Localism as Answer to Economic Crisis

[Phillip Blond is a senior lecturer in theology and philosophy at the University of Cumbria, a friend of ours who I met at Rimini this year. He has an article up currently at Il Sussidiario.Net. The following was published in The Guardian on September 19th, "What would the Tories do? Without quite realising it, Conservatives have already embraced localism, part of the answer to the current economic crisis":

It is now clear that the present financial crisis is second only to the great crash of 1929. Then the consequences of the financial meltdown were hugely compounded by a wider political failure to grasp the nature of what was unfolding. In the British context, that situation looks like repeating itself. All the main political parties appear lost in the macro-economic storm, not least because all of the leading politicians have been thoroughly schooled in obeisance to the free market. After all, this was never supposed to happen – free from the burden of intervention and regulation, banks were thought to be ever more finely attuned to risk and its resultant entrepreneurial reward. Unfortunately for them and us this ideology has now imploded in spectacular fashion – and what makes it all the more galling is that the state, the supposed enemy of the market, is the one that is bailing out finance capital. Where through a version of socialism for the rich, losses are nationalised and the already wealthy keep their payoffs and past profits.

However, the Conservatives without quite realising it have already embraced part of the answer to the current economic crisis – localism. The economic disaster now engulfing us is a direct result of financial globalisation and the resultant monopoly and speculation that this has encouraged. For instance the "free market" allowed a monopoly accrual of debt (which is what Fannie Mae and Freddie Mac achieved in the US) and the speculative reclassification of this debt as an asset. Securitising this debt across the globe as a stable income stream allowed the huge augmentation of credit and the initiation and expansion of the asset price bubble. However this process undermined the very assets on which the original debts were written – since other debts subsequently made to the both the prime and subprime market were written not on ability to pay but on the now speculatively enhanced asset price itself. This system fed on itself until someone somewhere became unable to pay, as happened in the subprime crisis where, because of the hidden penal interest rates levied on the poor, the whole system unraveled.

The current Conservative emphasis on decentralisation and the development of local societies offers a real though unexplored alternative to much of the foregoing. If localism is to flourish it needs a corresponding political economy, so far the Tories have defined this in terms of disaggregating to communities state funds and public grants. Yet there is another source of disempowering monopoly: the market. Corporate capital has outcompeted local small businesses so that our towns and cities have become clones of each other with the same chain stores, restaurants and retail outlets. All of this sucks money out of the regional economy, with only 50 pence of every pound spent in corporate outlets returning to the locality – as against £2 returning to the area for every pound spent in a local business.

If we were able to generate a local economy, then why not decentralise finance as well, and create, as David Cameron has already intimated, local cooperatives and indeed guilds around which people could invest? Then, we could reinvent capital as also local and not just global. Moreover, a local onshore economy can genuinely be better regulated and it is far more likely to engage in real as opposed to purely speculative investment. Conservatives should not accept that their "society of ownership" could be undermined by monopoly speculation at the global level. Instead, decentred local systems of finance (through public private partnerships, enhanced credit unions or indeed building societies) could secure the poor in their housing without securitising their debt, or indeed subjecting them to hidden usurious rates of interest.

What's more, local economies that developed regional and city based sources of credit (what I have elsewhere called patriotic capital) would be far less exposed to international financial crises, while being able to develop regional export expertise to diversify our economy, as silicon valley as done in the US, or as Germany has done with advanced manufacturing, or Italy with its luxury goods sector. The conservative idea for a reinvention of guilds and conservative cooperatives is then uniquely prescient – since this would generate income that remained within the locality. Moreover, we could construct tax or trading incentives where finance that remained local had home ground advantage.

Of course, this is only part of the answer, and any such micro-approach requires re-envisaging the macro-economic environment. There all parties, including the Conservatives, have to rethink the entire economic paradigm; the offshore, off-balance sheet, tax-avoiding economy has successfully evaded all the half-hearted attempts at capital and leverage regulation. But it is always the onshore, tax-paying public that has to meet the bills.

There is really only one alternative, under the auspices of a new international settlement: disaggregate the global network back to the countries and nations that generate the wealth and end up paying the bill. After all, that is just Conservative emphasis on localism applied at the global level.