The Council’s policy of ‘Local Wealth Building’ through new municipal services and local procurement
Speaking to Labour Councillors in Nottingham on 3 February 2018, Jeremy Corbyn said ‘Labour councils are taking measures to bring services back in-house and reject costly PFI-style models and to show the efficiency and resourcefulness of local government. …With amazing creativity in the toughest of times, we are seeing the first shoots of the renaissance of local government for the many, not the few—the rebirth of municipal socialism. [1]
‘A Rebirth of Municipal Socialism’ is the heading of one section of ‘Building a Better Birmingham: Labour’s Local Manifesto 2018-2022’, published for this year’s May Council elections. [2] This is what it says:
We will re-state the case for the municipal provision of services in Birmingham, heralding a new age of municipal socialism.
That means a renewed focus on municipal housing …
We will explore ways to re-establish municipal education in this city…
We will establish a municipal energy company to tackle the evils of fuel poverty and rip-off tariffs for those least able to afford them.
Similarly we will establish a municipal water company.
And the Labour council in Birmingham will lead by example, calling time on the misplaced notion that the private sector always trumps the public sector by adopting a policy of in-house preferred for all contracts….
We will work more closely with other anchor institutions in Birmingham to keep wealth in the local economy. Following the successful Preston-model we will work with the Centre for Local Economic Strategies to encourage partners to spend more, recruit more and invest more in Birmingham and its people
We will work with partners to keep wealth and jobs in the city, building a Birmingham economy for the people of Birmingham. (p6)
There are two sets of strategies here. One is for the Council to set up municipal companies to supply cheaper energy and water. The other is the use of the power of procurement – the purchasing of goods and services by the Council and other local ‘anchor’ institutions (big local public sector organisations such as hospitals, universities and colleges) – to keep money and jobs in the city by using local suppliers. [3]
These ‘Local Wealth Building’ (LWB) policies have been pioneered in the UK by Preston City Council and are being adopted by a growing number of Labour local authorities. [4] Local Wealth Building (LWB) is one strand of a global movement focused on what cities can do as a response and alternative to neoliberalism. [5]
At a conference on LWB in Preston on 8 February 2018 John McDonnell announced Labour’s new Community Wealth Building Unit. It aims to bring together councillors, unions and independent experts to support councillors to municipalise public services and use procurement contracts to support local jobs. McDonnell said the Community Wealth Building Unit will build on the experience of Preston City Council, which had returned almost £200m to the local economy, supporting more than 1,600 jobs, by using the city’s institutions and local government contracts to keep money in the local economy. He said:
The next Labour government will end austerity and properly fund local authorities, instead of cutting back and passing the buck like the Conservatives are doing. But we cannot afford to wait until we are in power nationally.
There are many creative solutions being used already, like in Preston, and we need to spread this inspiring work around other Labour councils now, so we can bring services back in house, stimulate the economy and provide decent jobs, extend ownership and control, and strengthen local democracy.
By working together to share these principles where Labour is already in power locally, we can sow the seeds of a country that works for the many, not the few. [6]
Part 1 of this article deals with the municipal provision of services. Part 2 examines the strategy of LWB through the use of local procurement.
Part 1: The municipal provision of services
Jeremy Corbyn told the Association of Labour Councillors conference on 6 February 2016 that he wants councils to become ‘public entrepreneurs’ with greater freedom to spend taxpayers’ money and to borrow to fund investment and public services. He said he would back local authorities to take control of utilities and other services in their area. [7]
When McDonnell spoke in Preston in 2016 he said ‘Community ownership of energy, which Jeremy Corbyn and our shadow energy secretary, Lisa Nandy, have highlighted as a priority, has boomed in the last five years. Turnover has risen by 1,400%, as local communities realise the value of community ownership in both providing a revenue stream, and helping us move towards a low-carbon future.’ [8]
The TUC report ‘Great jobs in great places’ (November 2017) calls for ‘community and publicly owned energy projects with genuine local benefit’.
Municipal energy companies
Nottingham is the first local authority in England to set up a municipal energy company. [9] Nottingham City Council has a history of municipal ownership. It has the largest council owned bus company in England. In 2015 Nottingham Council launched Robin Hood Energy. It operates on a not-for-profit basis and has no private shareholders or bonus schemes. This model allows the company to use its profits to create affordable, competitive tariffs. Robin Hood Energy made a surplus last year for the first time of £200,000 due to eight other councils sub-contracting its service.
Bristol Energy was set up in 2016 and these two remain the only two fully licensed energy suppliers run by local councils. Between them they have about 200,000 customers, which is fewer than a medium-sized energy company. It takes several years to make a profit: last year Bristol Energy made a loss of £8.4m, But recently rising wholesale energy prices, which the big six suppliers are better able to cope with, are a problem for new entrants to the market. Portsmouth’s new Lib-Dem council has just scrapped the previous Conservative council’s plans for a municipal energy company for that reason (The Guardian 22 August 2018).
The 2018 Birmingham Labour manifesto promises to set up municipal energy and water companies. Cllr Ian Ward, the Council Leader, said in reply to a question at the 12 June 2018 Council meeting ‘We will be undertaking analysis of the City’s energy assets, energy capacity, storage and future demand. This will be followed by options studies for the Energy Company during 2018/19 to inform our final proposals.’ He gave a similar answer to a question on a municipal water company.
