Neil McInroy – Power to the local economy

“I can’t myself raise the winds that might blow us or this ship into a better world. But I can at least put up the sail so that when the winds comes, I can catch it” E.F. Schumacher

‘Although we talk a lot these days about globalisation, about a world grown small, when you look at the economies of modern cities what you see is a process of localisation: a steadily rising share of the work force produces services that are sold only within that same metropolitan area.’   Professor Paul Krugman, Professor of Economics, Princeton University.

Local economies matter for a socially just and economically robust Scotland.  Despite a general rise in economic prosperity and a rising standard of living, Scotland is a land of haves and have-nots.  For too long some of Scotland’s communities have suffered from poverty and disadvantage.  A true progressive agenda, needs to tackle this.  A progressive future is about a Scottish economy which works for all of the Scotland’s communities and its people. 

Local economies are a key part of this future.  Scotland, as all countries, is subject to global forces of economic competition and flows of investment.  To be successful, the country, and its component parts, must fly bespoke local sails which capture positive global economic winds, ensuring investment and opportunities land here, powering us to a future of greater prosperity.  However, our future is not only linked to these global winds. 

Indeed paradoxically, despite the global economy and the attendant global culture, we also as a nation – like many others – maintain a desire for the locally authentic.  We want to see our heterogeneous and bespoke history, tradition and ways of life, protected and nurtured, and not eroded by the homogenising tendencies of globalisation.  We crave a distinctiveness to our cities, towns and rural areas, hankering for making a ‘mark of place’ within this globalised world.  Indeed as the quote from Krugman highlights, while the long term trends of globalisation might suggest a reduced importance of the local economy, we are in fact seeing a growing localisation of the economy with local supply servicing local demand.

Building local economic resilience

We know from our Scottish economic history – from whaling, to mining to shipbuilding   –  that local areas which become locked into a single economic sector, or misread the scale of social, cultural and technological shifts or fail to plan for resource depletion, may well be left behind.  This will not change.  Indeed this pattern is speeding up – with consequent economic, social, cultural and environmental damage becoming the new normal.  Local flexibility, resilience and how our economies ‘bounce back’ from adverse change is important to us all. 

In the last 6 years, as the global economy imploded from the financial crash, we have become increasingly aware of the need for national and local flexibility and resilience. Policies which sought to deregulate, to favour financial interests and the enticement of global capital and to shift the nation state away from significant internal redistribution, are now being questioned more.  The dominance of financial services over manufacturing, and global corporate retail over local independent services which service local demand, are now seen as weaknesses. More of us now know that our local economies, including our town centres, have become hollowed out, vulnerable to the vagaries of the global economy and inchoate financial markets.  We have discovered the economies of our own cities and towns lack resilience and have inadequate breaks against the winds of global economic change.

So we must recognise both the power and the perils of the global economy.  To do this, we must re-position and reset local places in relation to those global economic forces, creating networks of local economic activity that are more independent and self-sustaining. 

A local economic reset

This reset requires a shift away from the kind of current economic thinking which has lost its social and local dimensions. 

Current pathways to economic development have proven inadequate.  Economic development should never just be about ways of increasing commercial wealth; it’s also about providing the public and social sector inputs into that commercial success and positively contributing to the places in which wealth is forged.  The conventional logic by which investment capital is enticed and landed from elsewhere and local jobs are thus secured is flawed.  Global investment is footloose and fancy free and often moves away, once the initial public taxation and planning enticements are gone.  Much global capital cares very little whether it is making an investment return in Bathgate, Bangalore or Bishtek.  Local jobs are not always guaranteed and the wealth generated is all too often distributed to far-flung corners of the globe rather than to local people and communities.

The Scottish founder of modern economics – Adam Smith – in his books The Theory of Moral Sentiments and The Wealth of Nations tells us we have two vital interdependent elements in society – benevolent self-interest and a need to empathise with the social plight of others.  However, the economic policy world has and continues to overplay ‘self-interest’, seeing the economic sphere as a distinct and opposite pole to the social sphere. It is not.  They are and should be one and the same.  Therefore, the aim of the economy should be about improving social conditions, in which wealth creation in any society is not just about private gain, but primarily is about the development of human and social life and a decent standard of living for all. 

A local economic perspective is important as an intimate means of making an economy real – keeping it in touch with social outcomes and social progress.

