Four ways we can build a more inclusive economy

We have an economy that simply isn’t working for many people and places. Tinkering around the edges of our existing economic models isn’t enough to address this. Only a bold re-imagining of our economy will help us meet the challenges we face. Eight inspiring examples from around the world - featured in the latest RSA report - show us what this might look like.

Two years ago the RSA’s Inclusive Growth Commission presented a vision of an inclusive economy and what we needed to do to get there. The daunting challenges the Commission highlighted - sharp social and regional inequalities, stagnating living standards, poor productivity, low quality jobs - are still with us today, in full force.

Britain's lost decade

Britain is having its very own ‘lost decade,’ every bit as serious as (perhaps more so) than Japan’s in the 1990s. Worryingly, there is a real risk that these problems will continue well into the 2020s.

There is no getting around one simple fact: for the last forty years Britain has had among the highest levels of inequality in the developed world, and we have done little to tackle it effectively.

Austerity is making inequality even worse, taking us back to a peak not seen since the 1980s. Central government simply hasn’t had the answers. The Stronger Towns Fund - which doesn’t even come close to compensating for the money lost to cuts since 2010 - is the latest example of an initiative that is extremely unlikely to achieve the transformative change it hopes for.

As national governments struggle to cope with the scale of challenges they face, it is local places - regions, cities and towns - that have stepped up to the plate to find new solutions. A progressive municipalism is emerging across the world, drawing together civic, business and community actors. It is here, we think, that inclusive growth is taking root and the seeds for a new type of economy are being planted.

In our new report Inclusive Growth in Action, we provide case studies and stories of interventions across the world that are promoting inclusive growth in a practical and (in many cases) systematic way. The report is not intended as a ‘what works’ guide, nor is our intention to present local innovation as a panacea for national inaction. Rather, it aims to inspire new thinking and practice with examples of what is possible and what appears to be having an impact on the ground.

Read the report: Inclusive Growth in Action

Below I draw on the insights from the report’s case studies to present four ways that an inclusive economy might be built. These are anchored in our account of the four key dimensions of inclusive growth:

• Livelihoods (income and labour markets)
• Wealth (financial and community wealth)
• Voice (citizens and inclusive growth)
• Futures (long term decision making and sustainability)

1. Social infrastructure is critical for creating inclusive labour markets (Inclusive livelihoods)

Unequal economies tend to have unequal and polarised labour markets. Economists attribute this to a skills divide, with higher skilled people benefiting from technological change and those with ‘lower’ skills finding themselves trapped in low paid work. The conventional solution offered is to invest in economic infrastructure - including transport and training - to get more lower income people into better work.

One of the most successful and evidenced labour market programmes in the world - WorkAdvance - suggests that social infrastructure is just as important. This refers to the social resources that enable people to participate meaningfully in society and the economy. Often, this infrastructure is developed by public services such as childcare, health, work support and preventative services.

So important is this critical infrastructure that organisations delivering WorkAdvance will not establish the programme in a locality if certain building blocks are not in place. WorkAdvance is a holistic ‘wrap around’ model of support that is unlikely to be successful without quality social infrastructure, from childcare to mental health services.

In the UK, Barking and Dagenham’s Community Solutions programme is also showing the complementarities between inclusive growth and an agenda for investing in and transforming public services with the aim of empowering citizens.

Read the report: Inclusive Growth in Action

2. Choosing economic gardening over corporate ‘hunting’ can revitalise local economies (Inclusive wealth)

The value of traditional economic development has come under serious scrutiny in recent years. The controversy over the monumental sweeteners being offered by US cities to Amazon - not only mammoth tax breaks but also legislative changes - has shone a spotlight into a common practice in economic development.

In a desperate attempt to bring jobs (and GVA growth) into their town or city, local leaders will often go ‘hunting’ for investment from big, distant companies or investors by offering them costly incentives. Evidence suggests that the long term consequences of this can harmful. There is little value for money; historic local residents often don’t benefit from the jobs created (especially the higher quality ones); and much of the wealth that is created locally is ‘extracted’ by distant shareholders.

A growing number of US towns and cities have recognised this and are investing in an alternative approach - Economic Gardening. It was first put into practice in the 1980s in Littleton, Colorado - a small town ravaged by de-industrialisation - and today is being tested in large metropolitan regions and states such as Florida. Rather than relying on ‘hunting’ for big outside investors, Economic Gardening builds a development strategy around ‘growing from within’. It focuses on providing local ‘stage 2’ companies (those with between 10 and 100 employees) with support to grow and create sustainable local jobs.

