London is the new Venice

London matches the glory of Venice in its prime

11 July 2007

Ross Clark says that our capital has the geographical, economic and social conditions that made the Venetian city-state of the 14th century — but all this is vulnerable

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.