Five principles underpin local wealth building in the UK context.
1. Plural ownership of the economy
The UK is the fifth most unequal country in the world, according to the OECD. Financial wealth is held by a small minority, 44% of the UK’s wealth owned by just 10% of the population, five times the total wealth held by the poorest half. More than a fifth of the population live on incomes below the poverty line despite the majority of these households being in work.
At a local level, this means that the wealth generated by workers, local people, communities, local enterprise and business in our towns and cities does not flow back to them, but instead is extracted by distant shareholders as profits and dividends.
Data from OECD in 2017 identified that the UK was the only developed economy where wages has fallen in real terms while the economy grew. Over the last 30 years we have seen the severing of the links between wages and economic growth, which has fuelled further this inequality and led to a hollowing out of local economies.
Rebuilding the connection between the people and the places that create wealth and those who benefit from it is at the heart of local wealth building. We know that locally owned or socially minded enterprises are more likely to employ, buy and invest locally. This means that rather than extracting wealth they contribute to local economic development. For this reason, local wealth building seeks to promote locally owned and socially minded enterprises.
To further strengthen the link, local wealth building promotes various models of enterprise ownership. These include public sector insourcing, municipal enterprises, worker ownership, co-operatives, community ownership and local private ownership. These models enable wealth created by users, workers and local communities to be held by them, rather than flowing out as profits to shareholders.
2. Making financial power work for local places
The UK banking sector is orientated to global markets rather than local investment and economic development. Over recent years, we’ve seen a stagnation of lending to small business and the closing of many local branches, reducing the connection between lenders and their local communities. Access to credit is the life blood of many small businesses without which they struggle to operate and compete with larger firms to provide goods and services.
Local wealth building seeks to increase flows of investment within local economies. It does this by harnessing the wealth that exists locally, rather than by seeking to attract national or international capital. For example, local authority pension funds are encouraged to redirect investment from global markets to local schemes. Mutually owned banks are supported to grow, and regional banking charged with enabling local economic development are established.
All of these are ideally placed to channel investment to local communities while still delivering a steady financial return for investors.
3. Fair employment and just labour markets
Continuing stagnation of real wages, the erosion of job security and rise of zero hour contracts, job loss driven by automation, mean that the reality of employment for many in the UK is increasingly precarious, with many working full time jobs unable to make ends meet. In 2018 Joseph Rowntree said number of workers in poverty had 4 million meaning that about 1 in 8 people are now classed as working poor.
Local wealth building not only aims to improve employment opportunities but also worker rights by, for example, promoting recruitment from lower income areas, inclusive employment practices, committing employers to the paying living wage and building progression routes for employees.
Often the biggest employers in a place, the approach anchor institutions take to employment can have a defining effect on the employment prospects and incomes of local people. Working with human resource departments within anchor institutions to stimulate the local economy through progressive employment and local labour market activities has proved a powerful tool.
4. Progressive procurement of goods and services
When it comes how money is spent and services commissioned by anchor institutions, cost is often the dominant determining factor in who gets the contract. Environmental credentials, social value and decent employment conditions tend to be weaker considerations.
Local wealth building promotes the progressive procurement of goods and services, as this spending power can be a means through which greater economic, social and environmental benefits can be achieved.
By adapting their procurement processes and decision making, anchor institutions can create dense local supply chains and ecosystems of local enterprises, SMEs, employee owned businesses, social enterprises, cooperatives and other forms of community ownership. This is important because these types of businesses are more likely to support local employment and have a greater tendency to recirculate wealth and surplus locally.
5. Socially productive use of land and property
How land, property and assets are owned and managed are key features of any economy. A huge amount of wealth is held within land and property assets. In the UK, ownership of this wealth is concentrated in the hands of very few while the least wealthy 30 percent have no net property wealth at all. Speculation on property markets and the selling off of public land to private owners are major drivers of inequality. Over the last forty years, the state has sold off 2 million hectares of land.
Wealth from land is often extracted or unproductive. For example, oversees investors speculating on the property market results in wealth being generated despite property lying empty.
Often the full social value is not reached, as economic value or assumed economic value dominates.
Local land and property represents an asset base from which local wealth can be accrued through equitable forms of ownership, management and development. In local wealth building the function and ownership of these assets is deepened to ensure any financial gain from these assets is harnessed by citizens.
Anchor institutions can support equitable land development through, for example, community land trusts. They can also develop new economic uses for property and assets, and support the transfer of under-utilised holdings for community use.
Despite a reduction in land holdings, anchors remain major land, property and asset holders. These holdings can be used to generate local wealth through equitable forms of ownership, management and development.
Much public sector land and holdings are the commons, and should be used to develop greater citizen ownership of the built and natural environment.
The term ‘anchor institutions’ is used to refer to organisations which have an important presence in a place, usually through a combination of: being largescale employers, the largest purchasers of goods and services in the locality, controlling large areas of land and having relatively ﬁxed assets.
Anchor Institutions are often tied to a particular place by their mission, histories, physical assets and local relationships.Examples include local authorities, NHS trusts, universities, trade unions, large local businesses, the combined activities of the community and voluntary sector and housing associations.
Guided by Local Wealth Building principles, anchor institutions can play a defining role in creating and reinforcing local economic ties.