Keep it foolish: London’s “cool” has built an economy around tech-savvy young people. Photo: Wayne Tippetts/Rex
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Love or hate them, East London’s hipsters have fuelled a vast economy

Most of us rolled our eyes at the invasion of hipsters, but the “Flat White Economy” is flourishing.

The Flat White Economy
Douglas McWilliams
Duckworth Overlook, 256pp, £16.99

“Year after year the annual report of the Uganda Protectorate has referred, under the heading of industry, to a few large undertakings directly sponsored by the government,” wrote the economist W Elkan in 1959. “At the same time the multifarious development of furniture workshops, soap mills, tyre retreading plants, bakeries and brickfields has gone on largely unnoticed. An official who was once asked about Kampala’s industrial area said: ‘There are no industries there – only a lot of furniture works, bakeries, maize mills and soda
water factories.’”

Modern economies are complex and constantly in flux. As a result, understanding what is going on in them and where they are heading next is difficult. You might have thought that civil servants and the economists who work for them would have an advantage over the rest of us. In reality – as the story above shows – their preconceived ideas of what counts as “genuine” economic activity can generate blind spots even more egregious than our own.

There are exceptions. Douglas McWilliams, the founder of one of the UK’s leading economic consultancies, has spent his career trying to get at what is really going on in the UK through that most unfashionable of economic activities: detailed empirical research. In his new book, he shows how surprising the results can be.

His story starts with the resilience of London during the financial crisis of 2008. Many analysts thought that the crash would rebalance the British economy away from the capital. They were wrong.

In 2009, London’s output collapsed and house prices plummeted. But its recovery was exceptionally rapid. By 2013, employment was growing at 4.4 per cent a year. House prices were more than 10 per cent above their 2007 peak, while elsewhere they were still 10 per cent below. London has been leading the UK recovery, not slowing it down. Where did this renewed vitality come from? Rather like those Kampala soap mills, the answer, McWilliams argues, is staring us in the face – and we’ll see it as soon as we shed our preconceptions.

No one visiting east London over the past half-decade can have failed to notice that there are a lot of young people about. They have come from all over Europe and hang out in Shoreditch, Bethnal Green and the rest of the old “City fringes”. They ride bicycles, wear second-hand clothes and have elaborate facial hair (the male ones, anyway). And they drink a lot of coffee – often of the “flat white” variety.

Most of us rolled our eyes at this invasion of the hipsters and assumed, like the Ugandan official, that the real action must be going on elsewhere. McWilliams and his colleagues have crunched the numbers and found that the opposite is true. They argue that this influx of tech-savvy young people is a symptom of the flourishing of what they have termed the “Flat White Economy”: the dense network of digital marketing, computer programming, software publishing and video post-production businesses that have sprung up in and around Shoreditch since 2008. This is no lost generation of frugal fashionistas, in other words, but the economic engine of the future: less Nathan Barley, more Steve Jobs.

The statistics are striking. The Flat White Economy is big. Across the UK, the media, information and communication sectors account for nearly 8 per cent of GDP – the size of the car manufacturing and oil and gas industries combined. It is also growing rapidly. McWilliams reckons that its share of GDP will double over the next decade. Most impressively, though, it is extraordinarily entrepreneurial. Between 2012 and 2014, more businesses were created in the single London postcode of EC1V than in the whole of Manchester and Newcastle put together.

Why has the Flat White Economy taken off in east London quicker than anywhere else? It is all down, McWilliams argues in most orthodox fashion, to supply and demand. On the demand side, the UK is a unique environment for digital business because it has proportionately by far the ­highest level of online retailing in the world. One study projects that nearly a quarter of all UK retail will take place online next year – twice as much as in Germany and three times the level in the US or Japan. Britons love to shop online, generating a critical level of demand for digital marketing and advertising services.

On the supply side, meanwhile, McWilliams points above all to the availability of young, educated and entrepreneurial people from all over Europe (thanks to freedom of movement within the EU) who want to come to London not because it’s cheap or easy to live in, nor even because they can get rich there, but because it’s cool. It’s an analysis that, unlike a lot of dry economics, chimes with reality. Indeed, the eponymous flat whites prove the point: why else would anyone want to pay £2.70 for a cup of milky coffee?

There has long been a tendency on the left to disdain service industries such as those at the heart of the Flat White Economy as not quite the real thing – from Harold Wilson’s scorn for the “candy-floss economy” in the 1960s to Larry Elliott and Dan Atkinson’s 2007 excoriation of Tony Blair’s Britain as “Fantasy Island”. McWilliams makes a persuasive case that it was these industries that saved us from disaster after 2008 and hold the keys to our economic future. For questioning that prejudice alone, his book deserves to be read. 

 

Macroeconomist, bond trader and author of Money

This article first appeared in the 14 May 2015 issue of the New Statesman, The Tory triumph

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
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Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

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