Introduction
The United Kingdom’s economic model and approach to economic development are flawed. Economic growth has stagnated and where we do have economic growth it is benefiting the wrong people. The wealthiest are becoming wealthier and we have entrenched issues of inequality and poverty. Inequality is not as simple as a north–south divide – it is evident everywhere. Despite this inequality, the economic approach remains largely unchanged – attract inward investment and the benefits will ‘trickle down’ to local economies and communities. This thinking is outdated, wrong and lacks supporting evidence.
What we need is reorganisation of the economic approach – where we recognise, understand, build and harness wealth at the local level for the benefits of people and places. This wealth comes in the form of the institutions, assets and people we have at the local level, and our ability to deliver economic development that brings a local economic, social and environmental dividend.
Some places in the UK are beginning to understand the need to adopt a different approach to local economic development. However, the vast majority still build their economic strategy around narrow notions of growth, the knowledge economy and inward investment.
Over the last thirty years, the Centre for Local Economic Strategies (CLES) has been at the forefront of UK-based policy thinking about local wealth building, most recently in our collaborative work in Preston. In the United States, the Democracy Collaborative has developed and promoted a similar approach under the framework of Community Wealth Building. This chapter draws together the learning from CLES’s work in the UK in Preston and other places such as Birmingham and Oldham with that from Cleveland, Ohio by the Democracy Collaborative. What we portray below through exploration of the Cleveland and Preston ‘models’ is a new way of thinking and practice about local economic development, but thinking that should be – and is – becoming the mainstream.
The US and the Cleveland Model
Despite having the largest and most productive economy in the history of the planet, the United States is beset with a systemic crisis in its political economy, one that is deeply destructive of the country’s democracy. Today, just 400 Americans own as much wealth as approximately the bottom 185 million, and the trend in wealth inequality is escalating. White median net wealth is thirteen times greater than among African Americans and ten times greater than Latino net wealth.
Twenty-two per cent of American children live in poverty, a percentage that is the same as in the 1960s. The number of people living in concentrated poverty has doubled from 7 to 14 million since 2000; all told, nearly 50 million people in the US live below the government-established poverty line. Health inequality is on the rise, with the life expectancy gap between rich and poor people born in 1950 up significantly over those born in 1920. The labour force participation rate has fallen steadily for two decades – and is projected to decrease still further. America’s core urban areas continue to erode and become less stable through disinvestment in an age of capital hyper-mobility.
Traditional economic development, as practised in American cities and states, has proven increasingly incapable of addressing these systemic challenges. The use of more than US$80 billion annually in public subsidies, tax breaks and corporate incentives has resulted in a situation in which every city is at war with every other city, as they try to entice corporations (some would say ‘bribe’ them) to relocate from one community to another. This zero-sum game produces local economic instability and rewards companies with no real loyalty to the community. The general approach has been to pursue regional economic growth, on the assumption that some of the benefits would ‘trickle down’ to those most in need of decent work, wages to support families and the fulfilment of basic needs. Demonstrably, though, ‘trickle down’ is not working.
Fortunately, over the past decade and a half a powerful new approach to equitable and inclusive economic development has gathered momentum in communities across the country. This new paradigm is called ‘community wealth building’. Rather than simply a partnership between business and government (with business usually calling the most important shots), community wealth building involves many key local actors – community-based organisations, anchor institutions, philanthropy, locally owned businesses, organised labour and the public sector. Community wealth building is a progressive strategy to democratise the economy by broadening ownership over capital (through, for instance, cooperatives, employee ownership, credit unions and land trusts), preventing financial resources from leaking out of the community (through targeted ‘buy local’ initiatives, social procurement and public banking), thus achieving a multiplier effect in the local economy, and leveraging the economic power of existing assets (such as large public and non-profit institutions) to benefit the local community. The fundamental goal is to rebuild the basis of a strong local economy, from the ground up, on principles of equity, inclusion, democracy and resilience.
The pre-eminent model for this new system-changing approach in the United States is the Evergreen Cooperatives of Cleveland, Ohio. Cleveland is a mid-size Midwestern US city – with about 386,000 residents. In the 1950s, Cleveland was one of the most successful cities in the country, with a population of 915,000 people, and ranked in the top-five wealthiest communities in the nation. (Cleveland was home, for instance, to John D. Rockefeller, and in the late nineteenth century the tax valuation of properties along the major street, Euclid Avenue, exceeded that of Fifth Avenue in New York City.) Today, Cleveland is consistently ranked in the top-five poorest cities, a victim of deindustrialisation, flight of capital and jobs, and neoliberal trade deals and federal government policies that have devastated its once great manufacturing base. Roughly 35 per cent of the entire city’s population lives in poverty.
The Evergreen Cooperatives – now widely known across the United States as the ‘Cleveland Model’ – began in 2007. The Democracy Collaborative, an action-oriented think tank that has pioneered the concept of community wealth building for nearly twenty years, was commissioned by the Cleveland Foundation (the city’s largest philanthropy) to create a new approach to business development and job creation among unemployed Clevelanders. The model that evolved into the network of Evergreen businesses was based on a set of insights and principles that have guided its mission from inception:
•A job alone is not enough: work should not only pay a family-supporting living wage but also enable workers to build their personal and family assets. A job can lift you out of poverty, but it is assets and wealth that keep you out of poverty.
•Employment must be created near where people live: for people without access to good transportation, a job that is ten miles from their home may as well be one hundred miles away.
•Jobs must be available to the most disadvantaged residents: people with ‘barriers to employment’ – such as a criminal record or low educational attainment – need to be brought into the economy through an inclusive and equitable wealth-building strategy.
•Local assets must be leveraged to rebuild a local economy: in Cleveland’s case, three of these assets – the Cleveland Clinic, University Hospitals and Case Western Reserve University – annually purchase more than US$3 billion in goods and services. But most of these procurement dollars were leaving the community rather than going to local vendors, thus creating little local economic impact.
•A community wealth strategy must be closely tied to the broader community: the goal is not only to build up the assets of individuals and families, but the entire community must benefit. In the case of Cleveland, the target geography has 50,000 residents. Any meaningful economic development strategy must be linked to ways that impact the whole community, creating and anchoring productive capital in local neighbourhoods, and broadening ownership over it to produce the maximum benefit to all.
Based on these insights and principles, the first Evergreen worker cooperative – the Evergreen Cooperative Laundry (ECL) – was launched in October 2009, following a nearly two-year development and incubation period. Today, the co-op has about fifty employees – every member owns a share in the company. Members elect some of the company’s board of directors and participate in setting broad company policy, including electing the president of the company and determining how profits should be allocated. After several years of business challenges, the company is now highly profitable and workers are sharing in those profits. Many are also participating in Evergreen’s home-buying programme, a company-sponsored asset-building initiative to enable workers to buy their homes so that they can stay in the neighbourhood and help with its revitalisation. The company is now anticipating expanding beyond its current capacity of about 8 million pounds of laundry (mostly towels and sheets for local hospitals and nursing homes) to perhaps as much as 20 million pounds.
Another Evergreen Cooperative, Evergreen Energy Solutions (E2S), is in the renewable energy and green construction business – including installations of large solar arrays to meet the energy needs of the city’s anchor institutions, and LED lighting installation in parking garages and other facilities. Among its achievements is constructing a one-megawatt solar field providing clean energy to a local hospital and university – the largest such array in any core urban area in America.
A third company, Green City Growers (GCG), is a year-round hydroponic greenhouse now producing 3 million heads of leafy greens and several hundred thousand pounds of basil for the local food market. By growing lettuce locally in downtown Cleveland, GCG is keeping millions of dollars from leaving the local economy to purchase lettuce from more than 1,200 miles away in Mexico, California or Arizona. Like ECL and E2S, GCG is owned by its employees.
All of these companies have been supported in various ways (including through the extension of low-cost loans) by the city government. Local philanthropy, particularly the Cleveland Foundation, has been a longstanding supporter. Anchor institutions have committed to using the services of these companies – since universities and hospitals are rooted in place and rarely move, these institutions see it as a sound business proposition to support local community-owned businesses. This growing integrated network of for-profit, worker co-ops (more are in the pipeline and scheduled for 2018) has not only provided employment for hundreds of Clevelanders (most previously unemployed) but has generated millions of dollars in tax revenues for the city’s general fund, including the local educational system, which is under severe financial pressure.
All of this activity is coordinated by a non-profit ‘holding company’ – the Evergreen Cooperative Corporation. Its mission is not only to create employment for Clevelanders, but also to build assets and wealth for the entire community, as well as spread education about the virtues of cooperative ownership as a business model. In service of the community mission of Evergreen, each of the operating companies agrees to provide a portion of their profits to the holding company to develop employment opportunities for others in the community. Thus, to be successful, an Evergreen company must not only turn a profit but also contribute in concrete ways to revitalising the broader community beyond the walls of the business.
