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