Bill Jamieson: Edinburgh set to be transformed

Could Edinburgh be the new digital economy powerhouse?. Picture: TSPL

COULD Edinburgh be at the dawn of a transformative era of prosperity and growth? An era that in 20 years could see Scotland’s capital as a powerhouse for the digital economy with burgeoning clusters of innovation, creativity and e-business expansion?

So preoccupied have we been with constitutional politics, so obsessed with our relationship with the rest of the UK and the economics of “more powers” that we may be missing epochal changes developing underfoot.

Transformative possibilities are opening up for a city that led the Enlightenment and was home to some of the western world’s greatest economists and philosophers.

The capital as a new economy powerhouse? A preposterous thesis, you may say. All straw and no bricks. Fanciful in the extreme. But I have important pieces of evidence for opening up a discussion that should now compel our attention.

The first is in front of us: the strong pulses of growth already evident in the city and the progress that Edinburgh is already making as an economic powerhouse for Scotland.

In recent months I have had to research three presentations on Scotland’s economy. In each of these one feature boldly stood out: the remarkable performance of Edinburgh.

The city’s unemployment rate is now down to 1.7 per cent – markedly lower than the 2, 3 per cent for Scotland as a whole.

More than 1,700 new business incorporations were recorded in the city in the three months to May, up 6.9 per cent on a year ago. More than 350 new business start-ups were supported by Business Gateway, 106 more than the same period last year. Meanwhile, foreign direct investment continues to rise – 17 new investments or expansions announced in April alone, five more than last year.

For a city hit by the banking crisis, and with all the uncertainties that have made for a markedly more sedate rate of growth in financial services, these are remarkable numbers. They speak to a resilience and vibrancy in business services and new start-ups. A city that is home to five universities and is extraordinarily well-placed to be a leader in the Knowledge Economy.

The second source of evidence is the extraordinary pace of growth in London, where the digital economy is fast taking over from financial services as the principal engine of growth.

This sector and its multifarious spin-offs – IT research and development, software publishing, computer programming and consultancy, market research, data processing, online advertising, design and marketing, all driven by innovation and creativity – has been labelled the Flat White Economy. A book just out bearing this title brilliantly sets out its dynamics.*

Its central focus is the EC1V district of London. In less than a decade it has become home to a concentrated cluster of digital and online businesses.

Its highly diverse population of entrepreneurs, bright backpacker students and digital geeks drawn from around the world has at least one feature in common: it drinks a lot of coffee.

Café bars have sprung up offering a bewildering range of coffees. But one white coffee in particular has emerged as the most popular. The label “Flat White Economy” stuck instantly.

The Flat White Economy is big – and already making a signal contribution to the economy of London and the UK. Across the UK, the media, information and communication sectors account for nearly 8 per cent of GDP – the size of the car manufacturing and oil and gas industries combined. It is also growing rapidly.

The book’s author, economist Douglas McWilliams, founder of the oft-quoted Centre for Economics and Business Research, reckons that its share of GDP will double over the next decade.

Another characteristic is that it is extraordinarily entrepreneurial. Between 2012 and 2014, more businesses were created in the single London postcode of EC1V than in the whole of Manchester and Newcastle put together.

McWilliams’ book bristles with statistics on how the Flat White economy has grown in recent years – and indeed may be seriously under-recorded in official data.

But the book also bristles with questions. What are the necessary ingredients for such a vibrant clustering of knowledge businesses? Can the vibrancy of EC1V be replicated in urban centres of the UK outside London?

Such clusters are characterised by access to digital technology, strong transport links, access to venture capital, and a ready inflow of smart graduates and immigrants from around the world. It has not required government intervention, elaborate planning strategies or public sector support.

Unlike the bonus-driven, “loadsamoney” City traders of the previous era, this group is this group is not primarily motivated by money – indeed, pay rewards are low for most – and it sets its own fashion and leisure style – far less expensive than what prevailed in the 1980s and 1990s.

There is an all-too-short chapter on the flat white economy elsewhere in the UK. Much depends on a fresh approach to UK regional economic development. McWilliams argues that successive regional development strategies based on government disbursement of funds from the south-east to politically determined capital spending elsewhere have failed.

Better, he argues, that income and corporate taxes are cut outside of the south-east to attract both labour and capital and let entrepreneurs do the investing. Good luck with that.

Pending such a radical change, he draws on CEBR work on innovation potential at sub-regional level. In Scotland specifically, he cites work for the Glasgow Chamber of Commerce on the importance and diversity of the city’s media cluster.

Edinburgh could certainly do with closer and more detailed study. Its capital status, its strong expansion in business services, high business start-up rate, the remarkably high level of business spin-outs from Edinburgh University and its diverse and growing student population would seem to hold the greater long-term potential for Scotland’s capital to be a world player in the rapidly expanding digital economy. «

• The Flat White Economy, by Douglas McWilliams, published by Duckworth, £16.99