Monday, 17 February 2014

Introducing The Foundational Economy

The Guardian has just begun a series of articles following the ‘Enfield Experiment’.  That experiment attempts to use local authority initiatives to reverse a long history of economic decline in one of the most depressed parts of the supposedly booming London economy.  At its heart is a new conception of the obligations of business: one that stresses the obligation of enterprises as various as utilities and supermarkets to organise themselves to put  some of the profits they make from the community back into that community, in the form of business for local suppliers and jobs for local residents.

The Enfield Experiment is based in part on a developing argument being unfolded by researchers at CRESC. The notion that business has social obligations is hardly new, but the CRESC argument gives it added point by observations on the changing character of  the economy in the last three decades.  There are many ways of classifying economic sectors, plainly, but one key set of sectors has been created by the recent rise of two phenomena.  The first is the contract state: the vast extension, in the age of privatisation and outsourcing, of business activity which operates as a franchise sheltered by a contract with public authority.  That of course describes the way most utilities now operate in Britain. The second is the rise of the regulatory state: the rise of a web of regulations governing the terms under which business can operate, and often conferring on enterprises regulated protection from competitors: the classic example is the way planning regulations in effect confer local monopolies or duopolies on  supermarkets established in particular local communities.

The CRESC researchers dub all these activities part of  the Foundational Economy, and for an obvious reason: they involve the production and delivery of goods and services that are the very foundation of what we consider to be civilised life in Britain.  And they are not only foundational to everyday civilised life: if we think of utilities like energy, water and rail transport they are also foundational to the operation of the wider economic system.

One of the many paradoxes of the Thatcher Revolution is that it not only helped create and expand the Foundational Economy, through its development of the contract state and regulatory state; it also created the Foundational Economy as a series of sub-sectors sheltered from competition.  The Thatcher Revolution, in the name of privatisation and competition, vastly expanded the areas of business life carried on under the protective shelter of  public franchises: whether those franchises are openly acknowledged, as in the rail industry, or are implicit, as in the local monopolies conferred on supermarkets by planning law.  And it vastly expanded these sheltered areas of economic life in the name of individualism (‘no such thing as society’ in Mrs Thatcher’s words) and free enterprise, denying that enterprise had any wider obligation beyond the PR exercises of corporate social responsibility.  Yet a moment’s reflection shows that the licensed enterprises operating in the Foundational Economy enjoy huge social privileges; their operations have huge social consequences; and as a consequence they should be made to recognise their huge social obligations.
The Enfield Experiment is a first small step along the way to clarifying those obligations, and as the Guardian’s report shows it is paralleled by initiatives in other local authorities.  But this is not just a matter of localism.  The Foundational Economy is a national phenomenon, and it needs to be addressed by a debate about how we manage that national economy, and by policy measures that use state power to reconfigure the social obligations of business.

Note: to follow the CRESC argument further see  Andrew Bowman, Julie Froud, Sukhdev Johal and Karel Williams, The Foundational Economy: Rethinking industrial policy .  Manchester: CRESC, 2013, downloadable at: