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Dear Readers,
As I have been working with The Schum-
peter since its inception under the editor-
ship of Timothy Robinson, either as a
writer or as part of the editorial team, I
feel a very special connection to the mag-
azine. Bearing witness to the changes of
The Schumpeter over its lifetime has al-
lowed me to see it grow and mature. Eve-
ry issue has been an improvement on the
previous, with the most drastic changes
between issues 6 and 7. To highlight this,
we have added a special feature on page
11 of this issue so that you may see how
the magazine has changed with the
times.
The tenth issue of The Schumpeter is a
proud moment and a milestone. We
would not have made it this far without
the conscientious efforts of the editors
past and present, all our contributors,
City University Student’s Union and the
Department of Economics. On behalf of
The Schumpeter team, I would like to
say a heartfelt thank you to all of the
aforementioned for your contributions,
encouragement and support.
In closing, I would like to urge any stu-
dents who contribute to the magazine to
keep the success going for the coming
years.
David Osborne
Letters from the editors………………...Page 2
Write for us… ……………..……………..Page 3
China’s Economy..…………………..…Page 4
UK Budget 2012………...……….…..…..Page 5
Heathrow’s Expansion.………….……..Page 6
London’s Mayoral Race.....…….……..Page 7
Footballer’s Pay…………..……….…….Page 8
Public Relations………………………..Page 10
Evolution of The Schumpeter………..Page 11
Tanvi Narayan Kirti Sharma David Osborne
By Adrian Booth
BSc Investment & Financial Risk Management Student,
currently on Industrial Placement
The phrase, ‘When America sneezes,
the rest of the world catches a
cold’, dates back to 1929 when the
US began its descent into its decade
long depression. Ever since, the US
economy has been regarded as the
‘engine of the world economy.’
Now the paradigm is shifting, and
the new undisputed champion of
world economic growth has been
rewarded to the Chinese.
I first heard about China’s economic
success story on a flight to the US
when I was 10 years old. Now I have
no idea how I ended up discussing
economics and politics at the age
of ten with a grown man (he must
have done most of the talking), but I
remember him clearly saying that
China will be the next big superpow-
er and the wealthiest country on
earth in 10-20 years. Now, this was in
the year 2000 before it was trendy to
discuss China’s economy. This was
before the dotcom crash in March
when everybody thought the US
was invincible.
Now here we are twelve years later,
and China is without a doubt be-
coming a dominant global power
very quickly. But let us not forget
that most nations that undergo a
period of intense transformation,
both economically and socially, ex-
perience bumps along the way.
The fact is that China is in the midst
of a typical bubble that has charac-
terised emerging nations for hun-
dreds of years. Eventually their
economy will come under severe
pressure due to the persistent imbal-
ances present in their economic
model. What is disturbing in this in-
stance is the hubristic sense of invin-
cibility currently perceived in China
and in economic circles around the
world. There seems to be a ‘new
era’, where the old rules of supply &
demand and the invisible hand no
longer apply. The new ‘visible hand’
of the state seems to be the new
paradigm in economics, and fright-
fully one that mainstream econo-
mists seem to believe. ‘It’s ok, if Chi-
na’s economy slows down, the gov-
ernment will stimulate the economy
and miraculously prevent a reces-
sion’...’China is invincible with its $3
trillion in reserves.’
These arguments from pundits are
riddled with ludicrous logic. Firstly,
one of the typical features of a clas-
sic bubble, as expressed by financial
historian Edward Chancellor, is an
undue blind faith in the compe-
tence of the authorities. The fact
that investors’ think China will be ok
because the country is ruled by a
group of wise men in Beijing is what
should have us worried more than
anything.
Reading the recent commentary
surrounding China’s economy, it is
clear that the country is a shambles
when it comes to rule of law and
regulations. Take this point from Vic-
tor Shih from the Wall Street Journal.
He cites a banker in the Guang-
dong province of China bribing the
local police to arrest an auditor that
was attempting to evaluate the
bank’s financials. Wang Yi, the Vice
President of the Chinese Develop-
ment Bank, was convicted of receiv-
ing bribes to grant loans against reg-
ulations1. There are many instances
of this in China and many are still
surfacing today. Warren Buffet is
famous for saying, ‘it’s only when
the tide goes out do you realise
who’s been swimming naked’. In
China, we’re about to discover the
level of nudity beneath the surface.
