Alternatives to austerity: social licensing and foundational sectors

Julie Froud, Sukhdev Johal, Adam Leaver,

Karel Williams

ESRC Centre for Research on Socio-Cultural Change cresc.ac.uk

Trickle down isn’t working:

inequalities increase

• Growth? Many regions + localities + groups not benefiting :

• 30 years of relative decline (eg Welsh/London GVA 1989-2009 = 54 – 43%) dependence on publicly funded jobs + SS for 20% of wing age

• “Recovery” is more of the same:

nearly 50% of GVA growth 2007-11 went to (parts of) London and the South East;

nearly 40% of income growth goes to top 20% of households take;

Its getting worse with SS cuts taking £700 per working age person out of N and W

Questions, concepts and gestalt flip

• Discursive shift from rebalancing in 2009/10, to austerity 2010/11, to same old same old 2013/14: structural reform (privatisation, competition, markets); plus attempts to reflate the (London) housing bubble & growth of unsecured credit.

• Result = prospect of no good F/T jobs for our children outside London & debt overhang which creates an economy of uncertainty without the welfare institutions to manage it.

• We need to reframe/reset: how to think about the economy in a new and different way; requires a new language which changes how we see/ what we see

• Gestalt flip by answering 3 questions with new concepts: 1. Which economy? Lets talk about the foundational economy 2. What kind of success? Let’s recognise the limits of point value 3. What kind of solution? Let’s invent new modes of social licensing

(1) Which economy?

the foundational economy

Framing: only one economy?

• One economy framing ex (a) national income accounting = GDP with aggregate output growth as the measure (b) reinforced by medical metaphor about the body economic eg “recovery” from 2008 crisis, euro zone “contagion”

• Political message = one size fits all: importance of competition: ‘Like it or not, the free market economy is the only show in town. Britain is competing in an increasingly impatient and globalised economy, in which the competition is getting ever stiffer.’ ( Boris Johnson, Mayor of London, Nov 2013.)

• Singular framing is an invention of recent date vs other ways of thinking about a multi-zone economy eg Fernand Braudel’ Civilization and Capitalism schema of three zones ie material life, market exchange, high capitalism; ‘There were not one but several economies’ in the early modern period

Another zone: the foundational economy

T • But many activities are sheltered – eg activities producing mundane, taken for granted goods and services necessary to everyday life, consumed by all citizens regardless of income, distributed according to population

• Including (a) privatized pipe and cable utilities, plus transport (b) traditionally private activities such as retail banking, supermarket food retailing and food processing (c) traditionally public activities, especially health, education and welfare or social care

• Network or branch activities with 3 inter-related characteristics:

1. Partly outside the sphere of competition: networks and branches give local monopoly/claims on household expenditure

2. Large in scale & generate mass employment: health, education and welfare employ > 20% with utilities + retail c. 10%

3. Post industrial driver of welfare: 30% of UK household income spent on foundational, which sustains jobs

England Wales

Employees Share of total

employment

Employees Share of total

employment

No. % No. %

Pri

vate

, sta

te a

nd

sta

te

sup

po

rted

fo

un

dat

ion

al

eco

no

my

act

ivit

ies

Private sector activities 2,256,674 9.4 122,772 9.8

State and state

supported activities 5,744,372 23.8 353,247 28.1

Total foundational

economy activities 8,001,046 33.2 476,019 37.8

Co

mp

arat

ors

Total employees 24,104,050 1,259,038

Manufacturing 2,066,567 8.6 129,680 10.3

Private sector and state and state supported employment in foundational economy

(2) What kind of success ?

The limits of point value

Point value: success (hang the consequences)

• Dominance of point value = trader mentality of low costs/high profits at a node in one moment (cf stream value over time, shared by stakeholders)

• Driven by short-termist shareholder returns: bringing income forward, where rising profits &/or share prices = legitimation

• A kind of disconnect : hang the consequences down the chain or over time - limit investment, plus slow response to social needs:

1. Corporates earn profits by fleecing customer or suppliers eg UK retail banks have targets of 15% ROE, free current accounts and £700k a year branches = pressure selling of PPI, interest rate swaps

2. Utilities won’t invest unless it builds their profit position eg BT takes fibre broadband to the cabinet + goes slow on extending rural network; managing competing demands of divis + share buy backs and buying sporting rights/pay tv market share

3. Local authorities spread low wages and dependence thro eg lower price for adult care by casualized untrained carers; local state saving on wages in one account balanced by central state cost of housing benefit, health care and pensions in another.

