Published: 7th Jul 2015

rachelA few weeks ago I found myself sitting within the vaulted red brick walls of Impact Hub Birmingham, nestled between railway arches in the city’s emerging ‘social enterprise quarter’ in Digbeth, where a discussion was heating up.

Around twenty people from local councils, social enterprises and voluntary sector organsiations had gathered to share their insights around how local economies can be strengthened and grown from the bottom up. The expertise in the room was tremendous, with a dazzling array of examples of projects that are re-kindling their local economies, from building local supply chains around large new builds (for example a hospital) to transforming how community spaces are being used to stimulate the micro-economy in economically deprived estates.

NEF and New Start are working together to showcase, strengthen and accelerate new approaches to local economic development, through a series of events in ten cities this year, and a set of ten magazine editions.

The Birmingham event was a collaboration with Localise West Midlands, an organisation that has worked for many years to capture, support and promote approaches which foster sustainable, locally beneficial and well-connected economic development.

Making ‘true venture capital’ available to small scale enterprises and

voluntary organisations would completely alter the playing field

The event, ‘Collaboration for stronger local economies in Birmingham & the West Midlands’, is covered in more detail in New Start’s June issue, which also discusses in depth some of the examples of innovative economic development in the region.

For me, two points from the discussion stood out as unexpected insights from the Birmingham event:

1. A lack of ‘true venture capital’
Within the public and voluntary sectors it is often lamented that long term, systemic change is incredibly difficult to achieve due to the short term nature of both political, and funding, cycles, which tend to be around the three year mark.

No matter how successful the programme, or how rooted its design in a long term vision for change, there is a risk that at the end of this cycle, the project will not be repeated or further developed, and so must exist as a self-contained and relatively short term intervention.

Less often highlighted is the knock-on impact this has on the ability of small-scale social enterprises or voluntary sector organisations to access credit to develop their business sustainably. The rate of return within a three year period of, say, a social enterprise providing hospital laundry or cleaning services to a new hospital; or the social enterprise currently providing some of Birmingham’s adult social care services based in the home, and requiring a certain amount of initial capital outlay, is negligible compared with the rate of return over ten years.

This has a substantial impact on the degree to which this sector will ever be able to become sustainable on its own terms – rather than perpetually reliant on serving as an arms-length delivery team for increasingly cash-starved local authorities, or on a finite pool of grant funding.

Making ‘true venture capital’ available to small scale, socially-minded enterprises and voluntary organisations would completely alter the playing field and allow them to innovate and draw on investment. And re-thinking the length of funding cycles and local government contracts could actually serve to unlock access to credit for local social businesses trying to strengthen and grow their foothold in the local economy.

2. Efficiency versus greater local economic stimulus

Another recurring barrier named by those trying to persuade public authorities, national government or indeed any large business, to invest in the local economy, is the argument that the bottom line consideration must always be value for money and efficiency.

Yet this argument is generally made in terms of the service or product being procured: the question being whether the payment for this service or product is efficient at producing the quantity and quality of said service or product. Aside from the huge questions about how you generate high quality services and products at the appropriate scale, and what denotes an efficient ratio of spend to quality, a separate burning question emerged.

Why do we judge the efficiency of the spend against the service or product procured rather than how much that spend stimulates the local economy?

If the object is to generate a greater amount of local economic activity, then funding two small organisations to deliver 50% each of a contract is arguably more efficient than funding one organisation to deliver 100% of it. Even though the latter example might see a reduced ratio of overheads to service delivery, in fact when two organisations are each hiring space locally, employing admin staff, and generating further spend in their local supply chains through two sets of sub-supply rather than one, then the impact of that contract value on the local economy is substantially increased.

This is a completely opposite perspective on value for money, and one which recommends spreading out rather than consolidating spend in relation to service delivered.

Keep an eye out for the next New Start edition in July when we will explore how these questions are unfolding in Bristol.

Leave a Reply

Your email address will not be published. Required fields are marked *