Why is the Local Economy Important?
As a community development worker for over 30 years, I have seen many community audits. Very few even mention the local economy; it seems to be a blind spot in the world of community development. Why is this? How can we bring about lasting change for the better without developing the local economy? The alternative is dependence on grants or mainstream funding; with the recession these are less of an industry than they used to be. Grants and mainstream funding are dependent on decisions made by people who live and work outside of the applicant community. The big advantage of the local economy is it is something to which local people contribute; they do not need permission.
I have written several posts about the marketplace. The upshot is we’ve allowed the neo-liberal right to hijack this word to favour the activities of the big corporations; they’re the opposite of the market because they undermine it. They
- extract money from local economies
- stash money they make outside the UK to avoid paying taxes.
- use the most economic approach and so pay low wages, meaning people have less to spend in the local economy.
- have no interest in everything else that contributes to the marketplace because it doesn’t contribute to their profits.
In summary the marketplace has little to do with profit and everything to do with community. When people can meet and freely interact they will naturally make deals and develop new ideas. The omni-corporate extraction of decision-making from the local and its relocation to the global means the interactions that generate genuine innovation are less likely to happen. Views tend to polarise and competing ideologies are a poor basis for building trusting relationships.
Large scale activities are always better done by the statutory sector who have (or had) the infrastructure to employ people on reasonable wages. The argument that the private sector is more economic depends on lower wages. This reduces money circulating in neighbourhoods. The current recession was caused by this neo-liberal approach.
The other part is the role of banks. We need to understand how the banks create money. Every time they make a loan, they create money. Once upon a time you needed money to make a loan. It seems obvious. If I loan you £100 in bank notes, I must have £100 in bank notes to start with. However, if I credit £100 to your bank account a I don’t have to actually have that £100. So, you can calculate the percentage of money loaned covered by reserves.
If I am trading, I am helping money circulate in the local economy. The corporate economy creates money through loans to corporations that tend to concentrate money in fewer hands and takes it out of local economies. First, banks make loans to bigger corporations because they trust them. Second, repayments return to the bank, translating newly created money into real money.
This fractional reserve banking practically extracts money from the local economy and concentrates it in the hands of banks and large businesses. To legislate to prevent banks loaning more than they have (or at least to restrict it) would be a good first step. But banking also needs to be deployed to support small businesses and not the corporations.