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Modern Icon: Looking toward Tate across the Millennium Bridge | photo illustration by Peter Funch

Global City of the Year: London

Where one of every eight works in a creative industry.

It's shockingly expensive. The roads are jammed with traffic. The subway system's hopeless, and the buses no better. There's a surveillance camera on every other corner, and the sidewalks are strewn with litter. The biggest airport is a joke. The richest residents are fleeing or threatening to; the poorest have been chased out into the suburbs by soaring property prices. And the weather sucks.

Why is somewhere with so much against it such a great place for creatives to live and work? "That's simple -- it's because London's so dynamic," says Christopher Bailey, design director of Burberry, the once-dowdy British raincoat company that has been reinvented as a successful global fashion brand. "Creativity thrives here. It has to do with the people, their attitude, vibrance, and energy. You can work away in your little world and have your moment in the sun. That's very empowering. I've lived and worked in New York, Paris, and Milan, but right now I can't think of another city I'd want to live in more than London."

London has more museums than Paris, more theaters than New York, and more bars, public libraries, and music venues than either. A recent issue of the local edition of Time Out listed 111 plays, 190 exhibitions, 157 comedy events, 293 rock or pop performances, and 195 club nights in a single week. One in every eight Londoners -- more than 550,000 people -- works either in a creative job or in a creative industry. That's more than any field except finance. "London's strength in terms of creativity is its genuine multiculturalism and creative heritage," observes Alasdhair Willis, cofounder and chief executive of the furniture company Established & Sons. "We have a fantastic diversity of talent that thrives in a climate that for a while now has been seen to be successful both creatively and commercially."

It wasn't always so. London has always enjoyed creative highs, but in the same hit-and-miss manner that makes its citizens despair of their national soccer team. The city's creatives were also cursed by the collective belief that they were great at nurturing new ideas but not so hot at commercializing them. The smartest filmmakers decamped to Hollywood, and fashion designers to Paris or Milan. Gifted architects built their masterpieces abroad. Talented artists poured out of London's art schools, only to find few galleries to represent them. Music and publishing fared better, thanks to the happy accident of English (or the American version of it) being the world's most marketable language. Their success also provided a steady stream of work for London's graphic designers. But other disciplines were more fragile. No sooner did one revive, than another seemed to decline. The 1960s was the last decade when London fired on all creative cylinders. Until this one.

What has changed? Well, thanks to a lucky (and coincidental) combination of advances in technology and what were, until recently, a buoyant economy and cheap real estate, every creative sector in London has been on a roll in recent years. Fashion has been energized by a new wave of designers, led by Giles Deacon, Christopher Kane, and Gareth Pugh, who have broken with local tradition by managing to stay solvent for more than a few seasons. Cheering them on is Agyness Deyn, the pixie-cropped blonde in the Armani and Burberry ads, who's also the poster girl of the cool Nu Rave club scene. Music is thriving too, with Amy Winehouse storming the Grammys via video link after U.S. authorities balked at admitting someone with her chemical history. Two out of three international advertising agencies have their European headquarters in London, and a clutch of multinationals -- including Ford, Nissan, Nokia, and Volkswagen -- have opened design centers in the city.

London's once-sleepy contemporary art scene has woken up. The catalyst was the opening in 2000 of Tate Modern, now the world's most visited contemporary art museum. Dozens of commercial galleries have opened since then, including outposts of global powerhouses such as New York's Gagosian and Zurich's Hauser & Wirth. They have found a receptive market among the "non-doms" -- the wealthy foreign bankers, Gulf princelings, and Russian oligarchs, who have made the most of Britain's lax tax laws to turn London into a nouveau super-riche playground. And alpha collectors troop into town every October for the Frieze Art Fair. "When we started, we hadn't counted on London becoming such an important contemporary art market so quickly," says Matthew Slotover, who launched the Frieze fair in 2003 with its codirector, Amanda Sharp. "Two factors have helped us: the growth of international art sales and the growth of London as a fun place where people enjoy doing business. It's astounding how desirable it has become."

