Accessible economics
Economic democracy is the best way to see marginalised communities thrive once again.
Over 80 years ago, George Orwell vividly thrust the living conditions of the industrial working class into the consciousness of the British elite. In his 1937 classic The Road to Wigan Pier, Orwell documented the lives of the left behind communities of his day. From the harsh physical trials of the coalmines, through desperate slum housing, to the slow, undignified and lonely deaths of the elderly in cheap lodgings, he won plaudits for immersing himself in the miserable bleakness of northern industrial towns.
Ranked in economic statistics as the UK’s most deprived community, Clacton-on-Sea in Essex was visited by the modern equivalent of Orwell’s diary and pen in 2015 when Channel 5’s camera crew rolled into town. In the resulting programme, Benefits by the Sea, the Brooklands area of Jaywick was described as the “closest thing the UK has to a shanty town”. This prompted lurid newspaper headlines and outrage from local residents in equal measure. And, when the RSA’s Citizens’ Economic Council went to Clacton-on-Sea as part of a series of workshops aimed at hearing the experiences of economically marginalised communities, we found widespread cynicism about the motives of government and business, and disillusionment with the lack of economic opportunities. But in common with all of our regional workshops and citizen council deliberation days, we also found a deep community spirit and latent energy for more active participation in the economy.
The gulf in lived experience between rich and poor, north and south, graduates and school leavers, urban and rural, certainly echoes loudly down the decades from 1937. Despite enormous economic growth over eight decades, one in three children in the UK live in poverty. But here the similarities should end. Today, we need a very different response to revelations of economic inequality and social division.
One that proceeds from the belief that people experiencing a sense of exclusion are not a problem to be solved but are themselves part of the solution.
The progressive reaction to Orwell’s revelations was, by and large, a technocratic one. The educated elites, immersed in theories of scientific socialism or in the patrician one-nation Tory tradition, would absorb his evidence and use it to formulate better social and economic policies to improve the conditions of the masses. Maybe that was appropriate to the time; the huge improvements in living standards brought about under the post-war welfare state consensus would suggest so. This was a period of centralised and technocratic policymaking like none before or since. Mass production was the foundation of the economy, and command and control managements representing capital negotiated with hierarchical unions representing labour. The UK’s government machinery, having won a world war and still governing an empire spanning the globe, was supremely confident in its ability to formulate and implement policies: to grow the economy and fairly distribute the rewards, to predict and provide.
That age is behind us. The challenges of wicked problems, of complex and increasingly globally interconnected systems, and the seeming impossibility of creating change in large, complex and bureaucratic organisations — public, private and charitable — have been well explored in this journal. Even if government’s policy levers are still connected to something, it seems we have only the haziest notion of what will actually happen when we pull them. But this is not a counsel of despair. We have more data, more processing ability and more experts than ever before, including artificial intelligences that just might help us harness this explosion of information for social good. But the response we need is not simply to upgrade our expert systems. Instead, we need to upgrade our notion of economic citizenship and create new institutions, policies and cultural norms that can activate it. We need to build an economic democracy.
Traditionally, the notion of economic democracy refers to broadening the control of industry to include workers and other key stakeholders. The definition that underpinned the RSA’s Citizens’ Economic Council is more expansive. It calls not just for all stakeholders to have a voice in economic decision-making by corporations, governments and civil society organisations, but also for more citizens to own and control economic resources collectively and individually. In short, it might be argued that economic power, like muck, is most effective when evenly spread. While some might interpret this as old-school socialist redistribution of wealth, it is in fact even older-school free market economics. Adam Smith’s commanding insight into how markets organise economic resources for the common good rests upon the even distribution of power between market participants. Remove that qualifying condition and the proposition falls. Thus the reality of markets today is that imbalances of power are pervasive and efficiently exploited by the powerful for their own gain.
A real commitment to economic democracy must go much further than inviting citizens to participate in economic decisions. This was the philosophy of David Cameron’s Big Society. Undoubtedly well intentioned, and grounded in a similar asset-based view of people as a source of untapped energy and creativity, the project’s fatal flaws were doing nothing to address the huge and worsening inequalities of economic power that already existed, and failing to invite public participation in the policymaking processes of government. This approach entrenches the economy as a game of Monopoly stacked in favour of some players, who start with Mayfair properties, and men, who collect an extra £50 when they pass Go, while others begin in debt, and some are barely allowed to play at all.
Building an economic democracy does not imply equality of economic outcomes, however, but it is interdependent with economic security for all. Greater understanding of the lived experience of the most economically marginalised leads to policies that promote a better base of economic security. Equally, when people feel more secure, they have a greater sense of individual agency and flourishing that enables them to confidently engage in civic life. This is why our work on universal basic income is not merely seeking to tackle poverty and inequality; the real prize is empowerment. We need to create a level economic platform on which everyone has the opportunity to build a creative and fulfilling life. As Franklin D Roosevelt put it in his 1944 Economic Bill of Rights, “We have come to a clear realisation of the fact that true individual freedom cannot exist without economic security and independence.”
