London calling: help!

Capital cities are the objects of both love and hate. The Millennium Commission has just refused to put money into a new opera house in Cardiff. But it was happy to invest pounds 50m of lottery money in a new national gallery of modern art. This will be slotted inside the old Bankside power station, across the Thames from St Paul's, and next to the replica of Shakespeare's Globe Theatre (itself the recent recipient of pounds 12.4m from the Arts Council's own lottery fund). The commission's decisions have produced an outcry that London always wins.

The love and the hate go in waves. At present, love is on the wane. British commentators and policy-makers spend more time thinking about 57 varieties of regional devolution than about the importance of making sure London doesn't wilt. Yet worldwide, cities like London are engaged in ever tougher competition with one another. If London flags, so will the British economy. It is urgent to make sure that it doesn't.

"World cities" is the best phrase to describe these global rivals. The term, coined by the pioneer town planner Patrick Geddes, now encompasses not only classic nation-state capitals such as London, Paris and Tokyo, but also New York, Los Angeles and even the Dutch urban agglomeration around Amsterdam, The Hague and Utrecht. Once it included Moscow. For the time being, and perhaps for ever, Moscow has been knocked out of the international competition. Peking is coming up on the inside track. Shanghai is not far behind.

These global cities are engaged in an economic battle, for investment and for services. The essential communications link is not an e-mail address or a fax, it is a top-of-the-range international airport: Heathrow, JFK, Charles de Gaulle, Schiphol. (You can't send people or freight down the Internet.) Beyond this, the main weapon is, increasingly, cultural. Why does an international business settle down in one city, rather than another? It chooses the place where the boss's family would like to live. Good theatre, good cinema, art galleries, restaurants, parks, shops. These are the trump cards. (To make sure you can't lose, add good schools and golf courses.)

In any event, culture - mass, elite and in-between - is big business in its own right. Analysts call it "the ACE economy": arts, culture and entertainment. In 1962, when the Beatles released "Love Me Do" and Bob Dylan came to London to learn about English folk music from singers like Bob Davenport, did anyone foresee that within a generation rock would be a more vigorous British industry than coal or steel? And it is an industry centred on London.

The aces of London's ACE economy are Richard Branson, Sir Terence Conran and the theatre impresario Sir Cameron Mackintosh. Their experience is far more important to the future of Britain than the latest pronouncements by dreary spokesmen at the CBI. With the Bankside project, Nicholas Serota, director of the Tate Gallery, is seeking, in a slightly megalomaniac way, to become the fourth ace in London's pack.

In The Creative City, published by Demos, the think-tank, Charles Landry and Franco Bianchini say that "creativity has always been the lifeblood of the city". The cities that succeed, century after century, are those with a constant flow of creative innovation. In a great metropolis such as London, one component of the economy may go down, but another comes up. The towns that sink into gloom are those built around a single economic purpose (cotton in Oldham, iron in Middlesbrough). When their moment passes, they are stranded like jellyfish on the shore.

The American historian Martin Wiener and his followers have lectured us despondently about the supposed "decline of the industrial spirit" in Britain. The counter-argument is that our real strength was always commercial, not industrial. Certainly the British cities that have successfully renewed themselves are the great centres of commerce (Manchester, Bristol, Leeds), not those devoted to industrial mono-cultures as ultimately sterile as oil-seed rape. And London is the leader of the commercial pack.

To stay in the same game as rival world cities, and to fend off aspirant newcomers such as Berlin, we have to build London up. The business pressure group London First has been set up to do just that. Yet the trend has been the other way.

One of the lowest points came when Birmingham city council seized the day and opened the National Exhibition Centre in 1976 while London dithered. (For those obsessed by the necessity of a new political authority for London, it is worth noting that this trick was missed by the late Greater London Council.)

The trend continues. The Sports Council still cannot make up its mind whether to fund a national sports stadium in Manchester or London. Yet it is 66 years since the largely northern Rugby League decided that if it was to be seen as a truly national sport it must play its finals at Wembley.

Manufacturing, in the traditional sense, has oozed away from London. The breweries and the biscuit factories of the 19th century, the radio and radiator manufacturers of the mid-20th century - these have gone. Hence the hopes placed on the ACE economy. It is not only seen as central to our international competitive edge. It is also put forward, more and more insistently, as the way to bring life back to decaying zones of inner London. This was the case that Southwark borough council put to the Millennium Commission in support of the Bankside project.

Southwark used to be run by the deadest of dead old Labour local government hands. When Sam Wanamaker sought planning permission for the new Globe, the council refused him on the grounds that this was the only suitable site to store the municipal dustcarts. (Wanamaker won permission on appeal.) Now Southwark has been Blairised. Under a leader, Jeremy Fraser, the council sweated blood to persuade Serota to choose Bankside for the new gallery.

The Southwark riverside strip lies at the heart of his strategy for pulling the borough up by its shabby bootstraps. In a paradigm of the ACE economy, this strip runs from Terence Conran's fun enclave just east of Tower Bridge (the Design Museum, the Butler's Wharf restaurants); past the tourist lure of the bridge itself; onward to the riverside site proposed for a temporary opera house, to be got ready for when Covent Garden shuts down in order to spend its own slice of lottery money; then HMS Belfast and the Hay's Wharf shopping galleria; and then beyond that to Bankside and the Globe before reaching the old South Bank of the Festival Hall and the National Theatre.

Yet it is as well to be wary of the new urban boosterism. All this is attractive in its own right. It is less certain what it will do for the "regeneration" of Southwark as a whole. In Liverpool, Albert Dock - home of the northern branch of the Tate Gallery - is also said to be a great success. It should be, after the heap of Merseyside Development Corporation cash shovelled into it. But incoming visitors drive round to the Albert Dock shops, cafes and art gallery while avoiding the old city centre like the plague. Albert Dock has come up in the world, but Liverpool continues to sink.

There is a delicate line to tread. Competition with Paris, with its historic commitment to state intervention, has been a persistent theme in London's history, but it is important not to be obsessed by the rivalry. At times, John Major and Jacques Chirac seem to be trying to create a new Entente Cordiale. The last one gave London some of its heaviest monuments - Admiralty Arch, the facade of Buckingham Palace, the old County Hall, all designed to keep up with the Parisians.

London's truest urban spirit has always been more discreet; you could say messier. The grand is scattered among the domestic. The City of London tucked its historic Guildhall into a modest urban corner. The British Museum is, and always has been, a world-class treasure house in an unspectacular side-street. We should keep faith with this spirit. In contemporary Paris, many of President Mitterrand's much-vaunted grands projets reek of bombastic pomposity.

In the world-city rat race, Landry and Bianchini call for "a strategy which provides impetus and encouragement". But they wisely add that any strategy must "leave the city space to develop naturally as well". Tony Travers, director of the Greater London Group at the London School of Economics, points out that "London has been saved from many disasters by a lack of planning". One of the success stories of the ACE economy in London is Camden Lock market and the nexus of shops, music venues and restaurants that has grown up around it. But no one planned it. It sprang up because the canal-side property was without commercial value, blighted by an intended inner-city motorway.

In the old days of high interventionism, the bureaucrats of the Department of Industry claimed that they knew how to "pick winners" when they handed out public money. They didn't. Arts bureaucrats are no more likely to get it right when they place bets on creativity.

If we want London to beat the world-city competition, public money is probably best spent on the links - some in fashion, some emphatically not - that make the capital easier to reach and to get about in. A Tube where the escalators work. A fifth terminal at Heathrow. A nippy fleet of hopper buses, criss-crossing in all directions (instead of double-deckers jammed along Oxford Street and belching out pollution). A quicker rail link from the Channel Tunnel (conceivably, still, to Nicholas Grimshaw's fine terminal at Waterloo). Better motorways radiating out from an improved M25.

Investment of this kind will make London the simplest and swiftest of all possible destinations. As for what people will find when they get there, that depends on the continuing creativity of its citizens.

Paul Barker is a senior fellow of the Institute of Community Studies, London.