London is the new Venice
London matches the glory of Venice in its prime
Ross Clark
The Spectator
City of London's Coat of Arms
When Tony Blair secured the agreement of the Scots and — only just — the Welsh for devolution in the referendums of 1998, it was supposed to herald a great revival of the regions. Britain was to be reborn as a kind of West Germany, whose constitution included a reference to ironing out the economic disparities between Hamburg and Munich, Frankfurt and Hanover.
Instead, the opposite seems to have occurred. The concept of elected English regional assemblies has been quietly forgotten since rejection in the North East, and wealth and power have been concentrated increasingly in London — to the point where the average Londoner now earns £37,323 per year, 53 per cent more than average British earnings. Indeed, the part of England that now seems most inclined towards independence is the capital itself.
Intriguingly, the notion that London could hack it as a city-state has been entertained at both ends of the political spectrum. For economic liberals independence is a way of freeing London from the burden of its £20 billion annual subsidy to the rest of the country. The Mayor himself, Ken Livingstone, seems to like the idea of a London city-state, too. Returning from a visit to the Far East he declared last year: ‘Having been to Singapore and seen how successful it was, I think anything short of a fully independent city-state is a lost opportunity.’
How London will look circa 2012
If Mr Livingstone wishes to pursue the idea, he might find a better model for a London city-state in 14th-century Venice. Unlike Singapore, which is wealthy, grimly efficient but hardly a place of fun or great creative energy, London shares with Venice in its heyday a growing reputation, not as the most powerful city in the world, but as its best address. Over the past 12 months house prices in London’s best streets have risen by over 30 per cent, inflated by demand from wealthy individuals from all over the world. Behind their façades, £15 million London houses are being rebuilt as £30 million palazzos — all this at a time when the housing market in New York has been gently declining.
The new London Bridge Tower - dubbed "The Shard of Glass" - will be Europe's tallest skyscraper when it is completed
The world’s wealthy want to come to London now for the same reason that they wanted to go to Venice in the 14th century. It is, quite simply, the best place to do business. Its political system is stable, its laws and courts are trusted. It is tolerant of racial and religious differences. Like Venice, which acted as a gateway between Byzantium and western Europe, London sits between the time zones of Tokyo and New York. And unlike most world capitals it openly invites in wealthy foreign individuals by assuring them that the British taxman will not be trawling their global bank accounts just because they happen to choose to live in London: under the rules of ‘non-domicile’ tax status they will be taxed only on what they bring into Britain.
Anyone hoping that Gordon Brown will change these rules is likely to be disappointed. Although he made noises about doing so before he became Chancellor, he presented 11 budgets without bringing up the subject and has made no suggestion that he will tackle it again. Moreover, it was he who reduced capital gains tax for enterprise assets to 10 per cent, which has so swiftly made London the world capital for hedge funds: a loophole or incentive — depending on your point of view — which he has shown no signs of reversing.
Although much despised by some ordinary taxpayers, the attraction of wealthy foreigners through special favours is a fiscal model which would have been recognised by 14th-century Venetians. Today’s hedge-fund managers are the equivalent of the German glassmakers and silk-weavers from Lucca who were wooed to Venice with a two-year exemption from tax.
Venice owed much of its development as the centre of world trade to a special deal made in 992 with the mediaeval equivalent of the European Union: the Byzantine empire. Under an agreement signed between the Doge, Pietro II Orseolo, and Basil II, Venetian merchants were allowed to trade goods with the empire at a fraction of the tariffs charged to other merchants.
But crucially, Venetian merchants were also exempted from burdensome Byzantine bureaucracy. Sadly, Britain’s opt-outs from some EU legislation such as the Working Time Directive and now the European Charter of Fundamental Rights have been neither as extensive nor as long-lasting, but the principle remains: if you want to succeed in trade, it pays to join your local trading bloc — but to keep it at arm’s length.
Venice in its heyday was not a place where laissez-faire economists would have felt at home. In fact Jim Callaghan would have been inspired by Venice’s nationalisation of the ship-building industry in the early 12th century. The guilds were strong and there was always plenty of regulation, which up to a point was a boon for business — the city authorities employed trading standards officers to ensure that visitors would not be ripped off or have their wine watered down. The city boasted one of the earliest welfare states. The burden was tolerable, so long as the world’s wealthy continued to be attracted to Venice and the claimants were not too numerous.
Already by the 14th century, however, attitudes towards immigration were changing. Until 1395 Venice had welcomed Jews and, with Catholics banned from usury, had relied upon their loans to oil the wheels of the economy. Then, in a fit of regulatory fervour, the city authorities decided that there was too much money-lending. Jews were banned from taking up permanent residence and, when they did visit the city, made to wear yellow symbols. Thereafter, Jews did return to live, albeit to the ghetto.
Meanwhile, the regulatory burden grew, while enforcement became more sporadic. Out of the good times grew a culture of dependence. By the end of Venice’s life as a city-state in 1797 one in six was living on welfare benefits. Sound familiar? They are the same pressures as on London today: a grudging attitude towards economic migrants, ever more rules but increasingly unreliable enforcement of them — sometimes weak, sometimes vindictive. Less immediately obvious, at least while the economy is booming, is the growing dependence upon welfare. Should the economy turn, on the other hand, it will become a lot clearer just how many Londoners have become reliant on Gordon Brown’s tax credits and on subsidised housing. In fact, Gordon Brown’s failure to address house-price inflation may turn out to be his eventual undoing.
It is a rare set of circumstances that goes towards creating a Venice or a modern London: a combination of the right geographic, economic and social conditions that create a powerful city-state.
