Happy New Year? Not if you've been reading the Financial Times. The newspaper's The World in 2008 supplement of 23rd January carried the headline "Alarm flags litter the globe" with Quentin Peel highlighting several causes of "an extraordinary degree of uncertainty" for 2008:
Two presidential elections: the USA and Russia (to which we could add the shaky politics at the top in France and Italy)
The Olympics in China, which will celebrate the country's economic boom but which will also raise the spectre of new, globalised industrial powers creating even more pollution, heightening the fears of voter/consumers in the West
Deepening unrest in the Middle East and Near East, spreading from Turkey to Pakistan
The threat of a "protectionist backlash" against globalisation, fuelled perhaps by population movements and even paranoia over the threat of international terrorism.
These political crises would not be helped by the global economy tipping into recession. In the same issue of the FT, George Soros, the controversial speculator, concluded in his column that recession in the developed world was "more or less inevitable" in 2008, precipitated by the credit squeeze in the USA.
Fifteen years have passed since Soros made a fortune speculating on the Pound but his opinion is still sought. After all, "Black Wednesday" (16 September 1992) pushed the UK further away from the European currency system and sounded the death-knell of the Conservative government. But Soros will be 78 years of age in 2008 and his prediction of "the worst market crisis in 60 years" does assume that a boom-bust mechanism still exists. After 15 years of economic stability, the UK economy, at least, appears to have moved away from that mechanism.
The irony is that Black Wednesday, now even referred to as "White Wednesday", saw the start of the UK's extraordinary period of stability. Low inflation and unemployment, fairly steady GDP growth and consumer confidence have become the norm with no immediate sign of a dramatic downturn to compare with past recessions.
The end of the old boom-bust cycle suggests that the UK economy has moved away from the threat of wild GDP fluctuations, hyper-inflation, double-figure interest rates, mass unemployment and General Strikes that occurred in the 20th century. Leisure Research would argue that three important socio-economic changes have taken place over the last 15-20 years:
Globalisation: specifically meaning the sourcing of goods outside the UK, hence the decline (in some industries, the near-demise) of domestic manufacturing. How can prices of T-shirts or apples be hyper-inflated if a dozen countries are lined up to compete for a piece of the UK market? [see also The Price Is Right, posted September 2007]
Fragmentation: the shift from farming, mining and manufacturing to service industries makes it harder to develop the social consensus that can lead to political (hence, economic) action
Depoliticisation: the boom-bust cycles were exaggerated by political actions by ideological governments. The party policies are harder to distinguish now, and that seems to suit a depoliticised voting public
In classical economics terms, more choice means more substitution and there is more flexibility than ever for consumers who are no longer tied down by old-fashioned allegiances to jobs or working lifestyles or by living in a particular area. The ICT revolution alone has provided much of this flexibility.
Belts may well be tightened in 2008 by the credit squeeze but, as regards the leisure economy, consumer priorities have changed. The rather bland assumption is often trotted out that leisure spending is part of a "non-essential" category that is vulnerable to downturn, i.e. consumers spend less on leisure items because they have to pay for essentials like housing, food and clothing. This is difficult to prove in the age of lifestyle icons which consumers will now battle to maintain at all costs: their mobile phones, iPods, holidays abroad, the second car and so on.
It's Not a House, It's a Home
The big worry for most consumers in 2008 is not losing their jobs - it's much harder to dispense with service jobs than manufacturing ones - but seeing the value of their houses or flats go down. Again, the boom-bust cycle predicts that house prices must inevitably fall sooner or later. But once again, is that inevitability still there in a consumer economy where such a premium is placed on the home of Grand Designs and Ground Force?
The modern home is a long way from the economist's definition of "shelter" being one of the "non-discretionary" items for consumers. Home is where we spend our time online, with family and friends, maybe even drinking pub beer (from the Carlsberg Draughtsmaster), going to the movies (with the Philips Micro Theatre) or playing tennis (on the Nintendo Wii). Consumers can't and won't stop spending on leisure in 2008, however bad the downturn, but the vulnerable sectors are likely to be those which require moving outside the home, and many are becoming all too easily substituted by an in-home activity.