Above all, London's creative resurgence is rooted in the city's changing sense of itself. For centuries, its most visible symbols have been its historic monuments: Tower Bridge, the Houses of Parliament, and so on. Since 2000, they've been joined by Tate Modern, a futuristic Ferris wheel in the London Eye, and the elongated oval office block that's officially named 30 St. Mary Axe, but which everyone calls the Gherkin. These new civic icons have topographically redefined the city -- a picture of London nowadays is as likely to be of the Gherkin as of the Tower -- and have re-rooted it in the present, not the past.

But the real symbol of contemporary London is the crane. You spot it all over the city, which has started the 21st century in a seemingly endless cycle of construction. A new financial district has been built in the disused dockyards to the east, and the old one rebuilt. East London's slums have gentrified, as have those south of Tate Modern. Heathrow, already Europe's biggest passenger airport, has been made even bigger with the accident-prone opening of Terminal 5 this spring. And a new forest of cranes hovers above what will be the main venues for the 2012 Olympics.

As the map of the city has changed, so have the faces of its 7-million-strong population. More than 300 different languages are spoken in London. And after decades of struggling to come to terms with Britain's colonial heritage as well as with its reluctant marriage to Europe, the city has learned to take pride in its ethnic diversity rather than be afraid of it. One in three Londoners was born in another country. Many now play defining roles in the city, including French soccer coach Arsène Wenger, Tanzanian architect David Adjaye, and German artists Wolfgang Tillmans and Tomma Abts.

"When I went to the Royal College of Art in the 1990s, the best thing about it was the lift," recalls Simon Waterfall, creative director of Poke, one of London's leading new-media design companies. "You could press a button and appear magically on a different floor to discover the best artists, car designers, silversmiths, and graphic designers. You could speak to any of them. There were no barriers of race or discipline. And for me, London is still very much like that. The cross-pollination gives rise to some truly talented people who want to be open to new ideas and different disciplines."

The cradle of London's creativity has always been its art and design schools, which are easily the best in Britain, and among the best in the world. The universities in other British cities -- Oxford, Cambridge, Manchester, and Edinburgh -- beat London's academically but not when it comes to creativity. The RCA attracts the finest art and design graduates. Music students flock to the Royal College of Music, and would-be actors to the Royal Academy of Dramatic Art. Architecture graduates head for the Architectural Association or the Bartlett.

There are now more than 50,000 students at London's art and design schools, compared with 10,000 in Shanghai and fewer than 1,500 in Paris. They pack out art openings and fill the city's bars, clubs, and museums. Many come from other countries, but stay on in London after finishing their studies, bringing new ideas and fresh perspectives. Think of Iraqi-born Zaha Hadid's impact on architecture or of Israeli-born Ron Arad's on furniture design; both of them studied at the Architectural Association. "The art and design schools are incredible -- a fantastic resource and constant source of inspiration," says Bailey of Burberry. "They're completely global in their reach but absolutely British in attitude."

One problem in the past was Britain's weakness at manufacturing, which explains why so few of London's industrial, furniture, and fashion-design graduates were commercially successful. Digital technology has changed that. "It has encouraged people in London to think and work globally," Bailey says. Designers now send information to factories all over the world. That's how a London-based designer like Jasper Morrison can work with Muji in Japan, Samsung in Korea, and Vitra in Switzerland; Marc Newson can partner with Qantas in Australia, Smeg in Italy, and Swarovski in Austria.

Another fillip was the availability of cheap workspace. While the burgeoning financial sector was settling into derelict dockyards in the 1990s, London's creatives were commandeering disused warehouses and factories in rundown industrial areas such as Clerkenwell and Shoreditch. Take the dozen or so streets in East London, north of Bethnal Green Road and east of Shoreditch High Street. Back in the late 19th century, this was the poorest part of the city as well as the sleaziest and most dangerous -- Arthur Morrison's 1896 novel A Child of Jago was set in its slums. By 1900, those slums had been cleared and replaced by decent housing, schools, and a row of tea warehouses along Bethnal Green Road. Many of those buildings were abandoned in the 1980s and 1990s but have since opened up again.

