GDP is both vitally important and hopelessly inadequate as a measure of prosperity.
Many attempts have been made to find a better yardstick. One of the best is the PwC-Demos Good Growth for Cities Index. Like GDP, it avoids subjective, hard-to-measure criteria like happiness; unlike GDP, it represents whether or not people can access the benefits of growth. For example, it takes into account factors including jobs, skills, income distribution, home ownership and housing affordability. Furthermore, the index , as the name suggests, is localised: it shows what’s going on in different parts of the country. Best of all, this is not a one-off exercise, but an ongoing project that started in the immediate wake of the global financial crisis.
People not places: the real hope for a northern powerhouse
The most recent report was published last year and covers the 2015-2017 period. The top three cities on the Good Growth Index were all in the South – Southampton, Reading and Oxford taking bronze, silver and gold. However the top three most improved cities (compared to the 2011-2013 period) were all in the North – Hull coming third, Middlesbrough-and-Stockton second and Preston in clear first place.
Writing for CityMetric, Neil McInroy and Jonty Leibowitz say that Preston has become “the poster child for an insurgent economic approach known as ‘local wealth building'” whose purpose is to “[rebuild] wealth from the bottom-up rather than the top-down”.
The core strategy is to develop “a dense local supply chain of local enterprises, employee-owned businesses, social enterprises [and] cooperatives” using the purchasing power of what are called “anchor institutions”,
“…such as housing organisations, universities, schools and hospitals. These institutions hold a unique position in the local economy, as they employ people, buy things, hold property and assets and are unlikely to relocate from the local area.”
An allied strategy is to increase “flows of investment within local economies by, for example, directing the funds from local authority pensions away from global markets and towards local schemes and community-owned banks and credit unions.”
Westminster's broken: To rescue our British parliament, establish an English parliament
As reported in The Economist, this has made a significant difference to the amount of money being spent locally:
“The Centre for Local Economic Strategies, a Manchester-based think-tank, audited the spending of six such institutions last month and found that they spent 18% of their most recent year’s budget in Preston, compared with 5% in 2013. In cash terms, this meant an extra £75m being spent in the city—around £530 per citizen. The share of their spending in Lancashire doubled from 39% to 79%. It required no extra money nor new legislation.”
The Economist describes Preston as “Jeremy Corbyn’s model town”. Preston City Council is Labour controlled – as is Manchester City Council, which pioneered the local wealth building approach together with the Centre for Local Economic Strategies (CLES). Nationally, the Labour Party has established a Community Wealth Building Unit.
Messrs McInroy and Leibowitz, who both work for CLES, use Left-wing language in praise of the Preston model, claiming that “it slays the neoliberal dragon of trickle down economics”. Fans of the “neoliberal dragon” would no doubt protest that trickledown economics is a bogeyman of the Left’s invention – and nothing to do with them. However, I doubt they’d think much of the Preston model either – regarding it as a Lancastrian version of Juche (the North Korean doctrine of self-sufficiency).
Narrowly interpreted, a market-based approach would require public institutions to spend our money sparingly and guided by the price mechanism alone – anything else, like trying to grow a local economy through parochial preference, would undermine market discipline and lead to inefficiency.
Except that local councils and other public institutions have an interest not only in how little they pay for something, but how much they get in return. That, of course, includes the quantity and quality of the purchase itself, but also wider benefits to local jobs, skills and investment – things which eventually flow back to the council in the form of local tax revenues and reduced demand on the local public sector. The council might get a better upfront price from, say, a London-based company, but if the money flows away into distant coffers, then it does nothing more for the community.
Free marketeers ascribe the global decline in poverty to the wealth-generating powers of capitalism – and not without reason. And yet while the countries that account for the bulk of this progress (above all, China) have moved in a capitalist direction, they’ve also been careful to trade on terms that achieve strategic objectives such as building up the strength of homegrown industries. Private enterprises and individuals in the West also make purchasing decisions on non-price criteria; the long-term strategic value of a close relationship with a particular set of suppliers and customers often counts for more than a short-term financial saving.
It seems odd that the public sector alone – and especially the local public sector – should be robotically required to accept the lowest bid irrespective of other considerations.
Fortunately, the 2012 Public Services (Social Value) Act empowers councils and other public sector institutions to take into account the wider economic, social and environmental value of their purchasing decisions. It was a Conservative MP, Chris White, who introduced the legislation as a private members bill – securing the support of the Conservative-led Coalition government. Moreover, it was the Coalition that pursued a broader programme of decentralisation – giving towns and cities more control over their future development than they’ve had for decades.
What's the point of central government?
I’m not saying the Conservatives should claim credit for the Preston model – after all, the whole point of decentralisation is that the key decisions should be made, and be seen to be made, locally.
However, Theresa May’s government should have been a more vocal champion of this agenda – striving to find new ways to support it. To have allowed local economic empowerment to become associated with Corbynism is yet another example of this government’s political ineptitude – and yet another failure to understand what ‘taking back control’ actually means.