Monday, 2 June 2014

London: It's capital, not the capital, that's the problem

Andrew Fisher on the London vortex
"London never sleeps, it just sucks
The life out of me
And money from my pocket"
So sang Welsh songbird Cerys Matthews*... pre-empting Aditya Chakrabortty's Guardian column today - 'Britain's economy is dangerously imbalanced – just look at the London property bubble' - by a full 15 years.

What Mr Chakrabortty was advocating though was not a retreat to the Valleys, but more equal investment across the UK's nations and regions.

He's absolutely spot on in diagnosing London's acute housing crisis (a crisis of affordability and supply):
"The reason homes in the capital cost so much more than they do outside is because London has the best jobs and the best economic opportunities – and therefore the longest queue of would-be residents"
Although I'm still not convinced London has a 'bubble' in the traditional sense (that is an overpiced asset, that will 'burst' in a market correction) - partly for the reasons outlined above by Chakrabortty himself. But partly because London's housing market is also a speculative asset for the global rich, who have all the loopholes and non-domiciled status required to keep pumping money in with minimal tax liability. Additionally, landlords are buying up more and more - and their returns are growing, like those at the very top of the income scale.

Housing prices don't need to keep pace with average wages necessarily, and indeed they haven't: "the median home in London is now worth 12 times the median London worker's salary". So while a slowdown in growth is plausible (last year's 17% rise is partly a reflection of lost value since 2008), I'm unconvinced by the bubble thesis unless public policy changes dramatically, or an external shock hits.

However, his prescriptions echo a pamphlet published by Doreen Massey in 2003 ('Decentering the Nation: A Radical Approach to Regional Inequality'), but are actually inspired by more recent research by Adam Leaver of Manchester Business School. Chakrabortty concludes:
"The longer term solution is to put the next Tech City in Liverpool, or to move government departments out of Whitehall and up to Middlesbrough. And to use the tax system and strategic lending to encourage industries to move their headquarters to all those lovely cheap buildings north of the Watford Gap"
Under Gordon Brown tens of thousands of civil service jobs have already been relocated outside of London (including moving the ONS to Newport) - but all the solutions on offer are viable, though to me they are insufficient.

An industrial strategy - what the UK has lacked since the devastation of Thatcher's assault on UK manufacturing - has to consist of more than tax incentives or business enterprise zones.

Likewise, the problem of London is in large part the finance sector, rather than London itself. The City of London acts as a poison in public policy - using its power to keep the UK a low-tax, free-market, prostrate-government state. It also sucks in huge amount of capital to be invested in speculative markets and convoluted financial products rather than in the productive economy.

Taxes like the Tobin Tax (now branded as Robin Hood Tax) could discourage this useless activity, and in so doing start shutting down the destabilising, tax avoidance enabling and unproductive aspects of the City.

In fact Chakrabortty acknowledges this, because he used his column in February to say it, asking "What's that sucking sound? It's all the public money and private wealth being swallowed up by London".

Of course to some this is not a problem at all and we should foster, not fret over, London's growth (now heading towards a quarter of the UK economy). Daniel Knowles of The Economist makes a powerful case, but it's a dehumanised, market-led, vision that suggests everyone should eventually live in Greater London - with other towns depopulated, left with only a few dead end jobs left or as he puts it:
"boring small towns where there are never really going to be any decent job prospects"
If we value community and a strong economy, then throwing all our eggs in one basket (geographically or sectorally) is a risky dereliction of strategy - though I doubt Knowles wants a democratic economic strategy: the market knows best (except when it crashes and requires public bailouts).

But leaving aside my revolutionary vision of a democratised economy, Knowles also ignores the German model in which several cities share the centralised goods that London has: political, financial, cultural, industrial (OK not the last one, but the UK doesn't really have any industrial cities any more). The same is true to some extent in the US and Canada too, where cities share the national goods.

What Knowles implicitly makes clear is that decentering the nation cannot be left to the market (incentivised or otherwise), it will require strong government with an industrial strategy, and almost certainly strong local (or regional) goverment outside of London.

However, there is little chance of this since politicians seem less than keen to break the despotic power, not of London, but of its finance sector.

*Londinium by Catatonia (youtube here)

No comments: