Month: November 2015

The Autumn Spending Review: A Political but not an Economic Fix?

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After the Government’s spending review on 25th November, I was struck by how experienced political commentators were fumbling to get a grip on the detail of its plans and forecasts. What lies beneath the headlines and soundbytes will become clear with time, but some general contours and contradictions are already emerging from the Chancellor’s “smoke and mirrors”.

The headlines will say that George Osborne reversed controversial proposals to cut tax credits – a U-turn for which shadow Chancellor John McDonnell quickly claimed credit for the Labour Party. But, they have not been reversed for people on the new Universal Credit system – a reform critics see as a serious benefits cut in itself. Moreover, tax credits will remain frozen and diminish in value. Osborne devolved some control over elements of local government finance, but with multiple strings attached. Council tax rises are permissible, but must be ring-fenced to adult care. Business rate rises are permissible, and local authorities will retain the returns. However, additional rate levies will depend on the consent of local business elites. Councils will have the same to spend in “cash terms” in 2020 as they do now. This announcement foreshadows major public service reductions, but on a scale impossible to anticipate without knowing other volatile variables in advance. The government, and councils, are investing hope in the integration of health and adult social care as a way of delivering austerity without outright retrenchment. Yet according to Lord Porter, Chair of the Local Government Association, a new round of cuts is likely to push councils to the edge of collapse. Osborne has spoken frequently of Britain moving from high welfare-high tax to a high wage-low welfare economy, predicated on increases to the minimum wage. Yet, an hourly living wage is only a real living wage for people working enough hours in the week to surpass income poverty thresholds. It will not be a living wage for those on part-time or zero hours contracts – or those in precarious self-employment.

Whatever the merits and drawbacks of specific cuts and measures, the holy grail of Osborne’s Chancellorship is delivering a budget surplus in 2020. The Office for Budget Responsibility suggested he will be boosted by an unexpected increase in tax receipts through the middle of this parliament, a claim immediately qualified by Chairman Robert Chote. Even if he enjoys good fortune with the tax receipt numbers, Osborne faces formidable barriers. Responding to the spending review, John McDonnell was quick to remind us of the Chancellor’s poor forecasting record. In 2010, the government said it would eliminate the budget deficit by 2015. Now, we are told this will occur in 2020. With the support of the Labour Party, the media and much of the public, the last government set a welfare-spending cap. Today, we were told the cap has been breached and will not be met until 2019. Ultimately, all depends on forecasts for sustained GDP growth at rates of 2.3 or 2.4% for each of the next five years. But such a stable pattern would be exceptional. In the best-case scenario, GDP growth will fluctuate in an upward direction. In the worst-case scenario, underlying weaknesses in the economic recovery will soon trigger another recession.

In short, it is plausible that before long, the government will have to revise its forecasts again and come back for more. If a budget surplus remains the primary goal of British economic policy, further attrition of the welfare state and corrosion of the public realm is the price we will be asked to pay. Even then, the goal could be elusive.

Jonathan Davies – Director, Centre for Urban Research on Austerity

Community Wealth Building in Preston

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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

CURA’s Launch Conference: some reflections

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Valeria Guarneros-Meza and Adrian Bua report on CURA’s inaugural conference

Last week we held our two day launch conference. Throughout the four panels there were significant discussions that we need to consider in developing our understanding and study of austerity. Many of these ideas were circulated via twitter (@CURA2015) but we think it is worth expanding on 140 character-selling headlines. The points listed below are not exhaustive; they are our impressions of issues that drew people’s attention and therefore worth considering in developing CURA’s future events and research agenda.

