Cereal Killer is a café on Brick Lane in east London that serves breakfast cereal. It opened last December to a fusillade of indignant fury. What kind of fool would pay £3 for a bowl of something when they could go to a supermarket and buy two boxes for the same price? A reporter for Channel 4 asked the café’s owners, bearded Irish twins Gary and Alan Keely, whether it was sensitive to open such a ridiculous restaurant in Tower Hamlets, one of the poorest boroughs in the country.

More than anything else, however, the new café was seen as the latest high-water mark of hipsterism, a sign that the specialisation of leisure pursuits in east London had gone too far. Twenty-first-century hipsterism can be hard to define, but you know it when you see it. Beards, plaid, tattoos, thick glasses, fixed-gear bicycles, artisanal breads (artisanal anything, really), Apple products, cold-pressed juices… these are some of the outward signs. But a new book by the economist Douglas McWilliams, The Flat White Economy, suggests that hipsters, and the ecosystem surrounding them, represent the future of British prosperity. Not only are they greener and more ethical than the rest of us, but the industries in which they work are driving our economy. We mock them at our peril.

At the last census 150,000 people in London were reported to be working in the flat white economy

Perhaps fittingly the book has had a choppier passage to publication than your average pop-economics number. The chairman of the Centre for Economic and Business Research (Cebr), and a free-market conservative who has advised George Osborne, McWilliams was in the news last week when he announced that he was taking a sabbatical in the wake of allegations that he smoked crack cocaine at a house in Hornsey. It was unfortunate timing, a fortnight before the book’s release.

Named after the favourite drink of the fixed-gear generation, the flat white economy is a portmanteau phrase for an “amazing phenomenon that has surreptitiously changed the whole nature of London – and to some extent the UK economy”. From Cebr’s offices in Old Street, McWilliams had a front-row view of the changes during the past decade. What was once a hub for artists and bohemians has become the European centre for a creative, internet-driven new wing of the economy. With the reputation of the financial services in tatters and more traditional industries continuing their decline, this new source of growth has appeared just when the country needed it. To walk from Old Street roundabout to Shoreditch High Street is to see an extraordinary mix of open-plan offices and galleries, Asian restaurants with fat queues outside and cafés that will mend your bicycle, sprinkled with shark-eyed estate agents and a few resilient kebab shops. It breeds resentment and satire – none more prescient than Charlie Brooker’s Nathan Barley, a decade old this year – precisely because it is dynamic and interesting.



Facebook Twitter Pinterest Super bowls: Irish twins Gary and Alan Keely, founders of the Cereal Killer café in Brick Lane. Photograph: Ray Tang/REX

The flat white economy is driven by online retail and marketing but it comprises many different businesses: McWilliams argues that it is mainly defined by the types of people it employs. At the consumer end this leads to cafés and niche shops, such as the shipping-container Boxpark in Shoreditch. The new trendsetters don’t have as much money as their “loadsamoney” forebears from the financial services in the 80s and 90s, and as a consequence their spending patterns are driven by novelty rather than cost. “They can’t price their styles out of the market, so to keep ahead their styles have to keep changing,” McWilliams told me, when I spoke to him before last week’s allegations. “They also drink an awful lot of coffee.” (The stats bear him out. Since 2007, coffee sales have risen by 50% while sales of champagne have fallen by a quarter.)

Neither do they have much space. “They share flats and often share bedrooms,” he said. “They don’t have space for cups and saucers and dining rooms, so it makes more sense to head out to a café for breakfast. They save on ownership and travel light. They wear skinny jeans instead of suits. They have one or two expensive electronic products, but on the whole they are less materialistic than their parents’ generation. They buy bicycles rather than Porsches.”

Britain’s online fashion businesses are worth more than $10bn. New York and California don’t come close Chris Morton, Lyst

And they work, most likely, in a job powered by the internet. In the two years to March 2014, 32,000 businesses were created in a single Old Street postcode – EC1V. It is an extraordinary figure, even if some of them are just lone wolves with a MacBook. At the last census 150,000 people in London were reported to be working in the flat white economy, although McWilliams thinks that this may be closer to 200,000 now. The majority work in a tiny area around the Old Street roundabout. At its peak, the City of London employed 390,000. McWilliams’s book says that in 2012 the flat white economy contributed 7.6% of the UK’s GDP. By 2025, he estimates, it will be 15.8% and will be the largest single business sector in the UK.

