The recession: Did London get away with it?
How did London Get Away With It? The Recession and the North South Divide?
Thursday 20 January
Speaker: Professor Henry G Overman
London’s middle class saved London from the recession.
London’s middle class were saved from the recession.
Which statement is correct?
The impression I got from the inaugural LSE Works lecture is the latter. And I can’t think of anything more unfair.
According to LSE intellectuals, when it comes to the downturn, ‘London got away with it’. The devaluation of sterling boosted tourism and encouraged overseas investors to house hedge funds and other businesses in the capital that was once too expensive for them.
The financial industries who are based mostly in London were bailed out by the government. The bailout also had the undesirable effect of reducing the risk of their borrowing (the same borrowing which caused this mess in the first place!); further inflating the liquidity in the banks’ coffers.
London was the only region that experienced a rise in house prices between 2008-2010. We have still found the time and money to go to the theatre. Sounds great! But not everyone is having a great time.
The only lower and working class people with a similar outlook are the ones who provide services rich people can still afford. The rest have cuts to housing, education (which I concede affects everyone but the wealthiest), their employment prospects and other public services they may rely on.
The oft repeated sentence of the evening was that this is simply ‘not a middle class recession’. The thinking being that London got away with it because we have a higher proportion of professional, middle class people.
I take exception to two implications of this statement.
Firstly, that the state of middle class and professional Londoners are equivocal to the state of London. As Prof. Overman said, it’s good to see people, and not places when assessing recession. For London to have officially ‘got away with it’ we need to conclude that the vast majority of Londoners have got away with it.
Let’s look at Londoners. In August 2008, 15.5 per cent of households were claiming at least one key benefit. The poverty line is defined by the government as 60 per cent of median net income. During 2006/07 to 2008/09 28 per cent of all individuals in London lived below the poverty line (after housing costs are deducted). Child poverty is a longstanding issue in the capital with 39 per cent of all children living below the poverty line, rising to 44 per cent in Inner London.
According to these figures (all taken from Data Management and Analysis Group), a significant chunk of our population haven’t got away with anything.
Secondly, if middle class Londoners are benefitting from the downturn, then the down turn is being felt across the capital. The concept of ‘getting away with it’ is misleading, because as we saw when people took advantage of rock bottom property prices of the Thatcher years, recessions aren’t a pain for everyone.
Recession is constantly being measured by decline but recession is what you call an overall economy that is shrinking. That doesn’t mean peoples’ personal wealth isn’t able to grow. In fact, measuring recession by decline in all areas makes the assumption that growth is inevitable – and recession is only getting in the way of it. As we’ve seen by the investment generated by cheap sterling, this is not the case. Indeed, if recession disabled growth, how on earth could countries ever conceive of getting out of it?
“You do much better if workforce is educated and skilled”
Another quote from Professor Overman. And I agree. But the prospects for lower and working class Londoners don’t look good on that front either. Support for young people in further education is being canned. Tuition fees are going up. Unless your skill is providing a much needed service to a rich person, your opportunities for work are going to decrease. We are creating a society where lower and working class people will be ill-equipped to deal with downturns in years to come.
Not only are rich people prospering, the short-termism of current economic policy means the government is doing nothing to minimise the occurrence of these divisions in future.
Hence my stance on the unfairness of it all. Middle class and wealthy people have avenues out of recession. They’ve been taking them: sales of fine wine and Beluga caviar were up 21.4% over the past year. In 2008-09 the wealth of the Times rich list was down £155bn. In 2009-10 wealth was up £77bn.
Lower and working class people don’t have avenues out of recession. We have belt tightening and tough times. We have lecturers who acknowledge our struggle, but imply overall, in economic terms, because house prices are up, our struggle doesn’t count and worst still, is inevitable.
Professor Overman’s idea that looking at people over places to study recession was overruled by his statistics that relayed prime location property prices, bank lending, office rents as proof that we’re doing great, whilst dedicating only a couple of slides to the working poor that painted a conflicting picture. He did look at people, but overwhelmingly, the people he looked at where the rich ones.
I cannot declare the survival of London by looking at the success of the rich when the misfortune of its less wealthy citizens clearly marks a decline. Analysis of house prices and mortgage payments overlook this.
London didn’t get away with it. Middle classes got saved from it and for the rest of us, the worst is yet to come.
Professor Overman’s slides (where many of the stats quoted above are taken) are available here:
LSE and LSE Works calendar of events are here: