InDemand Volume - November 2012 by Matthew Pringle

VOLUME 10 • ISSUE 1

November 2012

InDemand Economics Department Magazine

INSIDE: UK Film Industry | Racing - The Final Straight? | Robots - A Threat to Your Job?

Who can solve America’s Economic Woes?

Obama vs Romney

CONTENT 2

Letter from the Editor

Green Shoots

FROM THE EDITOR

4 Banking: The Inside Story 5

Taxing the Rich: Is it Worth it?

US Elections - Obama vs Romney

Barrez Vous? French Youth Should they Stay or Should They Go?

9 The Brain Drain: Migration from Malaysia and India 10

The Future of Horse Racing: The Final Straight?

Trouble on the Farm: How this summer’s poor weather may still cause misery for the UK

The UK Film Industry: A toy for the rich or a real boost to the economy?

University Focus - Economics at Bath

Will Robots Steal Your Job?

Dear Reader, This is the first edition of the rebranded InDemand under the new editorship. Economics is a hotly debated subject in Britain at the moment, and in this issue we have tried to cover a range of current and interesting topics, from the American election to the advancement of robotic technology. The magazine is aimed towards both staff and boys, from all year groups. If you are interested in writing an article on any current issue for InDemand, then please contact us. We hope you enjoy this first publication! Will Hyslop and Luke Olver

On the cover: “Obama vs Romney” Alex Wright and Piers Hugh-Smith Editors: Will Hyslop and Luke Olver

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Want to write for InDemand? If you want to contribute, email the editors - we welcome contributions from all years, whether you take Economics or not

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InDemand@radley.org.uk

Green Shoots? Luke Olver goes in search of the green shoots of recovery in this quarter’s growth figures.

ou may have heard that our economy is growing again. After 3 quarters of consecutive economic decline, that had seen Britain return to recession, the figures from July to September have shown some positive growth. GDP - the total value of all goods and services produced by all sectors of the economy - has risen by 1% in the third quarter of 2012, while inflation has decreased and employment has gone up; all of this has painted a rather encouraging picture, better than many experts had predicted. However, a figure of 1% growth in GDP is misleadingly positive. If you cast your memory back to the past six months, there were several significant national occasions including the Olympics and the Queen’s Diamond Jubilee. These one-off events had an effect on the country’s overall economic growth. It is estimated that Olympic ticket sales contributed 20% of the growth;

whilst the extra working day in the third quarter, gained from the absence of the jubilee bank holiday, contributed a further 50%. Therefore, if you take the average growth for the past six months (2 quarters), it is only 0.3%, which is not so impressive. Indeed, the economy as a whole is still 3% smaller than it was in early 2008, showing the scale of recovery that still needs to take place. The surprising thing about last quarter’s figures was the growth in the service sector - one of the most important parts of Britain’s economy. It rose by 1.3% compared with 0.1% in the previous quarter. However, figures for the service sector are notoriously unreliable at this early stage. It is clear that the figures for one quarter are unreliable and although GDP has risen in this third quarter, we will most likely see a fall through the final three months of 2012 because of the absence of one-off events. Indeed, you shouldn’t believe the next politician who talks about the “green shoots of recovery”; one set of positive growth figures doesn’t mean we’re out of the woods yet.

Recent figures for the 4 main macroeconomic indicators are shown by the black needle: annual figures for Growth - %change in GDP, Inflation - %change in CPI, balance of payments - current account as a % of GDP and unemployment - LFS method as % of the labour force. 80% of values in the last 15 years fall in the green sections. Red shows values observed at the extremes. 3

Banking: The Inside Story Luke Olver and Will Hyslop asks PM for his take on the City Job

t’s well known that many Radley boys like the idea of being a banker and making millions, but do we really know what it takes to get those jobs in the city? Dr Miron explains: PM went into the city in the late Eighties, at a time when there was considerable economic growth. He was a Derivatives Trader who started at NatWest, and he spent the best part of the next 20 years trading in various different banks, before coming to Radley to teach Maths. So how do you forge a career in banking, I hear you asking. Unfortunately, to those of you who don’t exactly flourish in the Maths department, getting your sums right is pretty essential. “Nearly everyone had a Maths or science A level, at least”, says PM.

Image © Adrian Pingstone

Unfortunately, the job market is like never before; While Dr Miron studied for a PhD at Oxford in especially in the Square Mile, the hub of world Mathematical Physics, (I know, sounds pretty finance. “When I started, it was much easier to make complicated), he was approached by a banker money and you weren’t competing with people who had a similar degree. And this is how people from around the world.” It normally get recruited whilst at “It’s a cut throat business makes the top jobs today so university: businesses come much harder to reach than and there’s lots of pressure and pitch to students about they were when PM started their companies, and if a to make the money. ” two decades ago in the firm interests you, follow them complex world of finance. up and apply as PM did. Let’s face it, people like the idea of banking, because of the thought of earning those elusive salaries in the top city jobs. However, as Dr Miron put it “It’s a cut throat business and there’s lots of pressure to make the money.” So is it really that appealing? We all know of the long hours, and the short holidays which make the jobs so incredibly stressful and tiresome. In addition, you have to put up with “difficult bosses”, to quote Dr Miron, who are inflexible, and expect you to be on the top your game all week and every week. Public speaking is another crucial skill that you need to have. When asked if you can just waffle your way through lengthy presentations, PM firmly replies: “You have got to know your stuff.” However, “Say anything with enough confidence and authority, people will believe you”, advises Dr Miron.

So are these jobs really for the ones for you? Does the high stress justify the high salary? I’ll let you decide.

Did You Know?

The financial world is the largest employer of Old Radlians with 18% of ORs surveyed working in Insurance, Banking or Finance. Law was the next largest employer with 7%

Taxing the Rich - Is it Worth it? Will Hyslop asks whether taxing the rich actually works

ould you not agree that in tough times the people with the broadest shoulders should bear the brunt of the government’s spending cuts and tax rises? Does that morally make sense? I hope it does. Therefore, is it not right for bankers and lawyers to pay a 50p tax rate on all earnings over £150,000 because they will then be paying more tax and that’s fair? Well actually the 50p tax rate does not take in anywhere near the money it theoretically should. The 45p top rate of tax counterintuitively takes in more cash. Why, I hear you asking (and quite rightly if I may say so). Well if you gave nearly half your salary to the Government then you would be rather put off working. Two out of three days you would be pretty much working for the government. This disincentives people to work and some will just say ‘I can’t be bothered and so I am quitting’. Therefore, less people are working and lo and behold the revenue from that tax hugely decreases. HMRC said that Labour had estimated the revenue would £2.5bn when the actual return was a mere £1bn. 537 businesses wrote to the Telegraph this year explaining how the 50p tax rate actually prevented them from expanding and employing more people and, therefore, stifling growth. Furthermore, they even went to the length of saying that it was having a detrimental effect on the UK Economy. Not only did it affect jobs being created in the UK,

it was deterring overseas companies from settling hear as it was the highest top rate of income tax in the G20. But now there is an expectation that some wealthy French businessmen will be coming here because of the frankly extortionate tax rates that President Hollande has put in place. The disincentivising effect high taxes have on workers has been proven by past governments such as the Labour government of the late 70’s, when in their first year of office income rates reached a staggering 83% with an investment income surcharge putting it to a stunning 98%. What politicians, think tanks, pressure groups and normal hard working people want is the rich to pay their fair share. And now they might be. In each of the two years of this government the rich have paid a greater share of the national tax revenue than in any single of Labour’s 13 years. So yes, the broadest shoulders should bear the heaviest load, but lowering the top rate of income tax may be the best way to raise tax revenue from the wealthy. So when politicians say that the 50p tax rate would bring in an additional £2 - £3 bn remember they were wrong the last time. No is the answer. Squeezing the rich won’t help the economy and it won’t help revenue. What we should do is create jobs and increase the government’s revenue so that the they can use that extra money to help the poorest in society. That, I believe, is real fairness.

Who Pays What? Income is taxed but so is spending (e.g. VAT). Those with the highest income pay the greatest proportion in income tax but taxes on spending take up a much greater proportion of income for low income households.

Chart: The percentage of gross income paid in tax by quintile. Source ONS - The Effects of Taxes and Benefits on Household Income, 2010/11

The US Elections

‘It’s the economy, stupid.’ TCL considers the candidates’ positions before the election. With the US Presidential election is but days away, it is the same key issue that will once again decide many people’s vote – the economy. When the many polls are taken in the build-up to the election, one of the key polls is regarding which issues will have the biggest influence on the way people vote. The issue of the economy tends to always come out on top (2004 being a notable exception with war and national security being the top issue) and, with the current economic climate, it is no surprise that the economic policies of President Barack Obama and Governor Mitt Romney have been the most scrutinized on each of their individual platforms. The swing voters (or ‘undecideds’ as they are better known) just want to know where each candidates stands and what they intend to do to rectify the current situation – this is easier said than done! A great avenue to locate this information should have been the three presidential debates we have just had. However, each debate just took us on a merrygo-round of each candidate making a claim about the other, followed by a denial and a claim that the other was lying. Therefore, here is a very basic attempt to try and explain what each of the two candidates have planned. The challenger Romney is following a very tried and 6

tested route for the Republican Party, which means smaller government and lowering taxes. He believes that only the private sector (and he certainly knows a thing or two about the private sector) has the clout to create the millions of jobs that are required to get America moving in the right direction. He believes that the only way to do this is to lower personal, investment and corporate taxes. Obama would describe this as trickle down economics – give money to the rich and that will in turn encourage them to create jobs, thereby benefitting the rest of society. Obama and the Democrat Party claim that this simply does not work, and point to the massive Bush tax cuts of 2001 and 2003 as proof (the US Government budget was in surplus when Bush came to power in January 2001 – by the time he left 8 years later they were in 6 trillion dollars of deficit! – wars are not cheap). Romney argues that he will offset the revenue loss by reducing nondefence spending and cutting certain government departments. Obama claims that Romney’s proposed tax cuts will cost $5 trillion dollars in lost revenue (this figure was supplied by a study done by President Clinton – Romney, obviously, questions this figure). The President, on the other hand, wants to continue his current approach to the economic problems. He continues to believe that the best way to create jobs is through stimulus spending by the government, and by the continued support of small business in

The US Elections America. He also continues to target the most wealthy, the group which he claims has the most to gain from a Romney presidency (Mitt Romney has received more campaign contributions from Wall Street than any other presidential candidate in history). He believes they must foot most of the burden when it comes to helping the US economy recover, and by this he means paying more tax and closing any loopholes which the super-rich are able to exploit. Romney will claim that the last four years has demonstrated that these policies have failed. He also claims that his favouritism for the super-rich has been fabricated by the Obama campaign. The President would say that he inherited the worst economic situation since the Great Depression, and will continue to lay much of the blame at the door of President Bush and the Republican Party. You would be forgiven for thinking that this all sounds very vague and you would be correct. If you watch any of the three debates or any of

the their campaign speeches you will constantly hear key phrases like ‘job creation’, ‘helping the middle class’, ‘I support small business’, ‘we must shut loopholes for the super-rich’, ‘it’s all about helping Main Street and not Wall Street’, but sadly the specifics are too often lacking. I would love to say I could give you a definitive break down of the economic policies of either candidate, but that remains a much debated concept. What continues to be the most worrying facet of US Presidential elections is the amount of money that the two candidates are raising and spending on the campaigns. Barack Obama and the Democrat Party, with one week to go, have raised $1.06 billion dollars for his campaign, while Mitt Romney and the Republican Party have raised $975 million. Perhaps the best route to recovery for their economy is to stop having elections!!

Barrez-Vous?

ife in France is very tough at the moment, as it is in many economies. To make things worse, there is a high-profile campaign running which urges young French people to ditch the idea of staying in their homeland and to seek work, better lifestyles and better futures abroad.

