Imagine two surveys on the same topic by highly competent statisticians which find opposite results.  The 2011 UK census found no increase in cycling in London since 2001.  Another by Transport for London (TfL) found a more than 3 fold increase from 2000 to 2014.  For what it’s worth, I cycle to work every day in London and can say categorically that TfL is correct.

If cycling presents a measurement challenge then the modern economy must be exponentially more difficult, especially if it is undergoing rapid change.  CEBR Chairman Douglas McWilliams’ new book The Flat White Economy takes a very important look at modern economics with a focus on London’s booming tech sector.  His findings suggest that nothing short of an entirely new framework may be in order.[1]


I had the pleasure of meeting both Douglas McWilliams and his father Sir Francis McWilliams at his book launch last month at the Cass Business School.  Sir Francis was Lord Mayor of London in the early 1990s, when McWilliams helped with his father’s speeches and developed an interest in the London economy.  Strikingly little data was available then, which in a sense is a starting point for this book.  A prior role as IBM (UK) Chief Economist provides McWilliams with key insights into the nature of technological transformation.

London has all the ingredients to foster a boom in the digital economy: a large consumer market that is remarkably amenable to online business combined with world renowned creative industries, particularly marketing.  The UK leads the world in online retailing.  The list goes on.  Four of the world’s 10 best universities within easy reach supplies a highly educated workforce, along with openness to global trade and people.  Some 46% of migrants to the UK have a degree, which is vastly higher than the corresponding figure for the local population.  The final ingredient is the City, London’s financial district, for access to capital.

“Central to the Flat White Economy has been the remarkable flow into London of high-quality labour through immigration from all around the world but particularly from the Eurozone as Europe has remained mired in economic crisis.” - Douglas McWilliams, Flat White Economy

As in centuries past, London provides a perfect home for skilled and creative people.  Southern Europe’s current malaise is driving many of their best and brightest to set up shop in London and the results are spectacular.  Combined with local talent and non-EU migration, one London post code, EC1V, dubbed the “silicon roundabout” or Tech City, has produced 32,000 newly formed businesses over the past 24 months.  This is the fastest rate on record.  Indeed, London is growing faster than Hong Kong or Singapore and nearly as fast as China, but with much better balance.

Importantly, technology clusters are a global phenomenon adjacent to major cities worldwide.  The biggest and most famous is Silicon Valley near San Francisco.  New York and Boston are also large clusters.  Beijing, Bangalore, Haifa, Hong Kong, Paris, Singapore and Toronto each exhibit similar features though with varying degrees of success.  And these cities often tend to dominate the national economy, with political consequences as those outside are not sure what to make of it.


A key insight of The Flat White Economy is to spot what is going on and make an effort to measure it properly.  This is crucial, particularly for policymakers.  A broad definition of the digital economy, as many traditional businesses become increasingly information and communication technology driven, suggests it will reach nearly 50% of UK GDP by 2025.  But the effects have been percolating for years.  From 1997 to 2007, London’s economy grew at over 6% annually and in 2013, the most recent year for which figures are available, employment is up over 4%.  Yet some 45% of businesses are reporting a shortage of skilled labour.  Hardly a time to roll up the drawbridge.

It turns out much depends on the way we measure spending on information technology, particularly software.  Is it simply an ordinary business expense, like toner cartridges and copier paper?  Or, more likely, is software an investment with prospective yield for business owners, along the lines of a top notch brand name?

Most countries count software as an expense in national accounts data and so deduct it from national income to determine the size of the economy.  But if software is an investment, thus counted incorrectly for years, then we dramatically understate the current size and productivity of the economy.  Software as investment spending should be added to national income rather than deducted.

McWilliams estimates that the UK economy is 3% bigger and growing 0.3% faster if we count software properly.  In my experience, software most certainly has years of life in it and an expected yield as it delivers our services directly to our clients.  Our business could not function without it.

