"Thank you, Governor Schwarzenegger, and good afternoon. When Arnold had to cancel his plans to be with you in-person, David Cameron wanted to find another ruggedly handsome, charismatic international star. So I was the obvious next call.

"Let me start by thanking you for welcoming me here to Blackpool and this extraordinary hall. When I told my two daughters - who both hold British passports - that I was coming here to speak, they said, 'Don't try to be witty or clever, Daddy. Just be yourself.' (Daughters always know how to phrase things.)

"But in preparing for this speech, my biggest dilemma was not what to say - but what to wear. As you can see, I went with a conservative blue suit (appropriately enough). And I decided to save my pink suit in case I'm ever invited to #10.

"In my remarks today, I will try to follow the advice of another Prime Minister, Winston Churchill. (You didn't think an American was going to come here and not quote Churchill, did you?) He said, 'The mind cannot absorb more than the seat can endure.' So in the interest of brevity, let me immediately weigh in on the most controversial issue on the world stage today: I, too, am very disappointed that the Chelsea Football Club fired its manager.

"Over the years, I've spent a good deal of time in the U.K. - I own a home in London and my company has offices there - and so it's a special honor for me to be invited here, and to be a product of the 'special relationship' that exists between the U.S. and the U.K., which share so much in common.

"We share a language. (Forgive us for mangling it.) We share a history. (Forgive us for 1776 and we'll forgive you for 1812.) We share a heritage - it's impossible to imagine America, and especially New York, without the English, Welsh, Scots, and Irish. We also share a commitment to liberty, democracy, and human rights - and, of course, we share Posh and Becks.

"Now, I am not an expert on running a country - I have my hands full running a city. But New York, like London, isn't just any city. With 8.2 million people, we're about twice the size of Ireland, and equal the size of Scotland and Wales combined. The challenges we face in New York are much the same that you face in the U.K. - just on a different scale. And today, I'd like to discuss some of those common challenges, and how governments of any size can address them.

"When I took the oath of office on the steps of City Hall five and half years ago, I could see smoke still rising out of the World Trade Center site, just a few blocks away. It was three months after the attacks of 9/11, and in that time, New York City had lost 100,000 jobs, the City's economy had sunk into recession, our City's unemployment rate was up to 8.2%, and we were facing a record $5 billion deficit in the City's budget. There was great uncertainty about the future - great concern that, as bad as things were, the worst was yet to come.

"Instead, today, unemployment has hit a record annual low - 4.9%. We've produced a record budget surplus of $5 billion, and all three major bond rating agencies have given the city a 'double A' rating - it's highest-ever. At the same time, we've raised high school graduation rates by 20%, cut crime by more than 25%, and made the streets cleaner than they've been in more than 30 years. Because of this turnaround, a record 46 million tourists will visit this year, and a record $21 billion in new construction will be built.

"Of course, I'm not here to brag. As you know, New Yorkers are famously modest and shy. But I do want to tell you that our success didn't happen by accident - or by sitting back and waiting for global forces - or the U.S. government - to lift us up. It happened because we developed investment strategies based on two basic principles of governmental economic management: First, government has a role to play in creating the conditions for markets to work - and for new economic growth to take root, over both the short- and long-term. But its role is in creating conditions, not replacing the private sector. Governments seldom innovate, and are notoriously bad at investing for the future, and tilt at more windmills each election cycle than Don Quixote ever thought of.

"And second, government has a responsibility to pay its own way - and not to send the bill to the next generation. Every benefit and service provides a cost invariably greater than first estimated, and seldom disclosed. We have a saying, 'There is no free lunch.' You want more, fine - but it's going to come out of someone's pocket or another program. Sadly elected officials, when faced with either/or, always (or almost always) choose both. And the 'someone's pocket' I mentioned is never theirs!

"From my experience, these two principles of governmental economic management require a four-part approach: First, improve the quality-of-life that residents and visitors experience. Second, stick to fiscally responsible principles. Third, invest in projects that will unleash and incentivize private sector investment - and that will both leverage and diversify the economy. And fourth, provide strong leadership that is based on independent problem-solving, not partisan politics, and that is not afraid to tackle the toughest problems.

"Today, I'd like to touch on each of these ideas briefly - because I believe that the more that governments around the world embrace this approach to economic management, the stronger their economies will be, and the healthier our global marketplace will be.

"First, quality of life is the most fundamental variable that governments have the ability to control - and it is a crucial element of economic success. New York and London remain global capitals in large part because no other cities offer so much: An incredible diversity of cuisine and culture, music and museums, parks and pubs, fashion and film, faiths and philosophies - anything and everything, we've got the most and the best of it.

"But we can't take these assets for granted - especially not when cities around the world are working hard to offer the same kinds of options. For example, to stay ahead, in New York we've been expanding public parks and reclaiming waterfronts, and we've dramatically increased our investment in arts and cultural institutions. At the same time, we've been working to find solutions to basic societal problems, especially traffic congestion, dirty streets, insufficient mass transit, and - above all - crime and poverty.