And they are conditions which can easily be changed by ham-fisted interference on the part of the authorities. Jealousy of London’s wealth, and a desire to level down to the considerably less buoyant economy in the rest of Britain, could easily kill the great Rialto that has grown along the Thames. As Venice proves, all that is left then is eternal tourism.
spectator.co.uk
London matches the glory of Venice in its prime
Ross Clark
The Spectator
City of London's Coat of Arms
Instead, the opposite seems to have occurred. The concept of elected English regional assemblies has been quietly forgotten since rejection in the North East, and wealth and power have been concentrated increasingly in London — to the point where the average Londoner now earns £37,323 per year, 53 per cent more than average British earnings. Indeed, the part of England that now seems most inclined towards independence is the capital itself.
Intriguingly, the notion that London could hack it as a city-state has been entertained at both ends of the political spectrum. For economic liberals independence is a way of freeing London from the burden of its £20 billion annual subsidy to the rest of the country. The Mayor himself, Ken Livingstone, seems to like the idea of a London city-state, too. Returning from a visit to the Far East he declared last year: ‘Having been to Singapore and seen how successful it was, I think anything short of a fully independent city-state is a lost opportunity.’
How London will look circa 2012
If Mr Livingstone wishes to pursue the idea, he might find a better model for a London city-state in 14th-century Venice. Unlike Singapore, which is wealthy, grimly efficient but hardly a place of fun or great creative energy, London shares with Venice in its heyday a growing reputation, not as the most powerful city in the world, but as its best address. Over the past 12 months house prices in London’s best streets have risen by over 30 per cent, inflated by demand from wealthy individuals from all over the world. Behind their façades, £15 million London houses are being rebuilt as £30 million palazzos — all this at a time when the housing market in New York has been gently declining.
The new London Bridge Tower - dubbed "The Shard of Glass" - will be Europe's tallest skyscraper when it is completed
The world’s wealthy want to come to London now for the same reason that they wanted to go to Venice in the 14th century. It is, quite simply, the best place to do business. Its political system is stable, its laws and courts are trusted. It is tolerant of racial and religious differences. Like Venice, which acted as a gateway between Byzantium and western Europe, London sits between the time zones of Tokyo and New York. And unlike most world capitals it openly invites in wealthy foreign individuals by assuring them that the British taxman will not be trawling their global bank accounts just because they happen to choose to live in London: under the rules of ‘non-domicile’ tax status they will be taxed only on what they bring into Britain.
Anyone hoping that Gordon Brown will change these rules is likely to be disappointed. Although he made noises about doing so before he became Chancellor, he presented 11 budgets without bringing up the subject and has made no suggestion that he will tackle it again. Moreover, it was he who reduced capital gains tax for enterprise assets to 10 per cent, which has so swiftly made London the world capital for hedge funds: a loophole or incentive — depending on your point of view — which he has shown no signs of reversing.
Although much despised by some ordinary taxpayers, the attraction of wealthy foreigners through special favours is a fiscal model which would have been recognised by 14th-century Venetians. Today’s hedge-fund managers are the equivalent of the German glassmakers and silk-weavers from Lucca who were wooed to Venice with a two-year exemption from tax.
Venice owed much of its development as the centre of world trade to a special deal made in 992 with the mediaeval equivalent of the European Union: the Byzantine empire. Under an agreement signed between the Doge, Pietro II Orseolo, and Basil II, Venetian merchants were allowed to trade goods with the empire at a fraction of the tariffs charged to other merchants.
But crucially, Venetian merchants were also exempted from burdensome Byzantine bureaucracy. Sadly, Britain’s opt-outs from some EU legislation such as the Working Time Directive and now the European Charter of Fundamental Rights have been neither as extensive nor as long-lasting, but the principle remains: if you want to succeed in trade, it pays to join your local trading bloc — but to keep it at arm’s length.
Venice in its heyday was not a place where laissez-faire economists would have felt at home. In fact Jim Callaghan would have been inspired by Venice’s nationalisation of the ship-building industry in the early 12th century. The guilds were strong and there was always plenty of regulation, which up to a point was a boon for business — the city authorities employed trading standards officers to ensure that visitors would not be ripped off or have their wine watered down. The city boasted one of the earliest welfare states. The burden was tolerable, so long as the world’s wealthy continued to be attracted to Venice and the claimants were not too numerous.
Already by the 14th century, however, attitudes towards immigration were changing. Until 1395 Venice had welcomed Jews and, with Catholics banned from usury, had relied upon their loans to oil the wheels of the economy. Then, in a fit of regulatory fervour, the city authorities decided that there was too much money-lending. Jews were banned from taking up permanent residence and, when they did visit the city, made to wear yellow symbols. Thereafter, Jews did return to live, albeit to the ghetto.
Meanwhile, the regulatory burden grew, while enforcement became more sporadic. Out of the good times grew a culture of dependence. By the end of Venice’s life as a city-state in 1797 one in six was living on welfare benefits. Sound familiar? They are the same pressures as on London today: a grudging attitude towards economic migrants, ever more rules but increasingly unreliable enforcement of them — sometimes weak, sometimes vindictive. Less immediately obvious, at least while the economy is booming, is the growing dependence upon welfare. Should the economy turn, on the other hand, it will become a lot clearer just how many Londoners have become reliant on Gordon Brown’s tax credits and on subsidised housing. In fact, Gordon Brown’s failure to address house-price inflation may turn out to be his eventual undoing.
It is a rare set of circumstances that goes towards creating a Venice or a modern London: a combination of the right geographic, economic and social conditions that create a powerful city-state.
And they are conditions which can easily be changed by ham-fisted interference on the part of the authorities. Jealousy of London’s wealth, and a desire to level down to the considerably less buoyant economy in the rest of Britain, could easily kill the great Rialto that has grown along the Thames. As Venice proves, all that is left then is eternal tourism.
spectator.co.uk