General Electric says: “We will localise”

maersk contianer (2)

Last year came three reports on the downturn in global trade:

  • From the container industry: Søren Skou, chief executive of the Maersk Line, which carries goods and products between Asia, Europe, the US, Africa and Latin America and is now described as the only profitable freight line.
  • In a report from the Centre for Economic Policy Research: theslowdown in world trade has been much worse than previously reported, with global trade volumes plateauing over the past 18 months amid a rise in protectionism.

A higher proportion of the value of final goods is being added domestically

  • The World Bank: There is some evidence to suggest that part of the explanation may lie in shifts in the structure of value chains, in particular between China and the United States, with a higher proportion of the value of final goods being added domestically—that is, with less border crossing for intermediate goods. In addition, the post-crisis composition of demand has shifted from capital equipment to less import-intensive spending, such as consumption and government services.

china trade graphic

As politicians such as US Republican presidential candidate Donald Trump rail against “globalism” and promise to erect new barriers to commerce, policymakers and economists have also grown increasingly concerned about a slowdown in global trade growth. And according to the latest report by Global Trade Alert, which monitors protectionism around the world, that growth has disappeared altogether with the volume of goods traded around the world stagnant since January 2015.

Economists remain divided on the causes of the slowdown, some seeing long-term trends, including the shortening of global supply chains and the increasing role of digital trade. 

As the West Midlands Producers site notes, the reshoring trend, successes and possible pinch points, has been systematically explored and publicised by Aston Business School’s Professor David Bailey since 2013.

G20: mixed messages 

In their closing communique the G20 ministers last weekend reiterated a post-crisis pledge to avoid any move to protectionism, but ‘discriminatory measures’ such as local content rules and subsidies for local industry introduced by governments was up 50% in 2015 compared with the year before, according to the Global Trade Alert’s database – and G20 countries accounted for 81% of those measures.

The FT sees evidence that such measures are already having an impact on business decisions. In a speech in May at New York University, Jeff Immelt of General Electric said that faced with rising barriers to trade, a decision has been made to shift to a strategy of “localisation” rather than globalisation.

“In the face of a protectionist global environment, companies must navigate the world on their own,” said Mr Immelt. “This requires dramatic transformation. Going forward: We will localise.” 

 

 

 

Preston: building a new local economics

new start logoNew Start magazine, which champions urban regeneration that is inclusive, sustainable and socially just, has reported on the work of CLES (Centre for Local Economic Strategies) with Preston City Council. Innovative Quinton councillor John Clancy, who has been to Preston to meet councillors there at a CLES conference, has already tweeted the New Start article.

CLES is exploring how anchor institutions based in the city can bring benefits for the local economy and community.

Anchor institutions are those that – once established – tend not to move location, anchoring the local economy. They may be not-for-personal profit social enterprises, co-operatives, employee-owned and run companies,  or simply local firms with a determined loyalty to their community and workforce ‘family’ (some 2nd generation) – like Professional Polishing in 2007, which refused a highly profitable offshoring opportunity for this reason – resigning from BCC because of their promotion of these policies – and has gone from strength to strength.

cles logoThe starting point was ‘procurement spend’ – seeking to create a collective vision across institutions for undertaking procurement in a way which benefits the local economy. The supply chains of each of the anchor institutions (worth £750m pa) were analysed by CLES in order to identify particular sectors where there are gaps in expenditure in the local economy and where there is scope to influence that ‘spend’ in the future.

There were two broad objectives:

  • to analyse the extent to which anchor institutions already spend with suppliers based in the Preston and Lancashire economies and whether there is potential to repatriate some of that spend;
  • to identify whether there are any particular services used by anchor institutions which would lend themselves to future delivery by local worker-led co-operatives.

Analysing the procurement spend of six anchor institutions with their top 300 suppliers – some £750m – the research found that only 5% of their collective spend was with Preston organisations and 39% was spent with organisations based in Lancashire. £488m was effectively leaking out of Lancashire each year.

Preston skyline
Preston skyline

The findings of the supply chain analysis have prompted anchor institutions to ensure procurement spending reaps greater local economic and community reward. Local organisation Community Gateway, for instance, now asks suppliers to show the local economic multiplier effect of the delivery of its capital and maintenance projects.

Preston Council has identified local organisations in those sectors which could bid for and deliver those services in the future.

Lancashire Council has reframed its procurement practices so that there is greater emphasis on economic and social value.

Postscript: other initiatives

  • Living Wage – Preston City Council has been a Living Wage employer since 2009. It seeks to ensure other organisations across the public, commercial and social economies pay their own employees. The principle of the activity links to community wealth in that it seeks to provide a fair level of pay for Preston residents and also ensure the circulation of income within the local economy.
  • Move your Money – Preston City Council has become part of the Move your Money campaign. This seeks to encourage communities to bank in a more ethical way. The Council has also helped establish a new credit union (‘Guildmoney).