Austerity and Urban Boosterism

Urban infrastructures such as Heathrow’s proposed third runway (addressed by papers delivered by David Howarth and Steven Griggs), nuclear plants (Francis Chateauraynaud), HS2 in London (Daniel Durrant) and Medellin’s Teleferico and Reyes de España Library (Kate Maclean) were the examples addressed by the speakers. In the case of London it is striking to see estate development and the type of urban infrastructures mentioned above while the great majority of the city’s population are struggling to make ends meet. In Medellin the concept of ‘social urbanism’ was developed in an era of financial extravagance. Extra spending was targeting national and foreign investment into the city while addressing  basic service needs (access to water and electricity) that marginalised neighbourhoods required. Kate Maclean argued that although the approach had succeeded in attracting investment, upgrading urban space and integrating some marginalised neighbourhoods, urban boosterism has not been enough to tackle levels of crime and violence (measured by homicide rates) in particular pockets of the city. Moreover, it also been argued, in other work by Abello-Colak and Guarneros-Meza, that  the reintegration and disarmament programmes targeting the youth tend to favour those groups that belong to gangs as opposed to building a universal and comprehensive approach to youth development.  In other words, what Medellin’s example is showing is that social urbanism, at its best, or urban boosterism, at its worst, may help the city overcome visible spatial austerity but it will not be enough to tackle the social degradation that austerity of public welfare has caused.

Getting away with it: the socialisation of risk through technical obfuscation

This topic was raised in presentations by Daniel Durrant on HS2 in London and on the political economy of adult social care provision in the UK, by Karel Williams. Daniel’s analysis was based on the balance sheets of the HS2 corporation. He demonstrated that accounts show that cost calculations are based on the benefits for business infrastructure investment and potential business travellers, while wiping out any social costs that are related to the impact that the construction of the railway has on the destruction of community life, schools and other spill overs. Karel’s work on adult social care critiqued the financialisation of care provision by private providers. He argued that optimum returns on property speculation assured by a standardised kind of adult care home (60-80 capacity) with minimum wages and a casualised workforce with high levels of staff turnover. The requirements of quality care provision, and attention to the social and health needs of residents,  takes second place to debt and management strategies that split property ownership on the one hand and home management and operation on the other. These financial innovations provide parent corporations to extract any gain from subsidiaries passing all debt responsibility to the latter; what he called ‘malign performativity’. These two examples show the ability that corporations have in covering and disguising cost-benefit analysis by using sophisticated technicisms that reduce the ability of citizens to understand the model and ability to perceive these techniques as ‘daylight robbery’.

A similar point was made with nuclear plants in France and England (Francis Chateauraynaud), where the scientific and technical discourse of the environmental impact that these generate lead to the production of confusing and competing set of facts and narratives that disempower citizens and politicians (see also Xavier Auyero’s work).

Austerity invites ‘structural violence’

Annette Hastings’ presentation on the socioeconomic costs of local government cuts in England and Scotland argued that they constituted a clear case of ‘structural violence’ – because they put those individuals less able to exercise political agency in harm’s way, and accentuate their marginalisation in public service provision.  Drawing on findings from a recent report, Annette demonstrated the cuts to tax benefits addressing housing and social care have promoted local authorities to change their administrative processes to cope with impacts of the cuts on staff salaries and dismissals.  These practices are structural because they form part of the system that puts order and discipline to the way local authorities are organised and the relationships they build with citizen-users.

The concept of structural violence is relevant to other presentations: such as Robin Smith’s work on the role of ‘street outreach workers’ in tackling with the ambivalent pressures of caring but eradicating  homeless in cities such as Cardiff and New York, where urban boosterism is undoubtedly present as ways of ensuring urban competitiveness; and Robert Ogman’s talk on social impact bonds – another financial innovation that promote structural violence while helping local governments cope with the destabilisation of social and welfare initiatives produced by public fiscal austerity. These three presentations addressed Anglo-American cases, but it is equally interesting to see how structural violence can be found in contexts of crime and physical insecurity in cities in the United States and across different cities in Latin America (see Auyero et al ‘Violence at the Urban Margins’), whose national contexts deepen the complexity of the meaning of structural violence when enmeshed with broader debates on security and urban securitisation.  In cities, both in the north and south, the role of frontline bureaucrats was mentioned as agents caught in the cross road of the ambivalence of everyday governance practice.

