 at Manchester Arena, which killed 22 people—gave London another reason to be on edge.
But while the ubiquity of the “Keep Calm and Carry On” mantra may have diluted the brand a little, that’s exactly what London is doing. A loose grouping of London business and political leaders has coalesced to make the case that with the right mix of policies, the city’s economy can thrive despite Brexit. Earlier this year, TheCityUK, the main lobbying group for the all-important financial industry, called leaving the EU “a once-in-a-generation opportunity” to reorient trade and investment links to new markets. Mayor Sadiq Khan is using the tumult to try to wrest more autonomy over transport, infrastructure, and perhaps even immigration. And the booming tech sector is pushing to turn the crisis into an opportunity to overhaul regulations to make the U.K. the preferred jurisdiction for testing uncharted inventions.
Those plans are taking shape in an environment of continued political turbulence. Cameron’s Conservative Party successor, Theresa May, is fighting an unexpectedly fierce battle in the June 8 general election against Labour leader Jeremy Corbyn. After a series of missteps by May and her advisers—including a perceived U-turn on a key plank of her party’s manifesto on social care—her once seemingly unassailable lead is under threat as voters fret about her ability to deliver a “strong and stable” Britain.
May is still expected to win a majority of seats, and whatever the U.K.’s immediate political future, economic apocalypse is nowhere in sight. More skyscrapers are under construction than ever, and residential asking prices have hit a record. Amazon.com, Facebook, and Google have announced major expansions of their London footprints since last summer, the latter becoming a principal tenant in a massive redevelopment of the once slightly seedy King’s Cross neighborhood. Next year the ribbon will be cut on the Elizabeth Line, or Crossrail, a 13-mile, ultrahigh-capacity express subway linking Heathrow to the heart of the city and beyond. The airport itself is midway through an ambitious expansion, with shiny new terminals largely complete and a long-contested third runway finally moving forward.
Indeed, what some supporters of the “Remain” camp warned of seems to be coming to pass: The places likeliest to suffer badly from Brexit are the U.K.’s troubled industrial heartlands, regions that overwhelmingly supported leaving but have far less ability to adapt to its effects than the dynamic capital.
London “has a global and particularly European competitive advantage that has been built over decades,” says John McFarlane, the chairman of banking group Barclays Plc. “It cannot be replicated easily in other centers.”
It’s impossible to overstate the intensity of the U.K.’s ties with the rest of Europe, and those pulling for London still have deep concerns about what’s to come. Nonetheless, as Iacobescu’s experience at Canary Wharf shows, the global metropolis that’s contemporary London didn’t just spring fully formed from the damp Thames clay. It had to be made, by people, capital, and policies. That means it can be remade, too.
By the turn of the 21st century, London was the economic center of Europe. Ambitious Scandinavian bankers, German architects, and Italian lawyers arrived in droves, able to move to the U.K. without so much as filling out a form, thanks to the EU’s free-movement rules. At one point, Mayor Johnson claimed there were a quarter-million French citizens in the capital, more than in the city of Bordeaux. It’s not exactly verifiable, but the fact that many Europeans accepted it as received wisdom served as further evidence of London’s dominance.
At the same time, the city prospered from the expansion of emerging markets. It was where the multiplying elites from Russia, Saudi Arabia, India, and elsewhere came to spend their money, educate their children, start fashion lines, and occasionally race their custom Lamborghinis through the streets of Knightsbridge. As its internationalization intensified, the city came increasingly unmoored from the country as a whole, as if it had achieved escape velocity from the very idea of national borders. Many businesspeople use the U.K. “as a place to do business from, not necessarily to do business in,” says John Browne, former CEO of BP Plc, who now leads a Russian-backed global investment fund from offices in—where else?—London.
The city’s success had many ingredients. The English language helped, as did a legal system of impartial courts and enforceable contracts, elite universities, and a tolerant attitude toward foreigners that dates back centuries. (It was London that gave Karl Marx a place from which to unpack capitalism’s evils after Germany, Belgium, and France expelled him.) Less talked about, but essential, is a degree of semi-deliberate government indifference to the precise sources of money flowing in from Moscow, the Middle East, and elsewhere—a stance unimaginable in the more prosecutorial U.S. That’s made investing in London far more attractive to emerging-country oligarchs eager to avoid taking chances with the IRS and U.S. Department of Justice.
