The need for a Civic Economy…

Whilst there has been much talk recently of how local people should be at the heart of improving places and economies, too little is said about the accompanying change that is needed in our ‘massive’ state and corporate institutions. In this 2011 essay we explore this question.

Clearly, big vs. small is too easy a contrast. The truth – and the real need for institutional reform – lies not so much in the middle as in the interface. Get this right and Britain could build a new constructive edge. We need to re-imagine the boundaries between business, state and community and unleash the cumulative power of ‘micro’ agency.

The long-ruling orthodoxy of classical economics always posed a direct contradiction to John Donne’s meditation that “no man is an island, entirely of itself…”. Starting with Adam Smith, welfare-maximising has primarily been seen as a matter for individuals as the core constituent of societal prosperity. Over time, prevailing interpretations of Adam Smith’s work lost sight of its moral and institutional richness to favour more singularly his take on the market mechanism. As a consequence, economic man emerged ever more powerfully as a conceptually atomised rational needs-satisfier whose enlightened yet deeply individual self-interest brought well-being to all. Margaret Thatcher in that sense merely reiterated a shared classical understanding when she famously posed that “there is no such thing as society”, allowing only for individual men and women (and their families).

The lived reality of economic life, of course, is different. Over the course of the 20th Century, the real organising unit – the dominant economic actor enabling rational individuals to organise themselves and be effective at achieving the sum total of their individual needs – was the corporate entity, whether private business or the corporate state. The mirror image of an atomised human ontology was the economic or bureaucratic behemoth, which inevitably displayed tendencies to hegemonic behaviour, whether through monopolistic/oligopolistic market conduct or through the authoritarian tendencies that can be detected in nearly all state systems. Growth and competition through scale efficiencies and centralised command and control became the dominant logic – at the same time limiting the very individualism upon which its claimed economic model was founded.

The state increasingly mirrored such business behaviour. The ascent of public choice theory, which put the assumption that we tend to compete rather than be collaborative, and that we are selfish rather than altruistic has extended beyond economic theory to dominate approaches to public service reform. One result is the kind of inspection, incentive and market based reforms we’ve seen over the past decades, even as rhetoric of user-centred and participation-based service design and delivery took centre stage. However, slowly but surely, there has been some chipping away at this Goliath-like 20th century orthodoxy – both in theory and in practice. For example, key traits of classical economics like the thesis of perfect rationality – full information and sound judgement as individual behaviour paradigm – have been enriched by insights into behavioural economics. A more complex understanding of how economic development can depend on deep historic and cultural regional path dependencies has been generated by evolutionary economics. Greater understanding of the life of institutions and commons has been mapped out by new institutional economics. All these models shed light on other aspects of economic behaviour, including less reductively rational ones.

As divergent as these fields are in terms of focus and application, what they have in common is a focus on cultural, social, cognitive and emotional factors, challenging the idea of the rational, atomised individual as paradigmatic starting point. The fact that the 2009 joint Nobel Prize winner Elinor Ostrom focussed particularly on the institutions that allow us to share common goods without depleting them is telling: she put constructive cooperation, not competition alone in the spotlight, asking questions about how we evolve ways to enable collective action. Key to this is a realisation that behaviour is not always based on short-term economic profit – sharing, investing together, organising and solving problems can be part of rational economic behaviour if properly understood over a longer time-frame. Time again, for example, it has been shown that ‘rational’ atomisation leads to over-harvesting of the commons, whereas a deeper set of pro-associational and deliberative structures such as improved (face-to-face) communication leads to mutual agreements that are economically beneficial in the long run.

Similarly, in the daily life of business, massive corporations have increasingly found that Fordist assumptions of scale economies needed to be complemented, if not completely inverted. Certainly at the level of consumer products, giant-ism has long been dead, replaced by the customised and indeed by the participative. In his ‘New Capitalist Manifesto’ Harvard Business Review blogger Umair Haque poses that this is just the beginning, as the disruptively better businesses of the 21st Century are increasingly not just selling customised products but building participative platforms for others where the public can contribute as well as consume – whether Lego, which enables kids to upload their designs for the company to build and for others to download and modify, or the fashion company Threadless, whose business model is centered around people uploading designs for T-Shirts which get voted on by their peers in order to decide what gets produced. What they show is that Goliath’s success may well lie in the interface with the small, and in a new form of associating itself with the deeper aims of people rather than just pushing goods. Nike, for example, has set up a peer-to-peer community enabling already over 1.2 million people to become better runners. These strategic moves go beyond the cynical in that they enable better outcomes as well as improved sales; Haque, along with others such as Don Tapscott and Anthony Williams in their 2006 book ‘Wikinomics – How Mass Collaboration Changes Everything’, concludes that it is the radical openness and collaborative notion of such ‘value conversations’ instead of the one-sided value propositioning of the past that will push innovation – seeing that mass engagement is not at odds with strategic business muscle but that David and Goliath can walk together.