It can be observed from the chart
above (provided by Socété Gé-
nérale), that China’s credit markets
experienced an unprecedented
level of stimulus back in 2008 as the
authorities were backed into a cor-
ner on a possible slowdown. The
gigantic increase in credit is a very
worrying sign. Nearly every bubble in
history has been associated with a
rapid growth in the supply of credit
to a group of borrowers. In this case,
China’s local governments and
property developers have been
goosed up with a flood of new bank
loans that face the risk of going
bad.
So where did this money go? Look
no further than the property and
construction markets for an indica-
tion. Figures from the Wall Street
Journal show that, nationwide, there
was 3.6 billion square metres of
property under construction at the
end of October last year. Compare
this to sales of only 709 million square
metres in the first 10 months of 2011
and it is evident that China has a
severe overcapacity problem. Over-
capacity of this scale usually results
in a liquidation of asset values and
an economic crash2. There have
been studies that show from 2003-
2010 Beijing’s real estate prices rose
between 350-900%. Recent efforts
by the government to rein in this
bubble in the nation’s housing mar-
ket have proven successful to a de-
gree, but throughout history it is ex-
China’s Economy A false illusion built on quick-
tremely rare to undergo a period of
excessive speculation without suffer-
ing the consequences down the
road.
A report from Fitch in 2010 indicates
that the growth in the shadow bank-
ing industry in China is more than
offsetting the slowdown in credit
growth brought about by the gov-
ernment’s efforts4. The report con-
cedes that the data on bank lend-
ing points to a slowdown, but high-
lights that ‘actual credit flows in Chi-
na remain as high as in 2009: lending
has not moderated, it has merely
found other channels’. This report
was published just over a year ago,
but the facts remain the same; the
government is finding it hard to con-
tain the credit virus they’ve un-
leashed into the system. The only
way to cure this problem is through
a liquidation of bad debt and a re-
organisation of the economic struc-
ture.
If the consensus is correct, and Chi-
na’s economy continues to experi-
ence high growth in the 8-9% region,
then this will be one of the most un-
precedented success stories in eco-
nomic history. Never before has an
economy experienced such a high
investment/GDP ratio (or Gross Fixed
Capital Formation/GDP as shown
above) and seen so many sequen-
tial years of strong investment
growth. Looking back throughout
history, those countries that have
had such high investment levels ulti-
mately went on to experience ex-
treme levels of volatility and, subse-
quently, crash. I believe the consen-
sus is wrong, and that mainstream
economists are deluding themselves
into thinking this transformation from
investment to consumption will be
an easy ride. Shorting China as a
contrarian play on hubris, arrogance
and delusion will prove to be one of
the great investment ideas of this
decade.
By Kirti Sharma
Third Year Bsc Economics and Accountancy Student
On March 21st, Chancellor George
Osborne delivered his budget for this
year. In a nutshell: we see a freeze
on pensioners’ allowances, increas-
es in stamp duty on homes over £2
million to 7 per cent, a reduction in
the top rate of tax to 45p, a cut in
corporation tax to 24 per cent, a rise
in personal allowance and an over-
all upgrade in growth forecasts for
2012.
So, what is Osborne trying to
achieve with these measures? He
simply wants what all countries want
in the face of this bleak economy:
growth and a reduction in the fiscal
deficit. Osborne finished his speech
with a clever little statement: ‘this
country borrowed its way into to
trouble, now we’re gonna earn our
way out,’ subtly twisting the knife of
blame in Labour’s side while declar-
ing themselves the white knights with
a red briefcase of bitter pills to heal
our beleaguered economy.
Mr Cameron has insisted in the past
that, ‘those who argue that dealing
with our deficit and promoting
growth are somehow alternatives
are wrong.’ However, one unfortu-
nately cannot deny that the aims of
growth and a deficit reduction are
diametrically opposed. You need to
spend money to make money, also
known as ‘buying your way out of a
recession.’ If you are spending mon-
ey on government projects and in-
creased welfare, you cannot be
reducing your deficit at the same
pace.
The measures that the government
has doled out for the last three
budgets have gone some way to
reducing the deficit, but at the cost
of growth. These austerity measures
have been harshly criticised as mis-
guided. Economists have comment-
ed that this ‘severe medicine could
cut short Britain’s economic recov-
ery and throw the nation back into
recession.’ And the proof is in the
pudding: the National Institute of
Economic and Social Research, a
The UK Budget 2012 Learning from the past, but not quick
enough
British think-tank revealed in January
this year that ‘Britain is doing worse
this time than it did during the Great
Depression.’