Despite London’s global appeal, the U.K.’s European status also has offered huge advantages. The EU is the destination for almost half of U.K. exports and the source of the same proportion of foreign direct investment. EU law allows a bank established in any member state to operate freely in any of the others, an advantage that U.S. and Asian lenders used to locate their European headquarters overwhelmingly in the U.K. Despite being outside the euro zone, the City came to dominate the market for euro-denominated derivatives, worth hundreds of billions of dollars daily, and to rival New York as the heart of investment banking and trading of all kinds. Just a mile up the road, a tech sector clustered around the ugly junction half-jokingly called Silicon Roundabout thrived as well, sustained by City investment and workers from throughout Europe and beyond.
The victory of the nationalist Brexit campaign seemed to put all this at risk. How great a risk is hard to say. Some financial jobs will almost certainly have to relocate to meet EU regulatory requirements, depending on the shape of a final settlement with Brussels, and banks are making contingency plans. Estimates range from as few as 4,000 or so, according to management consultant Oliver Wyman, to a worst-case scenario of 232,000 detailed by Xavier Rolet, CEO of the London Stock Exchange Group, in January to a parliamentary committee. In other words, no one has a clue.
How can London be saved from the worst predictions? As it happens, in addition to the Little England fantasies of cream teas and village cricket with which the “Leave” vote was often associated, there was always a liberal vision for Brexit, espoused by Johnson and others. The plan was a form of doubling down. Broadly, it entailed making the post-EU U.K. a sort of giant, cold Singapore—rabidly pro-capital, lightly taxed, and hospitable to innovation. The Brexit twist: a focus on connecting tightly to emerging markets. Within the EU, the U.K. benefited from the bloc’s network of trade agreements but was prohibited from negotiating any on its own. Now, the slightly wishful theory goes, it can do so with enthusiasm and speed—while winning a post-Brexit deal that preserves access to the EU’s huge economy.
May began earlier this year to at least pay lip service to this notion of “Global Britain”and got away with it, despite the apparent desire of half the country’s citizens for exactly the opposite, in part by stoking a bit of indirect nostalgia for the bygone age of empire. Speaking in January to top-tier investors and CEOs at the World Economic Forum in Davos, she pledged to make the U.K. “the strongest and most forceful advocate for business, free markets, and free trade anywhere in the world.”
If May follows through, implementing that vision shouldn’t, theoretically, be too difficult. The U.K. has a highly centralized system of government in which American-style gridlock is a virtual impossibility. Within reason, what the prime minister wants, she gets. Her government has already hinted that if it receives an unfavorable deal in negotiations with Brussels, it could retaliate by slashing its corporate tax rate—which at 19 percent is already far lower than those of the U.S., France, and Germany—to poach companies from neighboring countries. The U.K. has a track record of this sort of thing. Fiat Chrysler, Liberty Global, Aon, and other businesses, attracted by low taxes, have relocated operations to London in recent years.
One of the architects of London’s emergence as a financial capital is among those urging May to make some version of Global Britain a reality. Lord Nigel Lawson of Blaby, now 85 and ensconced in the oak-paneled sanctum of the House of Lords, oversaw the “Big Bang”—the U.K.’s sudden move to deregulate financial services—as chancellor of the Exchequer under Margaret Thatcher. He figured that a gradual removal of rules that benefited incumbents would foment too much opposition, so the decision was made to implement the changes on a single day in October 1986. It opened up the London Stock Exchange, previously run something like a not-very-lively gentlemen’s club, to a rush of overseas capital and brainpower.
Sitting in an overstuffed red leather chair in one of the Palace of Westminster’s ubiquitous private bars, morning sun streaming in from the Thames through tall, neo-Gothic windows, Lawson advocates a similarly aggressive approach for prospering from Brexit. He rejects the charge that he’s anti-European; after all, he says, he lives most of the time at his country estate in southwest France, flying in to Heathrow for Lords debates.
