Social value could regenerate local economies for the benefit of their people

11 Oct 2018 Ryan Miller    Last updated: 11 Oct 2018

Protectionism is back. Neoliberal orthodoxy is under question. Perhaps social value, rather than suffocating trade, can layer some new thinking on top of it.

The existing order of the entire Western world is rattling under pressure from the low simmer of dissatisfied citizens.

Many people are unhappy about their prospects. They perceive shrinking opportunities and shrinking financial security. There is a sense of general, slow decline, a great squeeze and, accordingly, citizens are trying to change the political, economic and cultural directions of their societies.

This feeling - that the economy is not working for individuals - is a mass event, and a long-term one, the driver behind an ongoing period of disruptive change, the final destination of which is hard to predict.

Globalisation, free markets, even capitalism - these related ideas that have held such sway in the west are being questioned.

Some people will be excited by this. Some will be worried. Both views are naive, in the sense that they are incomplete.

The problem with change is its unpredictability. As an aspiration it can be vague, defined not by what it is, but by what it isn't.

Ultimately change is only good if it is good, and it will only be good if we make things better.

Social Value

Northern Ireland is home to Wrightbus, a major employer in North Antrim and supplier of coaches and buses to many countries around the world.

As recently as last year the firm employed over 1,800 people but that number has now fallen to 1,560 (with market uncertainty and Brexit listed as factors for redundancies).

In 2015, the firm was at the centre of a row involving government procurement here in NI. A £19m contract to build 30 vehicles for the new Belfast Rapid Transit system was awarded to Belgium firm Van Hool. A local bid was rejected, with founder Dr William Wright saying this had taken away the potential for a number of new jobs in Ballymena.

Then Minister for Regional Development, Michelle McIlveen, was forced to defend the decision. A DRD spokesman said Wrightbus "had gone through the same standard procurement process everyone had to go through."

They added: "We award the contract to the most economically advantageous tender that takes into account the cost. Wrightbus have seen the benefits of the same rules when they're applying to other countries and successfully delivering buses in London and Las Vegas.

"We're bound by European legislation and we would be penalised if we didn't go through this process."

The argument put forward by Dr Wright - one advocating for a decision serving his own financial interests, it should be noted - is one of social value.

This is the idea that the worth of any particular piece of business, trade or enterprise is not enclosed within the deal as made. There are broader implications, and these could (or should) be factored in to decisions.

DRD's stance, not quite blaming European legislation for its decision, might also give the wrong impression.

The EU does have a series of rules about awarding public contracts but these have flexibility. In fact, there is plenty of room for wider considerations (note that, while we are due to leave the EU in the next few months, the UK will - initially at least - likely keep its procurement rules as they are for now).

2013 saw the enactment of the Social Value Act in England and Scotland, which allows public sector bodies to consider wider social, economic and environmental benefits in procurement.

Readers will be shocked to discover that, by the time of its collapse nearly two years ago, Stormont had failed to get round to its own Social Value Act.

Social value could mean a new way of looking at how we construct a robust local economy. Some parts of the UK have taken this thinking farther than others.

The Preston Model

On a philosophical level, social value (as opposed to mere market value) is closely aligned with the social enterprise model. They are similar principles applied to an economy and to an organisation, respectively.

If social value blossoms, it could be transformative for local areas across the UK - with the third sector having a potentially enormous role to play - but it requires a revolution in thinking from, at the very least, local government.

In some parts of the UK, this is already happening.

Back in 2011, Preston was in serious trouble. A £700m project to rejuvenate the city centre - and to provide quality services and bring jobs - fell through, having been on the rocks since the credit crunch.

The resources available to the local council in Lancashire were tiny, which left them open-minded about possible solutions - and led them to strike up a relationship with the Manchester-based Centre for Local Economic Services (CLES).

The result was community wealth building, a model of procurement that tries to retain local cash after it is spent on regeneration.

Key to this is are anchor institutions (meaning major spenders who are tied to an area geographically, such as the council, hospitals, universities, sports teams and so on) which are encouraged to spend their money locally, wherever possible, thus retaining the money within the local area - a shift in focus away from the lowest cost and towards the highest social value.

It has been a huge success and now other councils near Preston are taking notice.

The Co-operative Party - sister party to Labour, with 37 MPs who take the Labour whip - has made this model the central pillar for its policy to build community wealth and rejuvenate depressed areas. The policy has also attracted interest from the Labour Party proper.

Early last year, Scope published an article asking what it means to have a good economy - which featured input from Neil McInroy, who is the Chief Executive of CLES.

Critics could call the Preston Model protectionist - and in many ways that is fair comment - although the council has published its own retort to this, noting that:

"[I]t would only be “protectionist” to offer a contract to an inferior local contractor to shield them from competition of better performing and more keenly priced competitors. That isn’t the case here. Under a community wealth building approach a local contractor will only be awarded a contract if they can show that they can credibly compete on price, performance and quality. It’s about boosting local competitiveness not about sheltering local businesses from competition…

"[T]he evidence to date suggests that spend repatriated to Lancashire has almost entirely been repatriated from multi-nationals or other large firms based in Greater London and the South East (GLSE). We know from lots of research that this is not only the area of the country whose growth is outpacing that of all other regions, and has been doing so for decades, but is also best placed to withstand business and economic shocks."

Nevertheless, protectionism comes with its own pitfalls.

Buy local

The history of economics is littered with unintentional consequences and disasters.

Many simplistic arguments condemning capitalism, or free trade, as bogeyman for all the world's ills have long been popular and remain so.

At the same time, calls to buy local have always been well received. Everyone likes to see a healthy mix of enterprise in their area.

The USA represents an interesting, ongoing example of the reaction against the modern first-world squeeze.

"Trade wars are good and easy to win."

Amazing words to hear from a President of the United States of America - a Republican one, to boot - and a symptom of a world in flux.

President Trump is hardly an anti-capitalist. His policies, however, are anti-globalist (although the motives behind these policies are unclear) and are of mixed popularity.

His protectionism is old school. He appears to see trade as a zero-sum game (a bewildering misunderstanding) and risks causing real harm to the American economy and the people he is ostensibly trying to support:

The American Action Forum, a center-right advocacy group, says the Trump administration’s deregulatory efforts have saved Americans $1.3 billion this year. That, however, is only about one-ninth of the sum ($12 billion) of taxpayer dollars flowing to a small portion of taxpayers (those who are engaged in agriculture, less than 2 percent of the population) as recompense for injuries the government has done to them, and to all consumers, by protectionist policies that have provoked retaliatory tariffs against U.S. agricultural products.

There are some who fear this could be the first taste of economic disaster. President Trump's actions hark back to Reed Smoot and Willis Hawley.

So it is worth noting that, even if the current economic model is not working for everyone, that does not mean it should be ripped to shreds.

Building a healthy economy that works for everyone is extremely difficult. Social-value approaches could prove to be positive because they are a a reconfiguration of how we measure a good contract, rather than some legislative or political cosh that sees something imperfect and seeks to destroy it.

A thriving world without robust trade seems unthinkable. If trade alone is not doing the business, however, we should look, with open minds, at what can augment it.

Social value perhaps has some answers.

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