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Platforms and blockchain could see local economies scale

All kinds of economic innovation are underway in many towns and smaller cities that are often overlooked. So far this wave of citizen-centric regeneration is localised, but successful models are emerging and pioneers are exploring ways of harnessing technology to leverage and extend them. Annie Turner reports.

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Be your own Google: Platforms and blockchain could see local economies scale

Necessity is the mother of invention: years of austerity have forced many towns and cities to revisit how they do things. The post-industrial city of Preston in north-west England has taken a radical approach that is being held up as an exemplar across the political spectrum.

The city has been in decline for decades but hit rock bottom in 2011 when investors pulled out of the Tithe Barn development – a £700-million shopping centre that was supposed to turn Preston’s fortunes around.


The Preston Model is largely credited to Preston Councillor Matthew Brown who took his inspiration from Cleveland, Ohio, looking to spend money as much as possible in the local economy and to simulate grass-roots growth by investing in co-ops. The really big changes came through Brown working with Manchester-based Centre for Local Economic Strategies (CLES) to understand how to harness public services to achieve this.


CLES’s research showed that for every pound spent with a small or medium-sized firm, 63p is spent again locally. That drops to 40p in every pound given to a large or multinational company.


Spend local


Preston Council persuaded six local providers of public services to adopt a policy of spending locally wherever possible, which might sound an obvious step. Actually, as Frances Northrop, Principal Director, Communities & Localities with The New Economics Foundation, explains, “Many people within local authorities are frustrated by the procurement system [that is wedded to big business] but they are locked into a system whereby they have contracts for care homes, for example, lasting 25 years. These are archaic practices that are not flexible or agile. It’s inspiring how Preston looked at that and decided to change it because it was in their power and they had the leadership to do it.”


One example is that in 2015, Lancashire County Council broke the tender to provide school meals into nine components. Local suppliers buying from Lancashire farmers won every contract, boosting the county’s economy by about £2 million.


The county’s pension fund is being used to finance the building of student accommodation and refurbish a hotel. Two new worker co-ops are in the offing, one for IT, the other for food. Brown is also keen to establish a local bank for Lancashire “so that our money doesn’t end up being sucked down to London”.


In 2013, the six local public bodies spent £38 million of their budgets in Preston and £292 million across Lancashire. By 2017 those totals rose to £111 million and £486 million respectively, at a time when their collective budgets were slashed from £750 million to £616 million.


The power of the platform


This is encouraging, but is it too small scale and inward looking? Frances Northrop says, “The word local is a bit maligned – it’s not about having the best for me where I live, but about doing something in a way that could work for people everywhere”.


She continues, “Local communities and economies are ecosystems and they work well together because people understand what the needs are. Preston took the decision to invest in that ecosystem and things start to flourish… It’s about people’s needs, not what big business wants to provide. You need solutions that allow people to get involved.


“The other thing [Preston did] is the approach around cooperatives based on the democratic, collaborative work, like in Cleveland, to fill in the gaps. They are a fundamentally different way of doing business.”

As Brown himself notes, “Businesses are both the problem and the solution”. One of the most interesting possibilities to scale and spread localised economic innovation is through platform-based business models.

As Ed Mayo, Secretary General of Co-operatives UK, observed in a statement, “We are seeing more and more sectors of the economy disrupted by online platforms, from Deliveroo to Uber. They are revolutionising so many aspects of our workplaces and lives. But what is not changing are the patterns of ownership, where a relatively small number benefit from the success of the platform.

This is why his organisation has just launched UnFound – a pilot scheme for its platform-based business accelerator programme. Mayo added, "Imagine…if the platforms we used every day were owned by the workers and the users themselves. UnFound is a great opportunity to kickstart platform co-operatives with some extremely valuable support."

According to Co-operatives UK, member-owned co-operative businesses contribute £36 billion annually to the British economy.

Be your own Google

Blockchain-based platform-provider DigitalTown has similar ambitions, although on a global scale and with a somewhat different approach, offering a single platform that any town or city can join. Its mission is “about strengthening local economic sovereignty”, according to CEO Rob Monster. Users get the economies and efficiencies of scale. Larger cities that are up and running include London in the UK, Miami and Austin in the US, Brazil’s Rio de Janeiro. Surat In India, has just licensed the platform.

Monster says, “With DigitalTown, any city can be its own Google, Open Table, Airbnb, Experian and PayPal. The platform empowers individuals by providing local information about where to go, what to do, what to eat, where to stay and how to pay. It’s the world through a local lens. We abstract local information to help the community in which you live by improving its economic prospects.


“People can build ongoing, digitally-enabled contact with a restaurant down the street instead of ordering via a third-party app. These patterns – our relationships – with local businesses are being eroded by organisations that in many cases don’t pay taxes or invest in the community”.


He insists, “Capitalism is not completely broken, just the ‘winner-takes-all’ variety” that concentrates money and power in very few hands and adds, “It’s not right that a nascent business is charged 20% to borrow money, when people in the same community are earning half a per cent, if that, on their savings.”


Localising money


This and wanting to keep money local is why Preston’s Brown is keen to open a bank. It is not a new idea – there were more than 100 provincial banks in England by 1784.

David Birch, author, advisor and commentator on digital financial services, says, “There is an economic argument, which is growing, that says that we must have more localisation in the money itself and communities need more control over their own monetary policy. Conditions of somewhere like Preston and London are utterly different. For instance, interest rate policy is set to some extent for London…maybe London needs a higher interest rate to damp down inflation, but you need lower interest rates to borrow money in Preston to get things going there. New cryptocurrency technology like Bitcoin at least helps us think in that direction.”

“There’s different gradations: you can issue your own debt, which is what the City of Berkeley in California plans to do, create your own bank or issue your own money," Birch adds.

 

Watch this space


The city has a long history of social innovation and wants to use blockchain-based, smart-contract technology for city investments to cut the high costs and legislative difficulties associated with issuing municipal bonds and help raise money for public projects. Proponents say it would bring a new level of security and transparency to public services. If it is a success, its example is likely to be copied widely.


In terms of thinking, models and technology there is a lot of activity that could have a profound impact, giving cities far greater reach, as well as more control and power over their economies. It feels like we are close to a tipping point, and a defining characteristic of digital is that moves very fast.

 

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