Community wealth building - well known in the UK through the work of Preston and the Centre for Local Economic Strategies (CLES) - is another approach that seeks to ensure wealth that is created locally is regenerative rather than extractive. It is underpinned by a bold, practical vision that includes localising public spending, unlocking the social potential of the assets owned by anchor institutions (such as councils and hospitals) and building broad ownership within a local economy through supporting socially minded and cooperative enterprises.

Read the report: Inclusive Growth in Action

3. Institutions and citizens can work together to put people at the heart of an economy (Inclusive voice)

There are legitimate concerns that the devolution and inclusive growth agenda in the UK is a top-down, technocratic endeavour. Some in the grassroots feel their voices are going unheard. While some localities are putting citizen voice at the heart of their understanding of inclusive growth - for example West Midlands Combined Authority - there is no denying we have a democratic deficit in our municipal politics.

It doesn’t have to be like this. In the report we highlight two radically different places to highlight this.

In Barcelona, Barcelona en Comú - a left wing, grassroots movement that was elected to form the city government in 2015 - transformed local governance. It did this not by dismantling or weakening formal institutions, but by empowering citizens to work together with the city’s institutions in a new way. The democratisation of the ‘Smart City’ infrastructure in Barcelona illustrates how a democratic municipalism can create the foundations for a new type of economic governance.

Conservative Utah in the United States bares very little resemblance to Barcelona, but leaders their have reached similar conclusions about the importance of bringing citizens and experts together to make decisions about the future of its economy; and to ensure that citizens’ values directly shape the sort of growth the state pursues. Since the 1990s an organisation called Envision Utah has brought together residents with civic, business and community leaders to plan for growth in a manner that supports quality of life. The trust created by the process has led to some remarkable results: including widespread support for significant public infrastructure spending in a traditionally tax-sceptical state.

Read the report: Inclusive Growth in Action

4. Taking a long term view of the economy (Inclusive futures)

With the scale of the challenges facing the country - and Brexit on the horizon - there is a temptation to prioritise short term objectives at the expense of long term prosperity.

It is curious that even for many of those advocating inclusive growth, the priority is the here and now, which is why so much of the focus has been on skills and productivity. The general lack of consideration for climate change is problematic, and may raise questions about the type of growth we want to build an inclusive economy around.

The Promise of Seoul shows that inclusive economic development can go hand in hand with action on climate change, particularly as those that are poor and economically precarious are often the most susceptible to the ill-effects of a warming climate. As the debate on a New Green Deal has highlighted, building an infrastructure for sustainability can also create opportunities for those at the margins of our economy. Despite being at a much smaller scale, sustainability initiatives in Seoul are finding ways to bring together economic, social and environmental agendas.

In a similar vein, the use of public wealth funds - the independent management of public assets using modern accounting principles - illustrates how the stewardship of public wealth can create long term value for society. While economic dogma has led many places to privatise or sell off public assets, a more enlightened approach could see them owned publicly but managed professionally and at arms-length from short term political interference, generating revenue to fund public services and vital infrastructure. Singapore’s Temasek (established in 1974) is one example. It is a government owned investment fund that contains $275bn in holdings across major industries. It has generated a total return of 15 percent since its inception, and contributes $3bn a year to Singapore’s budget.

Read the report: Inclusive Growth in Action

Where next for inclusive growth in the UK?

When the RSA launched the final report of the Inclusive Growth Commission in March 2017 it was very clear that the EU referendum in the previous year had exposed not just a division over our relationship with Europe but a widening chasm between those for whom globalisation is working and the large number of our citizens for whom it isn’t.

The Commission also spelt out the importance of place-based approaches to local economic development and the need for a “fundamental reset of the relationship between Whitehall and the town hall, underwritten in new social contracts” with a sharp financial edge. To this end, if the UK is to embark on equally ambitious plans to create a more inclusive economy then the UK government must commit to a renewed programme of devolution, an inclusive growth investment fund and a new long-term, place-based spending review. In return, local and combined authorities must be able to show that their plans for more inclusive economies are both systemic in nature and practically applied.

It is not too late to ensure that our current crisis spawns a more inclusive economy and there are many signs of hope if we only care to look, but local and national government should take inspiration from examples across the world if the British economy is ever likely to turn a corner.

Read the report: Inclusive Growth in Action