As with the industrial revolution that preceded the digital revolution more than 200 years ago, it seems that a confluence of factors drives the digital economy.  Tech City, as a UK government initiative has dubbed it, lags the actual transformation of “silicon roundabout” by many years.  Clearly this creativity is not managed top down.  This suggests the need for a policymaking role with education and infrastructure, notably transportation and broadband, at the top of the list.  But the crucial factor in the “flat white economy” is the people and how they behave.


The Flat White Economy describes a social change that goes hand in hand with the digital revolution.  This is another fascinating insight.  Flat-whiters, the typically young tech entrepreneurs, probably cycle to work and congregate at local coffee shops to socialise and share ideas.  Indeed the beverage of choice is flat white coffee, hence flat white economy.  The contrast with 1980s “Flaming Ferrari” style City traders living large could not be starker.  Oligarchs and the lavish mansions of today’s “loadsamoney” types are worlds away.

McWilliams’ observation of flat-whiters reminds me of Benjamin Franklin’s Poor Richard’s Almanac and his book The Way to Wealth.[2]  Written in 1758, Franklin admonishes industry and frugality through his character Richard Saunders as, well, the way to wealth.  Franklin’s contemporary Adam Smith in The Wealth of Nations drove a revolution in thinking when he so clearly identified the role of the city merchant in economic development, who viewed business spending as driving future profit.[3]   Global trade flourished because of this new merchant class with few interruptions ever since.

“If all four preconditions for success are met – lack of restrictions on immigration, continued housebuilding growth, more commercial development and matching supplies of infrastructure, then the Flat White Economy will continue to be the driving force of economic growth...”

The willingness to adjust lifestyle and exchange lower pay for potential future profits is crucial as the flat white economy requires patience.  It has been 15 years since the tech-bubble burst in 2000.  Even those businesses that survived today trade at much lower valuations than during that spectacular mania.  McWilliams suggests that the full effects of the digital economy took far longer than expected because of the scale of the change.  These “supereconomies” of scale – very large fixed costs and very low variable costs – meant that few companies could justify the huge investments required until it was clear that a large enough digital marketplace existed.

This network took time to assemble but it seems to be in place today.  As such, the speed of diffusion and adoption of new technologies can better reflect the needs and sophistication of the users.  The only thing missing is a large blockbuster company like Facebook but as long as the “animal spirits” are alive and well, the economy very clearly benefits.


On Friday 3 April, the well watched US Bureau of Labour Statistics nonfarm payroll report disappointed.  Out of an expected 200,000 new jobs, only 126,000 were created.  Global markets reacted instantly, bond yields fell sharply and media coverage was extensive.

The technical note included in the BLS release notes that this is a survey of 60,000 US households conducted by the US Census Bureau which is then used to estimate trends and changes in the broader US economy.  Revisions are significant, as the figures for January and February illustrate, which are down 69,000 from earlier estimates.

Like measuring the number of cyclists in London, or using industrial age definitions to count software investment, it is hard to see what this payroll number actually means.  In The Flat White Economy, Douglas McWilliams puts the digital economy in a very clear context, from a mosaic of facts and figures, such that how we measure the economy may be less important than understanding how it fits together.  I only hope there is a follow on book that may even offer us a new General Theory for the 21st century.

Keith Tomlinson, CFA

[1] McWilliams, D (2015). The Flat White Economy. London: Duckworth Overlook.

[2] Franklin, B (1758). The Way To Wealth.

[3] Smith, A (1790). An Enquiry Into The Nature And Causes of the Wealth of Nations. 885

DISCLAIMER: This material is for information only; it shall not be regarded as advertising any services within the relevant jurisdiction. Tomlinson Research Limited and/or its affiliates, consultants, directors, partners and employees, including those preparing and issuing this material, do not give any representations or warranties in relation to the accuracy, validity or completeness or compliance of this material, including without limitation the factual information obtained from publicly available sources considered by the Tomlinson Research Limited to be reliable; and do not accept any liability for any consequences of using the information contained in this material, and for the applicability of this material for the specific purposes and objectives of the recipients.

Download as PDF


+44 (0) 20 7111 0973

Latest commentaries