However, given this budget, it would
appear that the government has, to
an extent, heeded the warnings
that ‘expansionary austerity’ is a
deadly cocktail sure to give the
country another economic hango-
ver. For example, one of the biggest
reliefs is the rise of £1,100 in tax-free
personal allowance to £9,205 from
April 2013 making 24 million people
£220 a year better off. Additional
allowances come in form of the
aforementioned tax cuts, one the
reasons why Labour has dubbed this
plan as the ‘the billionaire’s budget.’
While tax-cuts are not directly
classed as government expenditure,
they will have a similar positive im-
pact on the economic revival. If the
cash being saved in tax is being
spent in the UK’s economy, each
pound will literally have more ‘bang
for its buck,’ propping up the con-
sumer market, rather than going
directly into settling the govern-
ment’s debt, a large chunk of which
is owned by investors overseas. In
addition, Osborne aimed for this
budget to ‘reward hard work’ and
policies like these tax-cuts serve to
encourage the high-earners and
businesses to keep their assets within
the UK. Scrapping the 50p tax was
the only sensible option. It yielded
just one-third of the £3bn it was fore-
cast to raise and it was the perhaps
the most damaging sound-bite of
the government’s tax policy last
year, spooking high-earners and
growth enterprises.
However, while they make some of
the right moves for a growth strate-
gy, they are still rolling back the wel-
fare state, one of the most criticised
policies of the UK’s austerity pack-
age. For example, the age-related
allowances for pensioners will be
frozen from April 2013. Although Os-
borne claims no pensioner will lose
out in cash terms, in reality inflation
will see this group pay £3.3 billion
more in tax, making approximately 4
million pensioners £83 a year worse
off. It is this implicit tax hike on the
elderly which has been so contro-
versial, especially in light of the cuts
to corporation tax. These policies
show that government’s solution to
recovery is not one of increased
borrowing but rather one of robbing
Peter to pay Paul.
This all comes back to the compro-
mise that Cameron is trying to strike
between growth and deficit cutting,
but it really is a fallacy. If we want a
recovery that will not deflate within
months we need more short-term
borrowing to pump more wealth
into the economy though govern-
ment programmes and welfare.
However, this budget has actually
revised down the government bor-
rowing to £126 billion this year- £1
billion less than the autumn forecast.
The government will soon have to
learn that there is only so much they
can rob from the old and that piece
-meal policies will not a recovery
make. That will be their own bitter
pill that they will have to swallow.
By David Osborne
Third Year BSc Economics Student
Upon being elected in 2010, the
Conservative-led coalition govern-
ment scrapped the expansion of
Heathrow Airport as a result of pro-
tests from environmental groups and
local residents. Now, as Heathrow is
running at 99% capacity and many
analysts envision an imminent airport
capacity crunch for London and the
South East, the debate has arisen
from the ashes.
The expansion of Heathrow Airport
would have consisted of a new
2,200 metre runway, a sixth terminal
and a high-speed railway hub. Local
residents and councils opposed the
plan on the grounds that it would
destroy local communities. The ex-
pansion would require the demoli-
tion of the village of Sipson and over
700 homes. In addition to this, the
local residents who would not have
to forego their homes would then
have to endure more noise pollution
and poorer air quality due to the
increased air traffic.
With aircraft currently landing and
departing every 45 seconds at
Heathrow, landing slots are costly,
relative to comparable airports in
Europe. In addition to this, it leaves
very little slack in the event of ex-
treme weather. This lack of spare
capacity has put significant pressure
on it being a global hub. Many air-
lines have opted to use hubs in Am-
sterdam, Frankfurt, Paris and Madrid
due to lower costs and more land-
ing slots. We have already seen the
number of destinations served by
Heathrow decline from 227 in 1990
Heathrow’s Expansion Come fly with me
to just 194 today. Frankfurt Airport
serves 307 destinations in 94 coun-
tries, Amsterdam Schiphol serves 281
and Paris Charles de Gaulle serves
292.
This has a profound impact on the
economy. The consultancy firm
Frontier Economics has predicted
that Britain could miss out on £1.2 –
£1.6 billion of trade a year if capaci-
ty continues to be constrained.
