How the left-behind took back control in Preston

Britain was preparing to go to the polls again as MoneyWeek went to press: 150 councils were electing new councillors and six mayoral seats were up for grabs. Will the results matter much for the economy, or be a sign of what is to come in a future contest for the country?

The line generally taken by Tories, bracing themselves for a Labour sweep, is no that voters in local elections will be more moved by local issues and their judgement of how their councils deal with them than with matters of larger concern ("bins not Brexit"). And anyway, although voters often punish governments at the polls in local elections, it will be a different matter when they're pondering whether to put a pacifist communist into No. 10.

Perhaps, but local elections do matter in and of themselves. Although Britain's political system is unusually centralised, local councils still have a great deal of room for manoeuvre, even when austerity has slashed their budgets, and when it comes to implementing relatively bold economic plans that could have national consequences. As Preston has shown, bins and Brexit are more intimately linked than you might suppose. What the council there has done may provide a flavour of what is to come should Labour come to power at the next general election.

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Year zero for a northern industrial town

In 2011 Preston, a city of 140,000 in Lancashire, was in trouble. That was Preston's "year zero", as Aditya Chakrabortty puts it in The Guardian, the time when the council's grand schemes for rescuing the city from relative poverty fell apart. Once a thriving industrial centre, Preston had lost its industry to globalisation and had become "beaten-up its streets a mix of empty shops and rough sleepers".

It had the highest suicide rate in England. To get itself off the floor, the council had bet big on a massive shopping centre, the Tithebarn, which would sprawl over the city centre, cost £700m, and be home to a new Marks & Spencer, a multiplex cinema and a huge John Lewis store.

Then the banking crash came and businesses grew cooler and cooler on the project until John Lewis pulled out in 2011. The project collapsed and left a big hole in Preston's economic plans. Austerity didn't help. The council's annual spending on services has been cut by a third since 2010, reports The Economist.

But rather than take it lying down, Preston council innovated. Its big idea, inspired by similar initiatives in places such as Cleveland, Ohio, was to pressure local public institutions to spend more of their combined £1bn budget locally. To enforce that would be banned under EU law, but Preston, and its cheerleaders, see it as a way to help the "left behind" the poorer areas of the country that lost out to globalisation when its industries could no longer compete, and that mostly voted for Brexit.

The Preston model, as it has become known, has been hailed as Corbynism in action, and the city has become a hot destination for politicians, journalists and activists keen to find out how to do things differently. Shadow Chancellor John McDonnell visited a couple of months ago, for example, and launched a new unit tasked with continuing and spreading Preston's good work. Jeremy Corbyn too has touted it as an example.

Much of the credit for implementing the Preston model lies with Matthew Brown, a Labour councillor who, together with the Centre for Local Economic Strategies (CLES), a think tank based in Manchester, set about cajoling his fellow councillors, and then local public institutions and businesses, to think (and spend) differently.

The usual strategy, as Chakrabortty puts it, is to try to catch the eye of passing multinationals luring them in with subsidies, tax breaks or cheap labour, say in the hope that they will invest and bring jobs and growth to your area. The trouble, as the example of the Tithebarn shows, is that capital is flighty.

You might get a McDonald's to set up shop. But the pay is lousy and you can't rely on it to stay when times are bad. The Preston model instead redirects public spending to use it as a lever to grow local businesses and pursue desirable social and economic goals.

First, you identify "anchor institutions". That big multinational setting up shop in your town might be flighty, but the university has been there for 200 years, and is unlikely to be going anywhere soon. The same applies to the local hospital. Public bodies in Preston account for thousands of jobs and hundreds of millions in spending.

These anchors are then persuaded to spend their money often large sums of public money locally to encourage the growth of small and medium-sized businesses. They might also be persuaded to favour businesses that have committed to paying a living wage, say, or that keep a lid on executive pay, or that are owned on a co-operative basis, or that encourage union representation for their workers.