Today, the Evergreen model is inspiring similar community wealth strategies in other American cities. The city of Rochester, New York has launched the Market-Driven Cooperative Corporation and Richmond, Virginia has created an Office of Community Wealth Building in the city government structure. A growing number of cities have begun to fund the creation of workers’ cooperatives as part of their economic development strategy. Anchor-institution collaboratives that localise procurement, hiring and investment are growing rapidly. The Democracy Collaborative has recently launched the Healthcare Anchor Network, a consortium of thirty of the major hospitals and health systems in the country, committed to focusing their procurement, hiring and investment policies to strengthen their communities. Interest in public banking is also growing rapidly, with many cities and more than twenty states exploring approaches to building their own local public banks to free themselves from the dictates of large commercial financial institutions.
The Evergreen Cooperative story is still in the early stages of its unfolding. Certainly, it is no ‘silver bullet’ to resolve the problems created by decades of neglect and neoliberal policy. But as this model of community wealth building takes hold – and now most recently in the city of Preston, England – a vision of fundamental, systemic change at the local level is becoming an idea whose time is coming.
New Local Economies for the UK
Like in the United States, the UK has challenges with its post-industrial economy. Too many places have seen large industry leave without a progressive and focused plan for rejuvenation. In many places, there has been no absence of concern and action backed by public sector ‘regeneration’ funds, with physical improvements and social regeneration initiatives. However, the impact of such initiatives has had some benefit, but there the underlying issues remain. In this, efforts to create a more consumption-based economy are floundering under low wages, insecure work and the lack of local demand.
Today we have some devolution in our large cities, and some areas are doing well: attracting inward investment, with property-led development and new spaces of consumption. However, this is the exception rather than the rule. Many areas continue to struggle, and indeed in some areas the problems are deepening, made worse by public sector austerity. The promise of a ‘trickle down’ or ‘trickle outwards’ of wealth is just that – a mere promise. Inequality and poverty are on the rise, which is unacceptable.
The UK is the sixth largest economy in the world, and has large amounts of both private and public sector wealth. Therefore, the defining issue here is not the absence of wealth, but that it is not being retained or organised for all. The defining questions of our time are who owns the wealth, who influences it, who benefits from it and where does it go?
With these questions, the economic mainstream is being challenged and a new movement is growing. This movement is characterised by a growing range of alternatives and actions, which seek to advance inclusion and reorganise the economy – a reorganisation where wealth is extracted less, and is more broadly held with increasingly local roots. There are, however, two core challenges to be confronted.
First, it is challenged by global financialisation – the act of making money from money. The desire for speedy returns on capital investment means there is a preference for the relatively low-risk property and land markets (often in the urban centres of our core cities). This skews investment away from other – less investment-ready – locations, and from the relatively employment-rich real economy of manufactured goods and services. Furthermore, investors are now increasingly global, often with little or no attachment, connection or affinity to local places. This means that returns on investment are not readily recirculated by local investors into their local economy. Indeed, in an era of opaque and fast-moving global capital, it is increasingly difficult to even identify who investors are, let alone where investment gains go. As such there are limits to any central after-the-fact redistribution. By the time any process for wealth capture is in place, the wealth has already been extracted into the ether of the global economy.
Moving forward, there is the need to reorganise these ‘after-the-fact’ policies of social democracy. We need policy that works before and during wealth creation. This entails more ‘sticky’ and ‘patient’ investment in real local economies, and re-energising the focus of economic development on human and social outcomes, alongside growth gains.
Second, there have been and will continue to be profound shifts in the economy, in technology and in employment practices. Automation is speeding up a longstanding process by which wealth is gained less by society through employment, but more through returns to capital, extracted by investors. As it continues, automation will increasingly drive down wages and reduce the share of income through labour. The immediate impact will be more and more people trapped in inferior, robotic, low-productivity and low-wage jobs. The long-term solution is, therefore, to redirect wealth and economic activity to employees and communities. This can be achieved through broader ownership models, such as cooperatives and community benefit societies, where more people have a stake in production and where wealth is reinvested for the local good.
This maturing of capitalism means that higher levels of social inclusion demand more self-generation, where social gains are wedded to the actual workings of the economy, rather than to some after-the-fact corrective measure.
These features may be conceptual, but the response is real and growing. The new economic movement is lodged within European and UK social democratic traditions, but it is advancing from it. This is political, social and economic. Politically, we are seeing the rise of new plural democratic movements and municipalisation, perhaps exemplified within Barcelona and new global networks such as Fearless Cities. In cities and localities, it is highlighted by a new plurality of social movements, often fuelled by social media and digital connectivity. Socially, new community action and innovation are finding alternative ways in which people, businesses and the state organise themselves to meet social needs and issues. Economically, the collaborative and sharing economies are shortening supply chains and blurring the boundaries between production and consumption. In this a new horizontal flourishing of ‘on-the-ground’ political, social and economic innovation is starting to infect vertical power. Key among this are the community wealth-building movement and particularly the work that has been undertaken collaboratively by Preston and CLES to shift the identity, function and purpose of the Preston economy.