Colin Matthews, the CEO of BAA,
Heathrow’s parent company said, ‘if
Britain is not to lose out to interna-
tional competitors, we need an avi-
ation policy that recognises the role
of a hub airport in supporting growth
– and we need it quickly.’ Better
connections will be needed as
emerging economies continue to
grow and increase trade with the
West. It is expected that by 2021, if
Heathrow remains constrained, it will
only account for 21% of the seats
booked to the eight fastest growing
economies from the five European
hubs compared to 35% if it were
allowed to expand.
Boris Johnson, London’s Conserva-
tive Mayor has proposed a new air-
port in the Thames Estuary to re-
place Heathrow as a hub. This is not
a new proposal, the first plans to
construct an airport in the Thames
Estuary date back to 1943, just a
year before a small airfield on the
current site of Heathrow was ex-
panded to cope with larger aero-
planes destined to the Far East. The
airport in the Thames Estuary would
be a purpose-built international air-
port of four runways and due to its
distance from most settlements
would be operational for a full 24
hours a day.
The idea of a brand new airport
may seem rosy, but the Thames es-
tuary is a habitat for many endan-
gered species of birds. Building an
airport is likely to upset their habitats
and endanger them further. In addi-
tion to this, the airport will have to
be built on a man-made island,
which means that it will be at least a
generation before the airport comes
to fruition. The airport itself would
cost £20 billion, but due to its loca-
tion an additional £30 billion would
have to be spent in order to provide
the infrastructure necessary to sup-
port such an airport.
At Heathrow, this infrastructure al-
ready exists it is well served by Na-
tional Rail and the London Under-
ground, in addition to buses and
coaches. Moreover much of
Heathrow is relatively new. Terminal
5 is just four years old, a spiffy new
Terminal 2 will open in the coming
months and there are plans to mod-
ernise Terminals 1 and 3 in the com-
ing years. Expanding at Heathrow is
the quicker, cheaper option, but the
government are determined to ex-
plore all the alternatives. The fact is
simple; Britain needs a modern fit-for
-purpose hub airport. Whether by
expanding Heathrow or building a
new airport, the government must
act boldly before Britain is left be-
hind.
By Tom Doherty
BSc Economics Alumni & Former Editor
On the 3rd May this year, Londoners
go to the polls to choose their Mayor
for the coming years. You could
however forgive Londoners for not
being terribly excited about this
race; their ultimate choice is be-
tween a quirky incumbent Con-
servative candidate they’ve come
to know and a Labour candidate
that has run in every election since
the creation of the role and won
two out of three times. What started
as a sure thing for Boris Johnson has
slipped to become one of the tight-
est races according to a recent
YouGov poll that now suggests Ken
Livingstone will regain control with a
1% margin.
And now with only a handful of
weeks left until the campaigning
ends and the polls open both par-
ties have unveiled their mini-
manifestos. Ken’s flagship policy is a
reduction in transport fares of rather
hefty 7%, this speaks volumes to the
millions of commuters who travel
each day and have incurred rise
after rise over the years, although
many were performed while he was
originally Mayor. The policy resounds
nicely in a time austerity and has
certainly been an important part of
Ken’s comeback in the opinion
polls. Ken promises increases in po-
lice levels, which is always important
to Londoners, particularly after the
riots last summer. There is also anoth-
er policy that breaks new ground in
London, the possibility of rent con-
trolled apartments. The London rent-
al market could certainly do with
lower prices, but the potential for
rent ceilings to affect the quality
and quantity of rental properties is
not immediately obvious to the wid-
er public.
Ken goes further to pursue wider
agendas, for example restoring Edu-
cation Maintenance Allowance for
students in London. The reduction in
the number of students attending
Personality vs. Politics London’s Mayoral Race
College after EMA was scrapped
certainly justifies this cost. A return to
85,000 students claiming EMA (the
number claiming in London when it
was scrapped) which costs up to
£90million per year, a high price to
pay to ensure London’s poorest stu-
dents stay in education.