Clearly the Council needs to carefully assess the costs, benefits and risks. But there are good reasons to support the Council setting up municipally-owned energy and water suppliers. Consumers can benefit from lower prices than those of the profit-driven big suppliers. Surplus income can also be used to fund council services. It is a way of sourcing environmentally clean energy, such as solar power and wind turbines, in place of fossil-fuel energy. (Part of one big offshore wind farm in the North Sea is owned by the city of Munich.) And it carries a powerful progressive ideological message, challenging the neoliberal propaganda of ‘private good, public bad’.
Local Government Pension Funds
Another Local Wealth Building strategy being implemented in Preston concerns the use of Local Government Pension Funds. Matthew Brown, Cabinet Member for Social Justice, Inclusion and Policy on Preston City Council, reports that in Preston
The local government pension fund is already investing in the local economy, in student flats and other developments – about, I think, £50m, which instead of going to outside shareholders is going to Preston. We want to look further at things like housing and potentially also at renewable energy, as a member of the Lancashire County Pension Fund, which is a huge amount of wealth consisting of £5.5 billion across Lancashire with the unions interested in investing in affordable housing which would benefit many of their members. [10]
According to John Gray, a member of the London Borough of Tower Hamlets Pension Board,
As austerity bites and local authorities up and down the country struggle to provide services following cuts in central government expenditure and grants, communities are looking for alternative sources of investment.
The £250bn Local Government Pension Scheme (LGPS) is being eyed as one possible source.
The community wealth movement championed in the UK by Preston City Council wants the LGPS and banks to provide local financing for investment. The idea that workers should invest their savings to not only secure their retirement but also to improve their local economy is on the face of things attractive. Who wouldn’t want to help provide jobs for their children and better local infrastructure?
There is also a possible window of opportunity with the growth of the campaign to divest in fossil fuels and reinvest in new ‘low carbon’ green industries. There is currently around £14bn in the LGPS invested in fossil fuels. Some councils have already decided to disinvest within five years.
So we should be thinking about investing more ‘locally’ as long as we deal with a number of serious practical investment problems to overcome such as the lack of accountability to beneficiaries (hardly any of the pools have employee representation) costs, risk, volatility, conflicts etc.
Meanwhile, there is nothing stopping pension funds actively engaging with the companies they own and getting them to support other community wealth building measures, such as making sure they are responsible lenders or pay all their workers (including agency) the real national living wage, decent sickness and pension benefits; insource services; use local suppliers (especially mutual and other co-operatives); train and upskill their workers. In a landmark report by the Law Commission last year, it said: “There are no legal or regulatory barriers to pension schemes making social investments.” Hopefully the time has come for pensions to play its part in community wealth building. [11]
This raises the question of where the Local Government Pension Funds in Birmingham and the West Midlands are investing their money. (And how much they are paying agents, the asset management industry, which may be top-slicing as much as 35%.) The Council should make the full details public, together with its plans to invest the money where it generates the maximum social as well as financial value.
Community and Regional Banks
Labour policy is for a National Investment Bank to address Britain’s chronic investment shortage in capital spending and spending on infrastructure. Preston Council is currently aiming for a community bank for Lancashire. The ‘Preston Labour Manifesto 2018 City Council Elections. Building community wealth for everyone’ says:
Labour will work with other councils and anchor institutions to establish a Lancashire Community Bank based upon emerging practice in Hampshire and Greater London. The aim will be to launch a fully licensed not for profit bank to support local businesses and individuals often ignored by the mainstream banking community. [12]
We need a regional bank for Birmingham and the West Midlands, and Birmingham Council needs to start publicising the case for it now to build public support.
‘Municipal Socialism’ without public participation?
How can the citizens of Birmingham participate in the ‘Rebirth of Municipal Socialism’? This is what Labour’s May Council election manifesto says:
Citizens and communities already play a vital role in Birmingham’s civic family but must now be given a chance to participate in setting local priorities and to take action themselves. Birmingham needs to be a healthy city in order to be a wealthy city and this includes having a healthy democracy with opportunities for people to make a contribution and to have a voice. (pp14-15)
But this is only about participating in ‘setting local priorities’ at ward level. The Manifesto says nothing about citizen participation at the city-wide strategic level. That their exclusion at this level is the policy of the council is made clear in a draft Policy Statement called ‘Working together in Birmingham’s Neighbourhoods’, agreed by Cabinet in March and published in July for consultation. Birmingham Against the Cuts published a response in August titled ‘What is wrong with the council’s new plans for working with neighbourhoods, and what should be done: Participatory democracy means citizens influencing decision-making at the top, not just more engagement at ward level’. [13] It argues that the democratic governance of Birmingham requires replacing the current top-down technocratic model of administration, a legacy of Tony Blair and New Labour’s embrace of New Public Management (NPM), by a new combination of representative and participatory democracy. Active participation by citizens in the policy process, not just the occasional online consultation, should be at the heart of the Labour Council’s aim of a ‘Rebirth of Municipal Socialism’.