Does it work? It's early days, but research by the CLES, not to mention much anecdotal evidence in media reports, suggests it does. Data from the CLES and the Federation of Small Business shows that, for every pound spent with a small or medium-sized firm, 63p is re-spent locally, reports Chakrabortty. That drops to 40p for every pound given to a large or multinational company.

The CLES audited the spending of six anchor institutions last month and found that they spent 18% of their most recent year's budget in Preston, compared with 5% in 2013, reports The Economist. In cash terms, that was an extra £75m being spent in the city around £530 per citizen.

The share of their spending in Lancashire doubled from 39% to 79%. This required no extra money nor new legislation. "It's about collaboration," Councillor Matthew Brown told The Economist. "You have to be clever in austerity."

Of course there are challenges. Decades of doing things differently means there is no abundance of local contractors clamouring for each new job. What firms there are aren't used to applying for big contracts.

But Preston council and its partners are on hand to help. A contract to provide school meals, for example, which was too large for local firms to handle, was broken up into manageable tasks different contracts to supply the sandwiches and the milk and so on.

It worked. Local suppliers using Lancashire farmers won every contract and provided an estimated £2m boost to the county. Similarly, the renovation of the town's market and bus station was won by a family owned local building firm; Lancashire County Pension Fund is investing in regeneration; the police have signed up local printing companies.

A reality check

Here comes the cold water. This all sounds great, but is it not, as the writer Will Self wondered when he visited Preston for the BBC, merely a different way of divvying up the spoils of a shrinking public purse? Money flows have been redirected, but is value being added? If you cajole or force local institutions to spend their money using criteria other than cost and benefit, aren't you making the economy less efficient, and hence everyone worse off in aggregate? Won't that mean less tax revenue? And what will the Preston model do for our national productivity problem, or to grow our exports?

And imagine if the Preston model really were a roaring success wouldn't these newly successful businesses, if good at what they do and providing value for money, want to expand, improve efficiency and trade outside the local area? Wouldn't that take us back to where we started? If buying local made sense on economic grounds, wouldn't we already be doing it? In short, does protectionism on a smaller scale make any more sense than the more well-known type?

Perhaps not, but such arguments leave out the lived reality of the people who lose out to free trade. The Preston model may help bring jobs and community back to struggling areas, and it is "not shameful or retrograde to want to belong to a community", as Julian Manley puts it on the LSE's Politics & Policy blog. "Take back control" was the rallying cry of the Brexit campaign, and that could mean much more than control of our laws and borders.

"If there are opportunities for making a success of life in Preston, a place where people have a sense of identity and belonging, then social capital is potentially increased; pride of place is enhanced; a sense of citizenship is developed; and democracy becomes relevant and vital," says Manley. Encouraging the growth of such things locally could lead to the kind of "robust mental health that we are so sorely lacking in today's society".

There is in fact nothing particularly socialist about the Preston model. You could see it as showing that David Cameron was right a shrinking of the state in Preston, at least, has led to a Bigger Society there. And as the economist Dani Rodrik has pointed out, some kinds of economic populism might actually be a good thing, not least because it douses the flames that lead to the much more dangerous political kind.

And there's no need to rush to the extremes, as Alice Thomson points out in The Times. Enforced local protectionism would be a disaster, leading to ready excuses for shoddy work, poor value for money and corruption.

But if it is voluntary and done well, as in Preston, it could generate pride and bring consumers more choice consumers who might well prefer to spend a little more on something produced and built locally, if the quality is better, say, or just if they know it has done something to help the environment or sponsor a local apprenticeship, or simply because they prefer "buying a slightly misshapen red Devonshire Quarrenden apple rather than a cheaper New Zealand Golden Delicious".

Globalisation was never meant to mean the end of localism, as Thomson says. "We need the conglomerates, but we also need to humanise our homes, towns and cities." The road to a better future might just be the A59.