Boris Johnson on the other hand has
a plan that does not resonate as
easily with the public. He promises to
cut waste of approximately £3.5
billion from City Hall and freeze the
Mayoral share of council tax. The
initial point sounds like a lot of waste
and considering that £3.5 billion
makes up 24% of the City Hall budg-
et it is suspicious that such a large
amount of the budget goes to
‘waste’ whilst the Government has
scrambled to cut waste for almost 2
years. Boris, in a move similar to Ken,
promises 1,000 more police on the
beat, but goes further to promise
reductions of 30% in Tube delays by
2015, 200,000 new jobs, 11,000 new
homes due to the Olympics and the
building of Crossrail. However, a re-
duction in Tube delays was ex-
pected to occur naturally as a result
of years of investment, the homes
built under the Olympics were com-
missioned by a Government long
gone and Crossrail is a infrastructure
project commissioned and being
managed by the current UK Gov-
ernment, not the London Authorities.
Boris’ promises are little more than a
list of pre-existing, long-standing,
commitments. Big figures like £3.5
billion may stand out to Londoners,
but their honesty must certainly be
questioned.
However, the public like Boris John-
son, they see his work everyday
through the Barclays Cycle Hire
scheme and now the new Route-
master bus. It may seem a little fick-
le, but the power of the personality
must not be underestimated. It’s no
secret that often personality can
trump the politics in the view of the
people. Alternatively ‘Red Ken’ as
he came to be known is remem-
bered for being controversial and at
the Left wing of the Labour party. His
manifesto gives critics much to be
desired, it goes to the heart of what
Londoners want, but the number of
people who actually read it will be
minimal.
The winner will depend on the expo-
sure of candidates to their voters,
whether Lib Dem voters turn to mi-
nority party’s or Labour as a result of
unpopularity in Government (recent
by-elections suggest a movement to
Labour) and finally; the turnout of
Londoners. This is all however condi-
tional on one scrupulous point in
politics, that the promises made are
ultimately kept.
By Gyles Couram
Third Year BSc Economics Student
In 2011, it was recorded by the Of-
fice of National Statistics that ‘The
median weekly household income
after housing costs in London was
£371’. That works out to almost
£20,000 disposable income per an-
num. This pales in comparison to the
average annual Premier League
salary of £1.46 million, which is sub-
ject to increase after performance
related bonuses and the like are
added. Here, it is attempted to ex-
plain the reasons why Premiership
footballers are paid more than the
average London household.
Firstly, there is a difference between
transfer fees and wages. Transfer
fees are the amount paid to the
team for a player to move clubs
and act as compensation for the
loss of a prized asset. The current
highest Premier League transfer fee
is £50 million for Spanish forward,
Fernando Torres, paid by Chelsea
FC (buyer) to Liverpool FC (seller).
The wages are what the player is
paid throughout the duration of their
contract. The current highest Prem-
ier League wage appears to belong
to Manchester City midfielder, Yaya-
Touré who reportedly earns upwards
of £200,000 per week).
One reason why Premier League
players are paid so highly could be
that of expectation. It has often
been observed that businesses take
out loans to invest capital, against
the expectation of potential profits
from said investment. It is not too
farfetched to assume the same for
Premier League clubs, as they are
also businesses.
North London based club Arsenal
FC are an example of this. With high
uncertainty surrounding the team’s
potential qualification into the 2009-
2010 UEFA Champions League tour-
nament, Arsenal signed Russian
playmaker, Andrei Arshavin, in the
January transfer window to com-
pensate the loss of their then injured
key player and captain, Cesc Fa-
bregas.
Arshavin signed to Arsenal for
around £15 million Participation
would bring in about ‘£20-£40 mil-
lion’ to the club. Not only is it clear
that the projected benefits out-
weigh the costs in this situation but it
is also an example of a player’s
‘pseudo-multiplier’ effect for a club.
Another reason is celebrity status
and unique talent. As successful
sportsmen, the players are often
subject to advertising campaigns
and sponsorship deals, ranging from
Footballers’ Pay Supply and demand
Renault to Nike. Though footballers
are often also the subject of com-
parison to their peers (‘The next
Zidane’, ‘the next Maradona’etc), it
should be noted that no two foot-
ballers are exactly alike when it per-
tains to their ability, desire and other
such qualities, no matter which club
or country they originate from.
Therefore, price and cross elasticities
of demand for an individual player
would be low (below zero and near
zero respectively).
