Austerity – it can really drive you Wilde…

Dr Sue Konzelmann, author of Austerity, discusses the long-term impact of a policy that places price before value.

Over the last decade, most of us have been on the receiving end of innumerable attempts to justify continued austerity in the UK, all of which have had one thing in common – they focus purely on money. There has been much talk of public deficits and debt – although at times, even our prime ministers have confused one with the other. The impression you get is that everything has a price; and when it comes to austerity, that’s all that matters. In the words of Oscar Wilde’s Lord Darlington, a cynic is “a man who knows the price of everything and the value of nothing.”

There has been a fair amount of cynicism in discussions about austerity. For example, the value of spending over £136bn in public funds bailing out the banks following the 2008 financial crisis would be questionable enough in itself, without then using it as an excuse to deprive so many tax payers of essential government support services – especially since, as described in my new book, Austerity, the case of Iceland had clearly shown that there was a viable policy alternative to austerity. But whilst it all came down to cash at Westminster, the vast majority of us were losing essential public services that we use, value and, in many cases, depend upon.

If this continues, our society will soon begin to unravel at an even more alarming rate, as we cut the ties that bind it together. Cuts to local authority spending have already had a drastic effect on the level and effectiveness of social services, whilst you hear a lot on the TV – on a daily basis – about the devastating effects of cuts to the police and emergency services.

The corrosive effects of multiple cuts, acting together, became all too clear whilst filming a video about austerity at the Euston food bank – but that’s something you hear a lot less about in the news.

Perhaps counterintuitively, the vast majority of people who have been forced to use the food bank since it was set up in 2010 are actually in work. But the government’s attempts to save money through changes in the benefit system, like Universal Credit, has meant that people claiming it would not get a payment for up to five weeks. How many of us would be comfortable about missing a month’s salary – or more? Not many, I suspect.

It also turns out that in order to avoid homelessness, many Euston food bank users are choosing to pay their rent, rather than buy food. This is probably rather less surprising, given that the average UK household income is around £28,000 – and renting a two bed flat anywhere in that part of London will cost around £2,000 a month. Cuts to social care have also resulted in rising homelessness – and another source of people reliant on food banks.

Austerity, as a single policy, is a very blunt instrument, that has focused on price, rather than value. As a result, it has critically impacted many inter-related policy areas. Undoing its damage will therefore mean not only sharply revising policies in such areas of affordable housing, employment, health, education and social services; it will also require changes in benefit structures and delivery – to ensure that they work together as seamlessly as possible.

In a world where it is, for some unknown reason, apparently impossible to integrate such obviously linked services as the NHS and social care, this vision might seem ambitious. It shouldn’t be. In the words of Oscar Wilde’s Lord Darlington once again, “we are all in the gutter, but some of us are looking at the stars.”

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Introducing the Centre for Innovation Management Research

The Centre for Innovation Management Research (CIMR) is one of Birkbeck’s inter-disciplinary research centres. Professor Helen Lawton-Smith, Director of CIMR, explains what it’s all about.

CIMR is an inclusive and impactful centre of research excellence in the field of innovation and entrepreneurship. Inclusivity comes from the engagement in all our activities of CIMR members, our academic colleagues in Birkbeck and in other universities, our diverse set of visiting fellows and alumni (professionals in a wide range of organisations) and our PhD students.

Impact comes from our research, publication and dissemination in societally important topics. Recent studies include analysis of strategies for knowledge exchange, of knowledge co-creation, of diversities of innovation (BAME and disabled groups), public policy on entrepreneurship and innovation in differing regional, national and international contexts and on. We’ve been awarded research grants by the ESRC, British Academy, European Commission and Innovate UK.

Our recent workshops have included: Accelerating SME Internationalization: Academic, Policy and Practitioner Perspective (March 2019); International perspectives on measuring and evaluating knowledge exchange (July 2019), Strategies for knowledge exchange in a changing higher education landscape, (September 2019).

We engage in national and international collaborations. In 2019, led by CIMR, the School of Business Economics and Informatics signed a Memorandum of Understanding with the Kogod School of Business, American University, Washington DC. CIMR colleagues work closely with scholars in the US and in mainland European countries including Sweden and Italy.

We publish in top international journals including Research Policy, Industry and Innovation, Technological Forecasting and Social Change, European Urban and Regional Studies, Entrepreneurship & Regional Development, Small Business Economics, and Regional Studies.

Our research insights feed directly into UK and international policy-making. We have informed practice in the Department for Business, Energy & Industrial Strategy, Innovate UK, European Commission and the OECD.

Our research and international collaborations feed directly into teaching on technology transfer, innovation and entrepreneurship and blockchain. Masters students are welcomed to CIMR events and to join our alumni – we look forward to meeting you.

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Making a market for acts of God

How is the damage of major global disasters paid for? And who by? Dr Rebecca Bednarek, Senior Lecturer in Management at Birkbeck, explores this in new book Making a Market for Acts of God, now available from Oxford University Press. 

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Catastrophic events appear to be increasing in both frequency and severity globally. The financial cost of their losses can be sudden and huge – but who pays the insurance bill for such massive events? Who paid for Hurricane Katrina, or 9/11, or the 2011 Tohuku earthquake?

It all comes from the ‘Reinsurance’ industry – a financial market that trades in the risk of major disasters. This means reinsurance is a crucial social and economic safety net that helps to mitigate some of the effects of disasters, both financially and in terms of allowing for a swifter rebuilding of people’s day-to-day lives following destruction or damage. Dr Rebecca Bednarek, Senior Lecturer in Management at Birkbeck uncovers the everyday realities of the reinsurance market in her book, Making a Market for Acts of God, co-authored with Professor Paula Jarzabiwski and Dr Paul Spee. They get to the bottom of how the risk of such disasters can be calculated and traded in a global market.

rebecca-bednarek_photoIn a recent interview for BBC Radio 4’s programme Thinking Allowed, Bednarek explains: ‘In the reinsurance industry, the increase and frequency of weather related events are put in the context of climate change. In addition, what is also happening is increased urbanisation; as cities get bigger, the losses and expenses of these events become more expensive, as more people are insured in localised settings.’ Further, increasingly, a natural disaster in one country could affect significant losses to supply chains in businesses around the world, and it is against this backdrop of increased globalisation that we must attach more significance to understanding the market of reinsurance.

The sheer scale of the claims means risk must be spread further in order to mitigate its effects – the attacks on the World Trade Centre in 2001 insured losses of $35.5 billion, for example, and for Hurricane Katrina in 2005 the payout was $46 billion. But as Bednarek says: ‘It’s not just the scale of this loss, it’s the fact that you couldn’t predict them. The reason reinsurers are able to themselves survive and to weather such large claims is because for each individual insurance deal, multiple reinsurers take a small part of this deal. No one reinsurer is exposed themselves to a single risk.’ The book also explains how long-term trust-based relationships between insurers and reinsurers are crucial to enabling and stabilising capital flows before and following these large-scale events. These relationships also enable reinsurers to build up deep contextual knowledge of specific risks; something which remains crucial in informing their judgement about risk even as they also use highly technical vendor models and actuarial techniques.

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Bednarek and her co-authors shadowed underwriters from various different countries for over three years, gathering ethnographic observations from reinsurers in Bermuda, Lloyd’s of London, Continental Europe and South East Asia, studying their trading activities across many disaster situations.

There may be some developments in the reinsurance industry which could cause future problems, however. Bednarek says: ‘What we found was a whole milieu of long-standing social practices that had ensured that this industry had worked’ and provided capital to underpin large scale catastrophes for centuries. However towards the end of their period of engagement, the researchers began to observe ‘a period of rapid change; things like collatorised forms of finance, different kinds of deals that were changing the industry in certain ways. We wonder what these changes might do to some of these long existing practices that we identified as integral to this market and how it works.’

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