What would this mean in practice? Take for example the proposal to set up a municipal energy company. It should be governed by a board comprising Councillors, of course, and energy professionals, but also containing elected representatives of employees of the new energy company and users of its service. The same goes for other municipal enterprises such as a Birmingham or West Midlands Community Bank. And why aren’t there proposals right now to open up places for elected representatives of Council employees on the board of the Local Government Pension Fund? And citizen participation should begin right now, in the planning and policy-making processes of these new municipal enterprises before they are launched.
At root it is a question of the politics of knowledge. Whose knowledge counts in the processes of policy-making and governance? Is it just the knowledge of those in positions of power in local government, as councillors and officers, and their chosen advisers? Or is it also the knowledge of the citizens of Birmingham and their multiplicity of organisations ranging from community groups, interest- and identity-based organisations, trade unions and campaigning organisations. They could contribute experiential knowledge, practical knowledge, analytical knowledge and specialist expertise from their own perspectives.
Regrettably participatory democracy in the local policy process does not feature in the ‘Preston model’, nor in the statements by Corbyn and McDonnell. It is a major omission by Labour that needs urgently addressing.
Part 2: Local Procurement
The core of Birmingham’s LWB strategy is the use of local procurement. ‘Building a Better Birmingham: Labour’s Local Manifesto 2018-2022’ says:
We will work more closely with other anchor institutions in Birmingham to keep wealth in the local economy. Following the successful Preston-model we will work with the Centre for Local Economic Strategies to encourage partners to spend more, recruit more and invest more in Birmingham and its people
We will work with partners to keep wealth and jobs in the city, building a Birmingham economy for the people of Birmingham. (p6)
This is not a new strategy for the Council. According to a Joseph Rowntree Foundation report ‘Case Study: Birmingham City Council’ (5 May 2016):
Birmingham City Council (BCC) has long recognised this potential, introducing its Public Procurement Framework for Jobs and Skills (PPFJS) in 2010 to harness the power of its procurement in order to tackle worklessness and improve skills in the city; creating employment and training opportunities for local people, particularly those living in deprived areas.
PPFJS is now part of the Birmingham Business Charter for Social Responsibility – a set of guiding principles for how BCC, its contractors and partners go about business. The Framework requires that all contracts worth more than £200k per annum include community benefits, either through contract clauses, voluntary agreements or a charter.
PPFJS has been implemented across a number of large-scale projects, including the Library of Birmingham and Birmingham Gateway projects. The Framework has also been embedded within the Constructing West Midlands Framework, which by the end of December 2015 had delivered 223 jobs for new entrant trainees, 78 apprenticeships and over 60 work placements. [14]
Birmingham’s ‘Local Wealth Building Summit 2018’
However, this year the Council’s procurement strategy has taken a qualitative step forward. The commitment in the Manifesto was followed by a ‘Local Wealth Building Summit 2018’ held on 17 July 2018 at Birmingham University. This conference was chaired by Cllr John Cotton, Chair of the Council’s Coordinating Overview and Scrutiny Committee. The speakers included Cllr Ian Ward, Leader of BCC, and Cllr Matthew Brown, Leader of Preston City Council. The driving force behind the event was the Centre for Local Economic Strategies (CLES), which has been the most influential body promoting the take-up of the strategy of LWB by local councils, including Preston. It was reported at the conference that CLES has been working with the Council and other anchor Institutions in Birmingham since 2016. (Surprisingly there seems to be no reference to this in Council committee documents during this period including those of Cabinet and the Economy and Skills Scrutiny Committee.) Its director, Neil McInroy, ended the conference with a summing up from workshops and the introduction of plans for a Centre for Excellence. A report by CLES, ‘Local Wealth Building in Birmingham & Beyond: A New Economic Mainstream’, was launched at the conference and deserves quoting in some detail. [15]
‘Local Wealth Building in Birmingham & Beyond: A New Economic Mainstream’
The CLES report presents LWB as a progressive alternative to the current dominant neoliberal economic policy.
Local Wealth Building is a new approach to economic development that addresses the failure of the current agenda to generate significant benefit for local economies and people…
A Powerful Alternative
The UK is the sixth largest economy in the world and yet it faces stark economic challenges. Despite national growth and historically low levels of unemployment, wages have failed to keep track with living costs and most peoples’ living standards aren’t rising. Wealth is increasingly generated by large companies owning and controlling common resources (such as land and energy), wealth is often extracted by distant shareholders, and dominant financialisation favours dividends over the servicing of local demand or production.
In short, the fruits of growth are too readily extracted by the already wealthy few rather than increasing incomes for the majority. The problem is not just a lack of wealth but where this wealth goes, who owns it and who benefits from it. At a local level, the prevailing model of economic development has failed to engage with these questions of wealth distribution, focusing instead on generating contributions to GDP. (p5)
CLES has been working with Manchester City Council on its procurement policy for some years. [16]
Since 2008, Manchester City Council has transformed its procurement by analysing their procurement spend (by geography, sector and amount spent with SMEs); embedding social value in their procurement processes (including a minimum weighting of 20% for social value in all contracts); and influencing the behaviour of suppliers. This has led to the proportion of total spend with organisations in Greater Manchester increasing from 51.5% in 2008-09 to 73.6% in 2015-16, creating over 5000 new jobs. (p7)
In 2016, CLES began working on the same approach with Birmingham City Council, funded by the Barrow Cadbury Trust. The CLES report ‘Local Wealth Building in Birmingham & Beyond: A New Economic Mainstream’ contains the following data:
In financial year 2016/17, Birmingham City Council spent
- £762m with organisations based within the Birmingham boundary, equivalent to 68.7% of procurement spend with the top 300 organisations.