In effect, there is only one David
Beckham – Manchester United leg-
end, Real Madrid, LA Galaxy, AC
Milan star and top fashion icon; but
numerous nurses for the NHS who all
undertook the same schooling to
receive the same qualification. If it
were possible to derive a demand
and supply curve for David Beck-
ham and NHS nurses, it is highly likely
that Beckham’s demand curve
would be inelastic, with a vertical
supply curve, whereas nurses would
have much flatter demand and sup-
ply curves because of their quantity.
Supply would be fixed, as there is
only one of him, but could vary de-
pending on wages and his skill level
and demand would also be very
inelastic, if not perfectly so. NHS nurs-
es on the other hand, would have
very elastic demand and supply
curves as they have a higher de-
gree of substitutability among them.
Another reason for the players’ high
wages, though not economical, is
the expectation for peal physical
condition. Premier League players
are often portrayed as money grab-
bing playboys who work for only a
few hours a day. This is an unfair
generalisation, as footballers train
rigorously for those ‘few hours’, with
some of the players themselves be-
ing shocked with the amount of ef-
fort required to compete at the top
level of English football. Additionally,
they are under tremendous pres-
sure, having to churn out stellar per-
formances in matches each week
(at times more than once a week
due to cup games) in front of tens of
thousands of people live and mil-
lions via television.
For the average person living in Lon-
don or not, it has been documented
that the average person should
have 30 minutes exercise, five days
a week. This is not obligatory. It
should be highlighted that these
athletes play sports, not as a recrea-
tional activity, but professionally as a
job, which eliminates the choice
factor.
When compared against a football-
er’s daily training hours plus 90
minutes on up to 3 match days per
week, it is clear that footballers win
this argument.
Domestically, footballers generate
revenue for clubs in ticket sales, mer-
chandise and the like, for which the
clubs spend, adding to the money
circulation in the economy, benefit-
ting it. To illustrate, in 2009/2010, the
top 92 clubs in the country, including
the Premier League paid just shy of
£1billion in tax. At a time where
there is economic uncertainty such
contribution cannot be underesti-
mated.
In the 2009-2010 season, the Premier
League increased its revenue to
almost €2.5 billion in with the main
sources of income being match tick-
ets, broadcasting and sponsorships.
As seen in the graph depicting reve-
nue growth, (above) the purple bar
illustrates that the revenue generat-
ed by the Premier League has been
growing since its foundation in 1992.
It goes without saying then that foot-
ballers’ injective economic power is
substantial and subject to continu-
ous increase in the years to come,
providing it remains the spectacle
that it is today. It is only possible to
do so by attracting the best players
from around the world and signing
the best players from home soil and
part of the incentive is through high-
er wages, which Deloitte say are on
the rise, hitting 68% of revenue in
2009/2010, to counter act the coun-
try’s high.
Fortunately, ‘Premier League clubs
continue to be attractive to global
investors’ so paying large wages
should not be a problem, although
with UEFA bringing in Financial Fair
Play rules, benefactors like Chelsea
owner, Roman Abramovich will
have to rein in spending to meet the
clubs income or face bans from en-
tering the premier European tourna-
ments, UEFA Champions League
and the Europa League.
Though it can be argued that their
high wages are ‘unfair’ when com-
pared against more ethically sound
professions like teaching and medi-
cine, it must be stressed that foot-
ballers are assets to multi million
(sometimes billion) pound compa-
nies, who are not paid with tax pay-
ers money. The monumental pay
slips given to them are from their
teams, who see fit to give their stars
such amounts; and when it comes
to their contribution ‘with some esti-
mates valuing football related busi-
ness at over £250 billion’ in a single
year alone, the benefits of the play-
ers and their clubs cannot be ig-
nored and their pay is reflective of
their overall contribution to the
economy.
By Tess Van Geelen
Journalism and Economics Student at The University of
Queensland, currently on exchange at City University
Before Public Relations Managers
there were Journalists and Town Cri-
ers, and before these was the
Church. And before the Church
there was very little going on. One
might argue that these institutions
have served some similar roles in
history – although some may be
deeply offended by the suggestion.
But respect them or despise them,
on one level at least, they have pre-
vented bloodshed.
In liberal-democratic societies like
the USA and UK it is understood that
a political party must obtain the
consent of the public in order to rule
– this is known as legitimacy. Howev-
er all dominant groups, in devel-
oped and developing nations alike,
must use force to some extent,
whether it be physical oppression
and violence( as in Egypt a year
ago or Syria now) or simply the
threat of force (in the form of police,
prisons and courts as in the UK). No
group of people could ever agree
completely, so in order to maintain
the community at all, dominant
groups must force the disagreeing
element to co-operate. The amount
of force that is necessary is depend-
ent on how naturally unified and
conformist a society is i.e. how pow-
erful the ‘disagreeing element’ is;
and how much legitimacy the domi-
nant group has acquired.
