Weeknotes 2021 -week 44
This week I’m talking about the extractive vs. regenerative economy
This week I want to talk about the extractive vs. regenerative economy (via the medium of charts and memes). It’s been a month since I last provided an update, but hopefully this is a useful overview of some of the thinking I’ve been doing during that time.
The extractive economy
It seems pretty obvious to me that people create value. I struggle to imagine anything that has a value independent of a human being ascribing it one (but perhaps that’s my sociological bias coming through). But when it comes to talking about the economy, I think it therefore feels pretty intuitive to say that in order for commodities to be exchanged for value, you need people.
Yet maintaining you costs money. You need to eat, poop, wear clothes, have somewhere to sleep. So, the argument goes, your boss pays you a subsistence wage to keep you alive and happy. Any surplus value you create (the difference between what you are paid and the total value you create) is captured by your boss and shareholders.
Recent trends support this theory — since the early 1970’s, the golden thread of productivity — where the more productive the workforce became, the more they got paid, has been broken. Instead, productivity gains are going to owners and shareholders, not the workers who produce the value.
The above chart is a bit out of date now, but the same trends seem to be holding. For instance, take this very recent estimate from the Institute for Fiscal Studies. They expect real wages to remain stagnant for 20 years. In 2026, they forecast wages to be £11.70 lower than if the pre-2008 trend in wage growth had continued. Essentially, bosses don’t want to pay their workers more than they have to. This logic, I think, is also evident in the recent cuts to universal credit — what is the bare minimum people need to stay alive.
Yet aren’t we expecting a greater period of economic growth than anticipated? Of course this is coming from a lower baseline, but where are the proceeds of this economic growth likely to go? Whilst past performance isn’t necessarily a predictor of future performance, my guess is that value will keep passing through to, and get concentrated amongst, the wealthiest. The gap between the richest in society and the rest of the population has widened over the past decade. The Office for National Statistics recently found that the income share of the richest 1% increased from 7% to 8.3% between FYE 2011 and FYE 2020. In the USA the situation is even worse — the top 10% owns 70% of all the country’s wealth.
Some argue that this wealth concentration is by design. The way organisations are structured, with a few people owning businesses and the means of production, and everyone else toiling for them, means it is inevitable. And to capture an even greater share of wealth, these same powers encourage us to buy more stuff. We end up with events like the forthcoming Black Friday, which started in the USA as the day when companies get ‘back in black,’ but now has no cultural or geographic connection. It has become nothing more than a day when you are encouraged to give more of your money to private individuals in exchange for things you probably don’t need.
The thing is, not only does that make you less well-off, it also makes your local community less well off. Sixty-pence of every pound spent with ‘non-local’ firms leaves the local economy.
Meanwhile, the capitalist looks to save money — by not investing (in maintenance, R&D etc) or paying less tax. Take for instance, the recent budget announcements, which were great news for bankers wanting to sip champagne whilst flying to Scotland. Or more pertinently, the Pandora Papers.
And now they’re coming up with even more innovative ways to make money from you. Bitcoin, NFTs, pretending to be a robot playing poker in the metaverse.
All this extra consumption and production uses up natural resources. Causing pollution which you have to live with and pay to clear up. It is also, of course, heating up the planet, raising sea levels and triggering a mass extinction event. But do you really want to think about this, or would you rather pretend to be a robot playing poker?
Meanwhile, the physical infrastructure in your community is falling apart because no one has invested in it. Such is the extent of the underinvestment in all sorts of infrastructure, we recently arrived at the point where it was legal for privately-owned water companies to dump untreated sewage in our rivers and seas. And in a turn of events which I’m sure is in no way connected, there was e.coli in the drinking water.
Fixing all this stuff is going to be too expensive apparently. Wouldn’t want to eat into those profit margins after all.
But at least the capitalists and anonymous shareholders will be ok!
The regenerative economy
So far, so apocalyptic. But there is hope. There is a growing movement of people exploring ways to do business better. At Power to Change we’re part of that movement.