On top of this, unemployment in France rose above three million (10%) last month for the first time in over a decade. The French Economic Observatory have suggested that an annual economic growth rate of 1% is required to stabilise unemployment, and a growth rate of 1.75 to 2% is “in a decaying and ultra- required to reverse the rise in unA trio of Frenchmen launched employment. With forecasted centralised country run by the campaign, dubbed growth of 0.3%, it looks as if “Barrez-Vous” (“break free”) old men which is falling to bits unemployment will continue to a month ago, telling the rise. one piece at a time” young that they lived “in a decaying and ultra-centralised counThe grim economic situation has try run by old men which is falling to bits one piece seen Hollande’s approval ratings go into free-fall at a time”. They warned that the youth will be worse and he is now on the verge of becoming the most off than their parents and that current economic unpopular French leader in living memory. At the policies were unfavourable to the young, resulting in end of September 25% of under 35 year olds being out of work. thousands of people marched in Paris So what has been happening in France since Presiprotesting against dent Francois Hollande took charge in March 2012? the austerity poliThe budget deficit has been growing at an alarming cies. However critics rate and stands at 4.5% of GDP, whilst national debt of the protestors stands at 91% of GDP. The 2013 budget launched claim the demonlast month was very tough, aiming to tackle the €37 strators had made a billion deficit by imposing deep spending cuts and fundamental error raising taxes for every single worker in the country. of judgement thinkA headline-grabber is the 75% top income tax rate ing that the policies which is seen as unavoidable if France is to get its fi- were weakening nances under control and meet the EU deficit targets France, when in fact deemed necessary to avoid the collapse of the Euro deficit reduction single currency. Whilst further examination reveals and cuts in wastethat only those earning over €1 million are subject ful spending could to this tax, France’s richest man, Bernard Arnault, last strengthen the econmonth sought citizenship in neighbouring Belgium. omy in the long term. By reducing the outstanding With spending cuts affecting health care and other debt, France would be able to secure lower interest departments totaling €12.5 billion, this will further rates on its borrowing and some of the structural impact levels of aggregate demand, and thus real reforms that have been long overdue are now being GDP, in the economy. forced through, improving the supply side of the economy.

Migration i

Would it be advisable for the French youth to ‘break free’? A recent article in Le Monde told French youth they should prioritise staying in France, rather than ‘running away’. A recent graduate interviewed by Radio 4 recently stated that she had been educated ‘for free’ up to graduate level, and therefore now owed something back to the state. But with the super-rich feeling spooked and some commentators anticipating an exodus of the wealthy, the beleaguered middle classes feeling the pinch through tax hikes and spending cuts, the future does not look too rosy for the youth in their native land. 8

Image: © Nicolas Mougenot

N J King

The Brain Drain

any years ago, it would be unheard of for Indians to remain in India and search for a better job and higher standards of living. This then lead to a surge in immigration to countries in the West where Indians would find better paid jobs and higher standards of living. This caused a “brain drain” where the country’s brightest minds left to pursue careers abroad, leaving their homeland short of highly skilled workers. In the West, many immigrants settled down with families and life went on as usual. But now, things have taken an unsuspected turn. As India has become known as an emerging economy, work has been created by the government in order to fuel the countries soaring growth rate. Sources show that Image: © BBC between March of Malaysia has experienced. Due to a failing educa2009 and 2010 a tion system, many have left to study and work overrecord of 30,000 seas. The government has torn down the British people left the UK to colonial education system and by changing the lansettle down in India guage of input from English to the local language, taking up the tempt- many have argued that the country has taken two ing job offers that steps backwards. Furthermore, by reserving 70% have been made of all scholarships to the indigenous people, the available. Due to minorities fight for the remaining 30%. Through the large numbers this, many have given up their citizenship and have of Indians returnset their sights on either neighbouring Singapore ing, the government or the United Kingdom. Unlike India, Malaysia is has allowed those not an emerging economy and many have seen who left to apply for its system to be undemocratic and corrupted. The life long visas, thus major difference between these two countries is making it easier for that many of Malaysia’s minds have no intention the individuals wish- of returning back to their homeland as some have ing to come back given up their citizenship. From the government’s to India and work. perspective, this is worrying. Malaysia was once Statistics from the Indian government have shown rich in oil and had some of the highest GDP rates that 1.1 million people have taken this offer. This in South East Asia. However, times have changed has lead to what some have called The fact that India’s as the country falls behind. The questhe “reverse brain drain” effect. tion still remains; will Malaysia ever The fact that India’s economic economic position is experience India’s “Reverse Brain position is getting stronger getting stronger makes “The Drain Effect”? makes “The American Dream” American Dream” an “Indian an “Indian Reality”. This will Jeremy Wong Reality”. ensure that the country’s brightScan to see more: est minds stand behind its growing economy and contribute to it through skill and education in their respective professions. A prime example would be Janki Shah who moved from India to study in Atlanta. After working in New York, she brought the skills she learnt back to India and now owns the Big Tent Company which provides weekend activities in the Indian countryside.