Resisting and countering austerity

Both keynotes – Erik Swyngedouw and Karel Williams – addressed the need of agency by academics, insurgent social movements and organic intellectuals to enhance and speed up social innovation in the UK. Erik called for system de-stabilization through insurgency whereas Karel drew upon the concept of social innovation as a potential source of alternatives. These strategies differ in so far as one aims to engender rupture through direct confrontation, and the other pursues an agenda of interstitial change. The modality of the former is agonistic, the latter more collaborative. However, these modalities are by no means mutually exclusive. Paraphrasing Romand Coles critical social theorists should focus on the mutually enabling relationship between agonistic and collaborative forms of participation. Absent agonism, collaboration is in danger of governmentality. This much is evident, we think, in the co-optation and trivialisation of the concept by neoliberalism, resulting in constant innovation without change. On the other hand, absent collaboration, agonistic ruptures can fail to sustain the change that, in Ricardo Blaug’s words, a ‘democratic moment’ opens up opportunity for. In sum, both modalities are necessary to achieve a transformative environment. CURA has a good opportunity to start building on this through its association with the New Economics Foundation (NEF). Rachel Laurence (from the New Economies in Practice team at NEF) and Adrian Bua (NEF and CURA) explained NEF ambitions to sustain and expand activities that make the foundation a hub for research and action that delivers socio-economic change. They also highlighted some areas where CURA and NEF could join forces to shape such an agenda. This could, for example, be around current policies such as devolution and regional economic development. This is also an area which, as Matt Dykes of the Trade Unions Congress explained, is being targeted by organised Labour movements for its potential to create new government tiers that are more amenable to trade union influence. It will be important to bring in other social movements into this agenda also.

It is perhaps it is worth considering how doctoral students can become a generation of organic intellectuals as a strategy to help them find employment that academia seems increasingly incapable to provide. Building professional links between CURA and progressive policy and advocacy organisations such as NEF might be one way to proceed. This could go some way towards breaking down barriers between policy research that seeks political influence, and academic research focussed on making contributions to knowledge.

Valeria Guarneros-Meza is Lecturer in Public Policy at the Deparment of Politics and Public Policy; Adrian Bua is Research Assistant the Centre for Urban Research on Austerity

Investigating the Ethical Turn in Finance: Symposium Report

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On 17 September 2015, a one-day symposium was held in Leicester to discuss the “seeming ‘social’ and ‘ethical’ turn of finance in the context of the global economic crisis”. The symposium was a joint endeavour organised by academics at three universities, including PhD Student at De Montfort University, Robert Ogman, Middlesex University Lecturer in Sociology, Emma Dowling, and Senior Lecturer in Finance and Political Economy at the University of Leicester, David Harvie . Robert Ogman reports back on the day’s proceedings.

One peculiar outcome of the economic crisis and austerity policies of the last few years is the emergence of the “social investment market”. This “seeming ‘social’ and ‘ethical’ turn of finance in the context of the global economic crisis” was the topic of a recent symposium held in Leicester. The gathering was an opportunity to discuss the recent growth of financial products in “responsible” investing, and government efforts to increase private sector involvement in public provisioning, and to offset the resource gap arising from fiscal austerity measures.

Scholars from a host of academic disciplines and from a handful of European countries came to discuss together with practitioners from NGOs and trade unions, the development and implications of these new initiatives, as the programme stated, to “financialise the social”. A central aim was to discuss “the implications for the relationship between state, society, and (financial) markets, and for the users and front-line providers of services.”

Introducing the one-day workshop, the symposium’s co-convenor Emma Dowling, co-author with David Harvie of a recent paper on the nascent social investment market, framed a set of questions that participants were to discuss:

