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“Absentee landlords” are a recipe for economic failure

“Absentee landlords” are a recipe for economic failure

🕔05.Aug 2013

To me, the emperors-new-clothes issue around delivering local powers and progress as we approach the 2015 elections – ignored by politicians of all localism-embracing colours – is that of the concentration of economic ownership into fewer and fewer hands.  The UK economy is increasingly oligopolistic, poorly distributed across regions and individuals, unequal, exclusive and unstable. How could local authority and community efforts match this?  Is there a link between this, political apathy and the social failures of localism?

Localise WM has spent the last year working on some research on this theme, basically investigating what social and economic benefits could be brought to a region by placing more emphasis on tackling this ‘econocratic deficit’, integrating localised approaches into mainstream economic development.

The work was called Mainstreaming Community Economic Development, but – before you assume this is all nice non-profit irrelevance – our focus was not only on social enterprises in deprived areas, invaluable though they are, but on maximising the benefits from how we direct all economic development; ensuring inward investors strengthen rather than cut across our local supply and demand chains; doing the local multiplier options analysis on public subsidy.

Our initial stage sought evidence around the social and redistributive benefits of localised and less localised economic approaches.  We were surprised to find little direct comparative assessment, but what evidence we found concluded strongly that local economies with higher levels of small businesses and local ownership perform better in terms of economic success, job creation (especially in disadvantaged and peripheral areas), local multiplier effect, social inclusion, health, wellbeing and civic engagement, than economies dominated by bigger interests. Such economies also supported local distinctiveness and diversity, which we see as positives because of their contribution to economic resilience, fitness for human diversity, richness of experience, and sense of place and belonging.

Both the literature and our case studies suggested that a local economy largely controlled by distant public and private sector decision-makers – effectively ‘absentee landlords’ – is a recipe for economic failure in the long term.

Absentee landlords have neither the local knowledge nor the local commitment to make appropriate decisions: with few ties to a place such businesses can jump ship in pursuit of better conditions.  The result is a more difficult environment for local businesses and a self-reinforcing cycle of decline and exclusion.

In our case studies of successful locally owned businesses in the food and building retrofit sectors we were struck by the commitment of those bosses to supporting their workforce and local communities, and often also to tackling local exclusion. They saw this as good business sense: it got them trust, support and commitment from their workforce, customers and suppliers; but they also fundamentally saw themselves as part of that community, and understood that the wider health of their community impacted on their personal lives and their business success.

Even without such enlightened self-interest, locally based businesses are more likely to adapt to local needs than to move.  Employment may be more accessible; there are more opportunities for different parts of the community to have a stake in the economy through peer experience, through the wider distribution of owners and managers, or more formally through co-operatives; and the overall increase in civic welfare reduces disadvantage in a way that overall growth per se often fails to.  Success also seemed to depend on good public/private/third sector networking, and often co-operation between business competitors to help develop markets and make joint bids for work.  This is long before we touch on the role of social enterprises with their overt social inclusion agendas.

This, along with the more obvious factors of local multiplier and decentralised capital, starts to explain how localised economies can be far more effective in creating innovation, success and redistribution than those controlled by absentee landlords.

One case study was Birmingham’s Wholesale Markets, with an aggregate turnover of £275 million, through over 70 locally-owned trading operations employing 1,100 people.  Supplying the city’s independent food businesses they support around 15,000 jobs in the wider economy, employment of disadvantaged people, remarkable cultural and social diversity, and affordable, accessible fresh food, particularly through the vital adjacent retail markets.

If the markets are moved as planned, will this central site – under the control of an absentee landlord seeking high returns – provide a similar local multiplier or socio-economic benefits?  Can the wholesale markets continue providing all these benefits at the city’s outskirts?  What methodologies allow us to compare the real impacts of such options: who benefits?  How audible in the decision-making are the voices of Birmingham’s locally-based businesses, their customers and investors?

Can we allow these questions more weight in how we make economic decisions?

Centralist though New Labour was in its devotion to market and state centralism, the Cameron/Pickles/Heseltine brand of localism seems oddly worse for getting it so wrong – confounding indiscriminate business interests with community control. Community rights, changes to the planning system and LEPs’ governance and objectives are shaped to further the interests of absentee landlords and their infrastructure needs, not those of the sorts of locally based enterprises that deliberately or incidentally bring real local benefit. LEPs’ objectives are not primarily those of civic leadership – not about increasing and spreading wellbeing through enabling the area’s economic ‘ecosystem’ to thrive – and they are not really designed to be open and inclusive.

In Montreal, Canada, exists a LEPalike known as RESOle Regroupement Économique et Social du Sud-Ouest, a partnership of local businesses, trade unions, local communities, social enterprises and remotely owned businesses with local premises. It has had significant impacts in its goals of reducing poverty and economic decline. Real localism doesn’t divorce community and business, but reflects community roles as owners, investors, customers, employees, entrepreneurs, the steady hands on the micro and bigger businesses that keep our economies ticking through everything the banks have caused.

This is the crux of the pro-business, pro-people political response we’re seeking. At national and local level, maximising local benefit could become a stronger consideration in all economic decision-making, with locally and redistributively beneficial parts of the economy identified and supported through our existing subsidies, tax mechanisms, competition policy, planning processes, support and governance structures. Locally, the economic findings of Birmingham’s exemplary Social Inclusion Process and some isolated parts of the Greater Birmingham Project give us a start, but need booting into the limelight.

Perhaps this response would address widespread public concern over the concentrations of wealth and power that resulted in the 2008 Crash, as well as the need for more and better livelihoods to escape its effects.

Karen Leach is Company Secretary and Coordinator for Localise West Midlands

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