The Preston Model

Clifford Singer | September 9, 2016

shutterstock_409899844-copy.jpg

Inheriting a legacy of deindustrialization and faced with mounting socio-economic challenges, municipal officials in Preston in the UK – one of the birthplaces of the Industrial Revolution – have been exploring new ways to create a more inclusive and democratic local economy as the foundation for systemic transformation. They have been able to draw upon long-standing regional traditions dating back to the founding of the modern cooperative movement in nearby Rochdale in 1844, but have also looked to promising examples overseas – including the ‘Cleveland Model’ in Ohio – for inspiration. We are pleased to publish this article on their progress and ambitions.

–The Next System Project


When Labour took control of Preston City Council from a Conservative-Liberal Democrat alliance in May 2011, it appeared a bittersweet victory. The city had been battered by the recession that followed the financial crisis of 2007/8, and now faced massive central government funding cuts as the austerity budget of David Cameron’s Coalition government, formed a year earlier, got underway. The council would lose half of its government grant over the next three years, placing it among the top 10 worst-hit local authorities in Britain. Private investment plummeted too. In November 2011, plans for a £700 million shopping center development – 12 years in the making – collapsed following the withdrawal of its flagship retail store, John Lewis.

Traditional city growth models, based on attracting inward investment for big infrastructure projects, could no longer be relied upon. Nor, under conditions of recession and austerity, could conventional tax-and-spend redistribution.

Traditional city growth models, based on attracting inward investment for big infrastructure projects, could no longer be relied upon. Nor, under conditions of recession and austerity, could conventional tax-and-spend redistribution. Instead Preston, a small city with a population of 140,000 in England’s northwest Lancashire region, embarked on a remarkable community wealth building program, which aimed to ensure that the large amounts of money leaking out of the local economy were instead invested in local businesses and, in particular, cooperatives. Although still at an early stage, the strategy is generating interest from other regions in Britain and elsewhere in Europe. National politicians are starting to take note too, with Labour’s Shadow Chancellor John McDonnell recently hailing Preston’s creativity and vision.

Getting started

In 2011, Preston’s incoming leadership asked Matthew Brown, a councillor since 2002 and now Cabinet Member for Social Justice, Inclusion, and Policy, to look at ways to boost the local economy. Brown had a longstanding passion for worker cooperatives, and was inspired by the success of cooperative economies in Mondragón, Spain and Bologna, Italy. He was particularly impressed by the work done by The Democracy Collaborative and its partners in Cleveland, Ohio, where the innovative Evergreen project involved setting up worker cooperatives to provide goods and services to the area’s major quasi-public, nonprofit (or “anchor”) institutions.

Both Cleveland and Preston had experienced unemployment and urban decay following waves of deindustrialisation. In the 18th and 19th centuries, technological innovation helped Preston become a powerhouse of cotton textile production, until the industry collapsed after the First World War. During the mid-20th century, Preston became a centre of electronics and engineering, but this declined in the 1970s. Although there have been sputtering signs of growth since, poverty and inequality remain high.

Preston_skyline-e1473689607176

Preston Skyline

In 2012, Ted Howard, The Democracy Collaborative’s President, was invited to Preston to present his ideas on community wealth building. Howard’s visit had been coordinated by the Centre for Local Economic Strategies (CLES), a Manchester-based think tank with considerable experience of working collaboratively with local authorities and other institutions to boost local economies. Preston and CLES formed a partnership, and the city’s community wealth building strategy got underway in 2013.

Anchors engaged

The project’s first phase comprised three aspects:

  • to engage anchor institutions and understand their spending.
  • to identify ways to change procurement practice at the anchor institutions.
  • to discover the local economy’s capacity to supply good and services to anchor institutions.

Six institutions signed up: two councils (Preston City Council and Lancashire County Council), a police force (Lancashire Constabulary), Preston’s largest social housing association (Community Gateway), and two further education colleges (Preston’s College and Cardinal Newman College). The members of this community wealth team were careful to engage the top leadership of each anchor institution at an early stage. They found a willing audience. Derek Whyte, Preston City Council’s Assistant Chief Executive, says: “To be honest, I thought it was going to be a harder sell. I think we were helped by the fact that all our institutions have a very strong sense of place and community. I’m not sure it would be so easy to get that in a city like London.”

Establishing a baseline

CLES was keen to get a clearer picture of procurement spending by the six anchors, both to understand the potential for improvement and to provide a baseline against which progress could be measured. The anchors were asked to provide details of purchases from their top 300 suppliers during the financial year 2012/13, which was analyzed to understand:

  • How much was spent with suppliers based in Preston and Lancashire, and how much leaked out.
  • How much was spent with suppliers in particular sectors – and which sectors had key leakage.
  • How much was spent with small- and medium-sized enterprises (SMEs).