The classrooms of Shoreditch's Rochelle School are now the studios of artists, photographers, and deejays, as well as fashion designers including Giles Deacon and Luella Bartley. More local artists and designers arrive at lunchtime to eat in the restaurant that's set up in the old cycle shed. (Press the buzzer marked CANTEEN beside the old BOYS ENTRANCE.) Deacon stages his fashion shows in what was once the school hall, which also houses art exhibits and the indie publishing fair Published and Be Damned. A short walk away is the Tea Building, an old tea warehouse on the corner of Bethnal Green Road and Shoreditch High Street. Empty for much of the 1990s, it's now home to bars, galleries, and the offices of companies such as Poke and the advertising agency Mother -- which occupy the rear area that they renamed the Biscuit Building (a nod to the inseparability here of tea and biscuits).

Next door but one, in another once-derelict tea warehouse, is Shoreditch House, which has been London's coolest private club since it opened last summer. It boasts a spa, a bowling alley, and a posse of paparazzi waiting hopefully on the sidewalk for Amy Winehouse to stumble out. The pièce de résistance: the open-air swimming pool on the roof, where the hardy splash gamely in the rain and others tuck into fashionably old-fashioned British dishes such as suckling pig while enjoying vertiginous views across the city. "The community is very joined up," says Simon Waterfall. "There are events where we share stuff and generally get drunk. Then it's all down to the pub for a pint and a bag of nuts. Not competitive, just mates who have grown up in the industry together, having a chat and inspiring each other to do better."

Can London's creative resurgence continue? Dark clouds are descending on the city's cranes. Rents are rising, and if Shoreditch House's swimmers look down onto the other side of Bethnal Green Road, they'll see a giant construction site where Bishopsgate Goods Yard once stood. Local artists and designers are fighting it -- led by Turner Prize winner Rachel Whiteread -- but if the developers win, a glass skyscraper will be built there, and the creatives will be priced out of the neighborhood that they saved only a few years ago.

The cost of almost everything else in London is rocketing too. "The price of things here is astronomical, and that's a huge, huge negative," Bailey says. "There's always a worry that people will leave for cheaper places. I have friends who have moved to Manchester and Berlin, because it's so expensive to live and work here, though they still hanker after London."

At the same time, the British economy is weakening, and the government's threats to crack down on tax loopholes has prompted some non-doms to leave, which bodes ill for art sales. But a recession might not be all bad. It could alleviate the pressure on property prices, and British creativity has often thrived in hard times: from Charles Dickens's depictions of mid-19th century poverty to the 1970s punk movement to today's "grime" deejay scene (London's take on hip-hop).

Another, less predictable worry is the government's newfound enthusiasm for the creative industries. Few people would deny that London's cultural life has been enhanced by the New Labour government's support for the arts -- restoring historic monuments, building new ones like Tate Modern, and subsidizing free entry to national museums -- but the creative industries have blossomed largely by being left to their own devices. "They've been completely entrepreneurial, and in many ways, that's the most natural, healthy, and sustainable way for them to develop," says the Frieze fair's Slotover. "It's great that government is taking the creative industries seriously, but what can they actually do?"

The government reckons that its recently announced plans for a creative apprenticeship program and the launch of an annual creative forum in London might help, but Slotover isn't the only skeptic. "I'm not holding my breath," adds Waterfall. "It's difficult for government -- local or otherwise -- to get to the bleeding edge of creativity." The government's credibility hasn't been helped by general disappointment with the preparations for the 2012 Olympics. The admirably ambitious architectural plans that were submitted as part of the Games bid have been watered down, with a dazzlingly futuristic stadium replaced by one straight from the corporate catalog, and the 2012 logo was greeted with derision.

Yet the same London creatives who have transformed their city's economy from one that traded physical goods through its docks into one trading their ideas and images have bounced back with characteristic vigor, fielding a riposte that gives me faith in London's future. Shortly after the official Olympic logo was unveiled, fly posters appeared throughout Shoreditch and Clerkenwell bearing a look-alike logo in which the numerals 2, 0, 1, and 2 were replaced by the letters S, H, I, and T. Indeed.

Alice Rawsthorn, a Londoner for 28 years, is the design critic of the International Herald Tribune and writes The New York Times Magazine's Object Lesson column.

Modern Icon: Looking toward Tate across the Millennium Bridge | photo illustration by Peter Funch