"I know that U.K. residents are very alarmed about street crime and out-of-control young people. Fighting crime is like battling disease: In New York we've learned what works and what doesn't - and wherever you live, the only question you should ask if you want low crime is whether your government and you are willing to take the medicine and pay the tariff. Cutting crime is so essential because the cost of failure will be felt not only in the streets, but in the economy - as New Yorkers learned the hard way beginning in the 1970s.

"Today, New York is the safest big city in the United States - and we make no apologies for being tough on crime. We've developed innovative new practices and technologies, and insisted on accountability, from top-to-bottom. Over the past six years, we've driven crime to a 40-year low by using data to allocate resources where the problems are - not where the votes are.

"And fighting crime is not cheap, but there's no substitute for boots on the ground. In New York, we pay $5.5 billion annually for the NYPD's 55,000 employees, including 37,000 uniformed officers. We've also worked to diversify the ethnicity of the NYPD - because an effective police force must reflect the communities it serves.

"Of course, providing safety and security is more difficult than ever because of terrorism. The threat is constant - and, according to the best intelligence, it is intensifying. In New York, we have dedicated 1,000 members of the NYPD to counter-terrorism and intelligence duties, and some of them are posted to terror targets overseas, including, of course, London. Their efforts have cracked numerous plots in the last six years, even one to blow up a Midtown subway station in New York City.

"Counter-terrorism is a matter of national security, first and foremost, but it is also an economic imperative. The 'troubles' in Northern Ireland demonstrated how years of attacks by terrorists - from both sides - lead to major economic disinvestment. And now, the tremendous resurgence that is going on there is proof of just how closely economic growth is linked to peace and security - and that's true everywhere in the world.

"The second element of a successful economic development strategy may be the most basic - and rare: fiscal restraint. I am not an expert on British politics, but it seems to me that the Conservative party in the U.K. is much more fiscally conservative than many American politicians who call themselves conservative. Too many of them want to run up enormous deficits and hope that someway, somehow - someone else will pay for it. That's not conservatism - that's alchemy, or if you like, lunacy. I'm glad to see that your party has rejected that approach.

"Being a fiscal conservative is not about slashing programs that help the poor, or improve health care, or ensure a social safety net. It's about insisting services are provided efficiently, get to only the people that need them, and achieve the desired results. Fiscal conservatives have hearts too - but we also insist on using our brains, and that means demanding results and holding government accountable for producing them.

"To me, fiscal conservatism means balancing budgets - not running deficits that the next generation can't afford. It means improving the efficiency of delivering services by finding innovative ways to do more with less. It means cutting taxes when possible and prudent to do so, raising them overall only when necessary to balance the budget, and only in combination with spending cuts. It means when you run a surplus, you save it; you don't squander it. And most importantly, being a fiscal conservative means preparing for the inevitable economic downturns - and by all indications, we've got one coming.

"The Northern Rock bank debacle is the latest evidence of the turmoil in the financial markets. We've heard a lot about how this turmoil has been caused by the collapse of the sub-prime mortgage market - and that's true, but only to extent. The fact is, this is not a mortgage crisis - it's a confidence crisis, and we're all in it together. It is being driven by rational expectations of a worsening credit crunch - which is a self-fulfilling prophecy.

"In the U.S., we've seen an increase in unemployment and foreclosures, and a decrease in housing starts, although housing starts are not down in New York - yet. I know things in the U.K. are not so different. But housing is just one industry. Throughout the world economy, companies are beginning to tighten their belts - less hiring, less investment, less production. We don't know whether a downturn will be a dip or a dive, but we do know that governments can't stop the business cycle. That experiment was called communism, and it failed miserably. What government can do is keep a bad situation from becoming a crisis - and you do that by saving for the future, not mortgaging it. By giving people the confidence that in a crisis their government will help - but that they have the responsibility to provide for their own future day to day.

"In New York, we not only saved surpluses for future years, and paid down future debt, we've also put $2.5 billion of our surplus into a trust fund to pay for future retirees' health care. When government fails to save for the future, it makes the next fiscal downturn that much harder to deal with because it means spending cuts have to be deeper, which affects quality of life, and that affects competitiveness - and that affects the ability to climb out of the recession. The heart of fiscal conservatism is the idea that government should make the next downturn easier to deal with by preparing for it.

"Fiscal conservatism also means not putting all your eggs in one basket - which brings us to the third element of our strategy: making investments that unleash and incentivize private sector activity, and that will diversify the economy. This can mean investing in new transportation or energy infrastructure, or offering interest-free bond financing, or granting certain tax advantages. These and other strategies have allowed New York to increase our Film and TV industry, our bioscience industry, and our tourism industry. Both London and New York City have been dependent on financial services for tax revenue, but by diversifying the economy, government can broaden the tax base - which not only creates jobs, it also provides a little more cushion in a bear market.

