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What do you imagine Ken Livingstone to be like? If his name calls to mind a tubthumping, wild-eyed socialist radical then you'd be mistaken. When the London Business Forum (LBF) convened to hear him speak at the Lewis Media Centre, we were greeted not by the Red Ken of legend but by a soft-spoken pragmatist, knowledgeable and highly positive about business, who referenced Keynesian economics and lauded the motivational benefits of performance-related pay. Only the sense of humour was recognisable: "Let me start by disappointing you," he said by way of introduction. "I'm English, so there's going to be no juggling, no dancing and no Mexican waves required from anyone here."

He began by outlining the history of local government in London. For centuries, he said, it was characterised by a "distrust of Londoners" - the idea that any kind of empowerment of its relatively educated and wealthy population would encourage sedition. Its first local authority was brought about by a kind of accident, Livingstone explained, when, in the early 1880s, the liberal Prime Minister, William Gladstone, tried to bring home rule to Ireland. "This led to the right-wing of the Liberal party - sort of "Liberal Imperialists" - defecting to join the Conservatives. Although they were determined to hang on to every square inch of the Empire, they were also committed local government people... They insisted as part of the deal for bringing down Gladstone that London should be given a council."

Previously, London had a quango in charge of municipal works, and much of the city was still a slum. Now it had the London City Council (LCC), serving the area we would refer to as "Inner London". Moreover, Gladstone's successor, Lord Salisbury, created the city's first borough councils.

The Conservatives won control of the LCC in 1906 and, "immediately discovered it was a wonderful toy to play with," Livingstone said. "All talk of abolition stopped, and they ran it uninterrupted until 1934 when Labour took over, and they ran it uninterrupted until 1976." These long periods of one-party rule meant consistent leadership, able to drive through major infrastructural and social programmes. Regardless of the political party in charge, the LCC "developed a reputation for a real competence in what it was doing."

Nevertheless, the borough structure led to a lot of infighting and corruption, and in the 1950s, the so called Herbert Commission suggested an overhaul. It recommended giving more power to the borough councils and making them the direct service-providers of schooling, social services, housing and so on. It also recommended a "Greater London Council" (GLC), covering the entire metropolitan area - a strategic body with responsibility for "the things the government was doing badly, and behind closed doors". The proposed GLC would develop strategies for job creation, transport and perhaps even policing. What it would not interfere with, Livingstone emphasised, was "the provision of the whole range of personal services because, even then, it was becoming obvious that you can't run vast bureaucracies for personal services." He added: "This will presumably come as news to the people who [today] can't deliver the NHS in the way they want."

Unfortunately, the government of the day - the Conservatives under Harold Macmillan - "tragically ignored its recommendations." The GLC would eventually be created in 1965, but in a form that, Livingstone said, led to endless political infighting at City Hall. The politics of the boroughs was essentially short-termist, he explained. And in "all the elections from 1964 to 1981, no party was ever re-elected except once. So, not only did you have the built-in conflict of the boroughs but no one was in long enough to do anything." This led to crazy initiatives dreamt up by local politicians with nothing better to do. For example, three "vast orbital motorways going through London," including a six-lane overpass running straight through Hampstead.

What changed the political landscape ultimately was the collapse of London's heavy industries and the rise of financial services. "Starting in the mid-1980s, you get a massive expansion of employment in the City and, on the back of it, though people didn't notice, a real increase in the population of London as well," Livingstone recalled. "London's population just before World War Two was 8.6 million. By 1989, it was down to 6.7 million." This was actually a deliberately managed trend, he revealed. "Both Labour and Tory governments had been committed to the idea of downsizing the city, creating new towns, moving firms out and so on. The original plan, agreed by both main parties in 1944, was that, by 1990, London's population would be reduced to between 5 million and 5.5 million." By the mid-1970s, it had dawned on everyone that this was a bad idea. Then the City was deregulated with Margaret Thatcher's famous "Big Bang" policy raft, and the finance and business services sector doubled in size.

Big Bang took place in 1986, the same year the GLC was disbanded. "The City needed infrastructure, but no one was planning it, no one was making the case," Livingstone said. So, until the establishment of the new position of mayor in 2000, "the only thing that really happened [in infrastructural terms] was the badly botched extension of the Jubilee Line out to Canary Wharf. Everything else was very, very small-scale."

Given his second opportunity to become mayor, Livingstone realised he needed to "focus outward," where previously he had been forced to wade through London's political mire. "If you're creating a massively increased finance and business services sector then you have to put the infrastructure in to support it - the hard infrastructure in terms of transport and so on but also the soft infrastructure in terms of skills in the population," he said. "One of the reasons why one person in three in this city was born abroad is not just that we have refugees coming here... we also have some of the highest paid people in the world coming here because they are the leadership of that growing finance and business services sector."

There were, of course, new enemies to face during this period. Livingstone explained that he had a lot of constraints coming from Downing Street, and "no real financial control". Officially, his budget was around £3bn, but his actual necessary yearly expenditures were around £11bn, he revealed. Yet the biggest obstacle to progress in the capital, in his view, was the "dysfunctional" civil service. It was their "can't do" attitude that was to blame for four years of stonewalling over Crossrail, the over-and-underground line designed to connect east and west commuter belts to the Square Mile.

The "final crunch" in securing government commitment to Crossrail, Livingstone said, "was when I took Ed Balls - then still the Chancellor's effective Number Two - out to dinner and poured wine down him until he got sufficiently mellow and we did the deal about how much the government would put in and who was going to be responsible for building it. Having seen the approach of the civil servants, I was quite happy to say it would be the mayor's responsibility."

Now London faces a new set of priorities if it is to maintain its competitive advantage in financial and business services. We need to invest in literacy and numeracy training, Livingstone suggested, and we must continue to devolve and decentralise the city's local authorities. Most importantly, "we have to have a situation where India and China see London as their preferred operations site in Europe if not the whole of the West," he said. "Because if we can lock ourselves into growing with India and China, London's success is secured for the whole of the rest of this century."

Livingstone ended his presentation by telling us that he fully intended to run again for the mayoralty in 2012, then invited us to put any question we liked to him, no matter how offensive. One LBF attendee duly asked him whether Bob Crow, the head of the Rail, Maritime and Transport Union, was "as unpleasant as he appears on television." The reply was demoralising for everyone in the room. "Shall I tell you the really bad news? Bob Crow is the moderate face of the RMT. You think Bob Crow's a problem? You should see his bloody committee."

Livingstone explained that his strategy for "containing" Bob Crow had been to negotiate pretty generous pay deals for the RMT that made sure they "never had a valid reason for going on strike". It was a five or six-year strategy designed to change attitudes, and it successfully moved the RMT from yearly pay rounds to a two-year deal, then a three-year deal. Livingstone said he was worried that the new London mayor, Conservative Boris Johnson, would handle the RMT more truculently, and thereby create problems for himself and the city. "What Boris has now got to negotiate is a four-year deal, or you'll be right up against the bloody Olympic Games at the next pay round and they'll have us by the short-and-curlies," Livingstone said. "Can you imagine? The whole world watches while we walk to the Olympic Games."

A few of us found ourselves wondering whether Johnson had the toughness or finesse to deal with Crow and his like at such a critical period in the city's development. And, sensing this, Livingstone made his bid for our votes in 2012: "I should have been in business," he concluded. "I'm a completely rapacious shark."