How to… create neighbourhood economic models that work

Local investment relies on the ‘friction’ of community engagement, says Genevieve Maitland Hudson, as she reveals new research into neighbourhood economic models

It’s a much-repeated truism that the world is changing faster than it’s ever changed before.

Recent economic trends tend to suggest that change, if you can call it that, is happening in reverse gear.

We have wealth concentration at levels not seen since 1905, a growing disparity between regions across both GDP and earnings, and wage levels falling in real terms. While national policy is undoubtedly needed in response to these global trends, some solutions can be found at the local level, through effective targeted investment, the creation of better quality jobs, and the active engagement of people. Indeed, effective local investment depends upon local participation.

Economic inequality is felt most keenly at a local level in small communities in England where opportunities for work, let alone progression, are limited, and where people are trapped in intermittent employment in low paying jobs from which they struggle to extricate themselves. Added to this persistent and ongoing problem, recent reports on the effects of Brexit and automation suggest that certain struggling areas will be hit particularly hard. Already the impact of Brexit is being felt in agricultural areas dependent on a migrant labour force.

Power to Change’s recent report on Neighbourhood Economic Models highlights how disparities of opportunity may be palliated by boosting social capital, and how support from intermediaries could help to develop the kinds of businesses that ‘hold’ onto investment and recycle it for local use, as well as creating jobs and progression.

The report also highlights the importance of migration as an engine of economic growth, not ad fall-back labour, but as a creative force for new enterprise.

There is a good deal of work to be done, however.

The Living Wage Foundation showed last week how poorly the social sector performs as an employer. It found that 26% of charity employees earn less than the living wage, and that those in part-time work, women, the old and young, disabled and those of BAMER background are least likely to be paid the living wage. It is also worth underlining that charities fare worse on this measure than all other sectors of the economy, where only 22% of employees earn less than the living wage.

This shows that the answer cannot be as simple as saying ‘big business’ with its global capital and maximised shareholder value is bad for local economies, and non-profit local organisations are good. A set of agreed goals and standard setting are necessary to stave off decline, create high quality jobs, and secure and recycle investment. It is active engagement that will make the injection of local cash work for local people. The underlying governance model makes the difference, as can be seen in the employment models of co-operatives.

The Community Shares Booster programme run by Power to Change works with community businesses to raise long-term equity through retail investment to create viable businesses that respond to local need. It re-opens for applications in December.

Leeds Community Homes raised £360,000 through their share offer, from investors who were predominantly local, and this in turn has leveraged additional finance to allow the organisation to build sixteen permanently affordable homes in Leeds. This is an achievement in itself, but what marks out the importance of this approach to raising local finance is not so much the initial investment mechanism, but the ongoing formal accountability that sits alongside it.

Community share issues are an investment method only available to co-operative and community benefit societies. Each ‘share’ gives the investor membership of the society, and a formal governance role through voting at the annual general meeting. Every member has the same voting rights (one member, one vote), rather than a proportional share as in a joint-stock / unlimited share company.

This matters.

It provides the means of holding an organisation to account for its use of an investment, and can provide the wherewithal for involved community action as an egalitarian, organisational force. It gives a community, for instance, the means to oversee the creation and ongoing retention of good quality employment within a community business.

These are not new methods. The legislation for community shares is more than a hundred years old. It is also worth saying clearly that the formal mechanism is not enough in itself, a commitment to making those mechanisms work is just as important.

As we find ourselves again in a world as unequal as it was at the turn of the twentieth century, we could do a lot worse than learn from the methods that worked for us then, and can still work for us now. Local investment which can re-balance neighbourhood economies depends upon the necessary ‘friction’ of community engagement. We should take note, and enable both.