• Guild co-operative network – the council and its Social Forum supports worker led co-operatives and encourages other anchor institutions to utilise local co-operatives, most of which are engaged in front line provision.

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Compass calls for a National Plan: “The moment demands nothing less”.

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Compass, an ideas and action based pressure group, is discussing alternatives to the Government’s economic ‘Plan A’, which isn’t working, with over 50,000 members and supporters around the country.

Its original Plan B, one page summary here, includes elements advocated in the last post by LWM’s co-founder Colin Hines: “infrastructure programmes, such as more housing, making every building energy tight, diverse and locally orientated transport systems etc” – see a snapshot of the first section below:

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compass plan b

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Plan B was a response to a seminar question posed by MP Jesse Norman, whose book Compassionate Conservatism has been described as “the guide book to Cameronism“: “Where is the left on the economy?” The Observer records:

“Stirred by the chiding of the Tory MP for Hereford and South Herefordshire, Neal Lawson brought together an umbrella group of non-affiliated university-based academics, economists, political thinkers and experts. After six months of work – often conducted in a cafe opposite the TUC building on London’s Great Russell Street – Plan B was formulated”.

A year later, Compass launched its new publication, Plan B+1, which cites the work of Birmingham Energy Savers and can be downloaded here . It is seeking signatures for its petition (text below) which can be seen here:

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compass petition text

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Compass calls for a National Plan

“The moment demands nothing less”.

 

 

Calls to support local food webs

From field to fork: The value of England’s local food webs, a report by the Campaign for the Protection of Rural England was released earlier this month.

Farming Online reports that it indicts government food policy and the supermarket model, revealing the role both have played in undermining the UK’s local food networks and jeopardising the vibrancy of rural regions.

Evidence has been provided by a five year research project ‘Mapping Local Food Webs,’ which examined 19 locations across England and identified over 2,500 local food businesses, over 800 outlets and 1,700 producers.

It includes information that:

  • local food outlets serve 16.3 million customers a week;
  • local food sales through independent outlets are worth £2.7 billion a year to the economy;
  • These food outlets support over 100,000 jobs, of which over 61,000 are due directly to local food sales.

The report states that such local networks support diversity, distinctiveness and innovation in the food and farming sectors, broaden choice for shoppers, promote seasonality and reduce food miles. Though researchers found that money spent within local food networks is recirculated in the local economy, amplifying the positive effect on communities, the number of supermarkets continues to rise and encroach on food retailers in marketplaces and town centres:

  • between 1980 and 2007 the number of hypermarkets and superstores in the UK grew from 300 to 1,500 by 2007, and the number is increasing;
  • visits to supermarket chains accounted for 77% of main shopping trips in the locations studied by CPRE;
  • supermarket chains have expanded their share of the market, grown in size and moved to the edge of towns;
  • over the same period, local speciality stores such as butchers and greengrocers have been in freefall;
  • town centre vacancy rates now average 14% and can be as high as 30% per cent.

The Environmental Audit Committee has criticised the government’s lack of action on creating a sustainable food policy and called for more government action to support local food webs, with increased consideration for sustainable food procurement.

CPRE is calling on local authorities to form partnerships to develop food strategies and for community groups to become more engaged in promoting local food. The organisation also wants more commitment to local food from supermarkets, which would help support local economies and reduce the businesses’ environmental impact.

The full report can be downloaded here.

A CPRE fact sheet detailing facts uncovered over the course of the group’s research is available here.

Wholesale Markets could support 15,000 jobs in Wider Economy

More clearly expressed wisdom and informed commonsense from economist David Bailey 

For some background on the Markets, look at his last column in The Post which can be found here.

A few points made: 

One way of saving – let alone creating – several thousand jobs is for the LEP, and in particular Birmingham City Council, to recognise that Birmingham Wholesale Markets are a commercially viable economic institution that brings great benefits to the city and the region. 

Professor Bailey originally put the total Markets-related jobs figure at around 4000, but an interesting piece of work by Forrest Research puts the total number of dependent jobs as high as 15,000. That gives the Markets a pretty big local and regional economic footprint. 

Forrest Research 

-The Markets service the West Midlands ‘region’ (with a population of 5.5 million), as well as the middle third of Wales and the northern parts of the South West. 

-The Markets support close to 200 retail markets, and 90 farmers’ and country markets, encompassing some 2,000 retail traders. Assuming 2.5 dependent full-time equivalent jobs (FTEs) at these traders, some 5,000 FTE jobs are at risk if the Markets were to close. 

– As well as direct employment at the retail markets, the array of related ancillary and support activities can be estimated at a further 0.25 FTEs per retail trader, ensuring a further potential 500 FTEs in the catchment area at risk. 

