On both sides of the Atlantic there has been a growing public recognition of a gathering “retail apocalypse” as famous name chain stores have been plunged into bankruptcy. The crisis, however, has only made its way into the consciousness of the mainstream media and onto the agenda of the political class in the past 12 months. And even now, both are seeking simplistic solutions to the superficial aspects of the crisis rather than showing any understanding of the deep economic problems that are engulfing us.
This should not really surprise us. In the era of 24/7 news nobody has a memory, still less the analytical tools required to understand the world. Instead, “journalists” simply rewrite government press releases blaming the crisis on everything from the weather to the drop in beer sales, the football world cup and the continued growth of online sales. The modern political class, in contrast, have become mere specialists at manipulating the electoral process for largely personal aims. As Jason Heppenstall explains:
“Politics at the national level is usually mostly froth and can be safely ignored while more interesting pursuits are followed – after all, during the good times, aren’t politicians merely surfers catching the waves of popular opinion? Remember, these are the good times, for now.
“But then there are times when serious underlying stresses in society and the economy have built up to a point where they threaten to cause devastating earthquakes. This is when politicians are put to the test – and usually found wanting. You expect them to solve serious national problems, but all they can do is spout platitudes and sound bites. It’s as if they are simply not designed to do the right job – like buying a dishwasher and expecting it to heat your dinner; what you get instead is a blocked outlet pipe and no dinner.”
Should we be in any way surprised that the “blocked pipe and no dinner” option dreamed up by the political class in response to collapsing retail sales is to make them collapse even further by making online shopping more expensive? As Tom Espiner at the BBC reports:
“City centres are in danger of becoming ghost towns as shopping habits change, a committee of MPs has warned.
“To combat this, the government should ‘level the playing field’ for High Street retailers by raising taxes on online giants such as Amazon, it said.”
Politicians, you will notice, never seek to “level the playing field” downward, but always seek to levy new taxes when the opportunity arises. And although the MPs do suggest the reform of the UK’s antiquated Business Rates system, government has ruled this out; not least because property taxes are too easy to collect.
Meanwhile, a deeper analysis of the problem by the think tank the Centre for Cities takes issue with the shallow political analysis and solutions on offer:
“Public opinion tends to blame two things: online retail and business rates. But previous Centre for Cities research shows that neither tells the full story in the debate surrounding the high street. The real challenge for retailers is insufficient footfall in their city centres, due to the lack of jobs in these central locations, which would provide customers during the week.
“This is shown by the fact that high streets in city centres with strong economies are not struggling. As city centres play an increasingly important role as places to live and work, the fortunes of the high street in successful places are likely to remain bright.
“Despite this, policy has focused squarely on poorly performing high streets rather than addressing their underperforming city centre economies…”
The reason why so many national retailers are going bust is due to business models that depend upon marginal sales for profitability. Thus it is not sufficient to be profitable in one store or one region; they must continue to grow their sales everywhere. This is why some commentators claim that the UK has far too many shops. This, however, is merely another expression of the general decline in UK spending power since the crash of 2008 and particularly following the introduction of austerity economics in 2010.
As I have stated many times on this website, since 2008, Britain has become an 80:20 economy in which four-fifths of the population have seen their discretionary income collapse even as a fifth – which includes the kleptocratic one-percent – has enjoyed growing prosperity due to their engagement in the three key sectors of government, tech and finance which have been the primary beneficiaries of quantitative easing. Britain had exactly the number of shops it needed back in the days before the crash. The reason half of its shops are surplus to requirement now is that spending power for the mass of the population has fallen that far. And the reason the crisis is unfolding in non-food retail and hospitality are precisely because these are where discretionary spending (what people have left after taxes and essentials have been paid) takes place.
This shift in the makeup of the UK economy has a geographical component which manifested (outside Scotland) in the “left behind” areas of the UK that voted to leave the European Union. It is here that the Centre for Cities report makes the common error of believing that the areas that continue to remain prosperous are the future and that with the correct policies in place, declining cities can begin to prosper:
“But high streets and wider city centres are not struggling everywhere. In fact, in some places, such as Manchester and Leeds, they are thriving. The main driver of this success is the resurgence that a number of city centres have seen as places to work…
“In those places that do have struggling high streets, such as Newport and Wigan, their challenges stem from relatively lower levels of investment into their city centres from high-skilled businesses. This has implications for the availability of high-skilled jobs in the city more widely. These firms increasingly prefer a city centre location – as the dense business environment allows them to share ideas and knowledge easily. If a city centre is failing to attract these types of firms, the city as a whole will likely lose out on this investment. This affects the wage and career progression opportunities these cities can offer.”
At this point we enter cargo cult territory, as the report argues that the way forward is for the failing towns and cities to copy what the successful ones are doing:
“This presents policymakers with two priorities. First, the success of the strongest city centres, such as Reading, Leeds and Manchester, must be maintained. Specifically, they need to facilitate ongoing expansion by making sure there is enough commercial space available to accommodate future growth.
“Second, they must focus on getting growth going in weaker city centre economies. This will require a remodelling of their city centres that may necessarily need to be led by the public sector.”
They are, of course, quite correct to report that the success of the High Street is an outcome of the success of the economy. Where they fall down, however, is in failing to note that the highly skewed economic “recovery” has been focused precisely on the Cambridge-Oxford-London triangle and the archipelago of tier-one university campuses and their surrounds in cities like Leeds and Manchester highlighted in the report. They are also the areas that contain the high-skilled/high-paid government, tech and finance jobs enjoyed by the top fifth of the population.