The results showed that the anchors together spent £750 million a year, of which just 5 percent was spent in Preston, and 39 percent in the wider Lancashire area (including Preston). Some £458 million was leaking out of the Lancashire economy. At Preston City Council, just 14% of procurement spending went back into the Preston economy, compared with a local authority average of 31% for local spending. “Preston was significantly behind the curve,” says CLES deputy chief executive Matthew Jackson.

Some £458 million was leaking out of the Lancashire economy.

The findings were presented to anchor institution leaders at a series of meetings. Simply increasing anchor spend in Preston from 5 percent to 10 percent would mean an extra £37 million going into the local economy annually. CLES also sought to identify influenceable spending – spending that wasn’t trapped in long-term national contracts and could potentially be brought back to the local economy. In Preston City Council’s case there was scope to influence £3 million of the £8 million leaking out of Lancashire annually.

At a further workshop, the six anchors agreed a statement of intent, and defined their mission as “a long-term collaborative commitment to community wealth building in Lancashire for influenceable spend.” This was backed up by a collaborative procurement charter comprising six objectives:

  • To simplify the procurement process and encourage a diversity of organizations to bid for contracts.
  • To reduce spend leaking out of the Preston and Lancashire economies.
  • To understand the local business base in greater detail.
  • To develop the capacity of local businesses and social enterprises to bid for contracts.
  • To raise local awareness of procurement opportunities.
  • To identify services that could potentially be provided by worker cooperatives.

A charter was helpful, but real progress required a cultural shift among procurement officers. A Preston Procurement Practitioners Group was set up to enable peer learning among officers and to share case studies of good practice. Few formal structures were set up beyond that, which Derek Whyte say has helped the project’s success: “We don’t have lots of steering groups and meetings and minutes. People are looking for flexible ways to work together either collectively as a group of six or eight anchors, or in twos or threes. The key is about trust and being non-bureaucratic, and getting senior people to work together.”

Preston City Council also chose not to join the 23 “cooperative councils” in the UK’s Cooperative Councils Innovation Network. This network has tended to focus on spinning off existing council services into cooperatives, which critics say reduces such services’ democratic accountability and can leave them vulnerable to takeover by more predatory private providers. Instead, Preston focused on contracts that were already outsourced and unlikely to be provided in-house.

Early progress

CLES worked with Preston City Council to create a database of local businesses that could now be approached with procurement opportunities at an early stage. The council subsequently reanalyzed its spending, and found a marked increase in local economy spend. Spending on suppliers in Preston rose to 17 percent in the financial year 2013/14 (compared with 14 percent a year earlier), and to 28.1 percent in 2014/15. Spending in Lancashire rose to 33.5 percent in 2013/14 (compared with 29% a year earlier), and to 34.2 percent in 2014/15. Combined with the other anchors, an estimated £4 million had been directed back into the Preston economy. Goods and services brought back into the local economy included contracts for school furniture, a £2 million fresh food scheme tendered by Lancashire County Council, and a £600,000 printing contract for Lancashire Constabulary.

An estimated £4 million had been directed back into the Preston economy.

The community wealth project also gained growing interest from other local anchor institutions. In 2015, the University of Central Lancashire (UCLAN) signed up to become the seventh member organization. Talks are now underway with the local health trust, Lancashire Teaching Hospitals, which runs Royal Preston Hospital – the area’s biggest employer – and Chorley Hospital. And several of Preston’s neighboring councils are set to sign up, which in turn will bring in their own place-based institutions, including additional housing associations and further educational institutions. Combined with the existing anchors, they have an estimated total spending power of more than £1.2 billion a year.

Progressive procurement

As well as directing spending into the local economy, the anchor institutions are developing “progressive procurement” strategies, which take into account social value alongside conventional criteria of cost and quality. Lancashire County Council established a Social Value Procurement Framework in early 2016, whose objectives include promoting local training and employment opportunities to tackle unemployment, raising local residents’ living standards (e.g. through paying the living wage and supporting employees with childcare), supporting voluntary and community groups, reducing inequality and poverty, and promoting environmental sustainability (e.g. by cutting energy use and using materials from sustainable sources).

As well as directing spending into the local economy, the anchor institutions are developing “progressive procurement” strategies, which take into account social value alongside conventional criteria of cost and quality.

Matthew Jackson believes such an approach is starting to alter the behavior of small businesses, as well as that of procurement officers. Many are being asked to account for social value for the first time. There are possibilities to increase the scope of this approach, such as by extending social value criteria to include trade union recognition. Jackson adds that in recent years government regulations have made it easier for councils to include social value considerations when procuring goods and services. Both the UK’s Public Services (Social Value) Act 2012 and EU directives introduced in 2014 have opened the space for purchasing that supports SMEs and aims to achieve wider economic, societal, and environmental goals.

