Procurement is moving up the agenda. In Wales, First Minister Mark Drakeford has advocated reforming procurement and procurement has been suggested as a way to bolster the foundational economy by Deputy Minister Lee Waters. The ‘Preston model’ has frequently been cited as an example of using public procurement for social good. But what is the Preston model? Is there evidence to support it? And how would it work for Wales?
What is the Preston model?
The Preston Model is based on ‘community wealth building’, an idea developed by US think tank The Democracy Collaborative. Community wealth building is the idea that ‘retaining more civic wealth within a locality can boost that particular area’s growth and economic resilience by improving local multiplier effects’.
The most controversial aspect of the Preston model is its advocacy of ‘increasing local economic and social benefits’ through local procurement strategies. This is sometimes misunderstood as direct preference for local suppliers, but this is inaccurate. Instead, ‘anchor institutions’ such as local authorities, schools and emergency services are encouraged to collaborate with the local authority in using a range of procurement strategies that maximise local return. These strategies can include breaking up large contracts or adding social value clauses to contracts. While local businesses are not favoured, they may be better-placed to meet these requirements.
Despite extensive media focus, it should be noted that local procurement is only one factor in Preston City Council’s model of community wealth building. Other aims include promoting the Real Living Wage for local workers and encouraging and facilitating the use of co-operative or participatory ownership models, a form of ‘economic democracy’.
Is there evidence to support it?
There is little evidence on the impact of community wealth building or, more narrowly, local procurement practices in the UK. This is unsurprising, as these are both relatively new approaches. Nonetheless, there are indications that the Preston model may have had favourable outcomes. In 2016/17, anchor institutions (excluding UCLan) spent £74 million more on procurement within the Preston area (an increase in locally retained spend from 5% to 18.2%) and £200 million more in Lancashire (from 39% to 79.2% locally retained spend) compared to 2012/13. Four thousand additional employees now earn the Real Living Wage, and unemployment has reduced: from 6.5% in 2013 to 3.1% in 2017. A separate report argues that productivity and median income have gone up and deprivation has decreased.
Not all of this improvement will be attributable to the Preston model. Economic conditions generally improved over this time period, although on some measures Preston has outperformed its region and/or the wider economy. It is undeniable that the Preston model has played a major role in increasing procurement spend, although the effect is less clear for other indicators. Whether one wishes to attribute these improvements entirely to the Preston model, at the very least these outcomes suggest that local areas can prioritise social value and community wealth building without sacrificing economic performance.
In the absence of conclusive empirical evidence, we might turn to consider what theoretical perspectives tell us about these strategies. Advocates of the Preston model argue that export- and investment-led growth has failed to provide for all communities; critics of the Preston Model, by contrast, argue that this paradigm still holds and is the surest route to economic prosperity. These arguments are important, because they speak to wider questions of economic strategy — a question of particular relevance to Wales.
First, the critics. Much criticism focuses on the idea of local procurement, which some claim amounts to a zero-sum game with no overall gains or losses, and is a form of economic protectionism. This is because local preferences in procurement mean that non-local firms miss out on contracts: any economic benefit that accrues to Preston will be lost to another area. Furthermore, local procurement might mean that outside firms choose not to compete for local contracts, pushing up prices and decreasing value due to reduced competition. Protectionist strategies limit the growth potential of local firms, who will face barriers in exporting their product. The best way to bring about prosperity, critics argue, is instead to bring money in to local economies through investment (particularly high-skilled investment and innovation), and through businesses exporting their products to other markets. The catch-up effect this engenders can be a powerful capacity boost in the long run. Free trade leads to economic growth, ultimately leaving people better off.
Proponents of the Preston model argue that the investment-led model is a ‘trickle-down’ approach that ‘does not work at scale’. There simply are not enough high-skilled, exporting businesses for each city and region to attract them. As not every city can be a net exporter, even if they did attract investment, some areas will always lose out. The ‘trickle-down’ of wealth is further limited by the globalisation of investment and investors, who do not tend to circulate their gains within local economies. Some research suggests that, while unrestricted trade enhances wealth in the aggregate, it also creates large disparities and many areas lose out.
Rather than chase economic growth in the aggregate, community wealth building tries to foster reliable outcomes across the economic, social and environmental spheres. The aim is to encourage self-generation of wealth for social purposes, creating a resilient economic base that can ensure a good standard of living for local residents. Indeed, if a local supplier brings more social and environmental benefits for the same work, then a Preston model approach could be more efficient at generating value.
How would it work for Wales?
The debate about the Preston Model involves questions about how local economies should look to develop, and what weight we should put on traditional models of investment and growth. This involves unavoidably political questions: what does a successful economy look like, and how can we best help struggling areas?
The Welsh Government has recently emphasised developing the foundational economy, the part of the economy that meets the needs of local citizens and is found wherever people are. The need to increase economic resilience and build local capacity, particularly in those parts of Wales that are still struggling with structural economic weaknesses, could lead the Welsh Government to consider a version of the Preston model as part of this process. Provisions in the Social Partnership Bill relating to public procurement could also encourage local communities to adopt community wealth building.
While the evidence suggests that community wealth building may work, however, care will need to be taken if it is to be implemented successfully. As Helen Cunningham has recently argued, seeing local economic development (including community wealth building) through local procurement alone can lead to unrealistic expectations and ignore other forms of good practice.
There is, finally, a broader argument to be made about the goal of the Preston model. Community wealth building is designed to be community-led, and responsive to the needs and wishes of local communities. No one-size-fits-all solution, such as national legislation or policy, will meet the needs of all local areas. The real potential of community wealth building lies in its potential to restore a sense of economic agency to local communities, particularly those which have lost out from globalisation and deindustrialisation. This can only be achieved with the active leadership and participation of local people and institutions.
Image credit: Democracy Collaborative