“London’s success owes nothing whatever to being in the European Union,” Lawson says, as if it should be obvious, but rather to “this huge collection of expertise” in finance and related industries that he argues will never pick up and go. The picture he paints of post-Brexit Britain is of a nation shorn of unhelpful multilateral entanglements, with “complete autonomy over our tax system,” which “should be, en principe, a low-tax system.” He speaks optimistically of restructuring immigration to remove the current distinction whereby bricklayers from Slovenia face no visa restrictions, yet American Ph.D.s must fill out miles of forms and cross their fingers—treating “citizens from anywhere in the world on an equal basis.”
And proving the notion that to scratch a Brexiteer is to quickly uncover fond memories of the last time there was such a thing as Global Britain, Lawson says that as Europe’s economy stagnates, “it’s the emerging world which is really going places. And a large part of the emerging world is the former empire”—India, Nigeria, Malaysia, and so on, with which Britain still enjoys close cultural and political ties. Indeed, there’s an argument to be made that the emerging economies need London as a stable venue for making deals and protecting assets.
For its part, TheCityUK has suggested reimagining trade deals to focus on the sale of services, which the U.K. exports in spades, rather than just goods, which are less important to its economy. Another possibility being floated in the City: scrapping or loosening the EU-imposed cap on bonuses for bankers. Limiting windfalls to twice a person’s fixed pay, the gap is understandably unpopular there.
The tech industry has also been active. In December a collection of local players, including Skype co-founder Niklas Zennstrom and Sonali De Rycker of venture capital company Accel, wrote an open letter to May calling on her to preserve maximum access to the EU’s “single market” and to provide automatic visas for tech graduates as part of a post-Brexit immigration strategy. The group had other, more unusual suggestions. The most eye-catching was that the U.K. should engage in “regulatory arbitrage” for technologies such as drones and blockchain. In the words of Mattias Ljungman of venture firm Atomico, which he co-founded with Zennstrom, the country could use its nimble system of government to become a “neutral zone” for testing ideas that other places restrict. There are some indications this is already happening. The U.K.’s main financial watchdog has created a “regulatory sandbox” that allows fintech firms to do real-world tests of products that normal rules might not allow. And Amazon is conducting trials of its delivery-by-drone program near Cambridge after complaining the U.S. Federal Aviation Administration wasn’t moving fast enough to change American flight rules.
The task of marshaling these forces has fallen to Mayor Khan. The 46-year-old’s biography couldn’t be further from the usual Eton-and-Oxbridge CV of British politics. His parents were immigrants from Pakistan who raised Khan and his seven siblings in public housing. After university he became a lawyer, working on racial discrimination and police brutality cases, before entering Parliament in 2005. Last year he became the first Muslim mayor of a major Western capital. Khan is often discussed as a future prime minister, and his political standing is in direct contrast to his physical presence. He’s quite short, and the navy blue suits he wears—always without a tie—as an unvarying uniform can look at least half a size too big. At one recent event, a photo op with high school students who towered over him, Khan’s dark-brown leather belt was cinched to the sixth notch.
The mayor’s first year at City Hall, a riverside orb that Johnson dubbed “the glass gonad,” has been consumed by the fallout of the referendum. Like a lawyer making arguments before an all-powerful judge, he’s relentlessly made the case to business leaders not to give up on London and sought to counter the Britain-first message of Brexit with a nonstop calendar of speeches, international trade missions, and slickly produced ads showing off the city’s diversity. There’s substance behind the marketing blitz. To protect London’s appeal, Khan is pursuing even more heavy-duty infrastructure, including Crossrail 2, another massive rail line through the heart of the city. He’s also suggested the creation of a “London visa,” whereby a foreigner with a job offer from a local company could be given permission to live and work in the capital and not elsewhere. That’s not as crazy as it sounds. Canada and Australia have regional visa policies for some migrants. And it’s hard to argue with the idea’s inherent logic. Unlike much of the rest of the country, diverse London has no problem with newcomers.
What these prescriptions for a vibrant metropolis all share is a focus on talent, a conviction that London can’t hope to succeed without brainy immigrants. Politically, that happens to be the most difficult item on the wish list to deliver. The Brexit vote was widely interpreted by politicians as a backlash against immigration, and May has said repeatedly that gaining control of the borders—i.e., ending freedom of movement for European citizens—is a nonnegotiable red line for her government in talks with its European counterparts.