  • What new financial institutions, instruments and practices are being developed? By whom? How do they work? For example: what is the ‘social stock exchange’, what are ‘social investment financial intermediaries’, ‘social impact bonds’ or ‘development impact bonds’? What kinds of social projects are being promoted and developed? (For example, particular concerns include youth unemployment and the urban poor.). The United Kingdom, Australia and the United States along with other G8 member states are at the forefront of social investment, but is this a global phenomenon?
  • What new discourses are emerging to describe an apparent rupture with previous forms of finance, and the concern with making finance ‘work’ for society (as opposed to the other way around)? How have terms such as ‘social value’, ‘shared value’, ‘triple bottom line’ and ‘impact investing’ arisen and what do they seek to describe? To what extent is ‘social finance’ a response to criticisms of the vicissitudes of financial markets in light of the 2008 crisis?
  • More generally, to what extent is social finance a response to a perceived impasse of neoliberal capitalism? Does social finance represent a break with neoliberalism or a deepening and development of it? Will finance’s ‘ethical turn’ address capital’s legitimation crisis? Will social investment provide a source of capital accumulation and profitability? If market and financial logics are further penetrating social life, what are the implications for social relations and social discipline?
  • What is the role of the state in developing social finance and a social investment market? What are the implications for the welfare state, for public service provision and for social policy? Will public-service users – individuals and communities – really benefit? How will front-line providers – both waged and unwaged – be affected? What is the likely impact on civil-society organisations, charities and the third or voluntary sector more generally?
  • Finally, is there any alternative to social investment? How might radical social movements interpret, engage with or challenge and resist the development of social finance? What fault-lines can we detect? Does finance’s ‘social and ethical turn’ signify a point of its vulnerability, the outcome of a legitimacy crisis, and hence a space within which new opportunities may exist to advance critique from a social and ethical perspective?

The first panel opened with a presentation by Dexter Whitfield, from the University of Adelaide, and Director of the European Services Strategy Unit (http://www.european-services-strategy.org.uk/). He focused on a central initiative of “impact investment market”, namely, the increasingly popular policy experiment by the name of “Social Impact Bonds”. He explained the structure and idea of SIBs, and also pointed to a host of weaknesses.

The Social Impact Bond claims to respond to public sector funding gaps (caused by public sector budget cuts) by incentivising private investment in public provisioning. They do so by offering financial rewards to investors when a specific social policy goal is achieved, by an organisation tasked, for example, with reducing prisoner reoffending, homelessness, or the number of children in care. This functions as a public-private partnership, involving a government commissioner which identifies a social policy target, and a non-governmental organisation acting as a project manager, an investor which lends money to a civil society organisation involved in meeting the agreed-upon policy goal. If this organisation hits the set target, so the theory goes, government have reduced expenditures in criminal justice or welfare costs, and these savings will be shared between public authorities and non-governmental investors. The idea is that the government will be “leveraging private capital for public goods”. In the aftermath of the global financial crisis of 2007/08, the G8’s Impact Investment Taskforce writes, that “impact investment” will “harness the power of entrepreneurship, innovation and capital for public good”. It is “the invisible heart to guide its invisible hand”.

This theory is being promoted on the national and international levels. As Whitfield writes in his paper, “Alternative to private finance of the welfare state: A Global Analysis of Social Impact Bond, Pay-for-Success and Development Impact Bond Projects”, “there are currently 54 operational social impact bond projects in 13 countries with at least a further 23 at the planning or procurement stage. The UK is the global leader with 32 operational projects with outcome payments valued at £91m, followed by the US with 9 projects.”

Whitfield provided a list of “30 financial and public policy flaws” in SIBs, arguing that, contrary to the purportedly innovative qualities of SIBs, that they are deeply path-dependent, calling them a “mutation of privatisation”. He criticised the increasing role of market ideas and private sector actors in the design, implementation, and evaluation of social and welfare policy, and the further commodification of state welfare functions. SIBs “extend markets and market forces further into the welfare state that could ultimately threaten social rights.”

Going beyond a critique of SIBs, Whitfield also sketched an “alternative vision of public services”, taking up some of the central themes of the SIB policy experiment, such as “early intervention and prevention” and “new public service management”, but placing them in a strongly public framework that limits market forces. This, he argued, would involve the “democratisation of public services”, “social justice and reducing inequalities”, “public ownership and investment”, “progressive taxation”, and “good quality jobs”, which he discusses in his paper.

Turning the focus to an earlier wave of “ethical finance” initiatives, Mareike Beck of the University of Sussex, provided a look at microfinance. Her presentation focused on the supply-side of these trends, looking at the case of German banks in “expanding the provision of ‘poor appropriate’ financial products into the Global South”. She provided a look at the Deutsche Bank in particular. She argued that microfinance cannot be understood simply as a response to the failures of Structural Adjustment Programmes in the 1990s, but also reflect the efforts of these institutional actors to become international investment banks, and of German finance to address legitimacy problems at home.

