12 years ago, I visited a town on the edge of a large UK city. It was a typical post-industrial town where many of the large industrial employers had left and it was straining to find new economic purpose and employment. There was no absence of concern and action backed by public sector ‘regeneration’ funds, with physical improvements and social regeneration initiatives. However, as the Director of Economic Development said, rather despairingly, ‘we have tried many things, but even the pound shops are closing down!’ Efforts to create a more consumption-based economy, were floundering under low wages, insecure work, and the lack of local demand.
Today, we have some devolution in our large cities, and some areas are doing well—attracting inward investment, with property-led development and new spaces of consumption. However, this is the exception rather than the rule. Many areas continue to struggle, indeed in some areas the problems are deepening, made worse by public sector austerity. The promise of trickle down or the trickle outwards of wealth is just that. Inequality and poverty is on the rise.
This is unacceptable. The UK is the sixth largest economy in the world, and has large amounts of both private and public sector wealth. Therefore, the defining issue here is not the absence of wealth, but that it is not being retained or organised for all. Then, the defining questions of our time are who owns the wealth, who influences it, who benefits from it, and where does it go?
With these questions, the economic mainstream is being challenged and a new movement is growing. This movement is characterised by a growing range of alternatives and actions, which seek to advance inclusion, and reorganise the economy. A reorganisation, where wealth is extracted less, is more broadly held, and is more local rooted.
The need for deeper reorganisation of the economy
This need for a reorganisation of the economy and the speeding up of local social movements is a product of the global financial crisis, the subsequent austerity and the apparent powerlessness of the social democracies in UK, Europe and beyond. For the last 60 years or so, social democracies ensured that citizens had good access to material wealth. Embodied by post-war contracts, such as the UK welfare state, a social contract was created, where social and regional policies sought to redistribute some surplus from a regulated capitalist economy. There was a ‘settlement’ in which the capitalist economy produced the wealth, while the state produced fairness and equity, in relation to that wealth. In this, our social democracies created central public authorities and bureaucracies that redistributed resources ‘after the fact’ of wealth creation. However, this arrangement is now challenged by the voracity of social issues and failing under the global economic system.
Firstly, it is challenged by global financialisation — the act of making money from money. The desire for speedy returns on capital investment means there is a preference for the relatively low-risk property and land markets (often in our urban centres of our core cities). This skews investment away from other — less investment-ready locations — and the relatively employment-rich real economy of manufactured goods and services. Furthermore, investors are now increasingly global, often with little or no attachment, connection or affinity to local places. This means that return on investments are not readily recirculated by investors into their local economy. Indeed, in an era of opaque and fast moving global capital, it is increasingly difficult to even identify who investors are, let alone where investment gains go. As such there are limits to any central ‘after-the-fact’ redistribution. By the time any wealth capture process is in place, the wealth has already been extracted into the ether of the global economy.
Moving forward, there is the need to reorganise these ‘after-the-fact’ policies of social democracy. We need policy that works before and during wealth creation. This entails more ‘sticky’ and ‘patient’ investment in real local economies, and re-energising the focus of economic development on human and social outcomes, alongside growth gains.
Secondly, there has been and will continue to be profound shifts in the economy, technology and employment practices. Automation is speeding up a longstanding process by which wealth is gained less by society through employment, but more through capital return, extracted by investors. As it continues, automation will increasingly drive down wages and reduce the share of income through labour. The immediate impact will be more and more people trapped in inferior, robotic, low-productivity and low-wage jobs. The long-term solution is, therefore, to redirect wealth and economic activity to employees and communities. This can be achieved through broader ownership models, such as co-operatives and community benefit societies, where more people have a stake in production and where wealth is reinvested for local good.
This maturing of capitalism means that higher levels of social inclusion demand more self-generation, where social gains are wedded to the actual workings of the economy, rather than some ‘after-the-fact’ corrective measure.
These features may be conceptual, but the response is real and growing. The new economic movement is lodged within European and UK social democratic traditions, but it is advancing from it. This is political, social and economic. Politically, we are seeing the rise of new plural democratic movements and municipalisation, perhaps exemplified within Barcelona and new global networks such as ‘Fearless Cities’. In cities and localities it is highlighted by a new plurality of social movements, campaigns, often fuelled by social media, and digital connectivity. Socially, new community action and innovation is finding alternative ways in which people, businesses and the state organise themselves to meet social needs and issues. Economically, the collaborative and sharing economy are shortening supply chains and blurring the boundaries between production and consumption. In this a new horizontal flourishing of ‘on the ground’ political, social and economic innovation, is starting to infect vertical power. Key amongst this is the community wealth building movement.