In recent years, there have been several interesting new ideas coming forward regarding a more regenerative economy. One of these is Doughnut economics, a framework developed by the economist Kate Raworth.
Doughnut economics posits that there are nine planetary boundaries that should not be exceeded, and 12 social foundations which we should not fall below. She based these on the UN’s Sustainable Development Goals (SDGs). Unfortunately, we’re already failing on several of these.
The interesting thing about this model is how it links environmental and social justice, which were previously thought to be incompatible. For a long time some argued that moving away from fossil fuels will make us all poorer, but Raworth argues the reverse may be true.
She points out that half the world’s carbon emissions are produced by just 11% of its people, while 50% of the world’s people produce just 11% of its emissions. Animal feed used in the EU alone, which accounts for just 7% of the world’s population, uses up 33% of the planet’s sustainable nitrogen budget. “Excessive resource use by the world’s richest 10% of consumers,” she notes, “crowds out much-needed resource use by billions of other people.”
Given we are overshooting so many planetary boundaries and falling below our social foundations, there has been a clamor recently for more urgent action on climate change.
As a result, activists like Greta Thunberg and movements like Extinction Rebellion are calling not just for reduced carbon emissions, but complete systems change — fundamentally changing the way the economy works.
It’ll be interesting to see what effect these calls have on the COP26 conference. Some politicians have finally started to think about how to address these challenges. The Green New Deal was getting a lot of attention on both sides of the Atlantic, and while enthusiasm for it has waned recently, many of the concepts it addresses are still relevant. Proponents talk about investment in green jobs and skills, democratising capital and organisational structures, so that workers capture a greater share of income and wealth and re-connect with each other, plus investing in green infrastructure, such as low carbon transport and community-led renewable energy. These are all things we are exploring at Power to Change, and we have already helped leverage over £40m of investment into the latter. We’re looking to invest more too, and you read more about our ambitions here.
There’s also growing interest in ‘community wealth building’ or what is commonly referred to as ‘The Preston Model’, re-directing public investment via anchor institutions to ensure more of it is spent locally. Whilst we aren’t as embedded as others in this movement, we are supportive of it and numerous other forms of alternative ownership (e.g. cooperatives and social enterprise). That’s because we know that spending money locally helps retain wealth in an area, and ensures money goes where it is most needed. Our research shows that 56p in every pound spent with a community business stays in the local economy.
It is within this context that community business fits, as part of a wider regenerative economy that includes the public sector, cooperatives, mutuals, social enterprises and the voluntary and community sector. We currently define community businesses as being:
- Locally rooted: They are rooted in a particular geographical place and respond to its needs. For example, that could be high levels of urban deprivation or rural isolation.
- Trading for the benefit of the local community: They are businesses. Their income comes from things like renting out space in their buildings, trading as cafes, selling the local produce they grow or generating energy.
- Accountable to the local community: They are accountable to local people, for example through a community shares offer that creates members who have a voice in the business’s direction.
- Broad community impact: They benefit and impact their local community as a whole. They often morph into the hub of a neighbourhood, where all types of local groups gather, for example to access broadband or get training in vital life skills.
Place is of key importance to this model, unlike the extractive model of capitalism we currently have, where capital is free floating and will desert an area in search of greater profits at the drop of a hat. Community businesses reinvest their profits locally, retaining wealth within their local area. This is why we believe they can play a key role in the revival of British high streets:
Community ownership key to survival of Britain's High Streets - Power to Change
Local community access and ownership of key buildings on the UK's thousands of high streets could be pivotal to their…
But we are also reviewing this definition of community business, following the events of the past 18 months. While this is a great model, the above definition struggles to accommodate communities of identity and interest. It also doesn’t account for the growing use of digital technologies by communities, which is why we are championing Community Tech. We believe there is another way of using technology that isn’t solely based on the extractive models described above.
Why community organisations need community tech - Power to Change
When digital experts talk about the non-profit sector and digital technologies, the conversation often moves to all the…
I think all of this points to the power and potential of imagination. That in trying times, it is possible to do things differently and in ways that are regenerative rather than extractive.