"Both London and New York share another major challenge: our growing populations have meant that demand for housing has been outstripping supply. This is a problem of success - as is traffic - but they are still problems that we must deal with. To stimulate housing supply in New York, we've worked to create the conditions that would entice more housing developers into the market. This has meant clearing away antiquated zoning regulations that prevented housing construction, formulating public-private partnerships that produce both affordable and market-rate housing, and expanding the public parks that attract residents.

"Whether it's the housing market, or the commercial office space market, or the market for specific industries, government's role is not to command, but to catalyze - not to dictate development, but to create the conditions that will allow it to take place.

For instance, by building a new subway extension to Manhattan's last frontier - the old industrial area on Midtown's Far West Side - we'll create the business district that we need to sustain our economic growth in the decades to come. If this plan sounds familiar, it should.

"In developing it, we studied the experience of Canary Wharf, which would never have been revived without the investments made by the governments of Lady Thatcher and John Major - including the long-delayed Jubilee line. Without the tube extension, Canary Wharf might still be in bankruptcy - and the jobs that are there now would be scattered around the world. And to highlight the link between economic development and cultural attractions, there's no better example than the Tate Modern - which I have been proud to support. Think about the millions of tourists who've come to London for this one museum - and the pounds they've left behind.

"Making long-term investments that don't pay off during a news cycle or an election cycle requires strong leadership and vision - and that's the fourth and final piece of the puzzle. I believe that strong leadership is focused around independent problem solving. That's not a catchy campaign slogan, and it's not born from a poll or focus group or think tank - just from my own experience in the real word.

"I worked on Wall Street for 15 years and then started a company that I ran for 20 years. I was lucky: I not only had a front row seat in watching the new economy develop - my company helped push it along.

"As Mayor, I've worked to create a new kind of government model built around the demands of the new economy: One that cuts across ideologies, that rejects policy-by-polling and political calculus in favor of fact-based decision-making, that proposes long-term solutions that - although often difficult and sometimes unpopular - benefit all of society. And that always holds government accountable for producing real results.

"In New York, this approach has allowed us to walk through the political minefields that others refused to go near - even when their inaction came at a terrible cost, both in human and economic terms. The best example of this is education - an issue that I know is very important here, and that is essential to long-term competitiveness.

"When I came into office, our school system was a dysfunctional disgrace - but because the Mayor didn't control the system, nothing ever got changed. We convinced the State to give us local control - and I think this is an area where you may find broad consensus on 'devolution' - and we began asking some basic questions that others hadn't dared to whisper:

"Why can't students be held accountable for their performance? Why can't we pay our teachers more - if they raise student achievement? Why can't schools be built faster and cheaper/ Why can't parents have more school choices?

"If the U.K. is anything like the U.S., when you ask these questions, you will hear excuses from the political establishment. Don't accept them. In New York, we are making all of these changes and more - and as a result, test scores are up between 10 and 20 points - and graduation rates are up 20 percent.

"From what I have seen, the Conservative Party has been embracing this independent, problem-solving approach, especially when it comes to your ambitious, market-based 'green' agenda to combat global warming. Rather than waiting for China and India to act, you've committed to taking action on your own - as every government should do, and as we are in New York.

"Earlier this year, we set a goal of reducing carbon emissions by 30% by 2030 - and like you, we're committed to making the tough choices that will allow us to make real progress today - not tomorrow or 10 years from now. It's not easy to propose controversial new ideas, but don't forget: No one pushed this party to embrace more unpopular positions than Sir Winston Churchill - and thank God he did.

'Courage,' said Churchill, 'is rightly esteemed as the first of human qualities because it is the quality which guarantees all others.' (You didn't think an American was going to come here and not quote Churchill at least twice, did you?)

"The four steps I've just outlined will not satisfy the ideologues who either want government simply to get out of the way… or to throw money at every problem. But from my experience, the new economy has rendered the old orthodoxies of the left and the right obsolete - and it has raised the stakes for those who lead governments. Because the fact is, governments can play a key role in spurring economic growth - and to survive in the global economy, they must.

"In New York, the economic uncertainty our two countries face today is beginning to feel similar to the economic downturn we experienced six years ago - but this time, the stakes are higher, because more people owe more debt, and so do our governments. It's time to get our houses in order - because the sun is rising on our borrowing bacchanalia, and pretending otherwise will only make the recovery slower and more painful.

"In the months ahead, I believe that in both of our countries, voters will be looking to see which candidates will offer an approach that is sensible, responsible, practical, ethical, and achievable - and who they trust will deliver results. I believe that's the path of progress… the path that can lead our countries to more success in this new century than we achieved in the last two combined.

"Travel it confidently and know that you will not be alone - not only because America will be with you, but because millions of voters are sure to follow.

"Good luck and God bless."