Community Wealth Building
Community wealth building is a systems approach to economic development, built on local roots and plural ownership models. Within this is a rejection of liberal economics, a questioning of local economic policy, and a desire to reorganise our economies. In community wealth building, social and environmental gains are not an afterthought, but integrated as a natural function of the economy. The aim here is to ensure a reliability of outcomes, including jobs and meaningful work, equity, inclusion, economic stability and environmental sustainability.
There are a growing range of local agents who are driving this community wealth building movement. This includes businesses who are paying the Living Wage and developing and growing their care and concern for employees, including the development of investment portfolios to reflect local need and place development. In the social sector, we have many organisations developing co-operatives and economic alternatives, which ensure wealth is distributed and owned by the people who are producing the wealth. In the public sector, we are seeing a greater acknowledgement of the public pound — democratised money — and how the commissioning and procuring of goods and services needs to be more local, and flood through local supply chains. There is also a growing recognition of how land and property holdings and pensions funds should benefit local economies more. Above all, and across all sectors, we have a new movement of social innovation, which is seeking to build a better economy, with a growth in local currencies, local banks, community shares and community energy schemes. It is about unleashing activity around the foundational economy, co-operatives and post-capitalist entrepreneurship.
Community wealth building through institutional anchors
The process of purchasing goods and services — procurement — has historically been a challenge for municipalities and other institutions within our cities, especially when linking to wider local economic, social and environmental benefits. However, that perception and culture has changed. Progressive use of commissioning and procurement is now acknowledged as a means to developing a dense local supply chain of local enterprises, including SMEs, employee-owned businesses, social enterprises, co-operatives and other forms of community ownership. This is locally enriching because these types of enterprises are more likely to support local employment, and have a greater propensity to retain wealth and surplus value locally.
Anchor institutions are crucial components of our towns and cities, commonly including local authorities, further and higher education providers, and housing organisations. Anchor institutions are important because of their potential to stimulate local economic growth and bring social improvements to the local community and environment. While the primary objective of anchors may not always be social justice, the scale of these institutions, their fixed assets, and their links to the local community mean that they are the ‘sticky capital’ on which new local economic approaches and social improvements can be based. Much work on anchors has been pioneered by the Democracy Collaborative in the USA, notably Cleveland, Ohio. In UK and Europe, the Centre for Local Economic Strategies (CLES) are at the forefront of policy and practice, working in Belfast, Preston, Birmingham, Oldham and 10 cities across Europe.
This local economic strategy — transforming procurement approaches at local anchor institutions — commenced in Preston, Lancashire, over four years ago, with a desire to respond to the economic and social challenges facing the city and the failings of the extractive economy and austerity.
Now dubbed the ‘Preston Model’, the work started through looking at the process of procurement and particularly the extent to which six anchor institutions in Preston (Preston City Council, Lancashire County Council, Preston’s College, Cardinal Newman College, Lancashire Constabulary and Community Gateway Housing) utilised local organisations to provide goods and services. Of a combined annual spend of £750m, only 5% was spent with organisations based in the Preston boundary and just 39% with organisations based within Lancashire. This meant that more than £450m leaked out of the Lancashire economy. As a result of new policy and action between 2012/13 and 2015/16, the City Council alone was able to more than double the proportion of its local procurement spend from 14% to 30%, with local businesses, social enterprises and co-operatives benefitting. In monetary terms, this means £1.2M more being spent in the Preston economy.
While repatriating spend was and is an important component, the primary purpose has been to shift the behaviour of the anchor institutions so that they think more progressively about their local processes and choices, and the impact it has on the local economy. This includes support for other forms of economic democracy and community wealth building:
· The creation of the Preston Co-operative Network. The council hopes to shift decision-making power from corporate shareholders to public stakeholders, by increasing the range of people who have a genuine stake in production and financial return.
· Establishing an energy supply partnership, seeking to establish a community bank, and actively looking for further opportunities for local investments by Lancashire’s Pension Fund.
In this and the other locations CLES are working in, local government are now stepping forward to encourage and inspire economic self-determination and new forms of supply and economic ownership. With other social and commercial anchors, they are ‘locking in’ and stimulating local economic benefit, building a local economy in which everyone has a stake.
The movement grows
Through community wealth building we are seeing a democratic, social and economic movement, which seeks to provide resilience where there is risk and local economic security where there is fragility. We are in a moment of great political and economic uncertainty. As such, the energy that fuels this movement is growing and the range of community wealth building work is delivering outcomes. The task now is to celebrate and accelerate. We can reorganize an economy for all.
Neil McInroy is the former Chief Executive of the Centre for Local Economic Strategies.