The Preston Model
Preston is a comparatively new small city in central Lancashire, hosting a population of 130,000 people who proudly won city status in 2002. What is even newer is the way Preston has embarked on a fascinating journey towards local economic democracy that has the potential to be transformative for its people.
In the nineteenth century, Preston was a boom town of the Industrial Revolution at the centre of the expansion of textile manufacturing, with Sir Richard Arkwright, the inventor of the spinning frame, born there. Sadly, its textile sector fell into terminal decline from the mid-twentieth century, and like many other areas in the north of England it experienced large amounts of deindustrialisation, inequality and deprivation accelerated by the onslaught of neoliberal economics from 1979 onwards.
Unlike some areas in the north, however, Preston is very fortunate. It hosts the administrative headquarters of both Preston City Council and Lancashire County Council. It has an expanding and vibrant university, a large tenant-led cooperative housing association, advanced manufacturing nearby, many independent businesses and a thriving arts and cultural scene. The majority of its local public sector institutions, as is the case elsewhere, are ‘anchored’ in its community and unlikely to get up and leave.
The 2007/8 Global Financial Crisis hit Preston very hard. Since the late 1990s the city council and its partners pursued the £700 million Tithebarn regeneration project in partnership with two large global developers, which they hoped would see an influx of inward investment and provide the revenue needed to upgrade many of Preston’s public assets that had been starved of investment for years, including its iconic bus station and outdoor markets.
However, in 2011 the scheme was abandoned after its main anchor store pulled out, with Council Leader Peter Rankin declaring, ‘We are in one of the worst economic and financial situations since the 1930s.’ Within a similar period one of Preston’s oldest printing businesses, which in its heyday employed 1,300 people, relocated production abroad, reducing its Preston workforce to less than a hundred.
Preston’s Labour Group in opposition had adopted a more radical approach before winning a majority on the council that year. Despite Tory opposition they pushed through a policy ensuring Preston City Council became the second local authority in the UK to pay the real living wage in 2008. Two years later they worked with Preston Bus workers who bravely tried to buy their own enterprise as a democratic employee-owned firm after the Competition Commission declared its acquisition by Stagecoach to be anti-competitive.
The first years of the Labour administration from 2011 saw support for policies to promote the real living wage, with the majority of the local public sector and many private and voluntary sector organisations joining the council in becoming living wage employers. Labour also began the process of re-establishing a city-wide credit union, now known as Clevr Money, with some 500 members in the city at present.
Labour then began considering how to challenge locally the systemic problem of deepening austerity and disinvestment caused by the failure of corporate capitalism. What had interested the administration for some time were the highly successful experiments with economic democracy both here and overseas. These included the Mondragon Cooperative Corporation in the Basque region of Spain, with its highly sophisticated network of 250 worker-owned businesses, that had raised average wage levels to over a quarter more than their capitalist counterparts.
North Dakota in the United States also had a century-old state bank linked to hundreds of community banks and credit unions that kept 70 per cent of deposits in the region, keeping unemployment to one-third of the national average when the recession hit. At home in Manchester, and in Cleveland, Ohio, thousands of jobs had been added by large public sector organisations buying from local suppliers, creating entrepreneurial states locally and keeping wealth in place.
Two of the present authors – Neil McInroy and Matthew Jackson from the CLES – soon became regular visitors to Preston, working with the administration to take the best traditions of economic democracy and apply them to Lancashire. Preston also drew on the inspiration of another of the present authors – Ted Howard from the Democracy Collaborative – and the Cleveland Model, as described above.
Key to bringing these ideas to scale was the need for collaboration. As a large district authority Preston could not achieve what it wanted alone and needed others to join in. This led to community wealth building as a new approach to local economic development formally being adopted in 2013.
From 2013, key players in the local public sector received visits to look at how, as anchor institutions, they could work collaboratively with the council. Five other anchor institutions signed up, namely Lancashire County Council, Lancashire Constabulary, Preston’s College and Cardinal Newman College and Community Gateway. The collective spend of these institutions on goods and services was significant, at £750 million every year, and the aim was to increase that spend in the local economy. Helped by Labour’s police and crime commissioner, Clive Grunshaw, and the then Labour-led county council, tens of millions of pounds are now repatriated each year to local suppliers, creating jobs and expanding social value outcomes, including the number of people receiving the living wage.