Thus, both theory and (at least some aspects of) practice have moved to a situation that increasingly recognised deep roots and economic role of people associating with each other – whether through business innovation, local culture or purpose- driven networks, the social has been put back in. Equally, over the last two decades politics now whether left or right, has clearly shifted towards reinvigorated notions of associationalism, focussing on the role of organised citizens instead of reifying either the market or the state as paradigmatic constituents of well-being. A very Elinor Ostrom idea, as her work showed precisely how often neither the market, nor the state are the most appropriate mechanism to make decisions about how to manage common interests. And of course, as for example Amartya Sen remind us, Adam Smith himself was much concerned with these questions too – arguing for institutional diversity rather than for an unfettered market.

What this suggests to us is that there may well be a need to update our model of the individual as both an economic and political being, and develop economic and institutional approaches that recognise and enable a more open form of connectedness. Such a model need not pre-scribe people’s identities within fixed communities, but rather emphasise their dynamic networked nature as social animals in open patterns of associating and collaborating around particular causes. A model, therefore, that recognises the middle ground between massive and small as crucial for the effectiveness of both economic and political life, as a way of enhancing innovation and sustainable value creation along with the meaningful freedoms that people can enjoy to be the authors of their own lives.

The associational individual will be a co-investing actor, participating, co-producing and increasingly taking an active stake in the creation of new shared wealth. We recently collected a series ofexamples of this emerging behaviour shift in a collection that we call the ‘Compendium for the Civic Economy.’ The book shows that, from citizen-built edible public spaces and member-led supermarkets to new communities of practice for social entrepreneurs, and from locally funded superfast broadband and self-commissioned housing to peer-to-peer ride sharing websites, collaborative economic development trajectories are becoming ever more powerful as a force that improves local economies in places, generating better outcomes, deep value and financial benefits not just in economic terms but also socially and environmentally – in ways that accrue to local people, society and future generations.

Across these examples, it is the energy, purpose and inventiveness of a new breed of civic entrepreneurs that is driving change – but always coupled to new ways of generating mass participation of local people not just in processes but also in participative products, creating tangible financial gain for those involved. What is also remarkable is that these civic pioneers are not just found in the now deeply fashionable world of social entrepreurship – rather than being a sector-specific issue, we concluded that it is a type of behaviour that can be found across the private and public sector too. Thus we define the civic economy as a fusion between the agility of ‘business 2.0’ (the new organising principles alluded to before) and the growing civic purpose amongst a wide range of individuals and groups, in whichever sector they happen to be working.

The public sector in particular faces a challenge where it comes to responding to this, and generating the fertile ground for civic entrepreneurship: Goliath does not quite see eye to eye with David. And that is because it has trouble navigating the middle ground between its own corporate scale and the variegated scale of individual citizens be they public service users, strong-voiced local activists or potential micro- investors. For example, a recent discussion at the Social Innovation Park in Bilbao, Spain, participants debated why it is impossible for individual citizens to invest in their local street lighting. After all, it’s necessary (as there is a huge challenge to make energy efficiency savings for which the public sector currently lacks the capital) as well as technically possible (there is no problem in principle with distributed systems) and also potentially a good investment: it was suggested that pay-back times for an individual investment would be less than 5 years, after which micro-investors would enjoy a return that far outstrips paltry interest on savings accounts. The conclusion was that it’s primarily a challenge of interface, in particular a challenge for the public sector to generate a system as agile as the Kickstarter funding website or the Apple iPhone Apps store that can accommodate and account for micro- contributions – configuring a new market based on socialised potential and shared outcomes.

The meeting of massive and the micro requires different modes of behaviour. The pioneer entrepreneurs and activists we found in our research were more powerful when they found true partners in the state and private sector. But that required a willingness to align purpose, open up to joint venturing, and a respect for what citizens can contribute at a micro level whether time, money, know-how built up over a series of entrepreneurial ventures, or people’s local reputation and networks.