“It’s said that Britain has not been good at creating technology: the Facebooks, the Googles, the Amazons,” McWilliams tells me. “But what people don’t realise is that Britain has been very good at using the technology. In online retail and marketing, this country leads the rest of the world. These are areas where creativity yields real value. I wonder if part of the reason British companies don’t become Facebook is because British people are too polite to become billionaires.

“You’d have thought that America, which is where catalogue shopping took off and population density is much lower, would be a good place for this kind of business, but it hasn’t happened. I don’t really have a good theory for why that is – perhaps in Britain we are trusting. One of the reasons people are apprehensive about shopping online is a fear that their card details will be stolen, but we have quite a low level of fraud.”

Facebook Twitter Pinterest The future is hip: Chris Morton, internet entrepreneur and founder of Lyst.

Entrepreneur Chris Morton, 32, has a different explanation. With a neat Tom Ford beard and a smooth mid-Atlantic burr (he was born in Oxford, but spent some of his childhood on the east coast of America), he would make a good poster boy for British entrepreneurs. After reading natural sciences at Cambridge he worked in venture capital before founding Lyst in 2010. The site offers a personalised shopping experience, using data to help users generate their own digital shopfronts from the possible millions of items on the market. In a world where more or less everything is a click away, Lyst aims to help shoppers sift the chaff.

“In Britain the department stores were slow to catch on to the internet, much slower than their American equivalents,” he told me. “That void created space for new companies, like Asos and the Net a Porter group, to spring up. People don’t realise it, but Britain’s online fashion businesses have been worth more than $10bn. New York and the Bay Area in California don’t come close to that.” Lyst has expanded quickly, from 20 employees to 80 in the past year alone, and occupied four different spaces.

“East London is the best place in the world to start a business like ours. All of our offices have been within a two-minute walk of each other. We started in Hoxton Street and then moved to a place off Curtain Road, and then to opposite Shoreditch High Street. Finally, last year, we moved to the White Cube gallery in Hoxton Square.”

Between 2000 and 2012, White Cube was a focal point of the Young British Artists movement – where the Damien Hirsts and Tracey Emins would meet and exhibit. It feels appropriate that the space has now become a home for the new iteration of Shoreditch, where the medium is pixels rather than paint.

“When we first came there were few other companies here,” Morton added. “It was cheap – the rent was just £3 per square foot – but it was also fun. There were bars to hang out in and whenever you left the office you would bump into somebody else starting a different business, but with similar problems. You could share tips about what kind of cloud computing to use or whatever. Those ad hoc meetings are incredibly important in this industry. Since we arrived an ecosystem has grown up that acquires its own momentum.”

Long-time east Londoners on Hackney hipsters: 'They need a humour injection' Read more

There are problems with the speed of growth. Rent in new offices is now £60 per square foot. No wonder the artists have gone elsewhere to starve in their garrets. Given the difficulty of getting funding and income in the early years of a tech start-up, and the possibilities the internet allows for working remotely, you might think that the industry would be more dispersed. But Morton said the opposite is happening. It is more important than ever to have everyone in the same space.

“Many of our employees live in Bethnal Green and Dalston and Islington, so it’s easy for them to cycle in. Developers and data scientists might be working for banks in the City. They can look down from their tower offices and see Shoreditch and think, ‘Why am I up here being part of the corporate machine, when I could be down there helping to change the world?’ To start a business you also need access to venture capital and almost all of those guys have moved here now from Mayfair.”

He added that the lure of working in this part of east London helps him draw talent from far and wide. “We have an incredibly diverse workforce. There are people from all over Europe, from every different walk of life. It’s very gratifying.”

According to McWilliams, the capital’s talent pool, continually refreshed by immigration, is what sets it apart. “People do seem to be more creative in London,” he told me. “The mix of races, genders and backgrounds seems to generate a flow of ideas. Other parts of the economy might move out of London, but anything that depends on creativity will remain London-based.” While other jobs are increasingly replaced by machines, those that demand a constant stream of creative thinking will endure.