The problem is that there is not a duplicate market for tech, finance and government somewhere just waiting for the new jobs to be created. Indeed, were it not for quantitative easing and near zero percent interest rates the UK economy could not have sustained the high-paid jobs it currently has. So while it is true that towns like Wigan and Newport could experience a revival from such jobs, the reality is that they are not going to put in an appearance because there is no demand for them. Indeed, there is good reason to expect that when the economic music stops playing those town and city centres that have experienced a degree of prosperity in the last decade will find themselves following a similar trajectory to the failing towns and cities identified in the report.
The problem is less one of jobs, incomes and GDP, but of rates of prosperity – the amount of income that people have left over after taxes and essential spending have been paid. Unlike the former, which are manipulated via financialisation, the latter is ultimately a function of net energy. That is, the rising cost of energy has its greatest impact upon the non-discretionary element of people’s spending. Nowhere is this more obvious than in the direct increases in energy (electricity and gas) prices which have surged ahead of inflation. However, increased energy costs also become embedded in almost every form of goods and services we transport and consume.
Neoclassical economic theory holds that rising energy costs cause inflation. But we have not witnessed this. Instead, inflation has remained inexplicably (to economists) steady despite official employment rates comparable to the early 1970s. The reason for this is that neoclassical theory is wrong. In the absence of rising wages, the increase in the cost of non-discretionary energy translates into a decline in spending on discretionary energy. Put simply, if households have to spend more of their incomes on heating and food, their spending on gadgets, fashions, holidays and eating out falls accordingly. It is this decline in discretionary spending which manifests spatially, which explains why a handful of town and city centres remain prosperous (for now) while the majority are in more or less terminal decline.
This is one reason why it is simply politically insane to introduce additional taxes (such as those proposed for online retail) of any kind; particularly those that will make the few discretionary purchases that online retail allows to the 80 percent even more expensive. As Surplus energy economist Tim Morgan explains:
“The subject of taxation, seen in terms of prosperity, leads straight to popular discontent, though that has other causes too. In order to have a clear-eyed understanding of public anger, by the way, we need to stick to what the facts tell us. I’ve never been keen on excuses like ‘the dog ate my homework’ or ‘a space-man from Mars stole my wallet’ – likewise, we should ignore any narrative which portrays voter dissatisfaction as wholly the product of ‘populism’, or of ‘fake news’, or even of machinations in Moscow or Beijing. All of these things might exist – but they don’t explain what’s happening to public attitudes.
“The harsh reality is that, because prosperity has deteriorated right across the advanced economies of the West, we’re facing an upswell of popular resentment, at the same time as having to grapple with huge debt and monetary risk…
“France illustrates this process to dramatic effect. Taxation is still at 54% of GDP, roughly where it’s been for many years. This no doubt persuades the authorities that they’ve not increased the burden of taxation. But tax now absorbs 70% of French prosperity, leading to the results that we’ve witnessed on the streets of Paris and other French towns and cities.”
The fossil fuel dependent industrial and globalised economy that we have created over the past 250 years has at its core a need for perpetual growth. Environmentalists, on the other hand, have painstakingly explained to anyone who would listen that infinite growth on a finite planet is an impossibility. We just never thought it would come to an end on our watch. Nevertheless, the combination of resource depletion – because we consumed the best and easiest resources first – together with the environmental damage caused by our economic activities have brought us to the point where growth of any kind is only possible by borrowing phenomenal amounts of fiat currency into existence – a process that necessitates falling interest rates and public bailouts of banks and other key industries. When it becomes clear that none of that borrowed currency is going to be repaid (because repaying individual loans requires new debt-based currency to be borrowed into existence) then the whole house of cards is coming down. As Morgan explains:
“It has to be glaringly obvious, too, that the historic cushion of growing prosperity has enabled us to indulge in luxuries that are now becoming unaffordable. The term ‘luxuries’ doesn’t refer to trinkets like gadgets, expensive holidays and the two- or three-car family. Rather, it refers to assumptions and practices that can no longer be afforded.
“High on this list lies the indulgence of ideological extremism in economic organisation. If there was ever a time when society could afford either the fanaticism of ‘nationalising everything’, or the contrary fanaticism of ‘privatising everything’, that time passed at least two decades ago…
“Other luxuries that we can no longer afford include massive gaps between the poorest and the wealthiest. This was an affordable luxury when everyone was getting a little more prosperous with each passing year. When your own circumstances are improving, it’s not difficult to accept the extreme wealth of your neighbour – but this tolerance will dissolve very quickly indeed when exposed to the solvent of generally deteriorating prosperity…”
The residents of Newport, Wigan and especially Boston, Mansfield and Ebbw Vale know this, and already have an inkling of the fate that awaits London, Leeds and Manchester. They are, if you will, akin to the fish on the outside of a shoal caught in a trawl net. They feel the net closing in on them even as those at the centre of the shoal continue to swim freely and continue to deny the harsh reality of their plight. But the more the big fish at the centre of the shoal continue to behave as if nothing is wrong, the more those whose gills are already ensnared in the mesh will turn to demagogues offering false promises of escape.
In this we should be thankful that the ignored masses have so far directed their anger to the ballot box. Irrespective of what one may think of Brexit, President Trump or the right wing nationalists gaining ground across Europe, they were at least elected (and might still be voted out). In the aftermath of the next economic crash we might not be so lucky. After all, history teaches us that the road that begins with widespread hunger inevitably leads to the scaffold, the guillotine and the firing squad.
As you made it to the end…
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