- £862m with organisations based in the West Midlands (including Birmingham), equivalent to 77.7% of procurement spend with the top 300 organisations;
- £501m with small or medium sized enterprises (SME), equivalent to 45.1% of procurement spend with the top 300 organisations. (p11)
Leakage
Of the 61 suppliers to Birmingham City Council in 2016/17 that were based outside of the West Midlands it was found that £147,863,430.04 was potentially influenceable (ie. not tied up in national procurement frameworks, and which could potentially be delivered by West Midlands based suppliers) and of this, spend on works (construction, repairs and maintenance), education and care accounted for the majority. (p8)
Birmingham Anchor Institutions
Following the mapping activities, CLES has been working with six local anchor institutions. Each organisation identified an element of Local Wealth Building which they felt was particularly relevant to their organisation:
- Anchor purchasing – demonstrating the impact on the Birmingham economy of procurement spend directly and through the supply chain;
- Workforce of Anchors – demonstrating the impact on the Birmingham economy of direct employees and their spending;
- Anchor land, property and assets – demonstrating the impact of the organisation’s assets upon the Birmingham economy and communities. (p9)
These are the six anchor institutions and their focus strategies:
West Midlands Police and Crime Commissioner’s Office – Procurement
Birmingham Metropolitan College (BMet) – Procurement
University of Birmingham – Procurement, Anchor Workforce, Wider Economic Impact
Queen Elizabeth Hospital (UHB) – Anchor Land, Property and Assets
Birmingham City Council – Procurement
Pioneer Group (Castle Vale Community Housing and Stockland Green Housing & Training) – Procurement (p4)
The Anchors have now committed to forming a network to accelerate the implementation of these actions and more broadly leverage the assets of Anchors to benefit the people and economy of Birmingham. (p8)
Recommendations / next steps
To generate greater local economic benefit through procurement and support suppliers to deliver further social value and sustain the principles of the Birmingham Business Charter for Social Responsibility:
- Explore sectors where spend is leaking out of the Birmingham and West Midlands economy and assess whether there are West Midlands based firms which have the potential and capacity to bid for any future opportunities in these sectors;
- Engage early with potential suppliers (including those identified above) before the procurement process starts to enable them to fully understand the challenges and allow time for new product/service development prior to publication of contract notices;
- Continue to engage in areas of deprivation. Birmingham City Council spends significant amounts of money in neighbourhoods in Birmingham that are in the 10% most deprived nationally. These suppliers are already doing work to enhance the benefit they bring for local economies and communities, through the BBC4SR. Birmingham City Council should build up their dialogue with these suppliers to encourage and enable them to do more to recruit and support the people and communities in these areas;
- Think about Public Procurement of Innovation. For some aspects of public procurement, there are simply not the products and services on the market which enable such challenges to be addressed. In these areas the Council could look to work with suppliers to generate new and innovative solutions and make greater use of the procurement routes that enable innovation. (p12)
Is LWB just local protectionism – a zero-sum game?
The Local Wealth Building argument is that LWB in Birmingham means more money spent by Birmingham council and anchor institutions by local Birmingham suppliers of goods and services. This should increase the number of jobs in Birmingham. In turn, supplier businesses and their employees will tend to spend more money in Birmingham, creating more wealth in a local ‘circular economy’.
But the counter-argument is that this is a zero-sum game, as stated in a report on ‘Local Procurement’ by the What Works Centre for Local Economic Growth, last updated 8 May 2018. [17]
- If a local authority implements a local procurement policy, the surrounding area will necessarily lose out as their firms have less access to contracts in that authority. In response, these surrounding local authorities may decide to retaliate and impose their own local procurement strategy.
- In other words, if one locality manages to reduce the amount of money “leaking” from procurement to non-local firms, that results in other localities experiencing a reduction in the amount of money flowing into their community. In cases where these places losing out are in the UK, local procurement preference amounts to a zero-sum game.
More money spent by the Council and anchor institutions in Birmingham means less money spent by them in, for example, Coventry and the Black Country. But what if Coventry and the Black Country authorities apply the same policy in return? How much less will be spent by them on Birmingham suppliers? How many Birmingham jobs will be lost? CLES has given the example of Manchester: more local suppliers, a claimed 5000 new jobs created. But how many jobs have been lost elsewhere as a result, including perhaps in Birmingham? Or nearby Preston? The issue is not mentioned and no data is made available.
The same argument applies if the local scale is defined as the West Midlands – the CLES report ‘Local Wealth Building in Birmingham & Beyond: A New Economic Mainstream’ refers both to Birmingham and to the WMCA region. The logic is inescapable: early adopters of the LWB strategy can gain at the expense of other areas, but as more and more cities adopt the LWB strategy it increasingly becomes a zero-sum game in which no-one gains.
In November 2017 CLES published a rebuttal of the ‘zero-sum’ criticism titled ‘Improving the social efficiencies of local markets is not protectionism’. [18]
…commentators have asked a number of pertinent questions:
Is this not a ‘zero-sum’ game – simply transferring money from one place to another? Is this not a form of local protectionism?
Shifting the geography of spend is about bringing jobs to where they are needed most. Its rationale is socio-spatial as well as economic. The value of an additional unit of jobs is higher in a deprived area than it is in a non-deprived area.
Progressive procurement is about bringing economic activity where it produces the highest social return without reducing the productivity of the economy. In short, it is about increasing the social efficiency of economic activity.
The introduction of the concept of ‘the social efficiency of economic activity’ potentially provides a more complex rationale for LWB procurement than simply the number of jobs created. CLES points out that
…currently, procurement markets are undergoing deep regulatory changes. Through the Public Services (Social Value) Act, public authorities can embed social value into the design of services, into decision-making criteria and weighting, and into delivery. As a result, the whole nature of procurement is changing: it is no longer just about cost and efficiencies, but also about considerations of quality and social value.
In CLES’s argument ‘social efficiency’, social value, is measured largely by one indicator: the extent to which ‘The value of an additional unit of jobs is higher in a deprived area than it is in a non-deprived area’. One of the ‘next steps’ quoted above is to ‘Continue to engage in areas of deprivation’ in Birmingham by encouraging and enabling suppliers ‘to do more to recruit and support the people and communities in these areas’. But this argument only applies if the areas where jobs are gained are more deprived than the ones outside Birmingham where jobs are lost as a result. I cannot find in CLES’s publications, nor in those about Preston, any recognition of this or any relevant data. There is no evidence for what the impact is on areas outside the LWB area, including whether there is an overall reduction in social deprivation when the jobs created in the LWB area are compared with the jobs lost as a result by suppliers in other areas.
CLES extends the argument for the social value of local job creation through procurement to its consequences for the take-up of benefits and the use of public services: ‘Developing local businesses, with more jobs, reduces spend on out of work benefits and other national public services’. Again, this is only the case if it doesn’t create a greater comparable increase elsewhere. And again, there is no evidence provided to assess this claim.
There are other complexities. For example, a supplier may be based in Birmingham but what proportion of its workforce actually live in Birmingham? And what percentage of citizens of the more deprived areas of Birmingham work in neighbouring authorities, and whose jobs may be at risk from Birmingham restricting its procurement to Birmingham suppliers?
Up to this point CLES has defined social value socially in terms of the creation of local jobs, but the next paragraph significantly expands the concept in two ways:
Progressive procurement is not just about increasing the extent to which anchor institutions spend in a defined local geographical area; it is also about shifting the behaviour of supply chain organisations (regardless of where they are based) so that they contribute to wider economic, social and environmental challenges.
First, it greatly extends the concept of social value to cover a range of ‘economic, social and environmental challenges’, not just jobs. Second, it doesn’t restrict targeted potential suppliers to those within the LWB area. Progressive procurement criteria can promote progressive policies and behaviour by suppliers ‘regardless of where they are based’.
This is a crucial acknowledgement that the criteria for progressive procurement are not reducible to one overriding factor, local provision of jobs, and that that may not even be the decisive factor in creating social value when weighed against others. The idea that procurement decisions should be based on the ‘social value’ created, not just on the cheapest suppliers, is a vital principle for progressive municipal politics. But decisions need to be based on a much more complex set of indicators than just the number of local jobs created. That is certainly one important measure, but it needs to be both weighed against the consequences for the areas being deprived of supplying goods and services and judged by a wider range of measures of social value.
This is not an argument against LWB as a local economic strategy, but an argument for a holistic set of criteria of the multiple social value factors that should be taken into account in securing procurement contracts. Some factors are easily identifiable, such as whether the supplier pays the real Living Wage or recognises trade unions. Others may be less so (including whether the supplier’s suppliers pay the Living Wage, or what the environmental implications are – not reducible just to the length of supply chains). It may be the case with a particular contract, when the complex of economic and social value factors are taken into account and evaluated, that they are best satisfied by choosing a supplier from outside the Birmingham or West Midlands area – it’s a matter of judgement in each case.
The business of social care in the West Midlands: a suitable case for ‘Local Wealth Building’ treatment?
The social care sector of the West Midlands economy provides a good example of the benefits of a Local Wealth Building approach using social value as the criterion. The annual gross expenditure on adult social care in the West Midlands is £2 billion, representing 35% of local authority spending. 77% of the region’s 165,000 care workers are employed by the independent sector; 7.5% directly by local authorities; 7% in the NHS, and 8% through ‘direct payment.’
These figures, and the quotes in this section, are taken from ‘Social care as a local economic solution for the West Midlands’, a report by David Powell, New Economics Foundation, with Karen Leach and Karen McCarthy, Localise West Midlands, published in August 2017. [19] The report continues:
The West Midlands will need an ever-greater number of social care jobs – an extra 25,000 jobs by 2025, according to Skills for Care…. It notes that there is likely to be “a large increase in demand for labour in the sector. This is driven by demographic change and will mean employers and policy makers need to look wider than the traditional demographics for recruitment in the future.”
Social care could therefore be a significant source of employment, for new and older workers alike. (p15)
It is a market dominated by a number of big companies, some of them international, owned by big investors. These companies are funded by local authorities, which are legally obliged to spend 85% of their spending on social care with the private sector.
Built into every contract to a major provider will be the underlying need to deliver a significant return on investment – CRESC [the Centre for Research on Socio-Cultural Change] found that big care providers expect to offer 11% returns to investors (including costly debt repayments which often return to the parent operating company). The business models of the largest five residential care chain companies in the UK offer returns to investors that account for as much as 29p in every £1 of their costs – the second biggest drain on expenditure after wages. (p12)
The care ‘market’ is increasingly consolidating towards such providers. As of 2015, nearly 20% of all care beds were provided by the ‘big four’ care companies – Four Seasons, Bupa Care Homes, HC-One Ltd, and Barchester Healthcare. They are gradually increasing their market share – buying up small chains and taking over provision from family-owned homes. Less than 1% of the adult social care market is met by cooperatives; in the West Midlands, 37% of all employees in adult social care work for the biggest 2% of companies. (p12)
Ultimately, the quality of care is paramount. Yet while big care providers favour 60-70 bed care homes, the Care Quality Commission has found that smaller homes – ten beds or fewer – generally provide better outcomes. (pp12-13)
The report refers to the Care Quality Commission’s 2014-17 review, ‘The state of adult social care services,’ which found that ‘Community social care providers were rated the highest, with 87% of providers achieving a “good” or “outstanding” rating from the Commission.’ (p15). What people want is smaller-scale provision offering personalised care, and it need not be more expensive.
Research by the University of Birmingham has suggested that the costs of social care provision by microenterprises need be no higher than those of larger companies and that the qualitative experience of a more personalised approach to care can be far higher. (p16)
Commissioners need to find ways to level the playing field for those providers that are in principle able to ‘do more with less;’ the smaller scale care providers with business models that do not require significant pay-outs to investors. (p14)
The report concludes that ‘Delivering on this means:
- Setting priorities for more small-scale enterprises in economic planning
- Targeting skills provision and business support to help them thrive
- Levelling the playing field for contracts so they can compete
- The targeted promotion and marketing of careers in key public services’ (p5)
The business of social care in the West Midlands provides a good example of what a Local Wealth Building approach to procurement by Birmingham City Council could achieve. Birmingham spends about £512 million a year on adult social care (Birmingham Post 3 July 2018). This is about half its total procurement budget of £1billion. According to the ‘Municipal Year Book’ in 2018:
It’s a huge market for private suppliers, but winning such contracts has traditionally been difficult. Complex procurement processes, and extensive criteria, favour larger companies – shutting out smaller providers. There is much to be gained by opening up the procurement process to SMEs. Smaller, local, providers can be better tuned-in to the specific needs of the communities they serve, and deliver better, more personalised, standards of care. If it matters to an individual that someone of the same sex and ethnic background visits them, someone who speaks their language and understands their taste in food for example, a specialist may be better placed to cater for those needs. Also, as smaller providers tend to operate on smaller margins, they can be more cost-effective.
Birmingham Council has made some progress in levelling the playing field for adult care contracts so smaller providers can compete.
By teasing out the unique differences between providers and specifying personal aspects, Birmingham City Council has moved from a generic checklist approach to procurement – based on tasks and timescales – to focus on the softer targets and more specialist requirements. This streamlined system has increased the number of applications, broadened the range of services on offer, introduced personalised services and resulted in around 12% of cost savings. [20]
But the Council should go further to meet the proposals of the ‘Social care as a local economic solution for the West Midlands’ report. Community care by small local organisations is ideally suited to cooperatives, social enterprises and other forms of non-profit provision.
In its 2016 report, ‘Taking Care’, the Cooperative movement agree that the Social Value Act is not being used to its full potential, and that local authority procurement should: “ensure that the unique benefits of co-operative and social enterprise delivery models are reflected within the evaluation of bids… offering contracts that were suitable for co-operative providers would help to rebalance the social care market, ensuring fair competition between co-operative and for-profit providers.” (‘Social care as a local economic solution for the West Midlands’, p22)
Preston Council is ‘establishing worker owned cooperatives to create locally owned jobs and wealth. This year worker owned businesses in food and IT will be established in partnership with Preston’s Cooperative Development Network (Presco) to begin this process.’ (‘Preston Labour Manifesto 2018 City Council Elections: Building community wealth for everyone’).
What are the advantages of a LWB strategy for Birmingham City Council?
LWB provides the Council with an economic strategy that is more than just skills development, which has been virtually the only theme of the Council’s Economy and Skills Overview and Scrutiny Committee over the past two years at least. It is a strategy which is capable of producing some social benefits, as it has in Preston, in terms of some increase in local jobs and apprenticeships, and suppliers that pay the Living Wage. The creation of municipally-owned energy and water suppliers extends the role of the public sector in the Birmingham and West Midlands economy at the expense of the private sector, with the potential to reduce consumer costs and provide the local authority with an income stream which could be used to compensate to some small extent for the government’s cuts in its budget. Together the two Council strategies comprise a positive policy programme which contrasts with its dominant public image of implementing cuts in services, and provides a distinctive agenda from that of the Conservative party in the City Council.
