an_economy_of_everyone - RSA

An economy of everyone

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  • Sharing economy
  • Mutualism
  • Community enterprise
  • Economic democracy
  • Community Banking
  • Economics and Finance
  • Enterprise
  • Social enterprise
  • Sustainability

In 1998, the Canadian province of Nova Scotia passed an act to promote community investment in local enterprise. Since the creation of this mechanism to allow pensions funds to be allocated through fund platforms for local business, one million people have participated and $40million has been invested. The beneficiaries have been companies specialising in renewable energy, co-ops, farms, community enterprises, leisure and tech. The Nova Scotian scheme is an example of creating new local flows of resource; a foundation for an economy of everyone.

The smart move in the Nova Scotia case was to move away from aggregates and think of local assets and flows. Modern economics is bedevilled by aggregates. Remember GDP, in its modern form, was established by the US economist, Simon Kuznets in 1934. It acquired utility in the context of macro demand management and a war-time economy. Kuznets warned against using it as a measure of welfare. That warning was not heeded.

Now, essentially GDP is a proxy for welfare. And so it is with employment rates, gini coefficients, productivity measures, and so on. The assumption is that if the direction of these aggregates is right all is well. To return to bugbear of mine, just look at the Government constantly parading employment rates as a vindication of its welfare polices despite all the evidence of the persistence of economic insecurity and negative well-being impacts that sit underneath that singular statistic.

Underlying this approach to the economy is the metaphor of a machine. Your pour in inputs such as skills, labour, machines, land, enterprise and then the machine whirs away producing outputs, ie products and services. The metaphor should have been retired decades ago. Instead, the economy should be seen as a natural system; one that flows and interconnects.

The Nova Scotia case sits easier within natural metaphors. Think of the economy as a river (and my colleague Jonathan Schifferes encourages us to think like a river in a recent blog on rural Britain). As it flows through the landscape it nourishes and enriches as it goes. Whole eco-systems sit within and alongside this flow. The trick becomes one of steering this flow so it can irrigate a wider landscape and support the diversity of life as it flows. This is the essence of inclusive growth – how can we influence flow to nourish a wider landscape of social and economic resilience and opportunity?

This approach, steering and influencing flow of resources, lies at the heart of a passionate pamphlet from a few years back by David Boyle (formerly of this parish) and Tony Greenham (of this parish until, appropriately, he goes off to help set up a community bank after the Summer). In People Powered Prosperity, Boyle and Greenham’s point, and it’s a very strong one, is that the type of local institutions you construct – community businesses, co-operatives, community banks, community funds, social value focused anchor institutions – help develop resilience through economic diversity over time. Incidentally, in the context of developing local capacity, Basic Income might be a help as time is a resource – Basic Income could well help provide pathways into the social or caring economies not only work with insecurity attached as the current system tends to promote.

A democratic economy is inclusive and developmental simultaneously. Thinking back to our naturalistic metaphor, in nature diversity safeguards resilience, and so it is in economic systems. This line of thinking underpins the ‘Preston Model’ which is attempting, with some success, to create greater local economic capacity. That work has been supported by CLES in the UK and similar approaches have been evolved by Democracy Collaborative in the US. It’s very impressive community economic development work resting on linking anchor institutions such as public bodies to supporting local enterprise. When Joe Guinan and Martin O’Neill describe an ‘institutional turn’ in the thinking of the Labour party, it is these strategies to which they are largely referring. There is no reason why an ‘institutional turn’ must be the preserve of the left. Indeed, some of the thinking that came out of the ‘big society’ such as the Social Value Act.

Critics describe economic democracy as protectionism. But this is a simplistic view. As long as local democratic economies don’t become chumocracies and are driven by sustainability (social, economic and environmental) goals rather than excluding external providers or workers then they will be sound. Is an approach completely overly dominated by value-extracting large companies and oligopolistic outsourcing firms underpinned by financial markets (to whom the value returns) really a better alternative?  

Inclusive economies don’t just chase aggregates and mitigate unequal outcomes, they are inclusive by design. This means designing flow influencing inclusive local strategies which considering how best to democratise wealth, livelihoods, voice and the interests of future generations. The RSA sees itself as an ally for those who have been doing amazing work in this field for some time. We aim to support and amplify the work of others and contribute our own thinking. The modern economic system simply fails to provide enough nourishment and fixing the aggregates will never be sufficient alone. An array of organisations need to work in moving our political economy into this space.

To promote a more democratic economy, knowledge of innovative institutions alone are not enough. There needs to be a new language of economics, one that moves beyond current mechanical metaphors into the language of nourishment of flows. A new concept of how economies work is required. And then we can think, from a local level and beyond, how that flow can open out new connections to economic life and more widespread well-being. 

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  • Scale of economy has increasingly replaced local enterprise with extractive national or Global suppliers of goods and services. Digital businesses are rapidly accelerating this centralisation, while automation of remaining local outlets takes away the employment which used to feed some of this money back into the local community. The result of these trends is becoming an almost existential crisis for communities outside of our major cities, where 85% of all GDP is now generated.

    Your analogy of a river giving life to the landscape it passes through is a very good one, and highlights why we need local investment finance to feed local growth. Basic Income is a vital step on this path, not only because it guarantees a fixed flow of central government money into every community, but also because this income subsidises the marginal cost of labour for new community enterprise. This is key if small local micro businesses are to compete with the scale of big centralised corporations. A further step is to introduce environmental taxes on non-renewable energy and waste, to reflect the true cost of shipping goods and waste half way round the World. These taxes can not only help fund the UBI, but also change our economic landscape to favour local production for local consumption and recycling. 

    My recent piece on reviving local economies describes one possible vision of how this might work:

    Robert P Bruce