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

Photo: Getty Images
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The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.