The limits of LWB
Commenting on a conference on LWB which took place in June this year, Bertie Russell warns against
…the equation of ‘community wealth building’ with contemporary municipalist strategy. This is not to pass comment on the work that has taken place within Preston or Cleveland, which may well find its place within a broader municipalist theory of change. [21]
He asks:
How do we ensure that we don’t come to fetishize community wealth building to the point that it is taken as synonymous with municipalism? There appears a distinct danger of collapsing our focus on to a single approach, at the cost of ignoring the much wider spectrum of progressive municipal initiatives that should also be pursued as part of a transformative strategy.
What precisely is it about a community wealth building approach that qualifies it as part of a municipal socialist – let alone municipalist – strategy? How precisely does this sow the seeds for broader transformative change? This is undoubtedly a complex question, yet this is all the more reason not to rest on assumptions (much as we shouldn’t assume that municipal enterprise is somehow socialist).
In ‘Chameleon Localism: the conflicting political uses of the local scale’ Jamie Gough argues that neoliberalism entails not just competition between nation states but competition between cities within the nation state. ‘Neoliberalism’s strategy has been to deepen competition between localities on the basis of cost reduction, and to encourage mobility of productive capital, commodities and labour power between localities.’ Gough offers a typology of localisms of which one is ‘social democratic localism’.
Social democratic localism attempts to deal with manifest problems of neoliberalism and corporatism. [ …] The ideology of this type of localism is of intense local collaboration and consensus across the classes: ‘we in locality x are all in this together’. The need for the locality to compete more effectively in a globalised world is just as strong as in corporatist localism. But rather than the corporatist partnership of the local state with particular sectors of capital, social democratic localism seeks to build a partnership with all sectors of capital and all sections of the local population.
The LWB policy being promoted by Birmingham City Council and other Labour authorities exemplifies this strategy of social democratic localism. Its basis in a cross-class consensus and coalition between the Council, powerful public sector ‘anchor‘ institutions, business ranging from the leading companies to SMEs, and residents of the city (the term ‘citizens’ is eschewed). CLES inflated claims of ‘a new economic mainstream’ – but avoids any confrontation with capital and the state. The cross-class character of LWB is epitomised by CLES’s claim that ‘LWB is for all administrations regardless of political persuasion.’ [22]
Gough identifies the limits of the social democratic strategy:
While seeking to rectify some of the manifest failings of neoliberalism, the social democratic strategy paradoxically relies on the wider neoliberal context. The close partnership between the local state, business and working class can potentially elicit increasing demands of business and citizens on the state or by citizens on capital. But the ‘need to compete’ in a neoliberal world moderates such demands: capital and state say, in effect, “that would be nice, but the locality cannot afford it”.
To challenge these imposed limits would require a political strategy at the level of the city prepared to challenge government policy and the power of capital, which are manifested at the local level by government budget cuts and regulations and by the interests and powers of local big business. It would be a strategy based on independent collective working class and community action for reforms within the capitalist system that create a dynamic to transform the system itself. That would include supporting local councils where useful, opposing them where necessary, and transforming them where possible. We need to draw on international experiences, as well as recent and current experiences in Britain, of what transformational political strategies at the level of the city might look like, and engage with the ideas that inform them. [23]
Oppose the cuts and support what is positive
What does this mean today in Birmingham, where the Council has announced its policy of ‘Municipal Socialism’ while at the same time continuing to implement cuts in services? The Council’s position is contradictory, inevitably, because social democracy is fundamentally contradictory, and we need a dialectical response, neither supporting its ‘Municipal Socialism’ policies while tolerating the cuts nor, conversely, demanding the Council abandons its cuts as a precondition for any support for positive initiatives. We need a dual strategy. For many years, under the Tory-led governments and New Labour before them, the workers’ movement has been largely on the defensive, focused on campaigning against the policies of austerity. The emergence of a Labour Party led by Jeremy Corbyn and the real possibility of a Labour government has transformed the situation. Of course we should continue to campaign against the Tories’ cuts in services and staffing, including those implemented by the Council.
But just as important, we also need to seize every opportunity to develop and promote alternative policies, building on the framework being developed by Corbyn and McDonnell and taking them further where necessary. This is the task and the responsibility of the left – to point out those potential more radical developments and organise a popular movement to campaign for them. That means giving critical support, without illusions, to the positive elements of the Council’s new policy of ‘Municipal Socialism’, both because it offers some potential benefits, albeit limited, for the citizens of Birmingham and because it has the potential to open up ideas and strategies for more radical developments.
Richard Hatcher 30 September 2018
Contact (or to request a copy as a Word doc): Richard.Hatcher@bcu.ac.uk. All comments welcome.
Notes and References
- https://labour.org.uk/press/jeremy-corbyn-speech-labour-councillors-nottingham/
- ‘Building a Better Birmingham: Labour’s Local Manifesto 2018-2022’. https://d3n8a8pro7vhmx.cloudfront.net/labourclp96/pages/2873/attachments/original/1522078836/ELECTRONIC_10723_18_Birmingham_Manifesto.pdf?1522078836
- I won’t include housing here, which deserves a separate discussion. The meaning of ‘ways to re-establish municipal education in this city’ is unknown, since the Council has said no more about it and it would require government action to abolish academy status and integrate them into the local authority system. For more on this contact the Birmingham branch of the Socialist Education Association at birminghamsea@gmail.com
- Preston Council has drawn explicitly on the pioneering Community Economic Development strategy of Cleveland, Ohio. See ‘Beyond extraction: The political power of community wealth building’, in Renewal: a Journal of Labour Politics, 26: 2, (2018), pp46-53. It’s an interview with Ted Howard, Co-Founder and President of the Democracy Collaborative and one of the main architects of the ‘Cleveland Model’ of inclusive local development in Ohio. Howard is now an adviser to the Labour Party’s new Community Wealth Building Unit.
