Global City of the Year: London

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.