into the UK

This can be compared to the brain drain effect that 9

Horse Racing: The Final Straight?

n 20th October 2012 Frankel, arguably the greatest racehorse of all time, retired. He had never lost a race. In fact, his official rating eclipsed that of not just horses of his generation, but ones from decades before, across the globe, and he was able to do this without setting foot on foreign turf. However, from a purely materialist point of view, the most astonishing element of this ‘wonder horse’ is not any physical feature or achievement, but his conservatively estimated worth as a stallion. This is in excess of $160million – more than the highest earning footballer in the world, Lionel Messi, grosses every five years. Consequently, Frankel’s inevitable retirement does not only mark the end of a legend, but also, perhaps, the end of a golden era of flat racing in Britain, Ireland, and France. In fact, it may be the beginning of the end for the sport, as we know it, in Europe. And as the sun begins to set here, the dawn of a new age for flat racing is breaking in the Far and Middle East. This is true to such an extent that it has been declared by a top British trainer that the ‘financial powerhouse’ over the next 25 years, and possibly longer, will certainly be in that region. British racing relies heavily, almost entirely, on a lucrative bloodstock industry to make up for low prize money at the track. As a result of this it is being forced to step aside and send its horses to the Middle and Far East where the prize money is simply breath taking. For example, the average ‘Group/ Grade 3’ race in Britain is worth roughly £30,000 to the winner whereas in Japan it is worth over £300,000 to the winner. This is due to the enormous corporate sponsorship in regions such as Dubai. However, far more impressively, every single penny of the hundreds of millions of pounds on offer annually in Japan and Hong Kong is funded by the state-owned bookmakers that reap the benefits of the gambling culture that is ingrained in the people of these regions. This system could be implemented in Britain. The government already uses some of the tax raised by gambling to subsidise race prizes but the lack of domestic gambling regulations has allowed the vast majority of major bookmakers to move off shore. This means they do not have to pay any tax at all to the British government, causing the prize money raised by gambling levies to plummet dramatically, below levels of the 1980s, to a miserly £94 million in 2011. This is less than the value of a single horse: Frankel. 10

Image © Adrian Pingstone

The average cost of owning and training a horse in Britain is £25,000, which shows the prize money available to be conspicuously low. Although the impact of the recession has not had as a ferocious effect on horse racing as it has on other industries, with only a 3.2% fall in ownership from last year, it has still left owners and trainers out of pocket. Due to this, many have been forced to chase international prizes instead of staying in Britain, purely in order to stay afloat. However, horse racing still has the second highest attendance rate of any sport in Britain, after football, and therefore its steady decline, and surely eventual departure for foreign shores, will leave a gaping hole in our cultural heritage. The most disturbing thought still remains that there is nothing that can be done to stop the rapid engulfing of Britain’s racing industry, and that the fans of Frankel will have to venture East to see whether his offspring will be able to match his marvelous speed. Thady Gosden-Hood

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Trouble on the Farm A bit of rain never hurt..

ccording to National Farmers Union wheat yields have fallen by 14.1% on a five-year average. As a result of this we have seen a decrease in the supply of the commodity, which has thus forced the price to slowly increase. This yearâ&#x20AC;&#x2122;s poor weather in the UK has caused English wheat yield to fall from 7.8 tons per hectare in 2011 to 6.7 tons per hectare this year.

he wettest summer in living memory has done more than ruin your trip to the beach. Yields are down and food prices are up, some significantly. Topping the list in the UK are apples, down 27% but potatoes are close behind. Some farmers even predict the ground will be too wet for winter sowing, ruining next yearâ&#x20AC;&#x2122;s harvest before it has begun. Hardened carnivores are not off the hook either with feed costs accounting for up to two thirds of the cost of rearing livestock. This combined with increases in the cost of energy and falling real incomes spells a hard time ahead for UK households.

