Growth in GDP, from an economic perspective relies on three key areas. The first is labour; both population growth affecting its size and the participation rate. The latter of which will surely take a hit from this crisis. The second factor is capital investment in the economy and with the Government’s long-term investment plan this may very well be somewhat addressed. The third factor is known as Total Factor Productivity, productivity improvement or technological advancement. Normally in economics it is addressed residually (as capital and labour are fairly quantifiable), but generally, whilst we are holed up in our houses, especially the younger generations, the ability to be productive, to innovate as part of a social group, is limited. The bottom line is economic growth may jump around for a few months, but longer term will flat-line.
Boris Johnson’s rallying call of ‘build, build, build’ follows well known and tried Keynesian economic principles, but putting aside that a British New Deal package comparable to that in the 1930s would actually cost north of £700 billion, ‘shovel ready’ infrastructure projects are rarely so in the United Kingdom. One can only look at the High Speed 2 rail link project which has been ongoing since 2009, the Heathrow expansion project, ongoing since the same year, and even the Channel Tunnel, arguably a huge success, took 18 years from agreement to completion. It would likely take a herculean effort, much like that seen in the early weeks of the Covid-19 response to expedite even the most minor infrastructure projects. Whilst this will be necessary for medium to longer term growth, a short-term booster shot is necessary to mitigate the risks of a permanently smaller economy.
Whilst the levelling-up agenda could perhaps see a step-change in the national economy, the wealth generating ability of London’s financial and multinational corporations is a capability that needs to be protected and nurtured if there is to be any economic recovery at all. London contributes between one quarter and one third of the entire economic output of the country, a population greater than the next 13 largest cities combined, and 11% of the UK’s tax revenue – a considerable and much needed source of cash as we emerge from this crisis. We have already seen some positive news with regards to the future of financial services in the post-Brexit City which offers some security, but to get London’s economy firing again, will benefit not just the South East but the rest of the country. We must either adapt very quickly or risk a lasting hit to one of the world’s global economic command centres.
To do this people must get back to work – a simple aim, but complex in execution. The challenges are overarching twofold. First psychological and personal, people are genuinely concerned that they might get ill and naturally do not want to travel in close proximity (as is almost inevitable) in London and on other city transport networks. The second, whilst fed and influenced by the first is separate, and is practical and organisational. In order to comply with new social distancing office space and transport has had to readapt to the point where it is impossible at the moment to have 100% capacity. Some offices in Canary Wharf have indicated a 50% capacity cap on open plan offices, which seen have seen desks normally fit for six now only fit for one or two. We must address both these issues when it comes to returning to work. By addressing the latter, a proof of concept is deliverable, which will go a long way to alleviating the former, psychological concerns.
It is clear that accepting the current situation as the ‘new normal’ is not a solution. It would see not only resilient industries face collapse, but also highly operationally levered sectors like hospitality; fast food and tourism fall away alongside second order effects of rental and credit defaults. Therefore, the risks must be managed and mitigated. Practically those travelling should be encouraged to wear facemasks, wash their hands and observe social distancing, but we must change our working habits fundamentally in the short term if we are to succeed.
Younger workers should be encouraged to return to the office more quickly than the manager class. The damage to younger people’s careers from Covid-19 has been highlighted in the potential loss of hospitality, retail and other feeder professions, but younger people who work in an office environment need social interaction and personal networking with colleagues, which is of huge importance to younger staff. Development through social interaction is not just a theory isolated to infants, but extends throughout all growth phases of life. Not only that, but younger people are generally less well paid and as such live in accommodation ill equipped for a healthy working environment lacking the space for a home office or a separate room for working. The active psychological damage of an absence of delineation between work and personal life, alongside the passive damage caused by separation from peers, will have a damaging effect on younger people if they do not return to work imminently.
There also needs to be a reform of the working day. If, as it is at the moment a 9-to-5 day, it is natural that rush hour falls either side of these, considerably so in London and other cities where commuter towns exacerbate the effect. London transport should run a rush hour service, therefore increasing capacity across the system, throughout the day. Companies, particularly those who work in close proximity to one another and are served by a limited number of transport links, for example in Canary Wharf, should collaborate to reassign their working day and stagger start and stop times and more importantly enforce them. An additional point of assistance would be to alter market opening hours from 9.30-4.30 as advocated by the Association for Financial Markets in Europe and the Investment Association, but not accepted by the LSE in the most recent review. This would lose the overlap with Asia, which is arguably not statistically significant, but would retain the lucrative overlap with US market whilst allowing more time, particularly in the morning, for commuter travel.
The Government must remember the importance of London and other cities’ regional influence on productivity – a problem in the UK even before Covid-19 – without which the entire country could level-down. By focussing on only the short-term operational aspect, large office-based London businesses may see a slight recovery, but support industries around them may collapse which will lead to longer term pain. On this occasion, working together to protect the centre is protecting the rest.
Link to original, published on ConservativeHome on 27 Jul 2020.