- See ‘Fearless Cities: the new urban movements’ at http://www.redpepper.org.uk/fearless-cities-the-new-urban-movements/ . The best-known example of radical municipal responses to neoliberalism in Europe is Barcelona. See ‘Eight Lessons from Barcelona En Comú on How to Take Back Control’ at : http://www.urbantransformations.ox.ac.uk/blog/2017/eight-lessons-from-barcelona-en-comu-on-how-to-take-back-control/#sthash.O767exBu.dpuf . For a more critical account see ‘The Loneliness of the Long-Distance Runner’ at http://www.internationalviewpoint.org/spip.php?article5046
- https://www.thenews.coop/126193/sector/community/john-mcdonnell-announces-formation-community-wealth-unit/
- Jeremy Corbyn, ‘Councils should run local services’. http://www.bbc.co.uk/news/uk-politics-35508740
- https://labourlist.org/2016/04/the-tories-are-just-as-vicious-as-they-have-always-been-john-mcdonnell-speech/
- Publicly owned lower-cost energy suppliers are quite common in some countries: ‘in Germany most of the distribution networks are publicly owned, nearly half of all households get their energy from a municipal supplier, and the city of Munich has committed itself to having all the electricity in the city 100% generated from renewables, all generated by the municipality, by the year 2025. Across Europe as a whole, the most comprehensive research on prices found that the price of energy from public sector companies is 20%-30% lower than the price charged by private suppliers; while in the USA, 48 million people get their electricity from public sector companies, at a price which is 12% lower than the private companies charge.’ https://www.opendemocracy.net/uk/david-hall/here-s-what-publicly-owned-energy-would-actually-cost-and-why-stockbrokers-got-it-wron . Barcelona en Comú (Barcelona in Common), the political organisation which runs the city council, announced in 2016 that it would be establishing a publicly managed electricity supplier, Barcelona Energia, to supply low-cost 100 per cent renewable energy to public facilities and 20,000 households by 2018. (Charnock and Ribera-Fumaz (2017) ‘Barcelona en Comú: Urban Democracy and the ‘Common Good’’, in Socialist Register 2018: Rethinking Democracy, ed. Leo Panitch and Greg Albo, London: Merlin Press.
- ‘The Road to Socialism is the A59: The Preston Model’, Renewal 24:2, 2016. http://www.renewal.org.uk/articles/the-road-to-socialism-is-the-a59-the-preston-model
- John Gray, ‘The role of pensions in building community wealth’, speaking (in a personal capacity) on 15 March 2018. https://www.professionalpensions.com/professional-pensions/opinion/3028528/the-role-of-pensions-in-building-community-wealth
- https://docs.wixstatic.com/ugd/b14b61_3f842b96c215443cac627887a71a18d7.pdf
- https://birminghamagainstthecuts.wordpress.com/2018/08/17/what-is-wrong-with-the-councils-new-plans-for-working-with-neighbourhoods-and-what-should-be-done-participatory-democracy-means-citizens-influencing-decision-making-at-the-top-not-just-mor/
- https://www.jrf.org.uk/case-study/birmingham-city-council-public-procurement-framework-jobs-and-skills
- Local Wealth Building in Birmingham & Beyond: A New Economic Mainstream. https://cles.org.uk/wp-content/uploads/2018/07/Local-Wealth-Building-in-Birmingham-and-Beyond_report_2018.pdf
- The Power of Procurement II is a report by CLES, published in February 2017, on what has been achieved in Manchester. https://cles.org.uk/wp-content/uploads/2017/02/The-Power-of-Procurement-II-the-policy-and-practice-of-Manchester-City-Council-10-years-on_web-version.pdf
- What Works Centre for Local Economic Growth. ‘Local Procurement’, Last updated 8 May 2018. http://www.whatworksgrowth.org/resources/local-procurement-1/
- CLES: ‘Improving the social efficiencies of local markets is not protectionism’ (13th November 2017) https://cles.org.uk/blog/improving-the-social-efficiencies-of-local-markets-is-not-protectionism/
- ‘Social care as a local economic solution for the West Midlands’, David Powell, New Economics Foundation, With Karen Leach and Karen McCarthy, Localise West Midlands, Published by the New Economics Foundation, August 2017. https://neweconomics.org/uploads/files/West-Midlands-Social-Care-report.pdf
- https://www.municipalyearbook.co.uk/Opening-up-Social-Care-to-Small-Businesses
- ‘Municipal What? Reflections on #municipalsocialism in the 21st century’. https://www.realisingjustcities-rjc.org/blog/municipal-what-reflections-municipalsocialism-21st-century. The “Municipal Socialism in the 21st Century” conference, the Centre for Urban Research on Austerity (CURA) at De Montfort University, 27 June 2018.
- CLES: ‘Improving the social efficiencies of local markets is not protectionism’, 13 November 2017.
- A current influential book is A New Politics From The Left, 2018, by Hilary Wainwright.
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