Economic prosperity, the foundational economy, and social and community enterprise

Cwmpas recently responded to the Senedd Economy, Trade and Rural Affairs Committee inquiry on the Foundational Economy. Our response highlighted the need to support the development of social enterprise, co-operative and democratic business models within the foundational economy to create inclusive, sustainable prosperity in Wales.

This blog from our Policy and Engagement Officer Dr Daniel Roberts explores our key considerations and priorities.

Wales’ persistently under-performing economy means we see regular discussion of different approaches that could be taken to transform it – whether it’s plans to kick-start economic growth, a shift to a wellbeing economy, or a focus on the foundational economy. This blog explores how these ideas could fit together and the key role co-operative, community-owned and co-operative models can play in joining them up.

The new UK Government is very much focused on economic growth – the first of their five missions to rebuild Britain is “secure the highest sustained growth in the G7 – with good jobs and productivity growth in every part of the country making everyone, not just a few, better off.”

Similarly, new First Minister Eluned Morgan identified ”green jobs and growth – creating green jobs that tackle the climate crisis and restore nature, while making families better off; accelerating planning decisions to grow the Welsh economy” as one of the key areas of priority for her government.

At the same time, the Senedd Economy, Trade and Rural Affairs Committee has been conducting an inquiry on the foundational economy. The Welsh Government has led the way on taking up this policy area, and the inquiry sought to explore how this has been implemented and the impact it has had.

One point to consider is what foundational economy policy can look like in the new political era, where growth has returned to the top of the agenda in Wales. The nature of the foundational economy means it is considered to have less immediate growth potential than other sectors – so will it get less attention as a result?

At Cwmpas, we don’t think it should. While foundational economy sectors may offer fewer chances for high-growth potential businesses or significant job creation in the short-term, Wales needs a fundamental rebalancing of is economy to achieve sustainable prosperity, and supporting communities and businesses within the foundational economy will be essential to this. This does not need to come at the expense of economic growth – rather, it is putting the foundations in place to achieve prosperity in the long-run.

This comes in the form of re-balancing the economy so economic power and decision-making are retained locally, creating a more inclusive, regenerative rather than extractive economy, and increasing productivity across the economy rather than relying on certain sectors.

It is very possible to grow the economy without ticking these boxes, which would mean we don’t solve the problems we need to – like unequal development across Wales, persistent poverty, and the devastating loss of jobs because of decisions made elsewhere.

Strengthening the foundational economy will be essential to fostering inclusive growth that benefits everyone in Wales, re-balances local economies and builds community wealth.  The best way to re-balance our economy, and local economies, is to grow the number of co-operative, community-owned and social enterprise businesses. This is why:

Sustainable prosperity

A focus on the foundational economy will support the development of Welsh businesses in crucial sectors. Creating a strong supply chain of Welsh businesses in these sectors will create a more robust, resilient economy that retains wealth locally when times are good, and local ownership means they are less likely to be shut down during challenging periods.

The development of co-operative, community-owned and social enterprise models in this space should be the gold standard for this. Democratic ownership and social business models are proven to be vital assets in community wealth building, anchoring organisations in their communities, prioritising well-being and social value over private wealth generation and even increasing resilience.

Inclusive growth

Taking a foundational economy approach will be key to developing a place-based approach to economic development, ensuring prosperity is felt in all parts of the country. Sector-specific approaches to economic development often focus on clusters and agglomeration, favouring some parts of the country over others. Strengthening the foundational economy means all places can benefit.

Social business models are proven to create even more value for workers and communities. Social Enterprise UK recently published, in partnership with the Living Wage Foundation, a report that delves into the quality of employment created by social enterprises compared to the wider business community. 84% of social enterprises report paying the real Living Wage – that’s 8 in 10 social enterprises compared to an estimated 1 in 9 employers across the wider economy.

Our research has found that 22% of employers who had taken on new employees in the last 12 months reported that these included individuals who were unemployed immediately before taking up the post. This reinforces the sector’s role in providing employment opportunities for individuals who are further away from the labour market. Furthermore, the data suggests that social businesses are good local employers, with 78 percent of businesses’ workforce living within 10 miles of their workplace.

Productivity

The productivity question has been at the heart of the debate on improving Wales and the whole UK’s economic performance in the past two decades. The foundational economy takes up a significant part of the economy in Wales – in some communities, it is the whole economy. We need an approach to increasing productivity that includes everyone and all places, not relying on specific sectors to cover the gaps. Small increases in productivity across the whole foundational economy can have a big impact when taken together – for example, through improving the use of digital technology. Our report on digital exclusion among Welsh SMEs highlighted the need for greater support to adopt digital technology and the benefits this could have for productivity.

Developing employee-ownership of businesses is another proven way of increasing productivity in an economy. The Harvard Business Review writes that, according to numerous academic studies, companies where at least 30% of the shares are owned by a broad-based group of employees, where all employees have access to ownership, and where the concentration of ownership is limited are more productive, grow faster, and are less likely to go out of business than their counterparts.

What should the next steps be?

Our conclusion is that a foundational economy approach is more necessary than ever to create the conditions where sustainable, inclusive prosperity is possible. A key part of doing this will be re-balancing the Welsh economy and local economies within it, and the best way of doing this is increasing the size of the co-operatives, social enterprises and community-owned businesses. It’s time these models were put at the heart of our economic strategy.

Through proactively nurturing communities and supply chains to develop the capacity to start and grow co-operative and community-owned businesses, embedding rights to community ownership in legislation and other innovative ways of developing the co-operative economy in Wales, we can strengthen the foundational economy and support communities to create the conditions for sustainable prosperity.

Cwmpas is Wales’ economic development agency working to create positive change in our communities, and would welcome the opportunity to work with you to achieve this ambition. You can read our full response to the Senedd’s inquiry here.