The race to the bottom

Across the country, there are communities that are struggling economically, whether that’s due to a lack of local employment, the loss of major industries and employers, or a process of long-term economic decline. As Britain’s economy becomes more polarised, wealth has increasingly concentrated around London, leaving many other once-prosperous areas behind.

For a long time, councils have sought to revitalise local economies by securing external investment. This often means attracting a major employer such as a factory, shopping centre or call centre to move into the area, providing jobs and acting as a catalyst for wider investment in the local area. The idea is that the money spent by such employers on wages, purchases from local suppliers etc, will trickle down, making the whole area better off.

The problem with relying on this strategy is that in a global economy, many of these types of businesses will move wherever wages and costs are lowest. This means that as soon as the major employer finds somewhere cheaper to do business – whether down the motorway or on the other side of the world – they can pack up and move on, leaving the community back where they started. Similarly, even while they’re in town, there’s no guarantee they’ll buy locally. Wealth ends up concentrated in distant market providers with limited local economic or social return.

As growth stops and starts according to the changing priorities of big business, communities engage in an unsustainable race to the bottom as they compete to attract and incentivise firms when they expand or relocate

There’s a better way

Over the past decade, a new way of building local economies has begun to emerge – based on bottom up, not trickle down. It’s called ‘Community Wealth Building’. First developed in the so-called ‘rust belt’ of the United States – one of the first areas to be ravaged by post-industrialisation – community wealth is based on the idea of mobilising the assets that already exist in a community: its people, small businesses and public institutions, and enabling them to work together to create prosperity from within.

Co-operatives, which are businesses owned by their customers or employees, are central to making the whole model work – which is why the Co-operative Party is proud to be one of the organisations working to bring the model to the UK.

Here are the key ingredients that make the community wealth model work, and some examples of where it’s already happening here in the UK:

Co-operative political leadership

Turning community wealth ideas into local action requires local representatives to be in the driving seat.

Labour-led Glasgow did this by embedding co-operative principles into the city’s long term economic plan, as part of their commitment to develop Glasgow as a co-operative city. They have established a Co-operative Development Unit, with an executive cabinet member to lead its work. They underwrote this with a £500,000 budget annually to give transformative grants to co-operatives, mutuals and social enterprises.

Anchor institutions

An anchor is a public-sector organisation or large business that it tied to its location – meaning that, unlike businesses that can move out when times get tough or it’s cheaper to outsource elsewhere, they will stay a part of the local economy for the long term. For example, this could be a hospital, a port, a football club, a university or a utility company.

In Leeds, the council identified over 70 large anchor institutions, which collectively employ 200,000 people and control budgets of £11 billion. It was found that nearly 50p in every £1 of this spend leaks out of the local economy.

Progressive procurement

By harnessing the power of the public pound, local authorities can keep money circulating locally and regenerate the region.

For example, working with the think tank CLES, Manchester City Council have transformed their procurement to achieve over £65 million in efficiency savings, while significantly increasing the proportion of total spend with organisations within the Greater Manchester region from 51.5% in 2008-09 to 73.6% in 2015-16 – creating over 5,000 new jobs.

Co-operative development

New worker co-operatives should be supported to start-up and scale up to deliver goods and services to the anchor institutions. As businesses owned and run by the people who work in them, co-operatives will create good quality local jobs and reinvest wealth locally. Members get a say in how the business is run and a share in the profits.

When budgets for school meals were under threat, the Labour-led Plymouth Council took an innovative approach. The council worked with schools to pool resources and create a new co-operative company, CATERed.

Operating on the basis of one school, one vote, the new co-operative protects the service, increases local employment opportunities and sources food from local businesses.

Local investment

To grow the local co-operative and social economy, investment is needed for start-up capital and loans. It can often be difficult for co-operative enterprises and SMEs, to access affordable finance so local anchor institutions have an important role to play.

In Hampshire, a local community interest company is taking the matter into their own hands. Based on the German network of co-operative banks and Sparkassen – local public savings banks – the new Hampshire Community Bank will focus on providing credit to SMEs in the local area.

In Preston, the Lancashire County Pension Fund is changing the way it invests too, investing £100 million in student accommodation and new office space in Preston and South Ribble. They’re now exploring how they can go further and invest in local affordable housing and renewable energy too.

Assets and services working for the community

Creating a resilient local economy isn’t just about growth – it’s about tackling unfair practices, from rip off energy bills to insecure housing, so that everyone can benefit from the community wealth building approach. Local people should be able to afford the everyday things they need so local services and assets should be in community, co-operative or council ownership and delivered in the interests of local people.

Castle Community Bank is a new bank in Edinburgh which provides individuals with affordable savings and loans products, and which puts surplus funds into community projects around the city.