A stable legal and economic framework and transparent business regulation make London the most important city in the world economy, according to new research.

A report on the top 50 worldwide centres of commerce, commissioned by Mastercard, shows London beating New York into second place, with Tokyo third and Chicago fourth. It confirms what several other reports have shown: that a falling share of financial business and complaints about heavy-handed regulation have challenged New York’s position as the world’s pre-eminent financial capital.

The index combines six measures of commercial power including flows of finance, volumes of business and the creation and dissemination of knowledge. It was developed by a team of academics specialising in economics, business, urban studies and finance.

The index is not intended as a simple competitive ranking of the ease of doing business in cities, but mixes together measures of output, such as the volume of financial market transactions in equities and bonds, with indicators of business inputs such as the ease of employing workers and opening and closing businesses.

Yuwa Hedrick-Wong, economic adviser to Mastercard, said: “There are multiple layers of connectivity between the indicators, with causality running in both directions.”

John Ross, director of economic and business policy for Ken Livingstone, mayor of London, said that the predictability and clarity of regulation were obvious advantages for London over New York. “We do not have the onerous and increasingly erratic regulation of the US,” he said. “I don’t think Sarbanes-Oxley is even the worst aspect of it, and nor do the companies I have talked to. It is the litigious and apparently arbitrary culture of regulation and policy.”

Mr Ross cited episodes such as the fierce political opposition to the takeover of P&O Ports by Dubai Ports World, a state-owned company from the United Arab Emirates, as evidence of the uncertainty in the US.

London scored highly on financial flows, economic stability and the ease of doing business, although it was a relatively poor performer on information creation and flow, which measures the number of universities, researchers and MBAs, patent applications and scientific journal articles.

Mr Ross said the high cost of operating and living in London was one of its drawbacks, although he added that as long as the city was permitted to continue putting up high buildings in the centre, rental costs could be contained.

The difficulty for some business visitors of obtaining visas was another cause for concern, he said.

Africa’s only city in the top 50 was Johannesburg, ranked 47th, while Mumbai was India’s sole representative at 45.

Data from: Financial Times

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