This again shows evidence of a reduction in supply, which has caused the price to rise. A knock on effect of the reduced supply of wheat means that the price of meat is also likely to rise. This is because animals eat grain which has caused the production cost to increase for producers, and this is cost is being passed onto the consumers. However, the situation is much worse in Scotland, as experts suggest that winter oil seed rape production is down 26% from 2011. This means that their production has fallen by over a quarter and this again has caused a decrease in the supply of the product which is forcing the price to increase. Richard Dodd, a member of the British Retail Consortium, has highlighted this issue as he predicts that wheat prices are likely to rise by around 29% from last year. The main cause within the UK for the decrease in production of wheat has been the weather. It was recorded as the wettest summer for 100 years with 362mm of rain falling between June, July and August. In the last 50 years average rainfall in these months in the UK has been 161mm, and this demonstrates

the amount of rainfall that we have seen this summer. The fact that we have had so much rainfall has caused the harvesting operation to be much slower this year, and this has caused an increase in operating costs, which has been passed onto the consumer causing prices to rise. On a global scale droughts and fires have caused further falls in wheat production. The Russian crop is expected to be 14 million tons down on last year while in the USA, prices are already up by 40% due to the shortage Ed Townsend 11

The UK Film Industry

he film industry in the UK has grown exponentially in the last quarter of a century. In the 1980s an average of 43 feature films were made in a year. This number has grown to 120 a year since 2006 and the film industry contributed £1.6 billion to UK GDP in 2009. The number of cinema admissions has more than doubled since the 1980s with approximately 163 million admissions per annum since 2000. Now these growing numbers of films and admissions are driving UK box office takings to around £1bn per annum. What is the impact of this vastly expanding industry on UK today? EMPLOYMENT

As the UK film industry has been expanding so has the number of people employed in the industry. The total direct employment is estimated to be around 36,000 people in terms of full-time equivalents (FTEs). This means that the UK film industry is a similar size to the book publishing industry and larger than fund management, photography, and pharmaceutical manufacturing sectors in the UK. This growth of employment reflects a doubling of employment in the production sector since 1996, thus creating an additional 11,000 FTE jobs, and a 65% increase in employment in the exhibition sector since 1996, creating an additional 1,000 FTE jobs. However, there has been no significant increase in employment in the UK distribution sector over the same time period. Overall, the UK film industry has created around 12,500 new FTE jobs since 1996 (an increase of 54%). In the recent time of recession, reports show that although smaller independent production companies have suffered, the film industry as a whole has not and continues to expand.

GDP AND INVESTMENT

To gain a real understanding of the direct impact of the film industry on the UK economy we must look at Gross Domestic Product (GDP). GDP is the monetary value of all the finished goods and services produced within a country. To measure an industry’s contribution to it we must calculate the difference between the industry’s total pre-tax revenue and its total brought-in costs (costs excluding wages and salaries).

From this calculation, estimates show that with a turnover of £3.4bn, the core UK film industry contributed £1.6bn to UK GDP in 2009. This figure has increased on average James Cameron began developing Avatar in 1994 by 9.8% per annum since there was the necessary technology at the time to 1996, contributing to real grossing film of all time. GDP growth at 7.1%. This is much faster growth than recorded by the overall economy. This means that the UK film industry contributed slightly more to GDP than, for example, the office machinery industry, and three times as much than the designer fashion sector. The UK film industry has shown repeatedly that it is able to perform resiliently and has demonstrated consistent growth despite global downturns in the economy. 2008 was a mixed year for the UK film industry due the global financial crisis. However, the industry reacted by recording the second highest production spend ever in 2009, driven by growth in the value of inward investment features. This trend of increasing contribution to GDP over time is driven to an extent by changes in the level of production spend in the UK. High growth between 1994 and 2003 reflects an increase from a spending of £242 million to a peak of £1.1bn. Recent spending has been less steady averaging around £800 million, with a low spending of £613 million in 2008, mainly due to a less favourable exchange rate. However, production recovered to £957 million in 2009. The main reason for this large increase in production spend is because of an increase in inward investment productions which rose by four times between 1994 and 2003 and now accounts for almost four

The UK Film Industry fifths of production spending in the UK. This is the injection of money from an external source in order to purchase capital goods for a project. Again, this spend on inwards investment suffered in 2008 to just £357 million due to an unfavourable exchange rate and the Hollywood actors’ strike. This figure recovered the next year, up to £750 million. However, recent figures from the first half of 2011 show that whilst total spending was up to £771 million; the number of inward investment productions shooting in the UK was down from 14 to 9. Those features included Christopher Nolan’s The Dark Knight Rises, Ridley Scott’s Prometheus and Marc Foster’s World War Z.

