(Bloomberg) -- London, founded by Romans, reinvented by Dutch traders and enriched by French and Jewish bankers, is facing a potentially damaging test: Can its ability to attract international talent and wealth survive a hard Brexit?
The city of almost 9 million people is the "soft power capital of the world," creating 235,000 new highly skilled jobs in 2014 and 2015 alone, according to a study the global accounting firm Deloitte published shortly before the referendum on Britain’s membership in the European Union. Executives are drawn from a wider array of countries than any other. Even New York ranked a distant second.
The concern is that a nasty British divorce from the EU and its single market could throw the globalized metropolis into reverse -- toward a recent past when it was the depopulating seat of a lost empire, best known for punk rock, race riots, bad food and crumbling infrastructure. It’s pressing not just on the minds of bankers, but of many who played a role in the city’s revival, from university deans to tech entrepreneurs to Michelin star chefs.
"There is no question that London’s greatness historically was built on migration," said Jerry White, a historian who has written several books on London. He described the government’s apparent march toward Brexit at any cost as "bizarre.”
Few claim to know how Brexit will turn out, or how resilient London’s allure may prove to any change, having become home to a possibly unique concentration of knowledge based industries -- from high-tech finance to movies. But the referendum result suggests London has become a victim of its own soft power success, triggering resentment among less affluent voters across the country at the wealth and immigrants flooding the capital.
Brexit’s proponents say cutting loose from the EU would free London to become a truly global, rather than European hub. And, they say, immigration is precisely what voters were demanding to control when they voted to leave the EU on June 23, and what has driven property prices in central London so high that native Londoners are being driven out.
Most with a stake in the city’s recent success, however, say it could be seriously damaged if the government -- as some recent anti-foreigner rhetoric has hinted -- should interpret the referendum result as a vote for insularity. London thrived on being more inviting to foreigners than rival cities.
"What would be fatal to this is a series of very powerful signals, not just in policy but daily life, that London was closing down on being cosmopolitan, open and diverse," said Charles Leadbeater, a writer on management and innovation who describes London’s welcoming image as one half of the formula for its economic success.
Huguenots to Hipsters
Modern London was shaped in the 17th and 18th centuries by the imported skills of Protestant Huguenot refugees from France, Dutch traders who arrived in Britain with William of Orange, and later Jews fleeing Pales of Settlement on the continent, according to White, the historian. The first governor of the Bank of England, John Houblon, was the grandson of a Huguenot refugee. The current one is a Canadian.
More recently, London’s attraction to outsiders has also been a key to housing more digital startups than any other European city. Britain and above all London "right now has the advantage" in trying to attract tech businesses and investment, said James Wise, a partner at the venture capital firm Balderton, which has $2.3 billion of funds. Just under half of the founders of U.K. tech startups that raised funding in 2015 came from abroad, an as yet unpublished Balderton study found, he said.
"Because of the way software works, the natural resource is people, not something like oil that comes out of the ground,” Wise said. “And if there is any way to threaten that natural resource, it is by doing the things hard Brexit is proposing."
Just the prospect of Brexit has damaged one advantage London enjoyed in attracting skilled staff -- salaries that were 27 percent higher than in Berlin and 18 percent above Paris, said Wise. That pay gap has been severely eroded by the pound’s devaluation this year.
There’s also been the erosion of trust given the political rhetoric since Brexit. Home Secretary Amber Rudd proposed that companies should be made to publish lists of the foreigners they employ. The idea was later renounced by the government after an uproar.
For Europeans in London’s creative industries who have other options, the requirement for a work visa -- ending the right of Brits and EU citizens to work in each other’s countries -- and image of hostility could be enough of a deterrent.
"To be honest, I came to England because it was the easiest for me," said Claude Bosi, among the French chefs who came to London in recent decades, triggering a proliferation of Michelin star restaurants. There were 66 in London this year, more than four times as many as 1985. "If I had to apply for a visa at the time maybe I would have gone to the States."
Fear the Brexit process could drive away foreign talent is also troubling those in higher education. London’s is the largest of any city in the world and another key driver and beneficiary of the city’s success since the 1980s.
"Internationalism is a deeply ingrained part of the nature of this institution and Europe is a huge part of that," said Michael Arthur, provost of University College London, attributing the school’s rise in global academic league tables to seventh spot to open borders and transnational research networks.
Arthur has spent much of his time since the referendum trying to reassure his upset academic staff, 20 percent of whom are from other EU countries, that their jobs, research grants and access to the EU’s highly developed academic networks are safe. In financial terms alone, the foreign citizens who make up 42 percent of the university’s student body account for 200 million pounds ($245 million) of annual revenue, according to Arthur.
"Jeremy Bentham," said Arthur, referring to the 19th century English philosopher whose mummified body sits outside his office, "coined the word international."
Its university network was just part of the jigsaw that made London well positioned to benefit as the global economy began to shift towards mobile services from the 1980s, according to Ben Rogers, director of Centre for London, a think tank. It was around that time when another academic, Harvard’s Joseph Nye, coined the concept of “soft power” to describe the ability of countries to “co-opt people rather than coerce them.”
London’s other ingredients included former Prime Minister Margaret Thatcher’s so-called Big Bang package of deregulation for the financial industry in 1986, which opened the City of London to banks from the U.S. and around the world. London’s once sleepy financial district is now home to more than 250 foreign banks.
The National Lottery Fund, launched in 1994, has plowed more than 6 billion pounds of lottery proceeds into London, reviving the city’s galleries and museums and helped draw creative industries.
The opening of the Eurostar rail link to Paris and Brussels followed by growth in budget airlines connecting London to even small cities around Europe also played a role. By 1996, Newsweek magazine could declare that "London rules"; Vanity Fair a year later that the city’s Swinging 60s were back.
London, not surprisingly, voted to stay in the EU in June’s Brexit referendum, by 60 percent to 40 percent. That the margin wasn’t wider shows how the story of London as rock star success can sometimes ignore its losers and downsides. And some of the city’s biggest advantages -- language, time zone and an aptitude for services forced by early de-industrialization -- would not be affected by Brexit, no matter how hard.
The recovery of the 2 million people London lost from 1939 to 1981 has been almost entirely due to immigration, a fact often glossed over, said Ian Gordon, professor emeritus of human geography at the London School of Economics. Even the extraordinary increase in the proportion of foreign-born Londoners -- from less than 5 percent in 1961 to 37 percent today -- understates the change and displacement involved because the growth in the birthrate was largely down to immigrants, he said.
The majority of Britons who voted for Brexit, said Gordon, were also protesting against London -- not as a place, but all it has come to stand for. London’s native, non-graduate population was left behind, unable to compete for well-paid jobs or housing in a city that seemed overtaken by the newcomers.
In a scornful tone that’s defining Britain at the moment, Prime Minister Theresa May recently had a name for London's citizens of the world: "citizens of nowhere."