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financial crisis. public spending. edinburgh festival. public sector pay. banking bail out

Edinburgh: how "Dodge City" really makes its money.

    Summertime and the living is easy – at least for Edinburgh’s commercial classes.   The Festivals are jumping – heading for two million ticket sales across the ‘cultural olympiad’.  The warm weather is stuffing the pockets of hoteliers and those Edinburgh folk who famously decamp for the summer in order to charge inflated rents to festival goers.  Where else could you see a caravan being offered at £800 a week? 

   But it’s not just the Festival that’s putting a smile on the faces of Edinburgh’s business class.  Somehow, the financial crisis that was supposed to turn the capital city into a soup kitchen for bankers seems to have completely passed it by.    Edinburgh house prices rose 20% in the year to February 2010;  unemployment at 3.3% is way below the Scottish average.  New business start ups are up 33%, planning applications are pouring in, commercial property is recovering.  Even the tram chaos seems to be passing, to be replaced by something worse:  an endless traffic jam of new Range Rovers and BMW as Edinburgh’s new money pours into the car showrooms. If you’re looking for austerity, you won’t find it here.

   But there’s a slightly shifty quality to this prosperity – as if the benefiaries feel just a little guilty about it.  One prominent Edinburgh financial commentator has taken to calling Edinburgh “Dodge City”, such has been its ability to side-step the banking collapse, the economic recession and now the government’s austerity drive. The city that was at the centre of the financial cyclone seem to be making a fortune out of it.  But  the catch is that their good fortune is almost entirely built on other peoples’ taxes. 
    Take a look at Edinburgh’s top five employers and you find that they are all state funded: 20,000 council employees; 19,500 NHS workers;   18,000 in nationalised banks;   18,000 university staff in 4 universities; 10,000 civil servants.  On top of that there are 50,000 students living largely off loans.  In fact, it’s hard to find any significant private enterprise left in Edinburgh apart from tourism and a bit of brewing.  Of course, there’s no end of Starbucks, estate agents, wine bars and restaurants, but these are all dependent on the public purse, on the salaries of public sector workers.  The political renaissance of Edinburgh, combined with the rescue of the banking sector, has fuelled a public spending boom of epic proportions.  And the city has been insulated from the harsh winds of economic recession.  The state employees that dominate Edinburgh’s labour market have continued to enjoy salary increases throughout the three years of downturn. They have protected pensions, annual increments and jobs for life. Their houses have doubled and tripled in value.  The wealth effect is alive and well and living in Embra. 

     Edinburgh’s financial classes are fond of lecturing the rest of us on the virtues of dynamic business, sound money, low taxation, private initiative.  They bemoan the “dependency culture” of people living off benefits, marrying the state,    But Edinburgh’s guilty secret  is that it has been living off the state for years; a dependency culture maintained through a civil partnership with the taxpayer.  Its current prosperity is built on the solid rocks of unsustainable public spending, government subsidies and the biggest hand-out in history to Edinburgh’s delinquent nationalised banks. Forget Irvine Welsh – the real junkies live in the New Town and get their fix in Edinburgh Park. 

   This is a wondereful irony.   You could scarcely think of a less socialist city than Edinburgh, where 25% of school children go to private schools and average house prices are ten times Scotland’s median wage  Yet look at it another way, and Edinburgh seems like a remnant of the Soviet Union – a rather prosperous remnant to be sure, but a place were the economy is almost entirely founded on state finance and public sector employment.  I sometimes wonder why people in Glasgow and other less prosperous parts of Scotland don’t catch on to this and ask awkward questions like who is ultimately paying the membershp fees for Edinburgh’s countless golf courses.  I’ve been thinking of hiring an open-topped bus to take Festival folk round Edinburgh’s plutocratic suburbs like Barnton and Grange, to show people what they’ve paid for. Like Sir Fred Goodwin’s residence.  And since all those multimillion pound houses have been financed through the state, I think the least they could do is open them to the public.

Ever wondered what happened to that £1 trillion pound banking bailout?  Well take a look around.    State owned Royal Bank of Scotland may only just have returned to profit after two years of the biggest corporate losses in British history, but it paid out £1.3bn in bonuses last year and paid its top 100 bankers more than a million each.   Investment bankers at RBS earned a basic of £80,000 in 2009 and had an average of £80,000 in bonsues on top. Stephen Hestor, the chief executive of RBS turned out to be the funniest comic on the Edinburgh Fringe when he remarked this week that he thought bankrupt banks should be “allowed to fail” in future.  Well, couldn’t agree more – but, er, how about setting an example?