With this in mind, CLES is developing more sophisticated measurement frameworks that go beyond capturing the financial multiplier effect of local spending – though that itself is significant – to indicate wider measures of social value. It has developed a “social value outcomes framework,” which it is currently using to assess Preston City Council’s top 300 suppliers. The framework focuses on six outcomes: promoting employment and economic sustainability; raising the living standards of all residents; promoting participation and citizen engagement; building capacity and sustainability of the voluntary and community sector; promoting equity and fairness; and promoting environmental sustainability.

Building cooperatives

If one key part of the community wealth project – bringing on board the anchor institutions – has progressed more rapidly than the Preston team could have hoped for, another has proved trickier: that of establishing worker cooperatives to provide goods and services where there are gaps in the local economy. One hundred and sixty years ago, the Rochdale Pioneers established the modern cooperative movement just 30 miles from Preston, but the present-day region has a relatively low number of cooperative businesses. Changing this will take time – and seed funding, of which there is little readily available. Community wealth building was a creative response to austerity, but remains constrained by it.

Community wealth building was a creative response to austerity, but remains constrained by it.

Preston also finds itself hemmed in by central government policy in other ways. The council had planned to pilot a wind farm on disused council-owned land at Preston’s docks, which would form the basis of a new, municipal energy company. But these plans had to be suspended in late 2015 when government slashed the feed-in tariffs that guarantee a return to renewable energy projects – though the council is looking at other routes to launch a municipal energy company.

Such constraints mean Preston’s community wealth builders have had to pursue other tactics to kick-start the local cooperative economy. The city boasts a fairly vibrant small business base of around 5,000 enterprises, so one approach has been to raise awareness of cooperatives among existing business, and in particular to promote succession planning where retiring business owners are encouraged to sell their businesses to employees. A Guild Co-operative Network has also been established to bring together members of existing and prospective cooperatives to provide mutual support and advice.

New cooperatives have been created too. Guild Money credit union currently has more than 450 members and will soon be more widely promoted to anchor institution Community Gateway’s social housing tenants. As Matthew Brown notes, there is a pressing need for such organizations in the region to counter financial exclusion: “In my ward, the last branch of a major bank is shutting down.” It is also notable that Community Gateway, the city’s largest housing provider with 6,000 social properties, is itself a tenant-led cooperative with a commitment to support other cooperatives.

Another new initiative is The Birley, a shared studio and exhibition space for local artists. It was set up by a social enterprise, Post Post, formed by four former UCLAN students. Preston City Council have provided The Birley with low-cost accommodation in former council offices. A lack of contemporary art space in Preston had previously meant graduates typically move to Manchester, Liverpool, and London when they completed their studies. The Birley’s initial 12 spaces were filled immediately, and the space has been expanded to make room for many more artists. The council is looking at housing other community organizations and cooperatives in unused offices.

UCLAN helped to broker the Birley deal, and the university’s involvement as an anchor has injected fresh energy into the cooperative side of the community wealth project. The university’s Psychosocial Research Unit (PRU) has played a key role. In November 2013, PRU hosted a three-day visit by Mikel Lezamiz, Director of Co-operative Dissemination at Mondragón, as part of UCLAN’s Distinguished Visitor Programme. Events included the launch of Cooperative UK’s Simply Buyout guide to becoming an employee-owned business. Since then, PRU has forged a close relationship with those overseeing Preston’s cooperative development, including Matthew Brown and his cabinet colleague Martyn Rawlinson.

In early 2016, PRU published an in-depth report on expanding Preston’s cooperative economy. The report uncovered a strong cooperative culture, despite the relatively small number of formal cooperative businesses, exemplified by organizations like the environmental network, Let’s Grow Preston. It recommended establishing an expanded version of the Guild Cooperative Network. Report co-author Julian Manley explains: “We’re looking at developing a formal co-op network based loosely – because it’s a long way off – on the Mondragón network. Any start-up business is likely to fail in its first two years – so if we can supply a supporting network for them it will help.”

Matthew Jackson of CLES is optimistic that the next phase will see more developments around cooperatives: “It’s still early days. If you compare Preston with Cleveland they’ve been working on this anchor strategy for 10 to 12 years. And we don’t have the level or scale of philanthropic investment going through. But what we do have is seven or eight willing anchors ready to make a difference.”

Pension power

Lancashire is exploring other routes to community wealth building, beyond its anchor strategy. One is to unleash the power of local government pensions. Lancashire Pension Fund has investments of more than £5.5 billion, mostly in overseas equities. As John Clancy shows in his book The Secret Wealth Garden, these types of investments have often under-performed, especially when combined with high management fees. There is now growing interest in targeting some of this back into the local economy, both to produce a sustainable return for fund members and to create a social dividend in the communities in which they live.