Success or mismanagement ? British supermarkets

• 4 national PLC chains with >80% of the grocery market; average UK household spend on groceries = £55 per week (excluding alcohol)

• Sector widely praised for combining (a) shareholder value with 10% target ROE (b) low prices and choice for consumer; but reformatting economy in unpalatable ways:

1. Offers little for the community or the region: business model of trucking goods in from regional distribution centres, van the money out + leave only shelf filling jobs eg evidence from Enfield.

2. Uses power to capture margins of food processors and producers + pass costs; suppliers pay for special offers, orders are switched, respectable PLCs like Nern Foods in 2011 collapse.

Enfield supermarket value extraction ( vs corporate social responsibility)

Extrapolated 2010/2011

annual pre-tax operating

profits

Stores in Enfield/

Total stores

Prorata annual profits

from Enfield stores

…and the only Corporate Responsibility actions that officers

could find in Enfield were..

Tesco £2 bn (UK) http://www.bbc.co.uk/news/business-13137226: postulate: ca. 2/3 in UK

11/2715

(UK)

£8.1 mio Community toilet scheme

Charity fundraising stalls

Schools and Clubs scheme

Asda

£804 mio (total) http://www.fairpaynetwork.org/uploadedPDF/Face-The-Difference.pdf

4/523

(total)

£6.1 mio

“Wants to play an active role”

Edmonton store donated £26K but to Starks Field

Primary School

Sainsbury’s £827 mio (total) http://www.fairpaynetwork.org/uploadedPDF/Face-The-Difference.pdf)

6/1000

(total)

£5.0 mio Every Sainsbury’s store chooses a local charity to help

with fundraising

i.e. Highlands Village - Chickenshed

Waitrose £261 mio (total) http://www.thedrum.co.uk/news/2012/03/07/john-lewis-partnership-sees-operating-profits-fall-despite-64-sales-growth

3/250

(total)

£3.1 mio “Community matters”, i.e. Enfield Chase gives £6k/yr

to 36 causes

Morrison’s £632 mio (total) http://www.fairpaynetwork.org/uploadedPDF/Face-The-Difference.pdf

2/455

(total)

£2.8 mio Charity partner – N. Ldn Hospice

Hosts fundraisers

Subtotal £25.1 mio

(3) What kind of solution?

social licensing

“Pro business policies” or social licensing?

• Old model of “pro business policies” = low taxes + deregulation for mobile firms. New model of social licensing for large, anchor firms which can’t leave; sweeteners vs anchors earn right to extract cash from community .

• Social licensing of sectors or firms? right to trade if meet relevant criteria of community responsibility eg on sourcing, living wages/ training; CSR with teeth

• Establishes a community relation (a) because its our money as either household spend or tax revenue (b) our vested interest in long term resilience and sustainability of foundational activities (accessible, quality services require overhead expenditure, cross subsidy, low return + long term investment)

• Reviving an old style 1930s liberal collectivism eg Adolf Berle (1932) on “asserting the community interest” against owners and managers ( cf post 1980s corporate governance about owners disciplining managers, which has produced the current mess)

Challenge fragmentation ex point value business models

Point value business models produce a fragmented economy of toll booths + profit centres with underinvestment in networks (eg TOCs in trains, BT in telecomms). 1. Think community pay back: private sector utility brings in the product and take

out the money: what has British Gas done for you lately 2. Think chain consequences: how to protect food processors and producers from

supermarket power, engineer shorter chains with eg regional food 3. Think non-profit: shareholder value drives behaviour in retail

banking/supermarkets/trains; state contracting out creates vested interests and transaction costs (PFI)

4. Think about new state revenue sources; need new taxes on land or property ; why can’t state run revenue earning enterprises on the model of Jo Chamberlain’s gas and water socialism?

Challenge value extraction and the giant sucking sound

• Giant sucking sound from utilities, supermarkets taking nearly £100 per week per household; while pension funds + insurance contributions go to London

• Build regional financial circuits; Social investment as useful things for low and steady returns

1. Back regional infrastructure: the best initial projects would probably be social housing (council run?).

2. Mobilise pension funds: don’t send your pension fund to London managers but retain in the region and local community for a social purpose

3. Think 5% return maximum: your pension fund isn’t currently getting any more and infrastructure is inherently low return, high investment secure return;

What we see: a new experiment

• The possibility of a new experiment whose outcome is uncertain and a learning opportunity; building on successes, recognising mistakes and moving on

• Ultimate aim is a re-localisation of decision making in our financialized + globalised economy; large corollary changes would be required eg minority public ownership stakes in utility companies?

• Redistribution of power in countries like the UK with very weak regional government