THE PEOPLE HAVE SPOKEN
How might an economic democracy be different from our current practices and institutions? One of the key insights from Building a Public Culture of Economics, the final report of the Citizens’ Economic Council, is the importance of deliberative processes as a counterweight to marking crosses in boxes in polling booths. While representative democracy still stands as the least bad model of national governance, our recent experience of UK-wide direct democracy in the form of referenda on Brexit and electoral reform has seemed more endarkening than enlightening. Brexit was a resounding vote for something, but what, exactly, is vigorously contested.
Processes such as citizens’ reference panels, where a selection of people from all walks of life are deeply involved in the process of policymaking, are effective on a number of levels. First, they markedly increase citizens’ sense of agency and influence over the economy. Second, they create a convergent dynamic, encouraging empathy, understanding and civilised debate instead of a divergent dynamic of bitterly divided ‘yes’ and ‘no’ camps shouting abuse at one another. Third, they unearth a much richer understanding of the concerns, lived experience and aspirations of citizens. Finally, they have the potential to shorten the feedback loop between decision-makers and those living with their decisions and to improve the efficacy and legitimacy of policy.
This is true of all domains of policy, but economics is one of the spheres in which people have felt most disempowered and disengaged, with public levels of trust in economic institutions from business to Local Enterprise Partnerships to government departments in decline. Fortunately, we do not need many citizens to directly participate in such processes to reap the benefits.
Evidence suggests that, where citizens have been meaningfully involved in decisions, not only will the design of policy be better informed and so more effective, but the public will have greater confidence in those decisions. Our own survey revealed that one in two people would trust economic institutions more if they knew that ordinary citizens were formally included in their decision-making.
WHAT IF WE RAN IT OURSELVES?
Economic democracy is more than having a voice. To spread economic power also requires more people to have ownership and control over economic resources. More than 16 million people in the UK have savings of less than £100. This matters because even small levels of savings change the way people interact with the world, encouraging and enabling longer-term thinking and boosting self-confidence and sense of personal agency. Our research on self-employment and small business reinforces the importance of asset ownership for the chances of success as an entrepreneur.
Furthermore, concentration of economic power in markets, particularly in the hands of large and global corporations, can adversely affect the vibrancy of civic life. For example, a study of Walmart stores opened over a 30-year period in the US found that they were correlated with decreasing voter turnout, lower participation in political activities, less philanthropy and declining social capital (‘Discounting Democracy’, 2009). This stemmed from individuals having less contact with each other in the street, and local business owners having to work longer hours to compete. In other words, a vibrant local small business sector has positive benefits for democracy and society far beyond what can be captured in raw economic statistics.
An increasingly important means of widening asset ownership and governance is the vibrant and growing community business sector and the RSA recently partnered with Power to Change, Sheffield University Management School and the Real Ideas Organisation to deliver training and support to more than 50 community business leaders. Local people are increasingly coming together to take over important businesses such as shops and pubs, save community services such as libraries and village halls, and invest in new enterprises such as renewable energy companies. Often this gives people a direct ownership stake in their local economy, but, unlike passive and remote ownership of companies through pension funds, it also activates more direct and active engagement with the business.
The new Fellow-led Community Savings Bank movement is another expression of economic democracy in practice. Customer ownership removes the temptation to mis-sell that is inherent in financial services. And the profits of the business are distributed more evenly between the economic stakeholders, in this case shareholders, savers, borrowers and employees. The equality of members each having one vote regardless of their shareholding or financial status creates a mutuality of trust and respect.
However, mutual ownership is not a prerequisite of economic democracy. Corporations can innovate with multi-stakeholder governance models, including worker representatives, consumer and supplier panels. The creation of new collective investment vehicles such as social wealth funds, and the promotion of open source knowledge, are ways of promoting wider access to economic resources. But there is a danger that our economic and legal institutions have failed to keep pace with new ways of creating value in the digital age. The current dominant digital business model of providing free services such as search engines, social media and health and fitness apps in exchange for gathering enormous and valuable datasets on people and society might be seen in retrospect as just as iniquitous and abusive as the enclosure of agricultural commons in the 17th and 18th centuries.
So how, in practice, can we create a more democratic economy? The increasing adoption by national and regional governments of inclusive growth strategies is a great opportunity. To seize on this, the RSA has a multi-dimensional approach. Tackling unemployment and income poverty while promoting skills progression and supporting growth sectors are all fundamental to inclusive growth. In addition, we need to pay attention to three further factors: wealth, voice and future generations.
For inclusive wealth we can learn from the success of Preston, Lancashire and Cleveland, Ohio, in adapting the procurement policies of anchor institutions, such as local councils, hospitals and universities, to create more opportunities for SMEs, owner-managed businesses and mutuals in local supply chains. On the national level, creating social wealth funds, as recommended in our report on the Universal Basic Opportunity Fund, is one path forward. And the RSA’s Citizens’ Economic Council reports set out a number of ways of giving citizens greater say in economic decision-making at both national and regional level. Our recommendation to convene citizens’ panels for the Bank of England’s network of regional agents was immediately endorsed by its chief economist, Andy Haldane. Last but not least is the need to consider the interests of tomorrow’s citizens by ensuring a safe climate and thriving natural environment.
The test of whether we have arrived at an economic democracy will be when towns such as Wigan and Clacton are no longer held up as emblems of dissatisfaction and disadvantage, but instead as places of enterprise and economic opportunity for all.