What will replace the open-door policy is anyone’s guess. So, too, is the evolution of the current, less permissive system for non-EU workers. While May in January said that “openness to international talent must remain one of this country’s most distinctive assets,” she’s not a likely candidate to champion a relaxed approach. In her previous role as home secretary, she was the public face of a pledge, never fulfilled but recently reiterated as Conservative policy, to reduce annual inflows to the “tens of thousands.” Despite pleas from business groups and members of her own party, she’s also refused to formally guarantee that EU citizens already in the U.K., who number in the millions, will be able to stay—even though no one realistically expects any other outcome.
“If you really want to understand what’s behind the success of London, it’s that the city is a powerful magnet for international talent. It’s all based on people,” says Gregor Irwin, the chief economist at political consultant Global Counsel. Politicians who want to preserve that will have to contend, he says, “with a prime minister who’s still hellbent on bringing down the overall numbers.”
Free trade and a permissive attitude to technological disruption weren’t what, say, underemployed pipe fitters in Stoke-on-Trent had in mind when they voted for Brexit. Telling them the country must continue to prioritize the interests of footloose international capital to prosper is a lot to ask of May, who leans more populist than many Conservatives.
Perhaps more daunting, a swashbuckling, neo-Elizabethan vision of a Britain dedicated to conquering new markets ignores that U.K. companies have prioritized the giant bloc on their doorstep for decades. As an alternative, reorienting the economy toward emerging markets would mean “a quantum shift in terms of our trade strategy,” says Martin Sorrell, CEO of London-based advertising giant WPP Plc. If the U.K. loses its links to the EU and fails to develop ones with other regions, the risk is that “we become an isolated island instead of a connected one,” he says.
As London’s business elites weigh how to sell politicians on their vision, what they view as sensible economic policy can feel hard to reconcile with the demands of an angry populace. On a chilly early March evening, a crowd of bankers, corporate executives, and diplomats filed past a military string ensemble in formal red uniforms as a crier in an elaborate sash shouted entering guests’ names. The occasion was the annual Business and Investment Dinner at Mansion House, the City’s ceremonial heart—a Palladian pile that since the 1700s has been where deals are struck, successes are celebrated, and postprandial port is passed to the diner on one’s left. “The pound is down,” began the grace as guests sat down to smoked-and-peppered mackerel terrine. But “stocks are up, so let us be thankful as we sup.”
As dinner moved on past the roast rib-eye served with mushroom panna cotta and a full-bodied 2001 Pessac-Léognan, Lord Mayor Andrew Parmley, the City’s official leader, rose to address the subject on everyone’s mind. Next to him was Business Secretary Greg Clark, a member of May’s cabinet responsible for economic policy, representing the national government. “Free trade, ambition, openness to new ideas, techniques, and talent,” Parmley recited, glancing occasionally at his neighbor. “They can power the future success of what is, what has always been, and indeed in my opinion always will be, the world’s greatest city.” It was meant as a confident affirmation of the obvious. Instead, it sounded a little like a plea.
At Canary Wharf, Iacobescu talks up London’s advantages with the zeal of a convert, which he is—before he arrived, he lived in Toronto and then New York, helping build the World Financial Center. “Why are all the institutions here?” he asks. “Because of the language, because of the regulatory regime, because of the time zone, because of the infrastructure, because of the know-how. All these things haven’t disappeared.” Banks and companies that depend on them, he says, have no intention of abandoning a city that helped make them rich. Yet even the optimism of a man whose job it is to sell London to the world has its limits. As Iacobescu circumnavigates his largest architectural model of the district, reciting from memory the addresses of companies such as Morgan Stanley, Credit Suisse, and American Express, one tower makes him wince slightly: the European Medicines Agency, the EU equivalent of the U.S. Food and Drug Administration, a major Canary Wharf tenant. Like every other EU institution with a U.K. presence, it will almost surely soon depart, perhaps for Milan, perhaps Copenhagen.
It’s a small example of an important reality: If London is no longer the “gateway to Europe,” he says, losing growth to Frankfurt, Paris, or New York is inevitable. While Iacobescu believes in London as much as anyone, he concedes that without enlightened leadership, its strengths may not be enough to overcome harsh political reality.
“London is a great city,” he says. “But the effort should be to keep it the capital of the world.”