Claire Parfitt of the University of Sydney contrasted the new wave of “responsible investment” initiatives of the World Economic Forum and the United Nations with earlier, often faith-based, divestment or “ethical investment” campaigns that pressured firms to halt business practices considered to be unacceptable or unethical. She also discussed the role of pension funds within responsible investment portfolios, and the tensions this creates within trade unions by the “worker-investors” who take on “dual subjectivities.”

Norbert Wohlfahrt and Monika Burmester, from the University of Applied Sciences in Bochum, Germany, focused on changes in welfare from provision to “impact”, and from aftercare to preventative care, and the shift from public to private hands, organised around a business model. Their presentation showed how this strategy is connected to the E.U. “human capital” strategy, which, “equates optimal prevention strategies with the active valorisation of labour power as a commodity”. The result is that “the political ideas of supply-side economic and social policy are imposed on social work”.

Allison Roche, of the public services trade union, UNISON, provided a labour perspective of the “social finance” turn. Her comments focused on the growth of social enterprises known as “public mutuals”, which are increasingly taking over the delivery of public services and dismantling the public sector and welfare institutions. She challenged this blending of public and private values in these developments, as well as the informalisation of labour standards as employees shift from the public to private sector.

Robert Ogman’s talk focused on the resonance of “social finance” initiatives, pointing to their success in framing a purported “social neoliberal compromise” in response to austerity’s legitimacy crisis. He argued that SIBs implicitly legitimate the argument of austerity critics by acknowledging social crises. Yet, while they see the funding gap for social provisioning as having to do with a resource imbalance between public and private hands, they reject a redistributive approach, instead pursuing a plan of private investment, which has had mixed results and contains significant risks. SIBs too respond to critics’ objection to neoliberalism that warn of its socially destructive capacity (most recently seen in the financial meltdown of 2007/08). Yet they reject re-regulation, instead calling for the incentivisation of “ethical” investment. Thirdly, SIBs acknowledge the persistent fiscal crises of the state, yet, rather than increasing revenue through progressive taxation, they suggest that governments can replace social expenditures with private capital investment in social provisioning. Hence, SIBs acknowledge a set of arguments advanced by austerity opponents, yet channel these into the expansion of market-centred “public responsibility” initiatives. This is a contradictory process which austerity opponents could intervene in and point out the limits and dangers to, and by doing so, also advance a real paradigm shift.

Additional presentations included: Davide Caselli’s (University of Turin, Italy) paper on the “Financialisation and the Restructuring of the Italian Welfare State”, Marco Andreu from the University of Warwick on “Impact Investing and the Contingency of Market Ethics”, Julian Müller  from the Centre for Research on Multinational Corporations on “Harnessing Private Finance for Public Policy Goals”, and Jane Lethbridge (University of Greenwich) on “The Role of the State in Developing Social Finance and a Social Investment Market”. External discussants, Chris Clarke (University of Kent), Donatella Alessandrini, (University of Warwick), Adrienne Roberts  (University of Manchester), and Ekaterina Svetlova (University of Leicester) moderated and provided important outside perspectives to the discussions.

The meeting provided a rare opportunity to present critical perspectives on the emerging paradigm, which is mostly dominated by the think tanks and advocacy groups of the social finance policy network spanning the state, market, and non-governmental organisations.

The session closed with discussions about future research collaborations and public outputs. To contact the organisers, please contact Robert Ogman (robert.ogman@email.dmu.ac.uk).

Robert Ogman is a PhD candidate at the Department of Politics and Public Policy at De Montfort University, as well as a core member our team at CURA

Devolution deals: three risks

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Devolution to city regions is a central pillar of the conservative government’s industrial strategy. The ‘Northern Powerhouse’ model developed in the Greater Manchester Combined Authority (GMCA) is being rolled out through ‘Devolution Deals’ and the Cities and Local Government Devolution Bill. Advocates of devolution argue that it can close regional disparities in economic output by boosting growth in city regions. It is also argued that closer proximity of devolved administrations allows policy to be tailored to local needs; that devolution contributes to increased dynamism by creating opportunities for local innovation and increases local participation and accountability. As recently summarised by the Local Government Association these are points of consensus in British policy circles.

