LONDON’S Mayor Ken Livingstone re cently visited New York City, trolling for businesses that might relocate jobs and investment activity from the United States to Great Britain. Asked what he considered London’s competitive advantage over New York, he replied, "Sarbanes-Oxley."

His reference was to the federal law, sponsored by Democratic Sen. Paul Sarbanes and Republican Rep. Michael Oxley, enacted in 2002 for the purpose of restoring investor confidence in publicly traded companies in the wake of the Enron scandal. But Sarbanes-Oxley, or "SarbOx" (as it has come to be known), has turned out to be a remedy that may well do more damage to the American economy - and to New York City - than the corporate corruption it seeks to eliminate.

The reason is simple: SarbOx places an unprecedented burden and huge costs on public companies that are headquartered in this country or listed on our stock exchanges. Compliance with SarbOx’s rules and procedures is very expensive and requires changes in a company’s governance structure. Failure to follow the complex rules exposes corporate executives to penalties, lawsuits and even criminal prosecution.

America’s dominance of the world capital markets is no longer unchallenged: Companies no longer have to come here to raise funds. Many have already registered their reaction to SarbOx by turning their backs on the U.S. stock exchanges. Many more are likely to follow.

Last year, 23 of the 25 largest international initial public offerings of firms going into the capital markets did not list in the United States, notes New York Stock Exchange CEO John Thain. So far this year, nine of the 10 largest IPOs have listed on European or Asian exchanges. By comparison, in 2001, before SarbOx, nine of the 10 largest international IPOs took place in New York.

Moreover, according to Thomson Financial, there has been nearly a 30 percent jump in the number of U.S. companies leaving the public markets and going private rather than put up with SarbOx.

SarbOx’s costs hit smaller companies hardest. Trading volume tripled on London’s Alternative Investment Market (AIM) in 2005; it’s now the No. 1 exchange for listings by small companies in all sectors worldwide. During the past year, AIM saw 433 new IPOs, versus just 155 on New York’s Nasdaq. By one estimate, the compliance cost to a small company listed in the United States is $2.335 million a year, against just $922,000 for compliance with the comparable British laws.

SarbOx, in short, could cost New York City its status as the world financial capital. And this is not just an issue for Wall Street. The financial-services industry is responsible for a quarter of all economic activity in New York, affecting everyone from taxi drivers and airline workers to caterers and lawyers. SarbOx thus stands to savage our entire economy and tax base.

The New York Stock Exchange and Nasdaq, alone, are responsible for more than 10,000 jobs and over $1 billion a year in economic activity within the city. The NYSE is seeking to compete more successfully with London by acquiring Euronext, a pan-European stock exchange. This would be good news, except that the $10 billion deal could fall apart over fears that U.S. regulators would impose SarbOx compliance on Euronext listings.

There is public outrage over outsourcing of American jobs and off-shoring of American production, both of which are products of global forces that America can do little about. But SarbOx is a problem of our own creation - an emerging economic disaster that the American Congress created and can fix.

To his credit, Rep. Greg Meeks (D-Queens) has stepped forward to propose an amendment that would provide relief to smaller companies. But he’s alone, and his proposals don’t go nearly far enough. SarbOx isn’t the only reason the U.S. regulatory climate is now stifling American enterprise and discouraging foreign investment, but it certainly has the broadest impact. New York’s entire congressional delegation needs to begin pushing the regulatory pendulum back to a place where business can thrive and our city can maintain its competitive edge in the global financial marketplace.

Kathryn Wylde is president and CEO of the Partnership for New York City.