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An economics lesson that the Borough Market terrorists failed to grasp

It’s unlikely that the pathetic psychopaths who ran amok in Borough Market randomly stabbing Londoners on Saturday night gave any thought to the economic significance of their target. But the city’s foodie hub is a powerful case study in the phenomenon of retail clustering.

From one perspective, it’s odd that so many artisan grocers and luxury delicatessens would want to cram themselves into one relatively small place beneath the railway arches of a busy London train station. Competition is ferocious. Business rates are punitively high.

Why not spread out across the capital? Sadly, there are no artisan delicatessens where I live in the unfashionable suburbs of south London, even though there are plenty of folk with a sufficiently high disposable income to shop in them. If these shops dispersed they would have much less competition, a higher share of a reasonably large local market and lower overheads.

But there are two forces at work on retailers, one centrifugal and centripetal. The centrifugal force is the desire to reduce local competition by striking out alone. The centripetal force is the urge to benefit from higher footfall by clustering.

If a retailer is selling a good or service that is considered a luxury rather than a staple, the clustering force often prevails. Clustering in Borough Market has created a world-class foodie destination and customers are sucked in from far and wide. People won’t travel into London Bridge to buy a pint of milk, but they will to buy a chorizo roll from Brindisa or a Lemon Chiffon cake from Konditor & Cook.

The same applies if a purchase is relatively infrequent, which is why one often finds two rival retailers flogging washing machines, or sporting goods equipment, sitting right next to each other in out-of-town retail parks. More competition, yes, but also more customers.

Whole areas benefit from clustering through positive spill-overs. People shop for their artisan cheese and their cured ham in Borough Market and then enjoy one of the many high-end local restaurants or independent coffee shops. They stroll by the river and drink in one of the pleasant Thames-side pubs. It’s a day out, often turning into a night out too.

Clustering, economies of agglomeration, network effects and positive spill-overs, on a larger scale, explain cities themselves. There are spill-overs galore in any big city.

To expand on the example at hand, wealthy City workers cross London Bridge to have lunch in Borough Market. Doctors come from nearby Guy’s Hospital for a post-shift drink. Tourists saunter over from the South Bank and vice versa. Firms buy floor space in the Shard, despite the high rents, because of the local amenities, not least the famous foodie hub next door.

This clustering is what makes cities a prime target for terrorists. They seek to leverage the murderous rage of their risibly small band of fanatics by assaulting a place where they know there will be lots of innocent victims. They seek an iconic location so they can create a mass psychological impact through their despicable violence.

But clustering is also why cities are so resilient, and why the waters of commerce tend to close over the economic damage they cause surprisingly quickly. There is so much capital invested in cities – the refurbished shop, the new office block, the renovated train station – that people have to keep using it to pay the bills. There’s economic momentum. Londoners are grieving for the victims of the London Bridge massacre but they aren’t “reeling”, mainly because they haven’t got time to reel.

And the way to limit the economic damage that terrorists seek, in part, to create is not to panic, but to carry on spending and enjoying all the wonderful experiences a city has to offer. As Rudolph Giuliani urged New Yorkers immediately after the 9/11 attacks to “buy a pizza, take the kids to the park, see a show”, the advice in London should be: visit Borough Market.

Don’t be alarmed, as the Mayor Sadiq Khan rightly told Londoners and the capital’s hundreds of thousands of visitors at the weekend. And only a malevolent fool – or the President of the United States – would urge otherwise.


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