SCOTLAND IS A wealthy country, with one of the highest GDPs in the world (Fraser of Allander Institute, 2016). However, nearly half of all wealth in Scotland is in the hands of the top ten per cent of the wealthiest people. Poverty, wage stagnation, underinvestment and low productivity are now entrenched features of the Scottish economy and its economies. Arguably, prevailing economic and economic development policies are failing to ensure that economic gains and wealth are delivering socially.
This essay believes that questions as to who has wealth, where it goes and who has influence over it are defining features of the Scottish economy. In this, we assert that there is a need to intentionally reorganize the Scottish economy. Where economic and social justice are viewed less as a mere ‘after the fact’ outcome of growth and wealth, and more hotwired into new forms of economic ownership and a distributed consideration of wealth.
In the last decade, wealth in Scotland has grown much faster than incomes, with wealth now more than seven times the GDP. Furthermore, wealth distribution is hugely uneven, with the top 10 per cent owning 200 times more wealth than the bottom 10 per cent (a median wealth of £1.3 million compared to £6,000). Indeed, the wealthiest 10 per cent own 43 per cent of all wealth in Scotland, with the least wealthy 40 per cent only owning just 5 per cent (Bell and D’Arcy, 2018). Furthermore, in looking at wealthy individuals we see that some of the richest people in Scotland live elsewhere, including low tax countries such as Monaco or the Isle of Man (Brinded and Colson, 2017). This stands in contrast to 25 per cent of Scottish people who have less than £500 of net savings, and 7 per cent who have zero savings, or are in debt.
This inequality in wealth is in part driven by investment and capital flows. A key characteristic to this is how investment into Scotland is increasingly global. Investors have little or no attachment, connection or affinity to Scotland, its people, identity or its local places. Subsequently, investment returns are not readily recirculated into the local economy, through residency or affinity as they would be by local investors, but instead extracted out and away from Scotland.
While the action to capture international flows of private investment wealth, requires international cooperation and policy, this is not true for much publicly owned wealth. These identifiable stores of public wealth are, in the main, democratically overseen. However, these sources are not working hard enough for Scotland or being environmentally responsible. Public wealth is being extracted out of Scotland via offshore headquarters. For example, some PFI deals involving key public infrastructure is being delivered by offshore firms, and £543 billion of Scottish pension wealth is being extracted through being invested in foreign firms with shareholders registered in offshore tax havens (Whitfield, 2018). Furthermore, questions have been raised as regards links between Scottish pensions and investment in shale gas fracking, with claims that Scottish councils invest £972 million of pension fund money in overseas fracking companies (Friends of the Earth, 2018). Clearly there is a need and responsibility for pensions to accrue value for pension holders. However, Scottish pension wealth should be used responsibly, and be used to virtuously ripple through the Scottish economy, with multipliers as it does so.
In building a more economically and socially just Scotland, we must place more attention onto wealth. In a context of fast-moving capital, there are limits to any traditional central government ‘after the fact’ redistribution of wealth. By the time any wealth capture process is in place, the wealth may have already been extracted into the ether of the global economy, dividend payments to large shareholder driven corporations or simply offshored. In this the Scottish Government, local authorities and its people should embrace the rise of new social and economic movements around the world which seek to counteract these extractive forces, by advancing inclusion and reorganising the economy and wealth. This reorganisation is about ensuring that wealth is extracted less and is more broadly held, with more local roots.
Local wealth building is a practical systematic approach to economic development and is built on local roots and plurality of ownership (McInroy, 2018). These ideas and actions around local wealth building counteract the idea of investment and trickle down. (Trickle down assumes that once investment capital had been enticed – often to our large metropolitan cores – wealth creation will flourish; the business supply chain will benefit and long lasting local jobs will be secured.) In local wealth building, social, and environmental gains are not an afterthought, but rather built in as a natural function of the economy. The aim here is to ensure a reliability of outcomes including jobs and meaningful work, equity, inclusion, economic stability and environmental sustainability.
There is a growing range of local agents, who are driving this local wealth building movement. This includes businesses, who are paying the Living Wage and growing their care and concern for employees, including the development of investment portfolios which reflect local need and place development (McInroy, 2017). It includes unions who, whilst somewhat fettered by often draconian national employment laws, are starting to support local activism and community organisation. In the social sector, we have many organisations developing co-operatives and economic alternatives that ensure wealth is more distributed and owned by the people who are producing the wealth. In the public sector, we are seeing a greater acknowledgement of the public pound (or democratised money), and how the commissioning and procuring of goods and services needs to be more local and flood through local supply chains (CLES, NEF and New Start, 2016). There is also a growing recognition of how land and property holdings and pensions funds should benefit local economies more. Above all and across all sectors we have a new movement of social innovation, which is seeking to build a better economy, with a growth in local currencies, local banks, community shares and community energy schemes. It is about unleashing activity around the foundational economy (Bentham et al., 2013), co-operatives and post-capitalist entrepreneurship (Cohen, 2017).
At the heart of the local wealth building approach are four strategies for harnessing existing resources to enable local economies to grow and develop from within. A key part of this recalibration rests with anchor institutions as ‘community wealth builders’. The term ‘anchor institutions’ is used to refer to organisations which have an important presence in a place, usually through a combination of being large-scale employers, the largest purchasers of goods and services in the locality, controlling large areas of land and having relatively fixed assets. Examples include local authorities, NHS trusts, universities, trade unions, large local businesses and housing associations.
