Pounds, passports, procurement, protectionism?
Right now I’m tracking the position of about 500 buses in Birmingham, Wolverhampton, and Coventry. It’s part of a project to report journey times during rush hours so that fewer people are late to appointments, work, and picking up kids from school. It will also help to make the business case for investment in bus lanes, road improvements, and trams.
Other places would benefit from the system that we’re building and thanks to the UK’s single market I can sell it to them.
Good? Some people don’t seem to think so.
The Preston model
A key part of the Preston model for generating inclusive local economic growth is to encourage local procurement. The model has many fans, and in meetings and events that I go to there is always overwhelming and cross-party support for the “buying local” and “creating jobs for the local community” that it promotes.
I am less positive.
Since I am not local, I would be less likely to win a contract in Preston to improve buses, even if I was the best person for the job. That’s not good for me. It’s not good for the people of Preston either; they’d get no bus tracking or a more expensive system.
Another tool for encouraging inclusive local economic growth is the local currency.
Brixton has a Pound. Bristol has a Pound. Birmingham, where I live, is setting up a Pound.
“A Local Pound for a Local Birmingham” the strapline says on the website.
The motivations for having a currency are diverse, but the local element — some argument about encouraging local wealth to keep circulating locally — is probably the most common. It is also wildly popular in meetings and events. Instead of buying your lunch from Sainsbury’s, magazine from WH Smith, and shoes from Clark’s you could buy your lunch from the local café, whose owner shops at the same local newsagent as you, while wearing shoes from the local shoe shop whose owner you often meet in the café.
It sounds great right*? To many people it does, and I understand why.
What’s less clear is how a local currency helps achieves this. You can shop locally using British Pounds. It’s when you start looking into why a local currency helps that things start looking less pleasant than they seem.
Let’s look at The Bristol Pound, the most successful of the UK’s local currencies. It’s accepted in hundreds of shops and businesses in Bristol, you can buy your lunch with it, get paid, pay local taxes, pay for gas and electric, get money out of cash machines, have your roof fixed, or have your house painted. You can use the Bristol Pound app to make electronic payments in to and out of your Bristol Pound bank account, and it’s all backed by British Pounds held at Bristol Credit Union.
So what if someone in Bristol wanted to buy a bus tracking system like mine, and offered payment in Bristol Pounds?
If I lived in Bristol, no problem. I’d already have a Bristol Pound account and lots of bills that I could pay and places that I could spend the Bristol Pounds that I would earn.
But I don’t live in Bristol, so I’d have to add the cost of opening such an account to my bid. Well, I would if I could open one.
Since I’m not committed to supporting the values of the Bristol Pound, and I’m not based in Bristol, I don’t meet the conditions. Opening an account is the only official way to convert Bristol Pounds back to British Pounds that I can spend where I live, and yet I can’t, and nor can any large non-Bristol business.
This feels like the same “buy local” problem as I described earlier. As an outsider, a non-Bristolian, I am treated as a second-class supplier. “Buy local” feels good, but the advertising never mentions the “exclude outsiders” bit that’s an inevitable consequence.
Let’s look at local currencies from a different angle.
Local currencies and cakes
What happens when a small independent Bristol business that accepts the Bristol Pound succeeds and grows? Boston Tea Party is one such company. It accepts the Bristol Pound, and if I had some Bristol Pounds and I was in Bristol, I might well go there ahead of another café. It has expanded beyond Bristol, and now has 21 cafés, including at least three in Birmingham.
It’s a really great business. But by the logic of The Bristol Pound, whenever I spend money there it leaves Birmingham’s economy and goes to Bristol.
Should we in Birmingham put up with that? Or should we create our own Birmingham Pound so we can prefer our own businesses even if they’re slightly worse?
Unsurprisingly, I think not. I like British Pounds that I can spend wherever I like in Britain and easily change for other currencies when I go abroad.
So far, so “neoliberal”, or “centrist”, or whatever the current insult is. I’ve just put some examples on top of Paul Swinney’s good blogpost on the same topic.
But this is not the end.
Thinking about local protectionism as we do international protectionism
Local procurement and local currencies are protectionism and I think that protectionism is usually bad. But even Adam Smith knew that protectionism isn’t always bad.
Just last week we had an excellent example of what he meant when the EU’s threat of retaliatory tariffs against the USA forced President Trump to grant an exemption to his steel and aluminium tariffs for the EU.
There are other good reasons for protectionism. The WTO maintains a list of additional arguments for protectionism (Table 1) giving four that I think are relevant here.
- As negotiating power to achieve greater freedom.
- To protect local sovereignty.
- To protect an infant industry.
- To respond to subsidies from another government (anti-dumping).
If the UK single market was a level playing field, I would not support local protectionism. But it is not. Within the most centralised G7 country, it is inevitable that the single market also favours national players and those close to national government, over local ones.
I regularly see that worse companies win contracts not because they offer the best value but because they have achieved an advantage through interactions with government that were not available to competitors. This is usually through either direct subsidy or regulatory capture.
We know that the UK government via arms-lengths bodies like research councils, innovate UK, and Nesta invest R&D money with preference to South-East England. We also know that the majority of senior civil servants live in South-East England, that the majority of impartial bodies and commissions are staffed and led by people who live in South-East England, and that the majority of state-funded media is in South-East England.
We see it also in the UK’s national mechanisms for appraisal of transport investment, the rules governing the creation and acceptance of local plans for housing, national restrictions on local borrowing and taxation, deregulation of transport, imposition of voting systems on local government, and the nationalisation of schooling and higher education funding.
Many of the examples that I experience of national government and national government rules that undermine local government and local services in the UK would pass the tests used to justify use protectionism internationally. They could and should pass tests locally too.
I’ve spoken to many “buy local” advocates and my most encouraging conversations are when they explain that their mantra is just shorthand for “buy outside of a system that is biased against us and within a fairer one that we control, and you’ll often find that the new best bidder is local”. It’s not as likely to catch on but I think that it is a more useful way to think about the issue; protectionism in pursuit of freedom.
* until the café is closed when you’re hungry, the newsagent doesn’t stock the magazine you want, and shoes cost more than you can afford. But that’s another debate.