   How did this ever come about?  How did Edinburgh become the biggest welfare state in history?  By what divine right did it gain access to unlimited sources of public funds just at the moment when Britain is on the verge of national bankruptcy through excessive public spending?  Well, partly it is down to the Scottish parliament – for which mea culpa along with the rest of us who argued for devolution.  Naively, we thought this might benefit Scotland as a whole, but we forgot the lesson that when you follow the money it invariably resides where politicians lie.  
     But what of the future?   With the coming cuts in public spending, Edinburgh should be shaking in its shoes.  A freeze on public sector pay?  Unversity expansion halted?  Government departments cut by 25%.?  But no – there is supreme confidence  that Dodge City will escape the deficit reduction programme.  No one does complacency like the Edinburgh middle classes, and the smug-meter is currently off the scale as they congratulate themselves for their enterprise.  But just remember that enterprise has nothing to do with it.  

About @iainmacwhirter

I'm a columnist for the Herald. Author of "Road to Referendum" and "Disunited Kingdom". Was a BBC TV and radio presenter for 25 years - "Westminster Live" and "Holyrood Live" mainly. Spent time as columnist for The Observer, Guardian, New Statesman. Former Rector of Edinburgh University. Live in Edinburgh and spend a lot of time in the French Pyrenees. Will that do?


11 thoughts on “Edinburgh: how "Dodge City" really makes its money.

  1. It's what London has been getting away with for centuries – only on a much, much grander scale.

    Posted by voiceofourown | August 26, 2010, 2:18 pm
  2. It was extremely interesting for me to read this blog. Thanks for it. I like such topics and everything connected to this matter. I definitely want to read more soon.Kate Benedict

    Posted by Anonymous | August 26, 2010, 2:38 pm
  3. "The state employees that dominate Edinburgh’s labour market have continued to enjoy salary increases throughout the three years of downturn."I think think this comment is very unfair indeed. If anyone will feel the effects of the frantic efforts required for Councils to slash costs and Government Departments to do the same it will be those who work in those places. The jobs for life and the massive pensions are a myth Iain and it is disappointing to see you writing like this. The vast majority working in the public sector earn very ordinary salaries: indeed many earn well below the "average" wage in the UK. Pay freezes are already in place in many of those jobs right now and they're expected to stay for a number of years. So it is wrong to say they're not paying the price with everyone else. It is also very unfair.

    Posted by Jo G | August 26, 2010, 10:19 pm
  4. Iain,Good article and I was pleased to see you fit and well at the Heather Brooke event.I wrote about just this issue way back in 2004.

    Posted by David Farrer | August 27, 2010, 8:48 am
  5. See http://scotsandindependent.blogspot.com/2010/08/jaccuse-iain-macwhirter.html for a total demolition of your conclusions.Have you been reset to 'on message' Ian?

    Posted by voiceofourown | August 27, 2010, 11:50 am
  6. Far be it for me, a Glaswegian to defend Edinburgh but:Take a look at Edinburgh’s top five employers and you find that they are all state funded: 20,000 council employees; 19,500 NHS workers; 18,000 in nationalised banks; 18,000 university staff in 4 universities; 10,000 civil servants.Firstly, I think you'd be hard pushed to find a council area where the state was not the largest employer, but your numbers add up to just under 90,000, which I would agree is staggering, if Edinburgh's population wasn't over 5 times that figure.You've also failed to take into account that people travel to Edinburgh. In Glasgow, I work alongside people that come in each day from Argyll, Dunbartonshire, Stirlingshire, Lanarkshire, Renfrewshire, Ayrshire and Dumfries and Galloway, presumably Edinburgh has a similar catchment area.

    Posted by theirnjuq | August 27, 2010, 12:05 pm
  7. pretty cool stuff here thank you!!!!!!!

    Posted by Anonymous | August 28, 2010, 7:26 am
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    Posted by Anonymous | December 2, 2010, 8:05 pm
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    Posted by Anonymous | December 9, 2010, 8:50 pm
  10. Mate. This blog is amazing. How can I make it look this good ?.

    Posted by Anonymous | January 22, 2011, 5:05 pm

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