4, but delayed shooting because he didn’t believe o achieve his vision. In 2009 it became the highest

RESEARCH AND DEVELOPMENT EXPENDITURE

Many firms in the core UK film industry spend money on the development of new products, processes and technologies to give themselves a competitive advantage in the global market. In particular, sectors such as visual effects and post-production where there is a premium on innovation to land major contracts with the large production studios. Impressive special effects such as 3D and computer-generated imagery (CGI) are big at box office, as demonstrated by James Cameron’s runaway success Avatar that took $2.8bn, becoming the highest grossing film in North America, using stereoscopic filmmaking that was touted as a breakthrough in cinematic technology. Therefore, R&D expenditure is very significant in many parts of the industry. The largest R&D projects, involving the creation of new content platforms or new ways of working, tend to be collaborative, and can involve several key industry players as well as traversing the boundary between film and TV. The Muppets project, for example, which explored ways of sharing physical and virtual resources to improve efficiency in the post-production sector, is co-funded by the Technology Strategy Board (a government agency) and involves organisations such as the BBC, Pinewood

Studios, Southampton University and a number of London post-production houses. Similarly, Video-onDemand platforms, which are becoming increasingly popular, were joint ventures led by major TV channels. London’s post-production houses have a world leading reputation, with a market share in the global film visual effects market of approximately 20%, a figure which has doubled since 2005. Its leading firms, such as MPC, Double Negative, Cinesite and Framestore, are trusted by overseas producers and known for their ability to take on complex sequences and indeed entire productions if needed. Much of this reputation is due to cutting-edge visual effects technologies developed by independent firms, either individually or collaboratively. They succeeded in landing contracts for almost all of the major recent US made visual effects blockbusters such as Avatar, 2012 and Cloverfield. This shows a highly successful innovation ecosystem within the UK. FISCAL SUPPORT TO THE CORE UK FILM INDUSTRY

The core UK film industry receives funding from both central and local government, as well as from the National Lottery, other public sector organisations and the EU. Across all sources, total public funding for film was estimated to be £256 million in the financial year 2008/09. Of this, the largest contributor was HM Revenue and Customs via the UK Film Tax Relief, which accounted from £110 million (40%) of the total. DCMS is the government department with responsibility for setting policy for support of film in the UK. The UK Film Council is responsible for the disbursement of the majority of DCMS funding for film. The UK Film Council was established by the government in 2000 as its strategic agency for developing the film industry and film culture in the UK, with its aim being to deliver benefits

The UK Film Industry to the industry. After transfer payments of £5 million per year to the Olympic and Paralympic Games, the UK Film Council has an expected income of around £60 million per year between 2010 and 2013. DIRECT REGIONAL IMPACTS

The core UK film industry contributes particularly to employment in London and the South East, although there are also sizeable operations in a number of other regions. Around 26,300 jobs, 55% of the total, are concentrated in the London area, with a further 5,800 (12%) in the South East. This disproportionate concentration of film employment is common to most of the major film-producing countries, most notably of course the US which is clustered around Hollywood, but also countries like France, whose film industry is centred to a large extent upon Paris. However, all regions host location shoots to a greater or lesser extent, for example, Robin Hood in Yorkshire and Derbyshire, Looking for Eric in Manchester, and Harry Potter and the Half-Blood Prince in Wiltshire, Gloucestershire, Scotland, Hertfordshire and Surrey. It is difficult to say for certain whether or not the UK core film industry is becoming less London orientated. The Skillset Census in 2009, found the only notable shift in regional employment patterns since its previous survey in 2006 was a slight increase in North West jobs. However, this trend is considered likely to reflect TV production employment rather than film, linked to the on-going MediaCity development in Manchester and increased regional commissioning from the BBC, which has moved several of its broadcasting departments there. Across the whole of the UK, it is fair to say that increases in regional funding for both TV and film production over the past decade have made locations outside London and the South East more viable bases for media firms, however, there is little doubt that the UK’s international competitiveness is still largely driven by its traditional strengths in business and infrastructure in and around the capital. Concentration of both labour and demand for specialist services leads to agglomeration economies, which has benefits from related economic activities taking place close together, and also economies of scale.