However, the evidence of devolution as a driver of economic growth, convergence in social and regional inequalities and is pretty thin.  For example, one analysis of devolution concluded that the evidence in favour of such links is very weak and another found a moderately negative relationship. It seems that this evidence is overlooked by the general consensus in favour of devolution amongst policy makers.  In this blog, I will set out three key ‘risks’ that explain failure to deliver on the ‘economic dividend’ argued for by so many proponents of devolution.

The balance between the transfer of resource and responsibility

It is often argued that the ‘litmus test’ of devolution is the balance between the transfer of policy responsibility and resource capacity. On this test, it can be said devolution in the UK has been non-existent in recent history – the purse strings have remained under tight Whitehall control. Research on the coalition government’s devolution reforms found that the scale of devolved functions heavily outweigh the devolution of resources to carry these out effectively. In order for local units to exercise devolved responsibilities effectively, resources and resource raising powers need to be commensurate with responsibilities. The Conservative government’s devolution deals are being pursued in a context of even harsher projected public spending cuts. It is therefore difficult to avoid the cynical conclusion that devolution forms part of a broader agenda to transfer the responsibilities of managing cuts to lower government tiers, rather than a genuine attempt to construct a more decentralised political economy.

Exacerbating inequality

‘Devolution deals’ seem to involve a more fundamental shift of power away from central government than previous attempts at devolution. However, these deals are struck on a case by case basis. Some resource raising powers are on the table, but some regions receive more powers that others – leading to an asymmetric distribution of powers that could exacerbate existing inequalities. Even if these were uniformly devolved, the ability to capitalise upon these is likely to differ across city-regions.  It is also noteworthy that many of the policies that previously distributed the proceeds of the UK’s London and finance-centric economic model are being discontinued by the austerity agenda. Recent research by the Institute for Fiscal Studies makes it clear that measures such as the ‘Living Wage’, which is presented as mitigating these impacts, will do little to compensate for those at the cutting edge of these reforms. Compounded by the imbalance between the devolution of functions and resources noted above, heed should be taken of the possibility devolution to city regions serves as a model for the shrinking the welfare state.

Collaboration and co-ordination between regions and governance tiers

Devolution deals are concerned with arrangements for individual cities and city-regions. Beyond the aspiration for a larger collective contribution to national economic output, there is little focus on the relationships between regions and the impact on devolution deals upon the overall functioning of the economy. Because of this, analysts of devolution have raised the possibility that rather than leading to an “effective and coherent yet more locally autonomous system of government”, devolution policy in the UK might deliver “a disconnected set of governance fiefdoms pursuing more or less strategic ends with varying degrees of competence”.  A related likelihood is the devolution deal model will encourage competition over collaboration between city-regions. As economist James Meadway argues “by granting large cities more powers on the allocation of spending, but leaving the level of taxation, spending and borrowing under tight Treasury control, regions will be forced into competitions with each other to attract business expenditure and therefore extra tax revenues”. This could lead to a regulatory ‘race to the bottom’ that would substantially undermine the collective potential of city-regions to deliver improved economic and social outcomes.

In conclusion, a viable model for a more decentralised political economy should:

  • transfer ‘effective’ policy autonomy by providing adequate resourcing opportunities for devolved units;
  • reduce inequality within and between regions and social groups;
  • provide effective co-ordination between regions and governance tiers.

Although devolution deals are an emergent approach whose outcomes are not yet evident, the ad-hoc and case by case nature of the devolution deals, and the context of harsh public spending cuts within which they are taking place, are likely to lead to negative outcomes regarding the three areas above. It is therefore quite doubtful that devolution deals can constitute a viably generalisable model to deliver a more decentralised and effective political economy.

Adrian Bua is Research Assistant at the Centre for Urban Research on Austerity, as well as at the New Economics Foundation