Other anchor institutions later joined the initiative, including the University of Central Lancashire (UCLan) and Lancashire Teaching Hospitals, expanding the entrepreneurial local state, acknowledged by Shadow Chancellor John McDonnell during visits in 2016 and 2017. While increasing spend to local suppliers has had a profound effect on the local economy, the long-term aim was always to use public procurement to expand the cooperative economy on similar principles to those of Evergreen. Dr Julian Manley and others at UCLan are now working with its business school to identify gaps in its procurement chain to potentially support new co-ops and graduate employment. Platform cooperatives like Co-Tech and the Open Food Network are preparing to bid for IT and food contracts from the anchor institutions, and the renewable energy movement is committed to establishing energy cooperatives linked to the requirements of the local public sector.
The impact of this activity has been telling. As a result of new policy and action between 2012/13 and 2015/16, Preston City Council alone was able to more than double the proportion of its local procurement spend, from 14 per cent to 30 per cent, with local businesses, social enterprises and cooperatives beginning to benefit. While repatriating spend was and is an important component, the primary purpose has been to shift the behaviour of the anchor institutions so that they think more progressively about their local processes and choices, and the impact they have on the local economy.
To bring further democracy to the local economy, Preston City Council worked with the Lancashire County Pension Fund to invest locally through its City Deal. The £100 million earmarked by the fund has seen a new student flat development regenerate a rundown part of Friargate (a key retail promenade), and the palatial Park Hotel will be brought back into use and redeveloped, creating new jobs and a virtuous circle of local wealth flow. In the longer term, there is hope the fund will adopt the recommendations of the Lancashire Fairness Commission and invest in local affordable housing and renewable energy, with public sector workers needing the opportunities cheaper housing and energy provide, as well as securing a sustainable return for their future pensions.
Energy democracy forms a key part of the approach in Preston, with Labour elected on the promise of ambitious plans for a city-owned wind farm to generate affordable electricity for its residents and reduce fuel poverty. This planned £20 million investment ceased to be viable when the renewable energy subsidies were slashed by the Conservative government. As an alternative, Preston will be leading an energy supply partnership, Red Rose Fairerpower, to offer a local alternative across Lancashire to the Big Six energy firms and hopefully reduce household bills. This, with other measures, is a positive step towards the municipalisation of energy which Labour in Nottingham and elsewhere has begun so well.
Underpinning this agenda is the need for local and democratic control of finance. Preston City Council is working with Professor Richard Werner from the University of Southampton to establish the Lancashire Community Bank. This should see the first phase of not-for-profit community banks across the UK based upon the German Sparkasse model that is so central to everyday German life. Already local authorities and universities in Lancashire are examining how they can invest in the bank to lend to small businesses and individuals, many of whom have difficulty accessing finance from the mainstream banking system.
So what has this movement towards a democratic local economy actually helped deliver on the ground? While Preston still has significant challenges, official statistics show it is in the top 10 per cent for part-time female workers receiving the living wage or more in the North West. Earnings for full-time workers in the Preston economy nearly equal the average in the North West, and those for part-time workers exceed it. After years in the bottom 20 per cent of most deprived areas in the UK, Preston is finally out of it, and a Demos/PwC report recently declared the city to be the ‘best place to live and work’ in the North West.
Conclusion
What is happening in Preston is part of a movement of post-capitalist responses around the world, from Barcelona to Cleveland and elsewhere. In the UK and Europe, CLES is at the forefront of policy and practice in this area, working in Belfast, Preston, Birmingham, Oldham and ten cities across continental Europe.1 The Democracy Collaborative is working to take the lessons of Cleveland elsewhere, working in some twenty cities across the United States.
Through local/community wealth building we are seeing a new democratic, social and economic movement, which seeks to provide resilience where there is risk and local economic security where there is fragility. We are in a moment of great political and economic uncertainty. As such, the energy that fuels this movement is growing and the range of community wealth-building work is delivering demonstrable outcomes. The task now is to celebrate – but also to accelerate. On the basis of these new principles and approaches we can reorganise the economy for all.
To this end, local government must become a little less managerial and a lot more transformative. Trade unions should consider working with councils to divest their member’s pensions from fossil fuels and invest instead in networks of locally owned municipal energy generation across the UK. The trade union and cooperative movements should work together to form member-owned union co-ops to actively bid for the billions spent each year by local government on construction and social care.
Taken together, all this can begin to transform society right here, right now. This is a big opportunity to create the society we want, at every level. Let’s take it! The movement grows!