Foundational economy (as if people and places really matter)

1. Foundational economy (as if people and places really matter) Kevin Morgan and Ian Rees Jones (WISERD & Foundational Economy Network)

2. Not one but many economies Part of a zonal way of thinking about economies + how different zones matter. Regional + industrial policy focuses on the tradeable economy Meanwhile, GVA gap is not closed; high tech often does not employ many people The foundational zone can help cities and regions with the ongoing challenges of inclusive growth and wellbeing

3. Why the FE matters?(1) wellbeing critical for households • Household wellbeing depends daily on foundational essentials where interruption of provision = immediate crisis • Providential services like health services and care, universal primary and secondary schooling = the badges of our civilisation • Material infrastructure of pipes and cables connecting households to systems which make everyday life safe, sound and civilised

4. Why the FE matters?(2) 40% or more of the economy in employment terms

5. + theresilient half of the economy stabilising, equalising, solidly performing • FE is fairly resilient because distributed according to population e.g. health and care, electricity or water… as long as you retain the population • stabilising because demand is often non-cyclical and despite austerity cuts, UK share of GVA 2007-16 = 41-39% • equalising as long as education, health, BT & rail franchisees pay the same UK-wide wage rates • solidly performing + national skills reservoir: UK material sectors = high GVA productivity at £67k per capita + providential sectors distribute > 75% of revenue as wages

6. Not just income but multiple drivers of well being We live in an income based society but wellbeing (life evaluation + emotional well being) ) depends on 3 other drivers: grounded, mobility and social infrastructures Access and quality of much in 2, 3 and 4 depend on social investment (public or private); i.e. what you cannot buy from private income Income through jobs is only one part e.g. per capita, Londoners spend £10k more than in Wales, but £7k of that goes on more expensive housing Yes to better jobs closer to home but many jobs are still poorly paid and/ or irregular A balanced approach to all four drivers

7. Complications Privatisation outsourcing + financialised business models • PLCs and fund investors now pressured for 10 % plus returns and import business models from high risk, high return activities e.g. 21st century private equity investing in UK care homes targets 11-12% returns = an extra £100 per week compared with 5 % returns or churning of ownership as Four Seasons • Broader problem about devices of financialisation to raise returns eg financial engineering or levered power against stakeholders eg confusion pricing via multiple tariffs, or exploiting consumer inertia or removal cross subsidies

8. Table 5: Calculating the savings from a reduction in the 12% return on capital employed (2012 prices) Per resident per week Per resident per week Per resident per week (PRPW) @ 12% ROCE (PRPW) @ 8% ROCE (PRPW) @ 5% ROCE £ % £ % £ % Staff costs 251 45.6% 251 50.9% 251 55.7% Repairs and Maintenance 34 6.2% 34 6.9% 34 7.5% Other (home) non-staff costs 95 17.3% 95 19.3% 95 21.1% Capital costs (12% return) 170 30.9% 113 23.0% 71 15.7% Ceiling fair market price 550 100.0% 493 100.0% 451 100.0% No of beds 50 50 50 REDUCTION IN PRICE PER BED 0 0% -57 -10.3% -99 -18.0% PER WEEK Source: 'Bridging the gap', BUPA Note: Data refers to provincial LA's not London as this methodology is lifted from Laing & Buisson and the data adjusted for inflation.

9. Nurturing foundational activity: (1) reward what is already being donelocally • By local experimenters already doing foundational as in Wales:Monmouthshire and Bethesda in home care; Blaenau Gwent for housing association collaboration on grounded firms; Ffestiniog for sustainable rural community; Swansea High St for regeneration, Cardiff for social housing, community benefits in public procurement contracts and living wage commitments • By regional strategists and local development specialists as in Barcelona: where Barcelona Activa is reworking what local development means, so that it includes social infrastructure, natural resource management and citizen engagement (engagement not consultation)

10. Nurturing foundational activity:(2) recognise and extend the limits of local experiment • Welsh local experiments now reinforced by a more enlightened Welsh Government: a new Deputy Minister for Foundational Economy (Lee Waters) has allocated more than £3 million for FE pilots that can be scaled up and out (because good practice has been a bad traveller) • But on past form, local experiments are not enough: because they tend to remain localised and because good practice does not travel of itself • Challenge for Wales: do more to discover how and why good practice does not travel as an issue for research + policy intervention

11. Nurturing foundational activity:(3) focus on quick wins which are politically essential • Recognise public interest and political support will be withdrawn unless there are quick wins; Mark Drakeford is very supportive of the FE, but says it needs to deliver some quick wins • Hence focus on activities which deliver on the demand side where the state has leverage (Eg adult home care which is governed by local authority commissioning/public procurement of food for schools + hospitals etc) • And focus on other anchor institutions Why is there only 1 university in Wales that is currently an accredited Living Wage employer?

12. A new political agenda?(1) its about wellbeingand new metrics • The foundational economy requires a new set of metrics instead of just per capita GDP - income measures which do not capture the well being of households in specific places • The key metric of foundational liveability is residual household income(net of housing and transport costs) • Low GVA per capita places can be liveable for many households if housing is relatively cheap (see the Morriston study)

13. A new political agenda?(2) its about citizen engagement and real partnerships • The building of the foundational economy 1870-1960 was top down (engineer designed and state led); from gas and water to NHS hospitals and council housing • 2020s challenges require citizen engagement and deliberation eg in adult care on balance between bio-medical needs and social needs • And a listening/enabling/porous state that is engaging in local experiments – a state that is on tap not on top (not easy in Wales because we have been a very state-centric nation in the past)

14. Despite constraints: we have opportunities • Are we heavily constrained by external limits in Wales? • Yes, in lots of ways and Brexit will create stronger headwinds because the economic impact will be bad or very bad • But not so much that we can’t be innovative and find a space in which to do more to nurture foundational activity • If not now, when + how else: the conditions of household and community wellbeing require radically new cognitive models of place-based development in our cities and regions

15. Implications for Cardiff: we have opportunities • Are we heavily constrained by external limits in Cardiff? • Yes, in some ways; our capital city has suffered terrible cuts over the past decade and does not get the funding deal it needs and deserves; • Problem: Cardiff has been doing very good FE work (eg socially responsible procurement, social housing, living wage, ethical labour standards etc), but poor at branding and communicating it • Solution: Cardiff and CCR need to engage more fully with the emerging FE agenda (and this is beginning to happen at city and city-region scale)

16. Cognitive shift: a positive sum game • William Blake’s “mind forg’d manacles” = cognitive conservatism = why we tend to frame the future in terms of the past • A foundational perspective signals a cognitive shift by focusing on things that are intrinsically significant in terms of human need • A foundational perspective signals a positive sum game because all places have FE sectors (as opposed to the zero sum game of FDI) • A foundational perspective signals a new commitment to social + spatial solidarity, stressing common citizenship and civil repair