Legitimacy comes from agreement
with the ‘meanings’ a particular so-
ciety shares. Meaning comes from
personal experience and interaction
with everything around us, including
people. Coding systems allow us to
share meanings with each other (i.e.
languages) and in this way we can
create an enormous ‘pool’ of
meanings. This is a way of defining
society: these common meanings
that we all share allow us to identify
with and relate to one another. It
provides a common understanding
of how to interact. More to the
point, meanings are increasingly
constructed – they are made by
professional meaning-makers who
are trained, ‘licensed’ and em-
ployed to create the meanings that
society absorbs and circulates, and
they do so with the intention of mak-
ing a profit from them. This is the
work of Journalists.
When the Industrial Revolution rolled
around, meaning-making (and the
meaning-makers) became institu-
tionalised: the entire process be-
came organised as in a factory, with
a division of labour and a hierarchy.
By the nature of the system, one in
which each person must please the
person above them in order to keep
their job, all of the meanings being
produced were subjected to the
conditions of the power-relationships
within these corporations, and were
ultimately controlled by the owner.
When faster communications tech-
nology and subsequent globalisa-
tion allowed a system of networks to
replace the old managerial model
of these institutions, the power rela-
tionships changed again, causing
both the method of production and,
by extension, the meanings them-
selves, to change with it.
In the 40s, Theodor Adorno and Max
Horkheimer of the Frankfurt School
Public Relations The difference between machetes,
guns and Underground posters
identified institutions such as com-
pulsory education and the mass
media as dangerous tools of socie-
tal homogenisation (or mass con-
formity) – they called this the Culture
Industry. They argued that since the
industrialisation of media-making,
the owners of large media compa-
nies have held the power to control
what a society thinks about, and
what it thinks to be important, by
distributing the same discourses and
meanings throughout mass audienc-
es. This process, they warned, would
gradually destroy creativity and pro-
gress by silencing and preventing
conflict of ideas.
The potential for hegemonic politi-
cal domination through skilful ma-
nipulation of the media is undoubt-
edly enormous, but the kinds of
comprehensively oppressive and
conformist societies that the Frank-
furt School feared so much are sub-
ject firstly to the limited skill of the
manipulators in question, and more
importantly to the infinitely fickle
and shallow nature of ‘public opin-
ion’. Moreover, although the nature
of this system does restrict a healthy
conflict of ideas within the main-
stream channels, putting pressure on
avenues and outlets of creativity
does not eliminate it. By their nature,
creative people will only find new
ways of expressing new ideas.
A dominant group will, by their na-
ture, do anything in their power to
remain so. In lesser-developed
countries we often see these at-
tempts manifest in violence, but the
developed world have found a
cleaner, more efficient way –
through the media and culture in-
dustry. The homogenisation and
conformity that result from a suc-
cessful culture industry mean that
mass communities are more inclined
towards unity and agreement, and
this is manipulated by dominant
groups to legitimise their authority
and actions. This is the work of Public
Relations.
That is not to say that popular cul-
ture in America, for example, is a
controlled, elaborate design con-
structed in the White House – such a
statement would be lacking in ap-
preciation of the incredible com-
plexity of the system at work. The
reality is that the Culture Industry is
not controlled by any accountable
group. Rather, it is something which
reflects society at a given time,
which may be manipulated by a
dominant group to exploit the non-
dominant groups. While this exploita-
tion is, believed to be, what the
Frankfurt School most feared, it may
not be the new and inescapable
threat that they made it out to be.
Exploitation is an inextricable ele-
ment of humanity. The historical pro-
gression of mankind has been
based on the relational changes
concerning exploitation of one
group by another. Hence, a criticism
on an exploitative system is no more
useful than any other generic criti-
cism of awful humanity. The devel-
opment of an exploitative system
that no longer relies on violence is
an achievement to be celebrated.
As this is the 10th Edition, we want to
have a look at how The Schumpeter
has evolved over the years.
Issue 1
Issue 3
Issue 5
Issue 7
The Schumpeter Onwards & Upwards