Interest in the role of anchor institutions has arisen in recent years, through the work of CLES and across the world – notably the work of the Democracy Collaborative in the USA (Kelly and McKinley, 2015) – due to their potential to get involved in economic reordering, stimulate local economic growth and bring social improvements to the local community and environment. While the primary objective of anchors may not always be social justice, the scale of these institutions, their fixed assets and activities and their links to the local community mean that they are ‘sticky capital’ on which new local economic approaches and social improvements can be based.
There is a range of ways in which different public anchor institutions can leverage their assets and revenue to benefit the local area and local people. This includes:
Workforce of Anchors – often the biggest employers in a place, the approach anchors take to employment can have a defining effect on the employment prospects and incomes of local people. Recruitment from lower income areas, commitment to paying the Living Wage and building progression routes for workers are all examples of the actions anchors can take to stimulate the local economy and bring social improvements to local communities.
Anchor Purchasing – progressive procurement can develop a dense local supply chain of local enterprises, SMEs, employee-owned businesses, social enterprises, co-operatives and other forms of community ownership. This type of procurement is local enriching because these types of businesses are more likely to support local employment and have greater propensity to retain wealth and surplus locally. Of particular note, is the work by CLES in many locations across Europe and the UK – including work over ten years with Manchester City Council (Jackson, 2017) which has proven the significant benefit of a local authority anchor in bending what is locally purchased as regards goods and services and who provides them.
Critically, the process of purchasing goods and services (procurement) has historically been a challenge for municipalities and other institutions within our cities, especially when linking to wider local economic, social and environmental benefits. However, that perception and culture has changed. This is locally enriching because these types of enterprises are more likely to support local employment and have a greater propensity to retain wealth and surplus value locally.
Anchors are often major landholders and can support equitable land development (through establishment of Community Land Trusts) and development of under-utilised assets for community use. In terms of financial investments, directing pension funds to local investment priorities can bring transformative capital to locally rooted enterprises.
A desire for higher levels of social inclusion demand more self-generation of wealth, where social gains are wedded to the actual workings of the local economy. The long-term solution is therefore to redirect wealth and economic activity to employees and communities. This can be achieved through broader ownership models where more people have a stake in production and thus wealth is more readily harnessed for local good. Mutually owned businesses, SMEs, municipally owned energy companies and local banks enable the wealth generated in a community to stay in that locality and play a vital role in counteracting the extraction of wealth.
This local wealth building work has proven outcomes, recent work in Preston, Lancashire has seen significant results and outcomes (CLES, 2018a) in local wealth capture, with work now being extended in numerous places across England, Wales and Europe (CLES, 2018b). Scotland has enduring issues, and these can be sourced back to question of wealth. In this, traditional taxation and forms of redistribution have a role to play. However, given the maturing of economic wealth extraction from nations and localities there is a need for much deeper policy intention, so that wealth is captured and more broadly held.
Bell, T. and D’Arcy, C. (2018), The £1 Trillion Pie: How Wealth is Shared Across Scotland, London: Resolution Foundation.
Bentham, J., et al. (2013), ‘Manifesto for the foundational economy’, Manchester: CRESC, available online at: http://hummedia.manchester.ac.uk/institutes/cresc/workingpapers/wp131.pdf, accessed 26 November 2018.
Brinded, L. and Colson, T. (2017), ‘The 13th richest people in Scotland’, Business Insider, 15 May 2017, http://uk.businessinsider.com/sunday-times-rich-list-2017-richest-people-in-scotland-2017-5/#13-lord-laidlaw-net-worth-795-million-scottish-born-laidlaw-who-now-lives-in-monaco-made-his-fortune-after-buying-a-us-small-publisher-in-1973-and-turning-it-into-the-institute-for-international-research-the-worlds-largest-conference-organiser-1, accessed 26 November 2018.
CLES (2018a), available online at: https://cles.org.uk/the-preston-model/, accessed 26 November 2018.
CLES (2018b), https://cles.org.uk/local-wealth-building/, accessed 26 November 2018.
CLES, NEF and New Start (2016), Creating Good City Economies in the UK, Friends Provident Foundation, available online at: https://cles.org.uk/publications/creating-good-city-economies-in-the-uk/ or dedicated website: https://goodlocaleconomies.cles.org.uk/, accessed 26 November 2018.
Cohen, B. (2017), Post-Capitalist Entrepreneurship: Startups for the 99%, Florida: CBC Press.
Fraser of Allander Institute (2016), Economic Commentary, Vol. 41 No. 1, University of Strathclyde.
Friends of the Earth (2018), Divest Fracking: How UK Councils are Banking on Dirty Gas, Friends of the Earth.
Jackson, M. (2017), ‘Power of procurement 2: The policy and practice of Manchester City Council – 10 years on’, CLES, available online at: https://cles.org.uk/wp-content/uploads/2017/02/The-Power-of-Procurement-II-the-policy-and-practice-of-Manchester-City-Council-10-years-on_web-version.pdf, accessed 26 November 2018.
Kelly, M. and McKinley S. (2015), Cities Building Community Wealth, available online at: https://democracycollaborative.org/content/cities-building-community-wealth-0, accessed 26 November 2018.
McInroy, N. (2018), ‘Wealth for All: Building New Local Economies’, Local Economy, Vol. 33 No. 6 pp. 678–687.
McInroy, N. (2017), ‘We need a new social contract: A local one’, in Leadbeater, C. et al., Flipping the Narrative: Essays on Transformation from the Sector’s Boldest Voices, New Philanthropy Capital, available online at: http://www.thinknpc.org/publications/flipping-the-narrative/, accessed 26 November 2018.
Whitfield, D. (2018), Ownership and Offshoring of NPD and Hub Projects, European Services Strategy Unit.