The co-design and co-production debates that have grown under the last Government too often remained stunted in the language of engagement and consultation without creating platforms for genuine co-investment. For the corporate state genuinely to open up, a much greater degree of porosity is required, and our book shows how this could happen in a range of fields: procurement (as shown by an NHS hospital catering team that breathed life into existing legislation to procure food sustainably by actively reaching out to local farmers); commissioning (for instance, the case of Brixton Village, where the local authority’s moment of genius was not to claim the lead in regenerating it but instead to connect the market owners to a group of talented social entrepreneurs); marketregulation (witness the battle of local internet providers and energy generating villages to enable self-provision in a regulatory field aimed at facilitating large scale providers); frameworks for micro-finance (in reality, micro-bonds already enabled some innovative workspace projects… and now the FSA needs to catch up), preferencing players that create greater social value (the town of Tübingen in Germany explicitly preferred self- builders and self-commissioning groups over developers when allocating housing plots). All these are questions of interface – of building or evolving new institutions within our economy that make practical sense of the ontology of the collaborative individual, facilitating the open association of people with peers in order to build new shared prosperity through generating new common assets or sharing the resources we have more effectively. This is true, we would argue, not just for a reforming state but also for institutions like Housing Associations, for instance: in both cases, what this points to is that regeneration and local economic development trajectories may well be less dependent on massive new capital investment or massive new legislation, but should actually focus on subtle changes in practices and frameworks – again, the building of the kind of liberating platforms that already are starting to unleash citizen action across the economy.

Already, peer-to-peer lending Zopa has now arranged £100 Million of P2P loans for their customers across the UK; and a housing association in the Midlands is working with the to build asocial enterprise support platform to enable micro initiative through so-called ‘fiscal sponsorship’, building on the work of pioneers such as the US based Tides Foundation. These are momentous changes, changing the very finance infrastructure of this country. A next step, the ‘nationbuilder’ web platform could revolutionise the way local leaders and entrepreneurs to build their own base of support for a wide range of projects, whether financial or otherwise. These are the kinds of platforms and institutions we need to invest in – the thick, inter-personal platforms and support infrastructures that we really need, instead of the monolithic Regional Development Agencies that were the corporate state’s interpretation of ‘thick institutions’. Instead of the simplistic physical infrastructures they all too often focussed on (the business parks, the road widening projects), the smart and complex interface-based new cornerstones are precisely the ones that Umair Haque’s disruptively better businesses are already building giving them a competitive edge over their peers who are still stuck in outmoded ways of thinking and doing.

Speaking of competitive edge – there is an additional point here. Creating effective and durable interfaces between the massive and the small – growing the institutions and working cultures that genuinely unleash collaboration and co-investment – may well be the next source of advantage for Britain – not in the sense of a zero-sum economic development gain, but in leading the innovation frontier at a time when our global institutions are in dire need of reform – hence we suggest it should be called constructive advantage instead of focusing competitiveness.

In evolutionary economics, much attention is paid to how positive working cultures in regions can enable them to prosper over the long term and withstand economic shocks. The highly innovative craft industries of the so-called ‘Third Italy’, the cooperative structures of the Basque Country (where businesses are moreover deeply vestedin collaborative chambers of commerce) and the regionalised finance structures in German states are all examples of economies that irrespective have been resilient to shocks and generated significant shared wealth. But evolutionary economics also points to moments when disruptive technologies can create ‘open windows of opportunity’ enabling regions or nations to build new economic trajectories. And there is now such an opportunity for Britain: both to build on the deep roots of its civic economy – grounded in the proud civic and associational traditions originated in the 19th Century – and to seize the opportunity to and reinvent (and reinvest in) them for the 21st Century. Goliath, meet David – and enjoy the conversation. In sum, if we are to re-build the institutional economics of places, we need to root that around associational and collaborative actors, whose collective behaviour has already built new shared assets like Wikipedia that have quickly taken on a natural role in daily life. And finally, we need to make manifest how this changing ontology will imprint itself onto the world – how, rather than a world of corporate state and business, this creates a world of distributed & inclusive action & agency. In New York, A Festival of Ideas for the New City was held in early May 2011, showing how the small grain of a wide range of projects, debates and parties together could build a different city. Isn’t it time we similarly invented a new Festival of Britain?

This article originally appeared in 2011 under the tile “David, meet Goliath — Goliath, meet David. New Interfaces Between the Micro and the Massive” in the collection of essays “Changing the Debate: The Ideas Redefining Britain”, published by ResPublica. It was written by Indy Johar and Joost Beunderman. The original can be found here