Big-shed nation

They sit by the road, windowless and vast. But what are they for? Joe Moran on the warehouses, logis

A new word has entered the vocabulary of environmental protest: megashed. A well-organised "stop the shed" campaign is currently centring on a disused RAF airfield just outside Andover, next to the busy A303, where Tesco plans to build an enormous distribution warehouse. Yet big sheds - those huge, windowless warehouses you see at major road intersections - have been around for nearly 40 years, and for most of their history they have been left off maps, unmentioned and ignored by the general public. So why is a diverse band of campaigners - including the former transport secretary George Young and the lead singer of the Troggs, Reg Presley - suddenly getting angry about them?

If you thought about them at all, you probably imagined big sheds to be a product of the dere gulated planning regime of the Thatcher era; in fact, big sheds were pioneered by a socialist retail society and championed by a minister who would later become a tabloid demon from the hard left. In the late 1960s the Co-op hatched a plan to build huge warehouses that would serve whole regions and increase its bulk purchasing power. Anthony Wedgwood Benn, as the minister of technology was then known, awarded it a £150,000 innovation grant, in return for which it agreed to share its know-how with the industry. So in 1970, the Co-op built its first distribution centre at Birtley in County Durham, just off the A1. Birtley wasn't just huge, it was automated, with goods stacked on high racks reached by robotic cranes commanded by a giant ICI computer, allowing a then-astonishing 5,000 boxes an hour to be despatched to the shops.

The big-shed revolution really began in 1972 with the completion of the M6 and the linking up of the first thousand miles of motorway. LSSBs (large single-storey buildings) sprang up suddenly on low-lying land near motorways. Britain was losing its industrial base and importing more goods from abroad, and these imports needed more space to store them. The innovation of the Thatcher era was "just-in-time", a system first used by Toyota in Japan in the 1950s, which delivers goods only when they are needed, so they do not sit on a shelf losing value. By centralising their warehouse stock and keeping goods moving, firms could release cash flow, perhaps even sell things before they had to pay for them. Logistics, a trendier-sounding word than "haulage", was this new art of moving things around. Firms could outsource the whole operation, from finding warehouses to driving the juggernauts, to companies offering total "supply chain management solutions".

Logistics depended on location, and the property hot spot was right at the heart of the trunk-road system, in the Midlands. When the M69 from Leicester to Coventry opened in 1977, it created a "golden triangle" of motorways with the M1 and M6, giving the area the best transport links in Britain. From here, lorries could reach 92 per cent of the population and return the same day. Here is found Europe's biggest distribution park, the 500-acre Magna Park, founded in 1988 by an unlikely alliance of Asda and the Church of England. Companies that migrated there channelled their goods through the golden triangle to an extreme degree. Toyota's Magna Park warehouse, for example, was only 50 miles from its manufacturing plant at Burnaston near Derby. But instead of parts being shipped straight there, they were sent from Derby to its European distribution centre near Ghent in Belgium and then on to Magna Park - a journey of 583 miles - so the stock could be maintained at the minimum level.

Terminal architecture

Most of us might think this a strange way to run a business, but that just shows how little we know about the invisible workings of this big-shed economy. The late architectural critic Martin Pawley called these buildings "terminal architecture", meaning that they were hubs for the unseen networks that sustain and control our daily lives. Giving nothing away on the outside, big sheds just look like dumping grounds for goods, but they are far more dynamic than that: goods move at such a rate that they can arrive and leave within the space of a few hours. In the new internet-shopping warehouses, such as the Amazon shed near Junction 13 of the M1, hundreds of "pickers" run around mountains of Harry Potter books, Nintendo games and Duffy CDs, guided to their destinations by hand-held navigational systems within minutes of orders being placed online. The big shed is designed to get stuff on the road as quickly as possible.

So why is the megashed suddenly on the political agenda? Since the mid-1990s, the development of out-of-town shopping malls and retail parks has been more tightly controlled. But central government and regional assemblies have carried on giving free rein to the megasheds, because they see them as essential to support the boom in internet shopping and the ever-growing number of imports. Faced with rising land prices, the big shed is invading other areas of the country. One of the great beneficiaries has been UK Coal, because much of the land that it bought cheaply when British Coal was privatised in 1994 turns out to be conveniently located between the M1 and A1, with good connections to the newly important north-eastern ports. Some of the critical pits in the 1984-85 miners' strike - most poignantly, Rossington colliery, near Doncaster, nicknamed "Red Rosso" after its diehard support for the NUM - are being turned into distribution parks.

The supermarkets are now also expanding the megasheds into the regions, because they have so many stores that a single distribution centre in the Midlands is no good to them. Some of the newspaper reports about Tesco's Andover megashed suggested that it would be one of the biggest buildings in Europe. In fact, it is nowhere near as big as Heathrow's Terminal Five, and at 915,000 square feet will be a fairly standard-sized megashed. But since that is bigger than the footprint of the Millennium Dome, it is quite big enough. So omnipresent are the big sheds becoming that a state-sponsored quango called Community Resilience UK has plans, in the event of a natural disaster or major terrorist attack, to requisition them as emergency mass mortuaries.

Antony Gormley, one of the few people to find aesthetic interest in the Daventry International Rail Freight Terminal, says that mega sheds are "as much a part of our history as the rural barn". As works of architecture, they are more cutting-edge than any giant Gherkin. Built quickly from prefab materials, big sheds are as impermanent and recyclable as garden sheds - the steel walls and roofs can be melted down for scrap, the concrete floors broken up and used as hardcore for roads. Some are built by "clad racking", which means simply plonking all the equipment on site and covering it with a plastic membrane, instead of walls. If only our houses could be built so cheaply and innovatively.

Yet big sheds also encapsulate the strange ethereality of the modern economy, the way it controls our lives while we have only the dimmest awareness of its workings. The recent banking crises, or the chaos at Terminal Five, do not seem to have shaken the baffling political consensus that the private sector is a paradigm of competence and efficiency - even though anyone who has ever rung a call centre, or waited in for something to be delivered, will know that the so-called "service" economy is more than capable of surly incompetence. But the big-shed universe is super-efficient at all the stuff that happens before the pesky customers get in the way: finding warehouse locations, cutting margins, working out how much the shipping will cost in pounds per cubic metre.

Britain is the world leader at moving stuff around. As the rest of us know so little about it, this logistics economy could largely ignore all the voguish talk about local sourcing and carbon footprints, and get on with what it does best: searching for limitless economies of scale. Until now, perhaps, when the megasheds are becoming so big that we are noticing them at last.

"Queuing for Beginners" by Joe Moran is published by Profile Books (£8.99)

This article first appeared in the 18 August 2008 issue of the New Statesman, Superpower swoop

MILES COLE
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

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The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

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In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt