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London: the first global city to fail

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The approved version of Britain’s recent history is that, after a period of economic dislocation and political extremism in the 1970s, the Thatcher government reinvigorated the economy; ushering in a period of rising prosperity which only petered out in 2008.  As Thatcher pointed out in 2002, her greatest achievement was to refashion the opposition Labour Party into a champion of neoliberalism; breaking its old ties to the working class and becoming instead the party of metropolitan liberalism.  London stood as a beacon of the new economic order; having risen out of the ashes of the 1981 inner-city riots, to emerge as a major world financial centre, second only to Wall Street itself.

London became the poster child for the gospel of trickle-down economics.  The boys who wore red braces, snorted cocaine and supped champagne by the boatload also worked miracles of financial alchemy to garner undreamed of wealth to the city and to their own personal bank accounts.  And their desires provided the demand for the raft of new creative and service industries which fed on that part of their new fortunes that paid for copious consumption.  And then the companies which provided those services used the income to employ a lower level of service providers – the cleaners, repairmen and caterers that allowed the office environment to function.  Then there were the taxes on wealth and income, extracted at every level in the process; and used to maintain the roads, police the streets, maintain the utilities and the sewers and put out the fires – each also sucking workers into the city.

It is a success story that those who still benefit from the UK economy’s dwindling prosperity like to tell themselves.  But there is an alternative narrative that will be more recognisable to the majority beyond the city walls.  Oil – not government – provided the true spur to the economy of the mid-1980s.  It was the high exchange rate caused by oil which resulted in the destruction of British industry, even as the wide boys in Britain’s banking and financial sector were embarking on their journey to the stratosphere.  The revenue from the North Sea’s once and done oil and gas fields underwrote Britain’s twenty-year debt binge; during which we convinced ourselves that rising house prices were as good as a solid manufacturing base.

A North-South divide had been growing in Britain since the depression of the 1930s.  Scotland, the North of England, Northern Ireland and Wales had economies built around the old heavy industries of the nineteenth century; coal mining, steel-making, ship building, railways, etc..  But from the mid-1930s, new and more modern industries such as electrics, petrochemicals and aviation, grew up in London, Southeast England and the Midlands.  War and its aftermath slowed the geographical schism; and the post-war focus on full-employment maintained a degree of prosperity in the north and west.  The energy supply crunch and ensuing inflation of the 1970s brought this to an end.  And within a couple of years of being elected, the Thatcher government had allowed more than two-million jobs – most of them in the north and west – to be destroyed.  As Ed Fieldhouse at British Election Study reminds us:

“The term North-South divide became popular parlance, not just in the field of economics but also in British politics, as ‘the North’ – defined approximately by an imaginary line from the Humber Estuary to the Severn Estuary – grew increasingly pro-Labour and the South pro-Conservative. During the economic turmoil of the 1970s and the deep recession of the early 1980s, the North of Britain was hardest hit by economic restructuring and deindustrialisation. The Conservative Party under the leadership of Margaret Thatcher became associated with neo-Liberal economic policies that many regarded as the solution to Britain’s economic problems. Others saw them as legitimising the mass unemployment of the era. Not surprisingly those favouring market based approaches were disproportionately likely to live in the South of Britain whilst the rest of the country favoured redistribution and government intervention.”

Another way of viewing the process of Britain’s North-South divide is as a retreat of prosperity.  The very reason that the north and west had those heavy industries to begin with was because in the eighteenth century, London and the south east were plagued by unproductive asset speculation and rent seeking.  Beyond London lay the potential for productive investment; aided first by the new water-powered machinery of the early industrial revolution, and later by the enormous power of coal.  It is no accident that the decline of the northern half of the British Isles corresponds to the post-1913 decline in its coal extraction.  The more expensive the energy that drove production became, the less profitable the finished goods.  Imperial protection (in which Britain’s colonies were forced to buy British manufactures) kept the system running for a few more decades; but fuelled the independence movements that eventually brought it to an end.  By this time though, wealth had retreated to the southern half of the country; where there were still industrial profits to be made.

The North-South divide that grew under Thatcher was not the end point, however.  Rather, it was merely part of a much greater retreat of prosperity.  Rather than reversing – or even slowing – the divides opened up by Thatcher and her successor, the Blair governments allowed them to grow.  The result was a further retreat of prosperity into London and the archipelago of top-tier university towns.  The universities providing the high-level knowledge base around which a handful of high-tech, high-value and high-paying industries emerged (most notably in 2020 the university-corporate partnerships which developed Covid vaccines in record time).

At this point, the Blairites engaged in a fanciful and ultimately catastrophic cargo cult.  The term was coined to describe the desperate actions of Pacific islanders in the aftermath of World War Two.  During the war, the US military had built airstrips on some islands; and after the war these were maintained as refuelling stations and for emergency landing.  The result was that US dollars flowed into those islands blessed with airstrips; and those dollars could be exchanged for modern technologies and consumer goods.  The governments of those islands without airstrips wrongly concluded that the key to prosperity was to build their own airstrips.  And so a lot of effort was made for very little reward.  The Blairite version of this was the belief that universities were the key to prosperity; and so they set about converting every polytechnic and further education college they could get their hands on in the false belief that the more bachelors and master’s degrees they could hand out, the wealthier Britain would become.

One result of this idiocy is that students now leave university with a large debt which, for many is unrepayable.  As a consequence, what used to be a route to prosperity – with the trappings of your own home, a car and an annual holiday – is all too often a road to debt servitude.  The corollary being that a new and parasitic breed of university administrators have become rich by selling university places at £9,000 a time and – especially – by selling university accommodation at upward of £27,000 a time.  And the only real prosperity to come from this new Ponzi scheme was the sale of education and knowledge to fee-paying overseas students; many of them from Asian countries which will use the acquired knowledge to out compete what remains of Britain’s wealth creating businesses.

Domestically, the main result of the Blairite cargo cult is that Britain now has the highest qualified baristas and burger flippers on the planet… or at least, we did have until the Covid arrived to destroy a large part of our leisure and hospitality sector; itself the largest sector in the pre-Covid UK economy, accounting for more than 10 percent of all jobs.

In the post-Blair economy, prosperity had retreated from the broad south to London itself:

While nine of the poorest ten regions in northwest Europe were in the UK, London remained the most prosperous.  But just as the wastelands beyond the city walls were not universally bleak – containing some prosperous city districts, at least in the top-tier university towns – London was not universally prosperous.  Several districts had not been “gentrified” and those which had were becoming unaffordable for most Londoners.  Even those in genuine graduate-level employment often struggled to afford more than a bedsit or a room in a shared house; even as whole swathes of the housing stock were bought-up and left empty by international speculators.

In the course of my own university education in the mid-1980s, there was speculation about the “Brazilianisation” of the UK.  At the time, Brazil’s wealthy had retreated to tiny inner-urban gated communities, protected by armed guards.  While this sounded outlandish in the 1980s, it was far less far-fetched in the post-2008 UK economy.  The gated communities have existed for some time although the private armed guards have yet to be overt.  But even in the post-2008 city, the wider region remained prosperous and stable enough for the system to function.  This may not be the case in the months and years after Covid.

A large part of the essential servicing of London has been provided by relatively low-paid (by London standards) overseas workers, UK-born workers living in the few affordable enclaves within the city, and workers commuting in from neighbouring towns.  These are the army of “essential workers” given prominence by the pandemic; without which any city will grind to a halt.  But even before the pandemic, the cost of working in London was already too high to justify the additional wages on offer.  Simply running a car in order to commute, for example, can add more than £10,000 to the annual cost of living when fuel, parking, maintenance, tax and insurance are taken into account.  So many workers are no worse off settling for lower-paid employment closer to home.  The only thing keeping them in London was the greater potential to prosper in the longer-term… a potential that has lost value steadily since the 2008 crash.

Once again, the pandemic – and the official response to it – has accelerated trends that were already happening… in this case, the drift of workers away from the city.  In August 2020 the Mayor of London’s Office produced a report showing that half of London’s population wanted to move out of the city.  Murad Qureshi AM, Chair of the Housing Committee, said:

“Almost a half of Londoners, who want to move home as a result of covid, want to move out of the city. If this exodus from London actually materialises, this could have a huge impact on the city, the economy and the housing market. Fewer people could mean less overcrowding and a more pleasant living and working environment for Londoners, but there are also serious concerns as to what an exodus would mean for local neighbourhoods and communities and London’s economy as a whole.”

A report by Sarah Marsh at the Guardian in September 2020, suggests that it is not just London that is affected by this desire for flight:

“Coronavirus has prompted a shift: city dwellers… are moving en masse to rural regions as the pandemic exposes the shortcomings with people’s living arrangements, with many wanting more space as they work from home.

“In June and July, the number of buyer inquiries made to Rightmove, the UK’s largest online property website, from people living in 10 cities increased by 78% compared with the same period last year. And there was a 126% increase in people considering properties in village locations, compared with a 68% rise in people searching for towns.”

This sentiment was merely wishful in August and September; and anyway, only a minority of the salaried class can truly afford to flee to the countryside.  Nevertheless, the threat of ordinary workers opting for – slightly – better living conditions in ex-industrial, rundown seaside and small town rural Britain was sufficient to prompt the government effort to get people to return to their offices and the hospitality outlets which serve them… triggering the second wave of the pandemic in the process.

The government’s efforts have come to nought.  Too many corporations have discovered that a great deal of their routine work can be done from employee’s homes.  The savings on the bloated rents of commercial property more than outweigh any problems arising from the lack of daily physical contact with employees.  Workers too, have discovered upsides to working from home; including the lack of stress caused by the daily commute and the savings on transport and food costs.

Had the virus not come back with a vengeance in the autumn – forcing government to effectively cancel Christmas – people might have returned to the old normal working and housing arrangements.  But the additional lockdowns and restrictions – which look set to continue at least until Easter – appear to have sealed the fate of Britain’s last prosperous cities.

On 8 January 2021, Vicky McKeever at CNBC reported that London’s population was about to decline:

“The population of the U.K.’s capital city could fall in 2021 for the first time in more than 30 years, according to new research, as the economic fallout from the coronavirus pandemic prompts people to reconsider big-city life.

“The prediction was one of several in a U.K. economic outlook report by professional services firm PwC, released this week…

“PwC cited a survey from August 2020 by the London Assembly governmental body, which found 4.5% of the 450 Londoners it polled — what would be the equivalent of 416,000 city dwellers ­— said they would definitely move out of the city within the next 12 months.

“Before the pandemic, the U.K.’s Office for National Statistics had predicted that London’s population would grow by 56,000 people to 9,095,459 between 2020 and 2021. But PwC calculated that if just 14% of its forecast came to fruition, then it would erase this predicted growth.”

Even this gloomy outlook appears to be optimistic however, as a series of tweets from the Telegraph on 5 February 2021 outlined:

“A startling estimate has caught the eye of economists: that London’s population may have plunged by 700,000 during the pandemic. What do we know and will it spell trouble for the city’s economy?

“The last major population drop suffered by London was in the decades after the Second World War, driven by old industries falling away and government policy… The difference this time, however, is the immediacy of the population shock.”

Particularly worrying is the big exodus of European workers who chose to see out the pandemic at home rather than in the overcrowded housing conditions of London.  Add post-Brexit working restrictions to the mix and it is likely that most of these workers will not be coming back.  And since their ranks include key NHS and council workers, together with skilled manual workers like plumbers and electricians, who cannot be easily replaced by British workers, things may soon begin to fall apart.

Exactly how long this will take to unfold is moot.  Governments – national and local – will no doubt borrow and print new currency into existence in an attempt to keep global cities like London alive.  But faced with post-pandemic declining prosperity, migrants fleeing the cities will take with them the practical knowledge and skills required to maintain the cities’ life support systems.  Initially, this will probably manifest as things not being fixed as quickly as they used to be.  Later, things that have broken will not be fixed at all.  Water will be left to flow from broken mains, street lamps will be abandoned and road surfaces returned to – or left to return to –gravel.  And, of course, the more things fall apart, the greater the exodus from the city will become.

As you made it to the end…

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