Some £200 million of Lancashire’s pension fund – whose committee includes Preston council leader Peter Rankin – has been directed into the regional economy. Half of this is being invested as part of the central government-sponsored City Deal scheme. Investments include an £18 million student flat development and the refurbishment and reopening of the palatial Park Hotel. City Deals have tended to take a more conventional, top-down approach to development, with less emphasis on social value, but Matthew Brown and Derek Whyte believe there is scope to push Preston’s City Deal spending in a more social direction. They are particularly keen to follow Islington’s example, where 15 percent of the local government pension fund has been earmarked for social housing investment.

Until now, says Whyte, one constraint has been that many of the local schemes that Preston would like to invest in are worth less than £10 million, whereas pension fund managers are typically interested in investments worth at least twice that amount. However, the proposed Lancashire Combined Authority – which will give Lancashire’s various council more powers to act in unison – means larger-scale initiatives may be feasible. It also creates potential to pool smaller development opportunities into single investment vehicles, which both banks and pensions funds could invest in, mirroring the approach taken by many US cities.

Systems change

What unifies the disparate measures that fall under the community wealth building banner is their potential to disperse power, wealth, and ownership away from centralized elites and into local communities. And while some of the steps can individually appear small and piecemeal – which is partly a strength as it means they can be put into practice right now – collectively they add up to something greater: a shift away from relying on the post-war social democratic model of taxing and regulating the economy to transforming ownership of the economy.

What unifies the disparate measures that fall under the community wealth building banner is their potential to disperse power, wealth, and ownership away from centralized elites and into local communities.

As Matthew Brown told Renewal:

It’s going to sound like a very dramatic statement but I think over the next 20 or 30 years – and Ted Howard and a few others say this in America – we’ve got to move to a different system, bit by bit. I think we’ve got to move beyond capitalism to a new system. It’s not going to be the state running everything. It’s going to be a devolved economy, a democratic economy, using all these different mechanisms and institutions to localize wealth.

It’s probably going to take 20 or 30 years, but it’s already happening, and it’s happening to our area. It’s imperative because the old ways of doing things aren’t going to work anymore. Even if you look at it on a practical level, it’s just not going to happen because big businesses aren’t investing, banks aren’t lending. A huge amount of wealth is just not being invested at all. Within Preston we were promised a lot of outside investment, and when the crash came it didn’t happen, and so these new ideas became a lot more appealing to people. What we’re doing in Preston is new, and it’s a response to a systemic crisis. Once Labour cities in other parts of the UK are all pursuing similar strategies, we’re really going to get something moving here.

 

Sharing the strategy

Reflecting the growing interest in Preston’s strategy, several local authorities have visited recently, and the council is planning a community wealth toolkit that can be adopted by others. Derek Whyte says: “We want to provide proof of concept and a toolkit. We’ll say to councils: you’ll need to tweak it, but here’s the evidence.” Preston is also networking with local authorities elsewhere in Europe. The council has been appointed lead partner of the Procure network, part of the European Union’s URBACT project to promote sustainable urban development. The network will explore how procurement can be harnessed to maximise local economic, social and environmental benefits. The 11 partners include cities in the Netherlands, Poland, Spain, Romania, Hungary, the Czech Republic, Croatia and Italy. CLES’s Matthew Jackson has undertaken a baseline study of the partners, and will track progress over two years and help them realise change.

In the early stages of Preston’s community wealth building project, the team focused on getting buy-in from the senior leaders of anchor institutions, an approach vital to its success. Now, through peer-to-peer networks like Procure, there is potential to spread these ideas to new places. But perhaps what is missing is a parallel mission to spread and popularise such ideas among the people of Preston and the broader population, beyond those with a professional interest. In the recent referendum on Britain’s EU membership, the winning “Leave” side used the slogan “take back control.” It was highly effective, with a particular appeal to working-class voters in post-industrial towns like Preston. In Lancashire, all 14 districts voted to leave the EU. But if power simply remains in Whitehall and in the boardrooms of large corporations, those citizens will not have taken back control in any meaningful sense. Instead, local economic democracy offers a more genuine way for citizens to take back control, albeit one that is messier and more complex than the simplistic solutions offered by right-wing populists.

In the harshest of social and economic climates, Preston has made a remarkable start to its community wealth building project. Now it must find ways to increase awareness and participation by residents. One plan is to turn the existing Social Forum into a community organizing group, Citizens Preston, aligned with the national Citizens UK movement. Such initiatives and more will be needed to ensure concepts of economic democracy and community wealth building gain support and momentum in the turbulent times ahead.

Image credits:

Preston City Skyline, by Francis Franklin – Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=36829310

FOLLOW THE
NEXT SYSTEM PROJECT

Next story:

Advancing the Next System with Advanced Manufacturing

Max Ogden, Nina Gregg, Doug Gamble, Andrew Dettmer and David Schweickart | September 9, 2016