– In addition to the employment supported in the retail markets, the City Council itself calculates that close to 5,000 independent local retail and catering businesses rely on the Markets. Assuming a FTE job dependency of 1.5 (which seems reasonable), this multiplier gives an employment effect of 7,500. 

– There are over 2,400 heavy and light deliveries each trading week around the Markets. Assuming a multiplier of 0.5 FTE in the logistics sector, there are a further 1,200 FTE job dependents here as well. 

– Given the number of companies operating on the site, then another 20-30 dependent ancillary FTEs could be assumed. 

Professor Bailey concludes: 

This new jobs estimate adds weight to the earlier claim (see here) by Shabana Mahmood MP that the loss of the Markets could have a significance for the regional economy as big as the closure of MG Rover. The latter ultimately led to loss of some 10,000 jobs at the firm and in the supply chain. Some may have scoffed at the MP’s claims at the time, but actually she is in the right ball park. 

If (and that’s still a big if) there really is a need to expand the city centre to build more retail and office space, then perhaps a small slice of that £700 million pot that the LEP reckons will be created by the city centre Enterprise Zone could go towards funding a new city site for the Markets.

Read the whole article here.

Clancy’s proposals would enhance ministerial decisions

Clancy’s proposals would enhance ministerial decisions

With caveats, John Clancy commends two decisions made by Communities Minister Eric Pickles in his recent announcement: .

Mr Clancy only gives half a cheer for the latter, because borrowing against a future income stream in business rates has been limited to infrastructure projects. 

He recommends building and investing in businesses first and then responding to infrastructure needs flowing from that. 

“We don’t need one instrument, Mr Pickles, we need an entire orchestra.” 

Clancy noted that the chapter ‘Supporting local economic growth through new instruments’ failed to offer the range of financial options needed to buy equity in Birmingham businesses and build infrastructure.

In particular, these would include municipal bonds, which are “part of the standard instrumental and investment furniture the world over“. 

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Confident acts of economic self-determination 

Clancy adds: “The Brummie Bond for the Brummie LEP, perhaps? . . . These are the instruments which could empower local councils and LEPs. Confident acts of economic self-determination are what are needed. The UK banking system is an old life and an old civilisation – which, I suspect, will implode pretty soon anyway.” 

So, invest local wealth locally 

Who would buy the bonds?  Individuals, companies and UK Pension funds. The investment of trillion pounds or so of UK Pension fund assets – mainly public sector – in municipal bonds is Clancy’s starting point. Instead of moving these funds abroad he rightly advocates ”local sourcing of local wealth to invest in regional business and infrastructure.” 

* John Clancy is a Birmingham City Councillor in the Quinton ward

A proposal to put forward Birmingham city centre as the location of the Enterprise Zone

The Post reports that the Greater Birmingham and Solihull Local Enterprise Partnership (LEP), has now agreed to put forward Birmingham city centre as the location of the Enterprise Zone due to its potential to generate considerable private investment and jobs, as well as the potential for substantial business rate growth. 

Where will the boundaries be drawn? One possibility:

 

The bid to make the whole of Birmingham City Centre a large Enterprise Zone offers the greatest potential for wealth generation in the Greater Birmingham and Solihull LEP area, partnership leaders said

Will the plan be beneficial to areas of deprivation? 

How will this bid relate to David Bailey’s point about the first sites selected (Manchester airport, the Boots Campus in Nottingham, dockland near the Olympic site and the Liverpool waterfront), which would be the most likely to attract any pending investment regardless of incentives? 

If approved, would it become more difficult for the city’s areas of deprivation to attract new jobs and even lead to the loss of firms who might decide to move in order to benefit from tax breaks, as Professor Bailey conjectures? 

LWM’s co-ordinator points out: 

  • Problem: in the city centre land value and rents are high and deter smaller businesses and start-ups that would benefit from the proposed incentives. 
  • Advantages: if the zone’s boundaries include Digbeth/Aston and similar areas there will be space for manufacturing; the centre is relatively accessible from most parts of city by public transport. 

The Work Foundation’s February report, drawing on the experience of the ‘80s [see Bailey, below] warns that Enterprise Zones, tax breaks and other localised incentives may stimulate rapid investment in the short-term, but this typically lasts no more than three years before the area begins a long-term reversal back into depression. 

We hope that this will not happen in our region.

The comparative security of a localised supply chain

On March 15th in the Financial Times Gillian Tett pointed out the vulnerability of global supply chains: 

“[B]efore 2007, bankers had created numerous convoluted, cross-border financial chains. And while these chains seemed to make the system more efficient and safer in good times, when disaster struck, they produced new risks which took investors by surprise.”