the whole of the film industry in the UK, the total employment supported is therefore around 47,000 FTE jobs, with a GDP contribution of £2.9 billion in 2009, hence showing a reasonable sized impact on the UK economy. One of the features of foreign-led film production within the UK is its tendency to reflect cultural or economic links between the UK and overseas. For example, the large population of South Asian origin living in the UK has proved attractive to Bollywood filmmakers. Foreign productions also reflect acknowledged UK strengths in specific technical fields such as Computer Generated Imaging (CGI), for example with director James Cameron contracting some key scenes in the 3D blockbuster Avatar to London company Framestore, and is now the highest grossing film of all time SUMMARY

The core UK film industry makes a substantial direct contribution to UK GDP, employment, taxation and investment. GDP and employment have increased over the past decade through the expansion of the production sector, particularly from inward investment features, and an increase in film exhibition. The recession has had hard impacts on the smaller independent film production sector, though as a whole the core UK film industry has weathered the storm well and is well positioned to continue its strong growth. Harry Fox

2 of the best... In 2011 two of the top three box office hits of the year were made with the help of the UK film industry Harry Potter and the Deathly Hallows 1st grossing $1.3bn worldwide

ECONOMIC IMPACT FROM NON-UK FILMS

So far we have focused on the core UK film industry only, however, a further 11,000 people are directly employed in the UK film industry supported by the distribution and exhibition of foreign made films. In 14

Pirates of the Caribbean - On Strange Tides - 3rd grossing $1bn at the box office

University Focus - Economics at Bath Bath was granted university status in 1966 and is part of the 1994 group of universities known for their scientific expertise. It sits on a purpose built campus just outside Bath. It is currently ranked in the top 10 British universities for two thirds of the subjects it offers. Here are the basic facts:

WHAT MAKES IT DIFFERENT The focus on placements. Many universities offer 1 year placements with firms but placements play a major role at Bath. In many subjects they are compulsory and while they are optional for Economics, most students complete one. This increases the length (and cost) of your course but gives you valuable experience, and sets your application apart in the CV pile. There is also the chance that you might get paid during your placement year or offered a job for when you graduate. Firms offering regular placements include the Bank of England, HM Treasury, HSBC and Accenture. RELATED COURSES • BSc Economics and Politics • BSc Economics and International Development

ECONOMICS (BSC) DO I GET ACCOMMODATION? Yes – All first year students are guaranteed accommodation. Most of this is on campus but some is located about 2km away and accessed via a free bus service. Accommodation is self-catering. After your first year you will probably live out in privately rented digs but some accommodation is available on campus to second and final year students.

• BSc Social Policy WHERE DO STUDENTS GO ON TO

WHAT WILL I STUDY?

M J Pringle

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Will Robots Steal Your Job?

ne may wonder if technology will ever reach a point where the production process becomes so automated that humankind will become collectively unemployed. There is no doubt that the production process is becoming ever more automated as technology becomes more developed and efficient. However hasn’t technology improved throughout history? If the past tells us anything, isn’t it that as technology brings about economic growth and it improves prospects for workers across a range of industries? Over the years we have seen that improvements in technology can lead to a loss of jobs in the short run however in the long run more jobs are always created due to an improvement in technology boosting economic growth. However will this time be different? Artificial Intelligence machines are becoming so sophisticated, so quickly, they’re poised to replace humans across a wide range of industries. In the next decade, we will see machines barge into areas of the economy that we had never suspected possible. Middle skilled jobs such as those found in manufacturing, secretarial roles and administrators are particularly in danger from unemployment as robots will be able to complete these jobs more efficiently and for a fraction of the price that a human. In fact there has already been permanent change in this sector. A growth in jobs can be only be seen in the high skilled and low skilled sectors therefore the demand for labour has definitely decreased in the medium skilled jobs.

There are positive aspects to robots taking jobs of humans. The products that they create are of better quality and have more consistency. Economic theory holds that as these industries are revolutionized by technology, prices for their services will decline, and society as a whole will benefit. As I conducted my research, I found this argument convincing—robotic lawyers, for instance, will bring cheap legal services to the masses who can not afford lawyers today. The increase in unemployment that could be caused by an increase in automated jobs will create difficulties too. If robots do look as if they are able to replace humans in the long run, the government in many developed countries will have to intervene in the ever more rapid development of technology in order to avoid mass unemployment. Max Wild