Recent years have seen a growing number of local councils across the UK, including Birmingham, Sandwell and Wigan, as well as the devolved administrations in Scotland and Wales adopting community wealth building to develop collaborative solutions to local social and economic problems. In contrast to the UK Government’s much-touted levelling up agenda, community wealth building is a tested method for people-centred local economic development that brings real change to local places.
Community wealth building is about a more progressive form of local economics. It helps to increase the flow of wealth back into local communities enabling people to start businesses, develop skills and access jobs. One of the ways in which it does this is by harnessing the economic power of “anchor institutions”, such as local authorities, NHS trusts, colleges and housing associations, to strengthen the economic resilience, social cohesion and environmental health of local places. Through the strategic use of their spending, hiring and asset use anchor institutions can deploy their economic power to support the development and growth of local businesses. Ensuring that all businesses and social enterprises have access to fair and ethical finance is a key component of community wealth building.
The Covid-19 pandemic has starkly revealed the scale of regional inequality in the UK which had already been exacerbated by 10 years of austerity cuts. A significant factor in growing inequality is that in many so-called left-behind places, postcodes can determine access to finance rather than the scale of need or the quality of entrepreneurship. The demand for more ethical financing is particularly acute in these areas, creating the risk that subprime lenders will fill the gap. The end of the furlough scheme, the removal of the Universal Credit uplift, rising inflation and the limited support offered to businesses in the face of damage caused by Brexit and Covid-19 exacerbate this risk.
On the other hand, the pandemic has also revealed the tenacity and passion of local businesses including social enterprises and the vital role they play in local communities. Such organisations are often deemed hard to start due to scant and unpredictable funding streams, yet deeply valued once they become embedded in local economies. Nonetheless, too many social enterprises and local businesses experience an unacceptable level of financial precarity which must be addressed if we are serious about creating a fairer and more inclusive economy in the UK.
A critical factor in the creation of a more supportive architecture for local businesses is access to fair finance. Yet, despite the emphasis placed on financial services in the UK economy, the UK is an outlier among advanced economies with its lack of regional, community and ethical banking and financial services. Leaving supposedly neutral capital markets to channel money for too long, has meant that investments, both domestic and international, which prioritise financial returns are favoured over those that balance social, economic and ecological considerations. The nascent UK Infrastructure Bank and the Scottish National Infrastructure Bank are steps in the right direction at the national level, but cooperative regional banks like Avon Mutual and South West Mutual need greater capital investment and political backing to succeed.
Non-profit financial institutions like Community Development Finance Institutions (CDFIs) and credit unions direct finance towards the needs of communities by taking steps to recognise their wider value creation. They are both part of a growing generative eco-system that is battling to address the supply side of ethical financing. But they need support to amplify and scale their impact in the UK. Non-profit financial institutions take time to foster relationships with those working in the interests of a place or specific communities or groups. They are well placed to act as a conduit to get funding into organisations and households that need it most but also where it will have the greatest impact on wider community wellbeing. By adopting relationship-based lending, CDFIs help to fund initiatives that prioritise social and ecological objectives like solar panel installations on the homes of low-income families, food pantries that combat the stigma of food poverty and boost job opportunities for those who may be far from the labour market.
This is community wealth building in action. By unlocking the economic potential of local places to meet the needs of local people, rather than relying upon distant shareholders, non-profit lenders boost the recirculation of wealth in local places. They fill a small but critical role in our generative financial infrastructure by lending to businesses, social enterprises and individuals that have been shown by British Business Bank research to struggle to obtain credit such as female entrepreneurs and minority ethnic and immigrant communities. This investment, always made on fair terms, shores up the foundations of communities and enhances the economic democracy of local places. Surplus is reinvested allowing more generative lending.
Community wealth building works best when anchor institutions come together to create a value that is greater than the sum of their parts. This can be done by aligning strategies, harmonising procedures, sharing good practice and enabling partners to play to their strengths. Inherent to this is recognising the intrinsic value created by social enterprises and local businesses as employers, custodians of local assets, service providers and economic actors and supporting them to thrive. Local authorities, NHS trusts and housing associations can help non-profit financial institutions to scale their impact by deploying them as fund managers, sign-posting service users and steering investment from commercial, public and philanthropic partners towards CDFIs to increase their loan books.
Fairer economies do not happen by accident. They are created by directing our collective energy towards tackling the inequalities that impair our wellbeing. Finance is the fuel for that collective energy but purpose-led investment has been treated as an act of goodwill for too long. Supporting non-profit financial institutions enables other generative organisations to flourish which creates better job opportunities, helps local people and places to thrive and protects our planetary boundaries. This is the future we need to create, not just imagine in 2022.
Rachel Bentley is an Associate Director at CLES, the Centre for Local Economic Strategies.
CLES is the national organisation for local economies, developing progressive economics for people, planet and place. We work by thinking and doing, to achieve social justice and effective public services. We support local places across the UK from Lewes in the South of England to the Western Isles of Scotland to develop community wealth building solutions that give people a greater and fairer stake in their local economy through the creation of jobs, wealth and opportunity.