She quoted research on the provenance of one item: 

“Part of the problem is that the supply chains in many key manufacturing spheres increasingly hop across multiple borders. Last year, for example, the Asian Development Bank set about trying to assess how just one item, the iPhone, was made. This revealed a dazzlingly complex pattern, typical of numerous sectors. “Manufacturing iPhones involves nine companies, which are located in . . . the Republic of Korea, Japan, Taipei, China, Germany, and the US,” the ADB observed, adding that “the major producers and suppliers include Toshiba, Samsung, InfineonBroadcom, Numonyx, Murata and Cirrus Logic.” 

Other information 

A few days later, Professor Dan Schiller, an American telecommunications historian, explained that the earthquake damaged undersea cables which carry much of the business-process data needed to run supply chains.

Another research with LWM links is a report drawing on the 2002 research, by co-founder Colin Hines and then MEP Caroline Lucas, on long-distance food ‘swapping’.

One example from the DEFRA website:

“In the UK in 2008, 126 million litres of liquid milk was imported into the UK and at the same time 270 million litres of liquid milk was exported out of the UK.

Researcher Rianne ten Veen also highlighted the adverse economic and environmental implications of such practice.

A search of this website will produce news of Localise West Midlands’ work on procurement/supply chain issues, for example: http://localisewestmidlands.org.uk/activities/bsp_susproc/

A green end-goal for QE

At noon on Thursday 9th December the Bank of England’s Monetary Policy Committee meeting’s decisions will be announced.

LWM’s co-founder, Colin Hines, sends news of a report released by members of the Green New Deal group and the consultancy ‘Finance for the Future’, which calls for the Committee’s discussions on when to introduce a further round of quantitative easing (the so called QE2) to include a different ‘green’ end goal for the expected electronic printing of more than a hundred billions pounds (QE1 ‘printed’ £200 Billion).

From the Press Release

‘Green Quantitative Easing: Paying for the Economy We Need’ states that the need to reflate the UK economy has not gone away and that there is an urgent need for action to stimulate the economy by investing in the new jobs, infrastructure, products and services we need. There is no sign that this will happen without government intervention, the report therefore proposes a new round of quantitative easing – a Green QE2. 

Green QE2

Green QE2 would use the tens of billions of borrowing do three things: 

a. The government would need to invest directly into new green infrastructure for the UK.

b.The government should work in partnership with the private sector, working through a new National Investment Bank, to create new opportunities – and especially green ones – for the UK.

c. The government must liberate local authorities to green their local economies for the benefit of their own communities, and it can do this by providing a capital fund for them to use when working with the private sector on joint venture projects.  

These proposals will together inject the money into the UK economy that can kickstart economic activity in this country, reinvigorating government, local government, the private sector and household economies and in the process result in a truly greener country. 

The final proposal of the report considers tackling the costly government debt incurred during the PFI process. This would be achieved by using the Green QE2 to cancel this £56 billion debt immediately and to pay off the money owed. Future generations of taxpayers would thus be rid of the need to have to pay for the past mistakes in government finances. The sums involved are estimated over the decades to total a staggering eventual cost of £252 billion. The around £200 billion ‘saved’ could then at least in part be allocated instead to continue to finance Green New Deal initiatives over the decades to come. There would be no further PFI projects, at present projected to initially cost £13 billion, as building and infrastructure programmes would in future be financed through the National Investment Bank proposed in the report. 

‘Green Quantitative Easing: Paying for the Economy We Need’ also found that no one is sure for certain whether the first £200 Billion round quantitative easing worked and suggests that several things did happen: 

1. The banks profited enormously from the programme, which is why they bounced back into profit so soon after the crash – and bankers’ bonuses never went away.

2. The entire government deficit in 2009/10 of £155 billion was basically paid for by the quantitative easing programme.

3. There was a shortage of gilts available for investment purposes as a result of the Bank of England buying so many in the market. Large quantities of funds were invested instead in other financial assets including the stock market and commodities such as food stuffs and metals. This has impacted on inflation, which has stayed above the Bank of England target rate’

4. Deflation has been avoided, although the relative role of quantitative easing in this versus the previous government’s reflation policies is unclear.

5. Interest rates have remained low. 

However, one thing has not happened, and that is that the funds made available have not resulted in new bank lending. In fact bank lending has declined since the quantitative easing programme began. 

The report’s author Richard Murphy stated: 

‘Quantitative easing programme might be considered a short term success, but the report notes that the benefit has been captured almost entirely by the financial services sector, whilst further asset boom and bust cycles are, at least potentially being recreated with resultant risk to the economy. These are undesirable long run outcomes when the real aim is to get the UK economy working again. For that reason the next round of quantitative easing needs to be green and to improve conditions in the wider economy.’ 

Contact details 

Richard Murphy, Director – Finance for the Future, +44 (0) 777 552 1797 

Colin Hines, Convenore, GreenNew Deal Group, +44 (0) 773 816 4304