Community Wealth Building in Preston

By Matthew Brown

It is without doubt that much of Europe is in the grip of an austerity crisis.  However to build a genuine alternative to it we need to think deeper about its causes and ask questions about the fundamental undemocratic nature of our economy to be able to respond to what has also become a systemic crisis.

The 2008 global financial crash emerged from an unregulated financial sector under little form of democratic control.  The harsh austerity we see at present is a payback for the £5500 each family in our country had to contribute to bail out the banking sector.  This money is now being recouped in the form of public spending cuts, benefit and tax credit cuts, tax rises, pay freezes and increased student tuition fees which are increasingly hitting the middle class.

Added to this Richard Murphy calculates up to £120 billion per year is lost in tax avoidance and evasion often by large multinational corporations and rich individuals and Aditya Chakrabortty has produced evidence recently that an additional £93 billion per year is paid in corporate subsidy.  A mere drop in the ocean compared to the estimated £1 to £2 billion a year lost to the wider public purse through benefit fraud.

Despite this vast public wealth injected into the system there is a dearth of investment from corporations. The major banks are not properly lending to individuals and local businesses and reliance on “inward investment” over the last 30 years has produced an economy in which a fifth of what was once paid in wages has disappeared. As a result, the UK has become one of the most unequal countries in Europe.

We must look to produce a response in our communities to this systemic crisis.  To do this we should examine how wealth is produced and then capture and democratise the wealth at source.  Much can be done locally and regionally but a national government with an understanding of this system problem would fully complete the picture.

In Preston and Lancashire we are experimenting with part of the alternative.  It is inspired by regions and cities that have built a culture of economic democracy like Mondragon, Spain and emerging progressive thinking in parts of the USA.  What is significant is the economic crash of 2008 onwards had little effect in terms of unemployment and poverty in Mondragon but also in North Dakota with its sophisticated network of devolved public banking.

This new democratic local economy in the UK will have at it’s heart procurement with Councils and other placed based institutions like Universities, Colleges, Hospitals and Housing Associations spending hundreds of billions on goods and services every year but not always considering where they are buying goods and services from and what social and economic benefit that wealth can bring.

The Preston City Council led Community Wealth Building initiative has now identified over £1 billion per annum in spend on goods and services by participating “anchor institutions” in Lancashire.  The long term aim is to shift more of this wealth to local businesses and if there are gaps in provision, to fill them with new worker cooperatives.  The consultancy we are working with, the Centre for Local Economic Strategies (CLES) has begun to change procurement culture of Manchester City Council, increasing their purchasing to over 65% from the Manchester economy adding more than 5000 jobs.  What is unique in Lancashire is the public sector institutions involved are collectively adopting this ‘quasi planning’ strategy to maximise the social and economic impact of this collective pool of wealth to the local economy.

There are also vast swathes of wealth within communities in local authority pension funds.  Lancashire’s County Pension Fund has investments of over £5.5 billion which in reality is the deferred incomes of tens of thousands of local public sector workers.  The Preston, South Ribble and Lancashire City Deal has earmarked £100 million of pension money to be invested in commercial development in the local economy producing a sustainable return for fund members and creating a social dividend in the communities they live.  Elsewhere in the UK other creative uses of pension monies are emerging most notably in Islington who earmarked a massive 15% of its entire fund for social housing.  These investments have support from many unions who know access to affordable housing is a problem for many public sector workers as much as for anyone else.

At the heart of a democratic local economy has to be new social forms of ownership and support for local businesses.  In Preston, we are working with the Chamber of Commerce to encourage retiring business owners to sell their companies to their employees.  We have a number of new democratic firms including an artists cooperative of over 60 independent local artists, an educational psychologists worker cooperative, an employee owned transport consultancy with 25 employee owners and plans are underway to bring a “Unicorn” style grocery to the city.  This is complimented by Preston City Council earmarking a city centre investment of at least £5 million in its outdoor markets to support independently owned businesses to further capture wealth in the local economy.

Municipal enterprise can also play a key role and Preston City Council has a long term objective to generate energy from wind and solar power in municipal ownership to break the stranglehold of the Big 6 energy giants though this is under considerable threat from the cuts in renewable energy subsidy from Government.  However it is something we will look to do when it becomes viable.  Other Councils such as Nottingham have already ventured into the energy market recently having a positive impact on their local economy.

Credit unions and community development financial institutions (CDFI’s) are gradually expanding in Preston’s economy mirroring the growth of credit unions across the country.  The Labour administration recently fulfilled a long term commitment to establish a new city wide credit union “Guild Money” that has had over 150 members join in a very short period of time.  This is complemented by Lancashire Moneyline, a smaller credit union in Moor Nook, a number of workplace credit unions and trade unions promoting their own credit unions to members building a culture of democracy and financial inclusion.

Finally, we have insisted on quotas for affordable housing and health infrastructure as part of Preston’s Local Plan to capture community benefit from conventional development including a 30% affordable housing requirement and we have expanded the living wage by encouraging local employers to pay it through Preston City Council and its living wage partners procurement strategies.  This has seen Preston as a traditionally deprived community outperform more prosperous areas in Lancashire in terms of people receiving the living wage with a positive effect particularly on women.

With any debate about austerity and its causes we need to look to nurture creative responses and consider how we can best defend communities against it in future by making them more resilient, democratic and self-reliant.  Maybe just maybe with this new thinking emerging from Preston and elsewhere both here and abroad we are finding the answers to this system problem and uncovering the beginnings of what could become a truly democratic economy.  Time to watch this space.

Councillor Matthew Brown is Cabinet Member for Justice, Social Inclusion and Policy at Preston City Council

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