A local economic reset means that economic stewardship needs to hone in on the local and the small-scale possibilities which arise at the nexus between people, local places and the economy.  Local economies are made up of a network of social, public and commercial activity – all interconnected and dependent on one another.  For instance a successful private economy is built on the back of both decent public services (e.g. transport and education) and strong social capital which nurtures families, creates safe communities and forges robust and productive workers. 

A progressive local political economy has a set of principles in which the fortunes of the local economy are not separate from local social life and local places, but intrinsically connected to it.  Indeed, social progress is both an input and outcome of economic success.  A progressive local political economy is not just about ‘a rising tide will lift all boats’, but is about bespoke local policies which support the local characteristics of local economies.  This includes options which ensure that economic activities are locally jobs rich, that the poorest benefit, that economic activity supports ‘local’ supply chains and that development is sustainable once sweeteners are gone.  Policies can include:

Supporting local ‘foundational’ economic activity.  This includes the public economy of health, local government and education alongside electricity, gas, retail banking, supermarkets and associated business.  Typically these make up 40% of the UK workforce and often even more in disadvantaged areas.  A focus on them, as local employers, could create a rich jobs dividend.

Supporting local “multipliers”.  This includes encouraging local ‘anchor’ institutions to use their own supply chains and purchasing power to benefit local people,  developing local cooperatives and initiating ‘buy local’ activities.

Developing collaborative economics.  Effective networks are at the heart of successful local economies and ‘collaborative economics’ involves  developing greater public, social and commercial cooperation within the local economy.  This could include a bigger role for the social sector.

Responding to local ecological imperatives.  Local economies can look to business and economic models which move away from growth, or at least ‘bad growth’, and explore new forms of sharing and local reciprocity.

The importance of the local state

Economic power is dripping away from our cities, civic institutions and local businesses and changes in economic policy or our constitution should be designed to avert this.

The bespoke and intimate aspects to local place and local economies are often beyond the ken of conventional national economic statecraft.  The local state, however, is expert in working with local social and commercial partners to curate and steward the places in which we work, do business, live and bring up families.  The central state has a role, but it is not subtle or nuanced enough to pick up on the local bespoke variations required.  Progressive local place-based actions of the local state, as purchasers of goods and services, as employers, as the owner of land and buildings, as pension scheme provider, as an investor and as a partner with local private sector, should take a more prominent role to ‘lock in’ or stimulate local economic benefit.

However, I am not talking here about a local state filled with municipal paternalism; rather about local government being the active enabler, encouraging and inspiring self-determination from a range of sectors and innovative collaboration and crossover between social, public and commercial networks.  Even normal local government activity, directly properly, can strengthen the local capacity to forge new local social contracts in the interest of local people, communities and the local economy.

Local government procurement, for instance, can support the local economy. We know that local government finances and wider public services are under pressure.  The fallout from the economic crises, plus a seemingly ever-increasing demand for public services, means we must find ways of reducing  pressure on local public finances.  The Christie Commission identified the direction of reform, including plurality in delivery types, where co-production between social, private and various partnerships and collaborations play a greater role. 

Local government delivers things directly, like social services, schools and parks.  However, it also buy things like social service contracts, schools desks and grass cutting machinery.  This buying of goods and services can contribute to fairness and equality.  It can be virtuous.  Indeed, if done right, it can be used to encourage progressive inclusive practices in wider supplier behaviour which in turn support local economies, deprived communities and equality groups.

Much local authority activity and commentary has demonstrated the significant value that a bend in local spend can bring.  Indeed, some local authorities carefully monitor spend and its ‘ripple effects’ upon local economies. 

Areas with poor growth and little prospects for growth have the attendant problems of unemployment and disadvantage. Local economic development is often hampered in these areas, with investment capital reluctant to land, due to poor skills and better prospects elsewhere. Without intervention, the successful areas will merely become ever more successful, whilst the poorer areas are likely to get poorer. In this circumstance we need a redistributing central state which gets actively involved in overseeing national fairness. The future will continue to need a central government which acknowledges that the poorest areas, bedevilled by decades of deindustrialisation and underinvestment, need a hand up.

In the debate about Scotland’s future, the real prize is to recalibrate our economic practice to deliver a progressive and inclusive future for all of the Scotland’s communities and people.  The global economy is a given, but it is played out in local places where it has an increasing impact.  So we must redirect our attention to the role of the local – as both a bulwark against global ill winds and as a means of capturing its benefits.

Neil McInroy is the Chief Executive of the Centre for Local Economic Strategies

This essay first appeared in Towards the Local published by Scottish Fabians 

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