It can be tempting to see the world that has been created in this part of east London over the past five years as a model for modern cities. A highly skilled, creative international workforce, commuting by bicycle, thinking hard about where their meat comes from, buying second-hand clothes and selling complicated things to buyers around the world. If you close your eyes and try hard to put aside any prejudices about men with waxed moustaches riding penny-farthings, Shoreditch can appear like a kind of idealised cross between Stockholm and Silicon Valley. Plenty of people hate hipsters, but if more of us lived like them, the world could be greener, more left-wing and less preoccupied by greed.

“I think there has been something of a philosophical change,” said McWilliams. “People are becoming less materially driven and more about experiences. Although the economics have made it convenient: it is expensive to store things, while cheap flights have made it easy to pop over to Berlin for the weekend.”

Facebook Twitter Pinterest The Boxpark pop-up shopping mall in Shoreditch, London Photograph: Alamy

Critics argue that what has happened in east London is unsustainable and brings plenty of its own problems. According to the 2011 census, the percentage of people working in the creative, media or sports industries in Hackney rose more than 65% in the decade after 2001, and by nearly 50% in Tower Hamlets. Including the past four years the figure would be even higher. According to Rightmove, a property website, the average residential property in EC1V was £469,000 in June 2009 – in June 2014 it was £914,000 (although it has levelled off in the past few months). Families who have lived in this part of London for generations are selling up.

The rise of the flat white economy is only part of the explanation: improving schools and decreasing levels of pollution and crime are also helping to draw wealthy people back to the centre of the cities. There is a chicken and egg argument about some of the causes and effects. In an impassioned speech last year against gentrification in Brooklyn, New York’s version of east London, the filmmaker Spike Lee implied that there might be a racial element to the allocation of resources: “Why does it take an influx of white New Yorkers for the facilities to get better?”

Another problem is rolling out the model beyond London. The flat white economy is driving fast growth in one small area, but is it replicable elsewhere? In some respects, America has been here already. Portland and Boston are two cities that experienced a version of the flat white economy before London did. In the wake of the dotcom boom of the early noughties, the writer and urban theorist Richard Florida wrote a book called The Rise of the Creative Class, in which he advocated a kind of proto-flat white economy, arguing that the American cities could insulate themselves from the changing shape of the economy by becoming attractive to creative young people. But as has become clear in a number of cities, the consumer end of a creative class – independent bookshops and zany tapas joints – tends to benefit only the creative class. Having these things without the driving force of real industries is risky.

McWilliams’s book focuses on online marketing and retail, which are expanding and profitable, although it sounds a cautionary note about the potential limits of these industries. He argues that the government needs to remove possible barriers to growth, which in London means building more houses and offices and making sure the trains run properly. This is beginning to happen: although you might not think it to read the headlines about first-time buyers, London’s housebuilding starts are at six times their historic average. McWilliams identifies 10 other British areas, including Leeds and Slough, where this kind of economy might take off, but warns that the capital will continue to dominate.

Facebook Twitter Pinterest Cafe owner Nik Williamson at the ‘Porridge Cafe’ in Shoreditch Dan Kitwood/Getty Images Photograph: Dan Kitwood/Getty Images

Back on Brick Lane, certainly, there was no sign of any slowdown. Three months after it opened, business at Cereal Killer is thriving. The cheerful staff, clad in black T-shirts, might have come from hipster central casting, but there was no doubting the sincerity of the joy being Instagrammed out by happy munchers. “At first it was nuts,” said Campbell, who has worked in the café since it opened. “There are still queues around the block at the weekend and we get some tourists, but there are also plenty of locals and even one or two regulars.” For £3 he poured me a “cocktail” called “Don’t Have a Cinna, Mon,” comprising Golden Grahams, Cinnamon Crunch and Apple Zings. It was tasty, although I felt about eight years old. “Finally, it is starting to feel like a normal business.”

Cereal Killer will not be the last hipster outlet to aggravate the general public. As this went to press, a Scandinavia-inspired porridge café opened less than half a mile away, offering 25 varieties priced at up to £7 a bowl. The hipsters may have the last laugh, and it could be good news for all of us.

After this article went to press it emerged that Douglas McWilliams is also facing trial for allegedly assaulting a prostitute on New Year’s Eve.

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