The British Bust: How will Manchester renew itself after austerity sets in?

http://www.globalpost.com/dispatch/news/regions/europe/united-kingdom/110309/manchester-austerity-economy

MANCHESTER, United Kingdom — Manchester is Britain's second city, not by population size, but by sheer energy and a quality it shares with America's second city, Chicago — residents carry a large chip on their broad shoulders, as anyone who has ever watched Oasis perform knows. Mancunians, like most people in the northern reaches of England, revel in their reputation for blunt speaking and hardness. They constantly mock the soft southerners who suck at the teat of London and its financial district.

The people of this city have been on the front line of every up and down in economic history since the beginning of the industrial revolution. The history of free-market capitalism can be read in the city's streetscape: imposing stone temples to imperial commerce; dark, satanic mills and warehouses crowding sunlight off the street; and slick, airy, glassed-in modern office buildings housing knowledge economy workshops. There are also the canals. There are so many waterways criss-crossing the city that Manchester could call itself the Venice of the North, if that wasn't such an arty-farty thing, the sort of appellation soft, southern PR guys might invent.

Overlooking one of those canals are the offices of BDP, Manchester's largest architectural practice. BDP was built by riding the latest phase of economic history: regenerating the city through public-private partnership.

"Local government is not the enemy of business," BDP Managing Director Gavin Elliott said. "Manchester city government has been pre-eminent in driving private sector investment, through public funding."
Read The British Bust, Part I [3] on how the people of Manchester have yet to feel the impact of drastic government budget cuts.

Twenty years ago, Manchester looked like many Rust Belt cities in the United States. The pure free-market economic theories pursued by Margaret Thatcher's government had led to two recessions in a decade, and with its manufacturing hey-day long past, the two downturns hit the city particularly hard. The story in the early 1990s was gun crime. While there was less to the Gun-chester story than met the eye, the grotesque public housing around the edge of downtown was proof of the impoverishment of the city.

Around that time, in typical Manchester fashion, the city's leaders decide to do something brash. They would bid for the Olympics! The first thing that needed to be done was spruce up the town. Public money primed the pump and soon Manchester became a building site. The canals were dredged and the derelict warehouses along them converted to residential apartments and lofts.

Manchester bid for the Olympics twice in 1996 and 2000, and failed each time. Gavin Elliott says that was not important. "You don't always bid to win. The important thing was using the process for capacity building."

For 15 years that strategy worked. The improved infrastructure and built environment enticed businesses to relocate and the private sector grew. Under the Labour governments of Tony Blair and Gordon Brown, there was large investment of public money in building new schools, hospitals and transport infrastructure.

Now that phase of Manchester's economic history is over.

Firms like BDP are having to re-invent themselves. BDP grew in the last decade and a half by focusing on designing schools. Money for those projects slowed when the banking crisis hit and came to a full stop when the Conservative-led coalition government came into office last May. BDP laid off 10 percent of its staff. The firm is looking abroad for commissions. "Five years ago, foreign projects counted for 10 percent of our turnover," said Elliott. "Today that number is 30 percent."

The private sector can be more nimble at reinvention than government. Down at the town hall, a spectacular monument to Manchester's status as the world's pre-eminent industrial city circa 1860, the executive members of the city council are still reeling.

"We were shocked! We were angered," said councillor Glyn Evans, when they found out just how much their grant from the British government was being cut.

The Conservative-led coalition took power in May and signaled there would be cuts. This was important for all local authorities to know in advance. The way local government is funded in Britain is incredibly complicated but the bulk of its budget comes in a grant from the central government in London. Evans said the council began preparing for a reduced grant for the financial year beginning in April but it wasn't until late autumn that their grant was finally announced.

The council has to find more than 109 million pounds ($177 million) in savings from the 2011-2012 budget, a further 60 million pounds ($97.7) has to be cut from April of next year. Seventeen percent of its workforce has to go. That is a lot of money and employment to take out of a city of approximately 490,000 people that is the hub of a metro area with an additional 2 million people. But it is the suddenness of the cuts that is so shocking. "Why aren't they being phased in gradually?" Evans asked.

The answer, of course, is politics. Cameron and his government came to office knowing they had to shrink the size of government to reduce the deficit. That meant job losses and services being cut back. Since the next election could be as late as 2015, Cameron and co. want to get the bad news out of the way early. They hope that in four years the economy will be growing, that the private sector will have picked up the slack in employment and voters will have forgotten the pain of cutting services.

Those who have to make the cuts as the British economy timidly steps out of recession — in the last quarter of 2010 the economy actually contracted by 0.6 percent — wanted to cut more slowly. Their theory is that if growth leads to improvements in employment and tax revenues it might be possible to pay down the deficit over a long period of time without making further cuts to public services.

Evans sits on the executive committee of the Manchester city council and is in charge of adult services. That includes overseeing care of the elderly, people with disabilities and the increasing number of people with dementia. He noted ruefully that much of the reporting so far on the upcoming cuts has focused on swimming pool and library closures. "If the council has to close a swimming pool that's an inconvenience. But what we do is literally life and death."

He added, "These last 10 weeks have been awful. I'm an ordinary working guy. I didn't get into government to make cuts to services."

But cut he will, and re-jig his services. The core mission of his department — helping adults with disabilities and the elderly without family to stay in their own homes rather than having to move to overcrowded institutions — will be severely challenged.

What happens next for Manchester is anybody's guess. The last time a British government so dramatically shifted the structure of the economy was in the first two years of Margaret Thatcher's premiership. Recession followed and the northern part of England bore the brunt. Manchester pulled itself out of the morass by re-discovering public-private partnership. Now the public part of that equation is being severely trimmed back. Can the private sector pick up the slack?

"In the short-term, no," said architect Gavin Elliott. "In the medium- to longterm, probably yes."

Manchester's two-century long history of bouncing back from the vicissitudes of the free market backs Elliott up, but re-invention doesn't happen overnight. And, let's face it, once you've played the Olympic bid card where can you go?

For the thousands who will be losing their jobs the next couple of years are a frightening prospect.

By Michael Goldfarb